in this issue - caa ahmcaa-ahm.org/pdf/journal/journal-26.pdf · 2017-08-04 · ca. rajni m. shah...

Ahmedabad Chartered Accountants Journal May, 2013 61

Journal CommitteeCA. Rajni M. Shah CA. Ashok C. Kataria

Chairman ConvenorMembers

CA. Bharat C. Mehta CA. Hemant N. Shah CA. Jayesh C. SharedalalCA. Shailesh C. Shah CA. Yogi K. Upadhyaya

CA. Prakash B. Sheth [President (Ex-Officio)] CA. Chintan M. Doshi [Hon. Secretary (Ex-Officio)]

Volume : 37 Part : 02 May, 2013

Ahmedabad Chartered Accountants Journal

In this issue

E-mail : [email protected] Website : www.caa-ahm.org

Content s Author ' s Name Page No.Editor's Views CA. Rajni M. Shah 63President's Message CA. Prakash B. Sheth 65Ar t ic les :Determination of Fair Market Value of Unquoted CA. Niren M. NagriShares u/s. 56(2)(viib) of the Income Tax Act, 1961 66Service Tax - Negative List CA. Kunal A. Shah & 71

CA. Jainee R. ShahSignificant differences between the Finance Bill, 2013 Manthan Khokhani 76and the Finance Act, 2013.Issues related to processing at Centralized CA. Harshit Sheth 78Processing CentreColu mns:Procedures - Service Tax Registration Process CA. Yogi K. Upadhyaya 80for New AssesseeGlimpses of Supreme Court Rulings Advocate Samir N. Divatia 84From the Courts CA. C. R. Sharedalal & 86

CA. J. C. SharedalalTribunal News CA. Yogesh G. Shah & 88

CA. Aparna ParelkarUnreported Judgements CA. Sanjay R. Shah 93International Taxation CA. Dhinal A. Shah & 95

CA. Nehal H. ShethControversies CA. Kaushik D. Shah 97

S t a tu te U p d a te(a) Service Tax Judgements CA. Ashwin H. Shah 101(b) Fema Update CA. Savan A. Godiawala 103(c) Value Added Tax CA. Bihari B. Shah 105(d) Corporate Laws Update CA. Chirag M. Shah 107(e) Circulars & Notifications CA. Kunal A. Shah 109

From Published Accounts CA. Pamil H. Shah 110News Lounge CA. Arpit Shah 111More Unknown Than Known CA. Atul R. Shah 113New Delhi Times CA. Uday I. Shah 114Section 66A of the Information Technology Act Aditya Gupta 116Use of Email: Tips, Tricks and Tracks CA. Bhupendra M. Shah 118Association News CA. Chintan M. Doshi & 120

CA. Abhishek J. JainOn the Website of CAA 115

mailto:[email protected]

http://www.caa-ahm.org

Ahmedabad Chartered Accountants Journal May, 201362

AttentionMembers / Subscribers / Authors / Contributors

1. Journals are carefully posted. If not received, you are requested to write to the Association's Office withinone month. A copy of the Journal would be sent, if extra copies are available.

2. You are requested to intimate change of address to the Association's Office.

3. Subscription for the Financial Year 2013-14 is ` 400/-. Single Copy (if available) ` 40/-.

4. Please mention your membership number / journal subscription number in all your correspondence.

5. While sending Articles for this Journal, please confirm that the same are not published / not even meantfor publishing elsewhere. No correspondence will be made in respect of Articles not accepted forpublication, nor will they be sent back.

6. The opinions, views, statements, results published in this Journal are of the respective authors / contributorsand Chartered Accountants Association, Ahmedabad is neither responsible for the same nor does itnecessarily concur with the authors / contributors.

7. Membership Fees (For ICAI Members)

Life Membership ` 7500/-

Entrance Fees ` 500/-

Ordinary Membership Fees for the year 2013-14 ` 600/- / ` 750/-

Financial Year : April to March

Published ByCA. Rajni M. Shah,on behalf of Chartered Accountants Association, Ahmedabad, 1st Floor, C. U. Shah Chambers, Near GujaratVidhyapith, Ashram Road, Ahmedabad - 380 014.Phone : 91 79 27544232Fax : 91 79 27545442

No part of this Publication shall be reproduced or transmitted in any form or by any means without thepermission in writing from the Chartered Accountants Association, Ahmedabad.

While every effort has been made to ensure accuracy of information contained in this Journal, the Publisheris not responsible for any error that may have arisen.

Professional AwardsThe best articles published in this Journal in the categories of 'Direct Taxes', 'Company Law and Auditing' and'Allied Laws and Others' will be awarded the Trophies/ Certificates of Appreciation after being vetted byexperts in the profession.

Articles and reading literatures are invited from members as well as from other professional colleagues.

Printed : Pratiksha PrinterM-2 Hasubhai Chambers, Near Town Hall, Ellisbridge, Ahmedabad - 380 006.

Mobile : 98252 62512 E-mail : [email protected]



Diwan-e-Aam Vs. Diwan-e-KhaasSince 1950, India has been a democratic Republic and barring a short 19 month period of emergency in the 1970s, thedemocracy has been efficaciously functioning without major disturbances. But of late many events have led people tofeel concerned about the fundamental premises of democracy.

People witnessed scandal after scandal of humongous proportion and more shockingly initial attempts to cover themup, then to brazen it out and then, in the final gambit, to insulate the highest authorities from any responsibility. Theirair of injured innocence has become irritating. All these scams have allegedly been committed by people in high places,yet most - if not all - of them are not only roaming free but are also showing no remorse.

Thinking in retrospect, I am amused (and disturbed) that so many relatively unheard words and phrases have penetratedin our vocabulary recently like Policy Paralysis, “Mango Man”, Cultural Terrorism, Nirbhaya, Banana Republic, CronyCapitalism, Coalgate and so on... While they are all “catchy” phrases, the “catch” is that none of them is positive forthe nation. Phrases such as Emerging India, Incredible India etc. have suddenly and shockingly become the gloriouspast of India. Today India stands on a dual stand where there is a “Diwan-e-Khaas” as well as “Diwan-e-Aam”.While we focus more on the former, it is the latter who are seen in large numbers at any protest gatherings. Because,this is the lot which is frustrated the most by the power and arrogance of those in authoritative positions.

Most of the people who hold a position of power, be it Government officials or politicians or sportsmen, display utterdisregard for others, and also for the law and procedures. It is like, the people of the world’s biggest democracy are atthe mercy of a few who are behaving exactly like the kings of yore. Arrogance and greed have become the birth rightof those in authority. What we see today in our professional lives also, is nothing but a sheer “Shakti Pradarshan” by theHigh handed to which the people get crushed under.

Today, this arrogance can be seen in whatever field you go, be it a mere “Cricketer” who threatens Police Officials totalk with the Chief Minister of the State before arresting him or a “Son-in-law” of an authoritative individual whorefuses to attend to a summons merely by saying that “He does not have time”.

Add to that, there is uncontrolled greed driving these people. And yet no one seems to be satisfied. Every day, evenmany succumb to the greed of these insensitive, indifferent, unresponsive, corrupt and arrogant evil doers. To add tothe woes of the people, these black sheep are immunized by their top authorities who in turn shelter and nurture them.

Even in our professional lives we encounter such problems day in and day out where by an Income Tax Official declinesto grant an adjournment to the tax payer by considering a legitimate reason to be a “casual one”, while his absencefrom his office at the stipulated time is considered to be a “Genuine” reason. These officers keep on reckoningmammoth tax additions in the assessee’s income, thereby creating huge tax liabilities on the tax payers in a very casualmanner without considering the merits of the cases. The exorbitant additions result in huge financial burden, wastageof time and cost to the assessee. Once these additions are made at the initial stage, it leads to opening of a Pandora’sBox since once the additions are made, the assessee continues to dance to its tunes in all subsequent years. Thisaffects the assessee’s life as well as business since he does not know when he will be delivered the justice. The acmeof their arrogance is evident from the fact that even those documents which have been given on record are refused tohave been received or he is required to “plead” before the authorities to get the documents inward in the Department.

Secondly, in India the Justice is delineated into extensive authorities as a result of which the assessee has to cross the“Kothas of Chakravyuh”. However from observation it has been noticed that as the assessee climbs up the ladder, theprobability of his being favored escalates. The simple reasoning behind the same is that as one goes up the scale, theauthorities’ minds become more liberal and broad. Even the statistics have proved the fact. This clearly spells out thewrong doings, arrogance and greed that is more amassed at the bottom.

Editor's Views


Editor's Views

The main reason why all these keep advancing, is there is no accountability for these powerful people as a result ofwhich their demand keeps booming leaps and bounds which if unsatisfied, results in prolonged resentment and annoyanceto the populace.

In this situation it is time for us, the common citizens, to seriously think about two issues. Why has such a situation cometo pass, and what can we do about improving the same? In my view the major reasons for this situation are two. Theincrease in selfishness of the normal citizen and our unwillingness to fight for what is right. Let it be elaborated. Evenpraying a film actor or a cricketer rather than GOD by AAM AADMI is an astonishing fact of our country.

Unfortunately nobody is doing or even thinking of ‘India First’... “Self-interest” has overtaken and overshadowed“national interest”... If we see something wrong - grossly wrong - happening in our vicinity, our first reaction is to keepaway. In Gujarati we will say, “Maaru Shu?” and if not then “Maare Shu”(“If I am not concerned, why shall I bother?”).The obvious question here is: Who is responsible for such a mess and anarchy? Politicians, planners, corporates, orcelebrities? The answer lies in the opening line of the Constitution of India – “We, the people of India”. This mightsound hard to swallow but the fact remains that “we” are equally responsible, if not more for the current sorry state ofaffairs. The “ignorance of enlightened is more dangerous than the ignorance of ignorant”. Everyone here, there andeverywhere acts as a “thinker”; no “doers” are seen anywhere!

This is an attitude that has installed confidence and arrogance in the wrongdoers. If five people stand firm and questionthe wrongdoer, his reaction may be surprisingly meek. It is a fact that a bully is always a coward. And people haveforgotten to stand firm even when they are right. Nothing can be worse than that. As responsible professionals, itbecomes our duty to do something to improve the situation which threatens to break our society.

This has to be an eye opener for one and all and necessary steps must be taken to reduce such “bogus” and flimsyactions by the authorities. However such issues are not taken up merely to nurture the arrogance of the meek. In mostof the cases, the argument which is put forward is that the “clients or the tax payers do wrong” which is not always thetruth. The commonality does not have the guts to fight against these wrong doings merely because this results invindication on the other side. Acting in a passive manner, we have indirectly accepted them to be the “Majesty”. Eventhe professional organizations have stopped from taking reasonable steps of making strong and suitable representation.Even professionals have started accepting their High Handedness.

Merely protesting does not help the cause, because the “Corrupt”, and “unscrupulous” people know that this is in facta “fly-by-night” kind of situation, the memory of which shall wither away soon from the minds of the “mango people”.This outrages by people every fortnight lead to nothing but an encouragement to the disreputable that this is mere“time pass hoopla”

It is not that everything is bleak. I can say with confidence that the honest and courageous people far outnumber thescamsters and the corrupt. The need of the hour is to send out a clear message to the latter: Thus far and no further.Even, it is not incorrect to say that, not all those in power are disrespectful or cheeky. There still remains a comfortingprospect. Still today there are people at prerogative positions who are “Happy to help”. People must, instead ofcentralizing on the “Breaking News”, apply their own intent on the matter and be their own judge. The high handedpeople are in fact a part of the same society as us and if we really desire to change the situation, courage must beginat home and we all must act sans corruption and arrogance.

This little long piece might sound cynical, but it is the truth, truth and the truth - nothing else. It seems, the country is onauto-pilot mode and everyone is enjoying the flight of their own fancies. I am not too sure, whether ‘We, the people ofIndia’ are conscious, sub-conscious or unconscious, but one thing is for sure - we as a nation are passing through a verydelicate and damaging time... Untill the “inaction” mode of millions of our intellectuals is converted into “in action”mode, let’s pray

“Sabko sanmati de bhagwan...”

CA. Rajni M. [email protected]

i i i



Dear Reader,

By the time you would be reading the May, 2013 issueof the Journal, vacations would be about to get over.Many of the members would have enjoyed the vacationwith their family and started with their professional work.

The month gone by has been full of action with IndianPremier League (IPL) in full swing. The tournament hasbeen in news and more so for all the wrong reasons.The sixth edition of IPL has been turned into “ImmoralPractice League” after the outbreak of betting and match-fixing allegations. The BCCI and the government needto reconsider the manner in which the tournament isbeing conducted. Time and again IPL has proved to bean easy entry point in the game of cricket for newaspirant players. The players get an opportunity to performat a big stage, despite lacking potentials. The corruptand dishonest players seize it as an opportunity to makequick money and taking the trust of one billion peoplefor a ride in a country where the game of cricket isregarded as religion. Each time the scandal like matchfixing is reported, the trust of a cricket lover is breachedby these corrupt players who do not deserve to play thegame of cricket, leave apart their aspiration to play forthe nation. I believe, it is high time that the standardsare set and all guilty players are punished or else thebetting and match fixing will flourish, as usual.

In 2010, the CBI in fact had taped conversations betweentop IPL officials and book makers on the rigging of thematches but nothing came out of the entire scandal.There are records with the Reserve Bank of India andenforcement directorate of money laundering, use ofMauritius route to invest in cricket teams and illegal fundtransfer to foreign companies. The international taxdepartment of income tax department sent notices tomany companies including to IMG. After the initial hueand cry, law enforcement agencies lost interest in thecase due to pressure from the higher ups. In 2010, theCBI and enforcement directorate had filed a case againstLalit Modi, Rajasthan Royals team owners, Punjab andKolkata Knight Riders teams. But till date not a singlecase has reached the trial stage.

The question to ask now is what happened to the casesfiled earlier in 2010? Were all the allegations wrong? Ifthe allegations were not right then why the lawenforcement agencies went on an overdrive to kill thereputation of film stars and of the team owners? Whetherthe events like IPL are conducted to promote such bettingactivities?

President's Message CA. Prakash B. [email protected]

Looking to the present scenario it looks that bettingshould be legalised. Banning it only pushes it underground,making it lucrative for criminal elements. That creates adangerous situation in which money can flow betweengambling, drugs and even terror, all of which theunderworld dabbles in. The current spot fixing exposeonly illustrates this point. Legalising gambling would notonly create an additional source of tax revenues for thegovernment, it would also minimise criminal involvement.

Activities at the Association have started. Response to firststudy circle was very good. You must have recognizedthe change in outlook and substance of the Journal ofApril’2013. Many phone calls & emails have been receivedfrom the members appreciating the change. Moreover avery good response has been received from the membersfor the soft copy of journal. I thank all the members forpromptly responding to this call the Association. I reckon,an article each from all past presidents would further addto the value of the Journal.

40th RRC of the Association to be held from 2nd August’13to 5th August ’13 at Golden Palms Hotel & Spa atBangalore has received a good response. Few seats areremaining, members who wish to register for RRC mayenroll at the earliest to avoid disappointment. I am surethat the delegates would enjoy both, the papers and thevenue.

As announced, 1st knowledge clinic was held on 24th Mayat the Association’s office. Various queries received fromthe members were resolved by respected past presidentsand panelists CA. Jayeshbhai Sharedalal and CA.Sanjaybhai R.Shah. I thank both of them for sparing theirvaluable time. Members may take benefit of this uniqueactivity of the Association with an objective to guidemembers. The Information Technology committee isworking on to update the Association’s infrastructure withonline payment software. I request all the members tokeep on checking the website of the Association for latestupdates on judgments, circulars, notifications and for allthe programs of the Association.

With best regards,CA. Prakash B. ShethPresident27.05.2013

i i i



1. Clause (viib) has been inserted after Clause (viia) insub-section(2) of Section 56 of the Income Tax Act,1961 (the Act) by the Finance Act, 2012 with effectfrom 1.4.2013 and will accordingly apply in relationto AY 2013-14 and subsequent assessment years.The provisions of this new Section 56(2)(viib) of theAct are briefly stated as under:-

[i] Recipient of the consideration is a company,not being a company in which the public aresubstantially interested as per Section 2(18) ofthe Act.

[ii] The company receives consideration for issueof shares (preference shares or equity shares).

[iii] The consideration received is from a residentperson.

[iv] The consideration received for issue of sharesexceeds the face value of such shares. In otherwords, shares are issued at a premium.

[v] If the above four conditions are satisfied, theaggregate consideration received for suchshares as exceeds the Fair Market Value of theshares shall be chargeable to income tax in thehands of recipient company, u/s 56(2)(viib) ofthe Act under the head “Income from OtherSources”.

[vi] The above provisions are not applicable in thefollowing two cases (Exceptions) :-

Determination of Fair Market Value of UnquotedShares u/s. 56(2)(viib) of the Income Tax Act, 1961 CA. Niren M. Nagri

[email protected]

a. where the consideration for issue of sharesis received by a venture capital undertakingfrom a venture capital company or aventure capital fund; or

b. where the consideration for issue of sharesis received by a company from a class orclasses of persons as notified by the CentralGovernment.

[vii] The Fair Market Value of the shares shall behigher of the value-

a. as may be determined in accordance withthe method as may be prescribed; or

b. as may be substantiated by the companyto the satisfaction of the Assessing Officer,based on the value of its assets, includingintangible assets, being goodwill, know-how, patents, copyrights, trademarks,licences, franchises or any other businessor commercial rights of similar nature.

2. The above provisions may be easily understood withthe help of the following illustrations.

ABC Private Limited is a company in which publicare not substantially interested. In May 2012, thecompany issued 1000 shares to Mr. A, 5000 sharesto Mr. B and 10,000 shares to Mr. C. These sharesare issued in one of the following situations.

Part iculars Situation Situation Situation SituationNo.1 No.2 No.3 No.4

Face Value per share (in Rs.) 10 10 10 10

Issue price per share(in Rs.) 10 8 30 40

Fair Market Value of each share determinedas per Section 56(2)(viib) (in Rs.) 5 7 35 36

Situation No.1

Shares are issued at par. The provisions of Section56(2)(viib) are applicable only when shares are issued ata premium. Consequently, nothing is taxable under thehead “Income from Other Sources” in the hands of thecompany u/s. 56(2)(viib) of the Act.

Situation No.2

Shares are issued at a discount i.e. at Rs.8. The provisionsof Section 56(2)(viib) are applicable only when sharesare issued at a premium. Consequently, nothing is taxableunder the head “Income from Other Sources” in thehands of the company u/s. 56(2)(viib) of the Act.



Determination of Fair Market Value of Unquoted Shares u/s. 56(2)(viib) of the Income Tax Act, 1961

Situation No.3

Shares are issued at a premium. The total considerationper share (Face Value plus Premium) is Rs.30/-. The FairMarket Value of each share determined u/s. 56(2)(viib)of the Act is Rs.35/-. As the Fair Market Value is higherthan the consideration received, nothing will be taxableunder this Section.

Situation No.4

Fair Market Value per share is Rs.36/-. The totalconsideration received is Rs.40/- per share. The excessconsideration of Rs.4/- per share will be taxable in thehands of the company if the following two conditionsare satisfied.

[a] The company is a company in which the public arenot substantially interested u/s. 2(18) of the Act inthe previous year 2012-13.

[b] The consideration is received from persons who areresidents in India for the previous year 2012-13.

In Situation No.4, Rs.64,000/- will be taxable in thehands of the company under the head “Income fromOther Sources” u/s. 56(2)(viib) of the Act in AY 2013-14. (number of shares issued to Mr.A=1000, toMr. B=5000 and to Mr. C=10000. Total shares16000 @ Rs.4 per share = Rs.64000/-) . But suppose,Mr. C is a non resident, the amount taxable in thehands of the company under this Section will beonly Rs.24,000/-. In other words, excess considerationreceived from a non resident shareholder Mr. C willnot be taxable u/s. 56(2)(viib) of the Act. Further,supposing Mr. C was never in India up to May2012 (month in which shares are issued), but hecomes to India in August, 2012 (i.e. after issue ofshares to him) for 182 days. He will be resident inIndia. Therefore, amount taxable in the hands ofthe company u/s. 56(2)(viib) of the Act will beincreased to Rs.64,000/-.

Subsequent to issue of shares, if ABC Private Ltd. isconverted into a public limited company (ABC Ltd.)and goes for a public issue of the shares, which arethen listed on a recognized stock exchange w.e.f.1st March, 2013, ABC Ltd. will become a companyin which the public are substantially interested, asper the provisions of Section 2(18) of the Act for theprevious year 2012-13. Consequently, nothingwill be taxable u/s. 56(2)(viib) of the Act even inSituation No.4 mentioned above.

It may be clarified here that in Situation No.4, theexcess consideration received in May 2012 is heldto be taxable in the hands of the company, is onlyfor understanding the basic provisions of the new

Section without considering the effects ofExplanation (a) to Section 56(2)(viib) of the Act andRules 11U and 1UA of the I.T. Rules, which aredealt with hereinafter.

3. After understanding the provisions of new Section56(2)(viib) of the Act, the following questions maycome to our kind.

[i] Whether the newly inserted Section 56(2)(viib)of the Act is applicable to the private limitedcompany (referred to as the companyhereinafter), in a situation when the equityshares are allotted say on 31st July, 2012 on ahefty premium which is much higher than thebook value of the equity shares of the companyon the date of allotment.

[ii] If answer to the question No.[i] is yes, whetherthe provisions of the said Section will beapplicable to allotment of equity shares atdifferential premium made by the companyduring July, 2012 and whether the newprovisions are retrospective or prospective intheir applicability.

[iii] The company has allotted certain equity sharesat differential premium during the period fromAugust, 2012 onwards. Until what date, theequity shares could be allotted, withoutattracting the provisions of new Section56(2)(viib) of the Act .

[iv] What are the alternative methods for arrivingat Fair Market Value of equity shares of thecompany under the provisions of Section56(2)(viib) of the Act.

4. Before one answers these questions, one must referto the Explanation (a) to Section 56(2)(viib) of theAct, which is reproduced as under:-

Explanation (a) to Section 56(2)(viib)

“(a) the fair market value of the shares shall be thevalue —

(i) as may be determined in accordance withsuch method as may be prescribed; or

(ii) as may be substantiated by the companyto the satisfaction of the Assessing Officer,based on the value, on the date of issue ofshares, of its assets, including intangibleassets being goodwill, know-how, patents,copyrights, trademarks, licences, franchisesor any other business or coimmercial rightsof similar nature.,

whichever is higher.”


5. The methods have been prescribed in the IncomeTax Rules. The Rules that prescribe the methods fordetermination of Fair Market Value of the propertyother than immovable property are Rules 11U andRule 11UA of the Income Tax Rules which wereinserted by the Income Tax (Second Amendment)Rules, 2010 with retrospective effect from 1.10.2009.However, s ign if icant amendments weremade in Ru les 11U and 11UA v ide theIncome Tax (Fifteenth Amendment) Rules,2012, with effect from 29.11.2012, pursuantto the Notification No.52/2012 [F.No.142/19/2012-SO(TPL)]/SO 2805(E).

6. The Rule 11UA, in particular, prescribes the methodfor determination of Fair Market Value as referredto in Explanation (a)(i) to Section 56(2)(viib) of theAct. Rule 11U which gives meaning of expressionsused in determination of Fair Market Value, waspartially amended to the extent of the meaning ofthe words "Accountant", "Balance Sheet" and“Valuation Date”, as laid down in Rule 11U(a), (b)and (j) respectively. These amended meanings havebeen made effective from 29.11.2012. The pre andpost amended meanings to these expressions areas under:-

Rule 11U

(a) “accountant” (prior to 29.11.2012)

shall have the same meaning as assigned inthe Explanation to Section 288 of the Act.

(a) “accountant” (w.e.f. 29.11.2012)

(i) for the purposes of sub-rule(2) of rule 11UA,means a fellow of the Institute of CharteredAccountants of India within the meaningof the Chartered Accountants Act, 1949 (38of 1949) who is not appointed by thecompany as an auditor under section 44ABof the Act or under section 224 of theCompanies Act, 1956 (1 of 1956); and

(ii) in any other case, shall have the samemeaning as assigned to it in the Explanationbelow sub-section (2) of section 288 of theAct;

(b) "balance sheet", in relation to any company,means (prior to 29.11.2012)—

the balance sheet of such company (includingthe notes annexed thereto and forming part ofthe accounts) as drawn up on the valuationdate.

(b) “balance sheet”, in relation to any company,means (w.e.f. 29.11.2012) —

(i) for the purposes of sub-rule (2) of rule11UA, the balance sheet of such company(including the notes annexed thereto andforming part of the accounts) as drawn upon the valuation date which has beenaudited by the auditor of the companyappointed under section 224 of theCompanies Act, 1956 (1 of 1956) andwhere the balance sheet on the valuationdate is not drawn up, the balance sheet(including the notes annexed thereto andforming part of the accounts) drawn up ason a date immediately preceding thevaluation date which has been approvedand adopted in the annual general meetingof the shareholders of the company; and

(ii) in any other case, the balance-sheet of suchcompany (including the notes annexedthereto and forming part of the accounts)as drawn up on the valuation date whichhas been audited by the auditor appointedunder section 224 of the Companies Act,1956 (1 of 1956);

(j) “valuation date” (prior to 29.11.2012) meansthe date on which the respective property isreceived by the assessee.

(j) “valuation date” (w.e.f. 29.11.2012) meansthe date on which the property or consideration,as the case may be, is received by the assessee.

7. The Rule 11UA, which prescribes the methods fordetermination of Fair Market Value of a propertyother than immovable property has been significantlyamended with effect from 29.11.2012, as under:-

Hitherto, the Rule 11UA did not have sub rules beforethe amendment but due to the amendment effectivefrom 29.11.2012, Rule 11UA has been re-numberedinto sub rule (1) and sub rule (2).

Sub-rule(1) of Rule 11UA stipulates with effectfrom 29.11.2012 the methods of determination ofFair Market Value of following properties other thanimmovable property :

Clause (a) : Valuation of Jewellery (same beforeand after the amendment)

Clause (b) : Valuation of Archaeological Collections,Drawings, Paintings,

Sculptures or any work of art. (same before andafter the amendment)



Clause (c) : Valuation of Shares and Securities —

Sub-clause (a) : Fair Market Value of Quoted Sharesand Securities

(same before and after the amendment)

Sub-clause (b) : Fair Market Value of UnquotedEquity Shares.

Sub-clause (c) : Fair Market Value of UnquotedShares and Securities other than Equity Shares.(same before and after the amendment)

Sub-rule(2) of Rule 11 UA, with effect from29.11.2012, gives option to the assessee byprescribing following two alternate methods fordetermining the Fair Market Value of unquotedequity shares for the purposes of Explanation (a)(i)to Section 56(2)(viib) of the Act.

(a) Fair Market Value of Unquoted Equity Sharesas per the formula given in Rule 11UA(2)(a)which is mentioned hereinafter.

(b) Fair Market Value of the Unquoted EquityShares determined by a merchant banker

or an accountant as per the Discounted FreeCash Flow method (DFCF method)

8. Sub-rule (2) of the Rule 11UA starts with nonobstante clause which is reproduced hereunder :-

(2) Notwithstanding anything contained insub-clause (b) of clause (c) of sub-rule(1), the fair market value of unquotedequity shares for the purposes of sub-clause (i) of clause (a) of Explanation toclause (viib) of sub-section(2) of section56 shall be the value, on the valuationdate, of such unquoted equity shares asdetermined in the fol lowing mannerunder clause (a) or clause (b), at theoption of the assessee, namely :—

(a) The fair market value of unquotedequity shares = (A – L) × (PV)

(PE)

where,

A= book value of the assets in the balance-sheet as reduced by any amount of tax paid asdeduction or collection at source or as advancetax payment as reduced by the amount of taxclaimed as refund under the Income-tax Actand any amount shown in the balance-sheetas asset including the unamortized amount of

deferred expenditure which does not representthe value of any asset;

L= book value of liabilities shown in thebalance-sheet, but not including the followingamounts, namely :-

(i) the paid-up capital in respect of equityshares;

(ii) the amount set apart for payment ofdividends on preference shares and equityshares where such dividends have not beendeclared before the date of transfer at ageneral body meeting of the company.

(iii) reserves and surplus, by whatever namecalled, even if the resulting figure isnegative, other than those set aparttowards depreciation;

(iv) any amount representing provision fortaxation, other than amount of tax paid asdeduction or collection at source or asadvance tax payment as reduced by theamount of tax claimed as refund under theIncome-tax Act, to the extent of the excessover the tax payable with reference to thebook profits in accordance with the lawapplicable thereto;

(v) any amount representing provisions made formeeting liabilities, other than ascertainedliabilities;

(vi) any amount representing contingent liabilitiesother than arrears of dividends payable inrespect of cumulative preference shares;

PE = total amount of paid up equity sharescapital as shown in the balance-sheet;

PV = the paid up value of such equity shares;or

(b) The fair market value of the unquoted equityshares determined by a merchant banker or anaccountant as per the Discounted Free CashFlow method.

9. Thus, sub-rule (2) of Rule 11UA states thatnotwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (1), the Fair MarketValue of unquoted equity shares for the purposesof Explanation (a)(i) to Section 56(2)(vi ib)of the Act, shall be the value on the valuationdate as determined under clause (a) or clause (b)of sub-rule (2) at the option of the assessee. Inother words, though Section 56(2)(viib) has beenmade applicable from 1.4.2012 (AY 2013-14), the



methods for determination of the Fair Market Valueof unquoted Equity Shares for the purposes of thisSection has been prescribed only from 29.11.2012.Thus, because of non obstante clause, whichoverrides sub-rule(1) of Rule 11UA, the prescribedmethods for the purposes of Section 56(2)(viib) readwith Explanation (a) are only two methods as persub-rule(2) and are to be used at the option of theassessee. It may be mentioned here that from1.4.2012 i.e. the date from which Section 56(2)(viib)has been made applicable till 29.11.2012, i.e. thedate of publication of the Notification No.52/2012,vide the Income Tax (Fifteenth Amendment) Rules2012, there is no prescribed method for determiningthe Fair Market Value of unquoted Equity Sharesfor the purposes of Section 56(2)(viib) of the Act.Hence, any allotment of unquoted equity sharesduring the period from 1.4.2012 till 28.11.2012 isoutside the purview of Rule 11UA (2) as there is noprescribed method subsisting during this period forthe purposes of Section 56(2)(viib) of the Act.

10. However, it is worthwhile to caution here that theallotment of unquoted equity shares during thisperiod (1.4.2012 to 28.11.2012) should not be at afancy price, which is far in excess of the Fair MarketValue. Prior to 29.11.2012, Rule 11U and Rule 11UA (unamended) were very much on the statutebook with retrospective effect from 1.10.2009,prescribing the methods for determination of FairMarket Value of properties other than immovableproperties including the method for determinationof Fair Market Value of unquoted equity shares butdue to non obstante clause in sub-rule (2) of Rule11UA, all other methods for the purposes of Section56(2)(viib) of the Act after 1.4.2012 (the date onwhich provisions of Section 56(2)(viib) have beenmade applicable) have come to be derecognized.

11. In the background of above discussion, let us try toanswer questions mentioned in para 3 hereinabove:-

[i] The provisions of Section 56(2)(viib) areapplicable to all the companies, not beingcompanies in which the public are substantiallyinterested. This new section has been insertedby the Finance Act, 2012, with effect from 1st

April, 2013 which will accordingly apply inrelation to the AY 2013-14 and subsequentassessment years. Explanation (a) to Section56(2)(viib) provides that for the purposes ofclause (viib), the Fair Market Value of theunquoted share shall be the value as may bedetermined in accordance with such methodas may be prescribed. The methods for

determination of Fair Market Value of unquotedEquity Shares have been prescribed in theamended Rule 11UA (2) of the IT Rules witheffect from 29.11.2012. Thus, though newlyinserted Section 56(2)(viib) is applicable to thecompany, being a company in which public arenot substantially interested, the allotment ofequity shares prior to 29.11.2012 are outsidethe purview of the provisions of Section56(2)(viib) of the Act read with Rule 11UA(2)of the IT Rules. However, it is worthwhile tocaution that the allotment of unquoted equityshares during the period from 1.4.2012 to28.11.2012 should not be at a fancy price whichis far in excess of the Fair Market Value. The ITDepartment in such a scenario may take anadverse view by probing into all the past andpresent allotments.

[ii] As mentioned in answer [i] above, theprovisions of Section 56(2)(viib) will not beapplicable to allotment of equity shares atdifferential premium made by the companyduring July, 2012 as Rule 11UA(2) has beeninserted with effect from 29.11.2012, and isnot retrospective in nature but is applicableprospectively.

[iii] Up to 28.11.2012, the equity shares of thecompany could be allotted without attractingthe provisions of Section 56(2)(viib) of the Act.

[iv] The Fair Market Value of the shares shall behigher of the value –

a. as may be determined in accordance withthe method prescribed under Rule 11UA(2)of the IT Rules namely as per the formulagiven in Rule 11UA(2)(a) or Discounted FreeCash Flow method, as per Rule 11UA(2(b)at the option of the assessee, or

b. as may be substantiated by the companyto the satisfaction of the Assessing Officer,based on the value of its assets, includingintangible assets, being goodwill, know-how, patents, copyrights, trademarks,licences, franchises or any other businessor commercial rights of similar nature.

The above are the alternate methods for determinationof Fair Market Value of unquoted Equity Shares underthe provisions of Section 56(2)(viib) of the Act.

i i i



Introduction

Service tax was made applicable on only three serviceswhen it was initially introduced in the year 1994. Thescope of applicability of service tax was widened overthe years, covering almost 119 services under the ambitof taxability by 2012. However, the concept was basedon the positive list of services, wherein the servicesspecified under Section 65(105) of the Finance Act, 1994(as amended) were taxable. Under this scenario, onehad to analyze various services and to seek whether theservice provided is covered under any of the taxableservice under the list, or not ?

A new service tax regime has been introduced with theannouncement of budget 2012 wherein all services willbe taxed unless they are specified under the negative listentry or are otherwise exempted. Under the new system,the services will be taxed comprehensively, except thefew ones which have been specified under the negativelist. The Central Board of Excise and Customs [CBEC] hasfurther issued “Mega Exemption Notification” videNotification No. 25/2012-Service Tax dated 20th June,2012, enlisting the services which shall be exempt fromthe payment of service tax with effect from 1st July, 2012.

With the enforcement of Finance Act 2012, Section 65relating to the “definitions” of various terms relating tothe service tax has been omitted. However, two importantsections which have been introduced defining the newservice tax code are namely:-

a) Section 65B which provides for a whole new set ofdefinitions in context of taxable services under thehead “Interpretations”,

b) Section 66D which deals with the “Negative list ofservice”.

Negative List of Services

Negative list of services means that all services, excludingthose specified in negative list will be subject to servicetax. However, in addition to items included in negativelist, there will be exemptions, abatements andcomposition schemes as issued by the CBEC from timeto time.

As of now there are 17 heads of services which havebeen specified in the negative list. Their scope and ambitare as follows:-

1) Services by government or a local authority

It excludes the following :-

Service Tax - Negative List CA. Jainee R. [email protected]

(i) Services by dept. of Post by way of speed post,express parcel post, life insurance & agencyservices provided to a person other thangovernment.

- Government includes Central government,State government, Union territories and alltheir departments and offices.

- Local authority includes Panchayat,Municipality, Municipal Committee, DistrictBoard, Cantonment Board, Regional Council,District Council and Development Board.

Example:

- The services provided by department of postlike basic mail services such as post card,inland letter, book post, registered post willnot be taxable. Similarly services for transferof money through money orders, operationof savings A/cs, issue of postal orders,pension payment and other such services willnot be considered as taxable.

- Agency services include distribution ofMutual Funds, Bonds ,Passport applications,collection of telephone bills and collectionof electricity bills.

(ii) Services in relation to an Aircraft or a vesselinside or outside precincts of a port or an airport.

(iii) Transport of goods or passengers

(iv) Support Services other than services coveredunder (i) to (iii) above, provided to business entities

Example:

- Other support services provided bygovernment or a local authority will betaxable only when the same are providedto business entities. Business entity meansany person who is carrying out any activityrelating to commerce, industry or any otherbusiness or profession.

- Support services includes infrastructure,operational, administrative, logistic,marketing or other support functions. It alsoincludes advertisement and promotion,construction or works contract, renting ofan immovable property, security, testingand analysis.

CA. Kunal A. [email protected]




Service Tax - Negative List

2) Services provided by Reserve Bank of India

The services provided by RBI are in negative list.However services provided to RBI is taxable .

3) Serv ices by a Foreign Diplomatic Missionlocated in India

Any Service provided by a diplomatic mission of anycountry located in India is in the negative list.However services provided by any office orestablishment of an international organization aretaxable.

4 ) Services relating to agriculture or agriculturalproduce by way of :-

(i) Agricultural operations directly related toproduction of agriculture produce includingcultivation, harvesting, threshing, plantprotection or seed testing.

- Agriculture also means cultivation of plantsand rearing of all life-forms of animals,except the rearing of horses, for food, fibre,fuel, raw material or other products.

- Agriculture produce means any produce ofagriculture on which general process is donewhich does not alter its essent ialcharacteristics but makes it marketable forprimary market.

- The processes contemplated in the definitionof agriculture produce are those as areusually done by the cultivator or producer andnot by other persons. If done by otherpersons then the same will be taxable.

- Whether the activities like breeding of fish(pisciculture), rearing of silk worms(sericulture), cultivation of ornamental flowers(floriculture) and horticulture, forestry ,plantation of crops like rubber, tea or coffeeetc are treated as agricultural activities?

Such activities can be considered asagricultural activities and hence not taxable.

(ii) Supply of farm labour;

(iii) Processes which do not alter the basiccharacteristics of agriculture produce but makeit only marketable for the primary market.

The process includes tending, pruning, cutting,harvesting, drying, cleaning, trimming, sundrying, fumigating, curing, sorting, grading,cooling or bulk packaging.

E.g. banana chips / potato chips / tomato catchup are not agriculture produces and hencetaxable.

Similarly process of grinding, sterilizing,extraction, packaging in retail pack oragricultural products for retail market aretaxable services.

(iv) Renting or leasing of agro machinery or vacantland with or without a structure incidental to itsuse;

Services for leasing of vacant land with greenhouse or storage shed are not taxable.

(v) Loading, unloading, packing, storage orwarehousing of agriculture produce;

(vi) Agriculture extension services;

The agriculture extension is defined in section65B(4) to mean application of scientific researchand knowledge to agricultural practices throughfarmer education or training.

(vii) Services by any APMC (Agricultural ProduceMarketing Committee or Board or servicesprovided by a commission agent for sale orpurchase of agriculture produces;

5) Trading of Goods

Services provided by commission agents or clearingand forwarding agents are not in the nature oftrading of goods and hence taxable.

However services provided by commodity exchangesare not covered as trading of goods and hencetaxable.

Forward contracts and Commodity futures would becovered under trading of goods and hence nottaxable.

- Goods means every kind of movable propertyother than actionable claims and money andincludes securities, growing crops, grass andthings attached to and forming part of land whichare for sale.

- Security includes shares, scrips, bonds,debentures, derivative, Units, Govt. Securitiesand rights or interest in securities.

- Further, definition of service under sec 65B(44)specifically excludes, transfer of title in goods orimmovable property by way of sale, gift or anyother manner. The trading of goods issynonymous to sale of goods.



6) Processes amounting to manufacture orproduction of goods

Any process to manufacture or production of goodsshall not be taxable.

This includes manufacturing activity carried out oncontract or job work basis provided that excise dutyis leviable on such activities. If central excise iswrongly paid on a process which is not amanufacture, then the same will not be coveredunder negative list.

7) Se l l ing of space or t ime s lots foradvertisements other than advert isementsbroadcast by radio or television.

Non- Taxable Services under this entry:

- Sale of space for advertisement in print media

- Sale of space for advertisement in bill boards,public places, buildings, conveyances, cellphones, automated teller machines, internet

- Aerial advertising which an advertisement byuse of aircraft, balloons or air ships.

Taxable Services under this entry :

- Sale of space or time for advertisement to bebroadcast on radio or television

- Sale of time slot by a broadcasting organization.

- Canvassing advertisement for publishing on acommission basis is taxable service.

- Services provided by advertisement agencies inmaking or preparing advertisements are taxable.

- Commission received by advt. agents frombroadcasting or publishing companies forfacilitating business would be taxable services.

Note:

When composite services are provided for providingspace for advt. with designing and preparation ofan advt., it will be a combination of both taxableand non-taxable services known as Bundled Serviceswhich can be found in details u/s 66F of the Act.According to section 66F, in case of Bundled Services,the services would be entirely taxable or non-taxabledepending upon factors which determine thedominant nature of such a bundle.

8) Serv ice by way of access to a road or abridge on payment of toll charges

However collection charges or service charges paidto any toll collecting agency would be taxable.

9) Betting, gambling or lottery services are nottaxable

Auxiliary services that are used for organizing orpromoting betting or gambling events are notcovered under negative list.

10) Admission to Entertainment events or accessto amusement facilities

The “entertainment event” means an event or aperformance which is intended to providedrecreation, pastime, fun or enjoyment, by way ofexhibition of cinematographic film, circus, concerts,sporting event, pageants, ward functions, dance,musical or theatrical performances including drama,ballets or any such event or programme.

Whereas the term “amusement facility” meansfacility where fun or recreation is provided by meansof rides, gaming devices or bowling alleys inamusement parks, amusement arcades, water parks,theme parks or such other places but does notinclude a place within such facility where otherservices are provided.

Instances of Non- Taxable serv ices in thisentry:

Cultural programmes, dramas or a ballet held inopen garden also qualif ies as an event ofentertainment and hence non taxable.

A stand alone amusement ride in a mall is also anaccess to amusement facility and not a taxableservice.

Entry to video parlours to watch movie through a TVis also an entertainment activity and hence non-taxable.

Instances of Taxable services in this entry:

Membership of a club does not qualify as an accessto an amusement facility and hence taxable. Eventhe restaurants and accommodation facilitiesattached to amusement facility are excluded fromthe definition and therefore liable to tax.

Auxiliary services for organizing an entertainmentevent are not covered in this negative list entry andhence taxable.

11) Transmission or distribution of electricity byan electricity transmission or distribution utility

- The developer or a housing society collectingcharges for distribution of electricity within aresidential complex are not covered in thenegative list except it is entrusted with suchfunction by the Central or a State governmentor under the Electricity Act,2003.


- Also the services provided by way of installationof gensets or similar equipment by privatecontractors for distribution of electricity is notcovered in the negative list.

12) Specified services relating to education arenot taxable

Such Services are:

- Pre-School Education and education upto highersecondary or equivalent;

- International schools giving internationalcertifications like IB, IGCSE are coveredunder negative list and hence non taxable.

- Boarding schools provide education as wellas residence facilities and hence would becovered under bundle services categoryseparately u/s 66F. However both serviceslike Education and Residence at dwellinghouse are covered under negative list andhence full amount of services will be non-taxable.

- Private coaching institutes are not coveredas such training does not lead to grant of arecognized qualification.

- Education as a part of a curriculum for obtaininga qualification recognized by any law;

- To fall under the negative list the course forobtaining a qualif icat ion should berecognized by an Indian law only.

- In case of a dual qualification wherein oneis recognized and other is not, then boththe services will be treated separately.

- If two such services are clubbed and onlyone is for qualification recognized by law,then it is liable to be treated as a coursewhich attracts highest liability of service tax.

- If charges for extra activities or hobbies areincluded, the relevant consideration will beextra billing done for un-recognisedcomponent vis- a – vis recognized course.

- Education as a part of an approved vocationaleducation course;

Approved vocational education course means acourse run by an industrial training institute orcentre or modular employable skill course or acourse run by an institute affiliated to NationalSkill Dev. Corp. and few other authorities.

- Services rendered by IIT, IIM etc. for campusinterviews are not covered under negativelist and hence taxable.

- Services of conducting admission tests foradmission to colleges are exempt in caseswhere the educational institutions areproviding qualifications recognized by law .

13) Serv ices by way of rent ing res identia ldwelling for use of residence

The ‘Residential Dwelling’ means a residentialaccommodation but does not include hotel, motel,inn, guest house, camp site, lodge, house boat, orlike places for temporary stay and hence taxable.

- If a residential house is partly used for residenceand partly for business, it will be a bundledservice and taxability will be determined undersection 66F.

- If a residential house is taken on rent and usedpredominantly for commercial purpose , thenservices will be taxable.

- Similarly if a house is given on rent and same isused for hotel, the services will be taxable.

- If a room in a hotel or a lodge is taken on rent,the same will be taxable service.

Non-Taxable events:-

- If a house is allotted by Government departmentto its employees and license fee is charged, thesame is covered under negative list and hencenot taxable.

- If a furnished house is given on rent for a fewdays for residence purpose, the same shall becovered under negative list and hence nottaxable. However if the same house is given forsmall duration of stay to different persons over aperiod of time, the same will be taxable service.

14) Specified financial services

Services includes:

- Services by way of deposits or loans or advancesgiven for interest or discount

- Services by way of inter se sale or purchase offoreign currency amongst banks or authorizeddealers or amongst banks or dealers.

- The entry (n) does not cover investments by wayof an equity or any other manner where theinvestor is entitled to share profit.



- Also Bill discounting or cheque discounting orany other similar form of discounting is coveredin the negative list. Further it also covers saleand purchase of foreign exchange betweenbanks or authorized dealers of foreign exchangeor between banks and such dealers i.e. anyservice provided in respect of sale or purchaseof foreign exchange to general public is notcovered in negative list and hence taxable.

15) Transport of Passengers

Services of transportation of passengers, with orwithout accompanied belongings is included in thenegative list, which includes the following:-

a) Transport of passengers by stage carriage.

- Stage carriage means vehicles which cancarry more than 6 passengers. This meanscarriages running under public transport shallnot be taxable.

- Services of transport of passengers bycontract carriage for tourism, conductedtours, charter or hire will be taxable.

b) In case of transport of passengers by railwaysall other classes are covered under negative listexcept first class and air-conditioned coach.

c) Transport of passengers by metro, mono-rail ortramway

d) Transport of passengers by inland waterways.Inland water means any canal, river, lake orother navigable water.

e) Services for transport of passengers by publictransport in a vessel between places located inIndia .

Instance:

However, if such a transport facility is predominantlyfor tourism purpose the same will be taxable.

It is clarified that when the ships or vessels sailbetween places in India, services would be exemptfrom service tax even if some of the passengers arepredominantly tourists.

As against this, if services are provided by leisure,charter vessels or a cruise ship which arepredominantly for tourism purpose they would betaxable even if some of the passengers are notpredominantly tourists.

Example:

(1) A ship sails from Mumbai port to Coimbatoreport carrying passengers out of which some arepredominantly tourists. In this case services are

not taxable since ship has not been hired fortourism purpose.

(2) A ship sails from Mumbai port to Coimbatoreport and has been specially hired for a tourismpurpose, services would be taxable even if onlyfew passengers travelling are predominantlytourists.

f) Services through metered cabs, radio taxis orauto rickshaws.

16 ) Services by way of Transportation of Goods

(a) The said Service includes services by way oftransportation of goods by road and excludesthe services of a Goods Transportation Agencyor Courier Agency

- Goods Transport Agency means any personwho provides service in relation to transportof goods by road and issues consignmentnote by whatever name.

- The provisions relating to reverse charge i.e.service tax is liable to be paid by eitherconsignee or consignor are applicable evenafter the introduction of negative list.

- Courier Agencies includes services ofexpress cargo as well as angadiya.

(b) Transport of goods by air or sea for outside Indiaupto Custom station of clearance in India is non-taxable.

(c) Services by way of transport of goods by inlandwaters which covers almost any water transportwithin India is covered under negative entry andhence services are non-taxable.

17 ) Funeral, bur ia l, cremator ium or mortuaryse rv ices inc lud ing transportat ion of thedeceased

The said service provided by any person is non-taxable which also includes the transportation ofdead body by any mode of transport i.e. by road,water, air and rail.

Conclusion

Thus the Services will be taxed under new tax regime ifan activity which can be called or included within themeaning of “Service” and if the said activity is notincluded in “Negative List” and in the “Exemption List”.It is also interesting to note from above discussion thatall those entries mentioned in the negative list are notservices which become automatically exempted as thereare many such services within the entries which areconsidered as taxable.

i i i



The Finance Minister presented India’s 82nd Union Budgeton February 28 this year. The FinMin, unveiled a budgetwith which the UPA (United Progressive Alliance) cango to polls, which manages not to displease either theinvestors or the industry as he bets on growth to makehis math right. At first glance, Budget 2013 seemsworkmanlike, an array of seemingly inter connectedincremental initiatives lacking an over charging vision.

The FinMin neither overloaded the overly burdened ex-chequer nor put off the investors who are typically allergicto populist measures. Simply put, the Finance Ministerfollowed the maxim of “If you can’t do any good,at least do no harm”

The Finance Bill, 2013 was assented by the HonorablePresident, Pranab Mukherjee, the former FinanceMinister of India on the tenth day of May, 2013. Howeveron a closer look, certain Prima Facie differences can benoted in the Finance Bill, 2013 and the Finance Act, 2013.Generally after the Finance Bill is proposed by the FinanceMinister, a lot of symposiums take place all over themap, as a result of which we start conceiving theprovisions of the Finance Bill as the Finance Act. However,before the Honorable President grants his assent to theFinance Bill, certain changes take place which many timesgo unnoticed. Herein under are a few significantdistinctions which either were not reflected in the FinanceBill, 2013 or are treated differently in the Finance Act2013 than what was proposed:

1. Section 10(48) – Exempt Income:

At present, any income earned by a foreigncompany in India on account of sale of crude oil toany person in India in Indian Currency is exemptsubject to certain conditions. Finance Act, 2013provides that the benefit of the said provision shallalso be extended to any other goods or servicesnotified by the Central Government.

2. Sect ion 43 – T rad ing in Commodityderivatives, not a speculative transaction anymore:

While presenting his budget Speech, the FinMinunveiled a 0.01% levy on non-agricultural commodityderivatives and consequentially considering the same

Significant differences between theFinance Bill, 2013 and the Finance Act, 2013.

Manthan KhokhaniFinal CA [email protected]

to be non speculative with an amendment to Section43(5). However, in the Finance Bill, 2013 noamendment was proposed in Section 43(5) leavingthe tax payers startled. However, the fact wasconsidered by the Finance Act 2013 by providingthat hence forth any transaction in respect of tradingin non-agro commodity derivatives in a RecognizedAssociation shall not be treated as a speculativetransaction subject to certain conditions. Thus, it isworthwhile to note that commodity derivatives inrespect of agro commodities shall still be treated tobe speculative in nature as no CommoditiesTransaction Tax shall be leviable on the same.

3. Tax Residency Certificate :

Section 90 and 90 A, so far, provided that in orderto avail the benefits of DTAA, a certificate containingthe prescribed particulars may be furnished. However,Finance Act provides that a certificate of tax payerbeing resident must be furnished.

The FinMin had proposed in the Finance Bill, 2013that the Tax Residency Certificate shall be anecessary but not a sufficient condition. This wasquite firmly responded by the Financial Market andled to uncertainty amongst the investors. Theproposed amendment contradicted with circular no.789 issued by the CBDT on 13th April, 2000.Responding to such uproar, the FinMin clarified byway of a Press Release on the day following theBudget day that TRC issued by the Government of aforeign country would be accepted as an evidenceof tax residency. In order to subsume the Press Notein the statute, the Finance Act, 2013 has supplantedthe proposed amendment by providing that theassessee may provide such other documents as maybe prescribed.

4. Substitution of “FERA” by “FEMA”:

Even after the repeal of “Foreign ExchangeRegulation Act, 1973”, the Income Tax Act,continued to make a reference to the said Act. TheFinance Act 2013 has therefore substituted the words“Foreign Exchange Regulations Act,1973” with“Foreign Exchange Management Act, 1999” atsuitable places in the Income Tax Act, 1961.



5. Time Limit for completion of assessment andre-assessment:

No order of assessment shall be made after expiryof three years from the end of the AssessmentYear in which the income was first assessable, whena reference has been made u/s. 92CA(1) for theA.Y. commencing on 1st April 2009 or any subsequentA.Y. The said amendment is retrospectivelyapplicable w.e.f. 01st July, 2012.

6. Insertion of Section 194LD:

Any person who is required to pay interest to an FIIor a QFI on or after 01st June 2013 but before 01st

June 2015 in respect of investment made by thepayee in rupee denominated bond of an IndianCompany or a Government Security shalldeduct income tax @ 5% at the time of credit orpayment whichever is earlier. The rate of interest inrespect of rupee denominated bond of an Indiancompany shall not exceed the rate of interest notifiedby the Central Government. Further interest paidu/s. 194LD has been kept out of the scope of section195 and Section 194LD in view of a separateprovision having been made in this regard.Consequential amendments have been made inSection 115A and 115AD of the Income Tax Act.

7. Section 194IA:

The Finance Bill, 2013 proposed that tax @1% shallbe levied on transfer of immovable properties otherthan agricultural land, provided consideration was inexcess of Rs. 50,00,000/-. Such a proposal was alsomooted in the Finance Bill, 2012 but was dropped.The proposed amendment presupposed that thetransferee shall have to obtain a TAN. The burden oftax officials’ inefficiency was sought to be transferredto the general public, burdening them withunnecessary problems and costs. As a result of theabove, the Finance Act states that the provisions ofSection 203A (Tax Deduction and Collection accountnumber) shall not apply for the tax which has to bededucted under the provisions of Section 194IA

8. Meaning of “person responsible for paying”:

In case of any sum payable to an NRI for transfer ofa foreign exchange long term capital asset, the personresponsible for payment shall be the “AuthorisedPerson” as defined in section 2 of FEMA, 1999instead of “Authorised Dealer”.

9. Requirement to furnish PAN, not to apply toSection 194LC:

In order to exempt the non residents and foreigncompanies from applicability of higher rate of TDSon account of non furnishing of PAN, Section 206AAhas been amended to provide that the provisions ofthis section shall not apply for any payment of intereston long term infrastructure bonds to a non residentor a foreign company as referred u/s. 194LC w.e.f.01st June 2013

10. TCS on coin or other article weighing 10gor less:

Before the provisions of Finance Act 2013 came intoforce, no tax was required to be collected in case ofsale of any coin or other article weighing 10g orless. In order to curb the said misuse, this exclusionhas been done away with by the Finance Act, 2013and accordingly tax is required to be collected evenon sale of the above specified items.

11. Appellate Tribunal:

Section 252(3) of the Act provides that the CentralGovernment shall appoint rge senior Vice-Presidentor one of the Vice-President of the Appellate Tribunalas the President of the Tribunal w.e.f. 01st June 2013,the Central Government may appoint a sitting orretired judge of a High Court with not less than 7years of service as the Judge of a High Court, as thePresident of the Tribunal.

12. Section 2 of Wealth Tax Act:

Much hullabaloo had been raised by the politicalparties, in Punjab and Haryana and other states, overthe imposition of wealth tax on agricultural land. TheFinance Bill, 2013 proposed an amendment to Section2(ea) by changing the definition of “Urban Land”and thereby covering agricultural lands situated inthe specified area. Since there are 45 cities in Indiawith population in excess of 1 million, agriculturalland would come within the ambit of wealth tax.

Before the Finance Act, 2013 was assented, theFinMin had assured that no wealth tax shall beimposed on the Farm Land and that the issue shallbe put to rest by the Finance Act, 2013. Keeping upto his assurance, the Finance Act, 2013 now providesthat the definition of urban land shall w.e.f. 01st April,1993 not include any land which has been classifiedas agricultural land in the records of the Governmentand used for the purpose of agriculture.

i i i

Significant differences between the Finance Bill, 2013 and the Finance Act, 2013


Whether set off of carried forward normalbusiness loss can be availed against thespeculation business income of current year?

Yes, the question has a clear and crystal answer lookingto the provisions of the Income Tax Act, 1961. However,the reason, this issue has been dealt herewith is due tothe way the returns of the tax payers are processed bythe Income Tax Department.

We all are aware that the processing of Income Taxreturns filed electronically has been done through theCentralized Processing Centre at Bangaluru. The IncomeTax Returns filed are processed with the pre definedprocessing rules fixed at the centre.

Time and again, many issues relating to the way ofprocessing of CPC have arisen which have resulted inhuge additions leading to huge tax demand or adjustmentof previously claimed refunds. Many of professionalcolleagues would also be facing problems due to thesepre defined set of processing rules. One of the importantissues that has arisen where the assessee can get a setoff of brought forward normal business laws againstcurrent year's speculation income or not ?

Under the Income Tax Act, the following losses can becarried forward:

a. Loss under the head “Income From House Property”[Section 71B]

b. Loss under the head “Profits and Gains fromBusiness and P rofession”( i. e. loss fromspeculat ive or non specu lat ive bus iness)[Section 72 and Section 73]

c. Loss under the head “Capital Gains” [ Section 74]

d. Loss from the activity of owning and maintaininghorse races [Section 74A]

e. Other losses cannot be carried forward

The Section 72 of the Income Tax Act, 1961 dealswith carry forward and set off of business losses.The relevant portion of the section is narrated asunder :

Issues related to processing atCentralized Processing Centre CA. Harshit Sheth

[email protected]

“72. [(1) Where for any assessment year, the netresult of the computation under the head “Profitsand gains of business or profession” is a loss to theassessee, not being a loss sustained in aspeculation business, and such loss cannot beor is not wholly set off against income under anyhead of income in accordance with the provisionsof section 71, so much of the loss as has notbeen so set off or, where he has no income underany other head, the whole loss shall, subject to theother provisions of this Chapter, be carried forwardto the following assessment year, and—

(i) i t shal l be set off against the prof itsand gains, if any, of any business orprofess ion car r ied on by h im andassessable for that assessment year ;

(ii) if the loss cannot be wholly so set off, theamount of loss not so set off shall be carriedforward to the following assessment year andso on:]

Looking to the above provisions, loss under the head“Profits and Gains from Business and Profession”can be set off against the profits of any businessin the subsequent year. As per the provisions ofthe Income Tax Act, 1961 the speculation businessloss can only be adjusted with the speculationbusiness income but the same is not the case withthe normal business loss meaning thereby the normalbusiness loss can be set off against the normalbusiness income as well as the speculation businessincome of current year.

The word “ANY” in as narrated in the section 72should be considered wide enough to include allthe business income i.e. normal as well asspeculation. It is also pertinent to note that theprovisions of Income Tax Act also stipulate thatbrought forward business loss can be set off, notonly against the business for which such loss hasincurred but also for any other business carried onby the tax payer. In past, The Income Taxdepartment have already issued the circulars whichcontemplates that a construction most beneficial tothe assessee should be adopted viz. Circular 23D of1960, Circular No. 26 of 1955 etc.



It is crystal clear from the provisions of the IncomeTax Act, 1961 that the current year speculationbusiness income can be set off against the broughtforward normal business loss. However it seems thatthe processing rules set at the Centralized ProcessingCentre do not recognise the above provision.

Below mentioned example clearly justifies the abovenarrated facts.

Mr. X filed the return of Income as under,

Part iculars Amount (`)

Normal Business Income 2,00,000/-

Speculation Business Income 13,00,000/-

Gross Total Income before set off 15,00,000/-

Claimed set off of B/F 12,00,000/-Normal Business Loss

Gross Total Income 3,00,000/-

However, as as per the procession rules fixed at theCPC, Bangaluru the assessed income is beingdetermined as follows

Part iculars Amount (`)

Normal Business Income determined 2,00,000/-

Speculation Business 13,00,000/-Income determined

Gross Total Income before set off 15,00,000/-

Claimed set off of B/F 2,00,000/-Normal Business Loss

Assessed Income 13,00,000/-

The way in which the income is assessed by CPC,Bangaluru is not in line with the Income Tax Act,1961.

Once the assessee files the return and receives theIntimation u/s 143(1) of the Income Tax Act, 1961with the above typed defect, then the assessee hasonly two options either to file online rectification

application u/s 154 of the Income Tax Act, 1961 orto file an appeal against the same before the Hon.CIT (A).

It is observed that if assessee files the rectificationapplication u/s 154 of the Income Tax Act, 1961online then the CPC straight away rejects theapplication. And if the assessee goes for an appealthen the Appeal Authorities especially at Ahmedabad,also refuse to accept the assessee’s contention.

Due to this lacuna in the parameters set in theprocessing of return of income, the tax payers arefacing undue problems due to huge additions andmore pertinently incorrect tax demands. Even suchdefects also disturb the subsequent returns filed bythe assessee. It is worthwhile to note that manyvoluntary organizations including the CharteredAccountants Association, Ahmedabad representedthe above mentioned issue along with the manyother issues to the appropriate Income TaxAuthorities but till date no material action has beentaken by the Income Tax Department.

The million dollar question now is how to resolvethese difficulties faced by the tax payers of theNation. Even the courts have suo moto taken theissues relating to the defects in the way in whichthe taxpayer’s returns are processed at CPC,Bangaluru. However till date no fullproof action hasbeen taken on such issues. In my opinion, The CentralBoard of Direct Taxes (CBDT) and the appropriateauthorities including Hon. CIT(A) should suo mototake up this issue at the earliest so as to reduce thetax payers’ difficulties. A writ petition before theHigh Court may also help the tax payer to resolvesuch scrupulous issues.

(Readers may share their experience on similarinstances with the Association.)

i i i

Issues related to processing at Centralized Processing Centre

Tickle the Funny Bone

Two CA friends were in a bank when a team of armed robbers broke in. While

some of the members seized the cash from the cashier, others lined up all against a

wall. As they started snatching the valuables from everyone in the bank, one CA

passed on something to his friend. Without verifying, the other asked, "What was

it ?" to which he replied, "Rs. 5000 that I owe you".


Service tax Registration Process for NewAssessee

A new service tax assessee has to undergo three-phaseregistration process, viz:

1. Registering with Automation of Central Excise andService tax (ACES).

2. Applying online in Form ST-1.

3. Submission of hard copies.

Phase – 1: Regist ra t ion w ith Automat ion ofCent ra l Exc ise and Serv ice tax(ACES) :

Step – 1: An assessee is required to visit the ACESwebsite at https://www.aces.gov.in.The website will guide the assessee to itshome page which will appear as shown inSnap Shot –1. From available options onhome page, an assessee is required toselect Service tax option by clicking onService tax on the home page.

Step – 2: On selecting the Service tax option thehome page of Service tax containingvarious options will appear as shown inSnap Shot – 2. Assessee, for newregistration will have to first register himby clicking on ‘New users to Click hereto Register with Aces’.

Step – 3: On exercising the option an assessee willbe asked to fill in the required details. Duediligence should be taken while providinguser name and email address. Usernameonce submitted cannot be changed infuture and further communication by ACESwill be done on the given email address.After filling the required details an assesseeshould submit the details by clicking on‘Submit’ option.

Step – 4: Once the registration request is submitted,a confirmation message will appear on the

screen and an auto-generated email willbe sent on the email address provided atthe time of registration, containing username and temporary password. The username will be same as provided by theassessee while executing Step – 3 above.

Phase – 2: Apply ing Onl ine for Serv ice taxRegistration in Form ST - 1:

Step – 1: The assessee is required to visit home pageof service tax by following Step – 1 of Phase– 1. On home page, as shown in Snap shot– 2, the assessee is required to log on byproviding the username and password asemailed by ACES. On logging on, theassessee will be prompted to change thepassword and after successfully changing thepassword the assessee will be guided to thehome page of the assessee.

Step – 2: From various options; the assessee isrequired to fill in the Form ST-1 forregistration. To fill the form, assessee hasto select ‘Fill ST-1’ from the drop down listunder ‘REG’ as shown in Snap Shot – 3.On selecting the option Form ST-1 will bedisplayed on the screen.

Step – 3: Assessee is required to fill in the requireddetails in Form ST-1 with utmost care as theregistration certificate in Form ST-2 isgenerated on the basis of Form ST-1submitted. It is advisable to keep the requiredevidences as mentioned in Table – 1 onhand at the time of filing form ST-1.

Step – 4: After filling the details as required and itsverification the assessee should take tocopies of print out of the Form ST-1 byexercising the Print option at the bottom ofForm ST – 1 page.

Step – 5: The application can now be submittedonline. On successful submission of

CA. Yogi K. [email protected]

Procedures

https://www.aces.gov.in



application a confirmation message asshown in Snap shot – 4 will appear on thescreen. It contains the details of jurisdictionaloffice where the application is submitted.An assessee is required to take printout ofthe said message, preferably in two copies.

Phase – 3: Submission of Hard Copies andevidences:

An assessee within 15 days of successfulsubmission of Form ST-1 has to submit thefollowing to jurisdictional superintendent:

1. Forwarding letter containing the detailsof assessee, brief description of serviceprovided, list of documents submittedwith the application and other relevantfacts and details.

Procedures

2. Duly signed print out of Form ST – 1submitted online. (For print out refer Step– 4 of Phase – 2)

3. Copy of Acknowledgement of submissionof Form ST-1. (For print out refer Step –5 of Phase – 2)

4. Self attested documents as mentioned inTable – 1.

Issuance of Service tax Registration Certificatein Form ST – 2:

Assessee opting for registration of single premises willreceive the Registration Certificate in Form ST-2 within 7days from the submission of hard copies as mentioned inPhase – 3. In case nothing is heard within prescribedperiod of 7 days it is presumed that the registration isgranted to the assessee. However, no such time frameis fixed for assessee opting for Centralized registrationfor more than one premises.

Snap Shot - 1 Snap Shot - 2

Snap Shot - 3 Snap Shot - 4


Table – 1: Documents required to be submitted with the hard copy of Form ST-1

An assessee is required to submit various self-attested copy of documents for Service tax registration, which vary fromcases to case, however generally, following documents are required to be submitted with the hard copy of application:

I Documents required for registration of Single Premises

A . By all assessees

1. In case if PAN is allotted then copy of PAN Card else copy of PAN Application.

2. Address Proof of Business Place(s) to be registered as mentioned in Table - 2.

3. Identity Proof and Proof of residence of Individual / Sole Proprietor / Partners / Directors / Trustees /Authorised Person(s), as the case may be, as mentioned in Table – 2 and Table – 3.

4. Copy of PAN Card of Partners / Directors / Trustees / Authorised Person(s), as the case may be. If PANis not allotted copy of PAN application shall be provided.

B. Additional Documents required in case of Partnership Firm

1. Copy of Partnership deed.

2. Details of all partners and authorised person(s), if any like name, PAN, residential address and telephonenumber(s).

3. Power of Attorney in respect of authorized person(s).

C. Additional Documents required in case of Companies

1. Copy of Memorandum and Articles of Association.

2. Details of all directors and authorised person(s), if any like name, PAN, residential address and telephonenumber(s).

3. Copy of Resolution authorizing a person / director.

D . Additional Documents required in case of a Trust

1. Copy of Trust deed.

2. Details of all trustees and authorised person(s), if any like name, PAN, residential address and telephonenumber(s).

3. Copy of Resolution authorizing a person / Trustee.

I I Documents required for Centralised Registration of more than one premises

A. Documents mentioned above in Part 1 – (A).

B. Applicable documents from Part 1 – (B) to Part 1 – (D) depending upon the constitution of assessee.

C. List of Documents and the Check list for Application of Centralised Registration in Annexure – I.

D. Information with respect to branches which are already registered with service tax in Annexure – II.

E. Questionnaire for Centralised Accounting / Billing in Annexure – III.

F. Undertaking in Annexure IV.

(For Annexure I to IV mentioned above, refer Trade Notice No. 16/ST/2012-New Delhi, June, 2012.)

Procedures


Table – 2:Documents accepted as Proof of Address

Two documents are required as Proof of address. One document for each category A and B is required.

Category – A Category – B

1. Landline Telephone Bill not older than 1. In case of Self owned Property any document like3 months. Annual tax payment receipt showing the name of

applicant or copy of Sale deed, etc. may be provided.

2. Electricity Bill not older than 3 months. 2. In case of Rented premises Leave License / RentAgreement or rent receipt at least for a tenure not lessthan one year from the date of application forregistration, and in case the Annual Rent amount payableis more than Rs. 10 lakhs, the Service tax Registrationnumber of owner.

3. Copy of Bank Account statement showing the 3. In case the Leave License Agreement or Rent Receipt isname of the applicant and address of the not in the name of applicant and the Lessee is related /premises as mentioned with the application associate person of applicant then following documentsnot older than 3 months. must be submitted:

a) Leave License / Rent Agreement between the ownerand lessee;

b) Proof of Relationship between applicant and Lessee/ tenant;

c) No Objection Certificate for carrying out the businessof applicant from the owner of the premises;

d) Photo ID proof of the person giving NOC i.e. ownerof the premises;

e) If in case the Annual Rent payable by the applicantto lessee / tenant is more than Rs. 10 lakhs, theService tax Registration Number of lessee / tenant.

Table – 3: Documents accepted as Identity Proof

Any one of the following are required as Identity Proof:

1. Passport.

2. Voter Identity Card.

3. Driving Licence.

4. Bank Passbook showing the name and address, along with Photograph.

i i i

Procedures


Glimpses of SupremeCourt Rulings

Advocate Samir N. [email protected].

Right to Information – Exemption fromdisclosure :

The performance of an employee / officer in anorganization is primarily a matter between the employeeand the employer and normally those aspects aregoverned by the service rules which fall under theexpression ‘personal information’, the disclosure of whichwould have no relationship to any public activity or publicinterest but the disclosure of which would causeunwarranted invasion of that individual. The informationdisclosed by a person in his income tax returns are‘personal information’ which stands exempted fromdisclosure under clause (j) of Section 8(1) of the Right toInformation Act, 2005, unless involving a larger publicinterest and the Central Public Information Officer or theState Public Information Officer or the appellate authorityis satisfied that the larger public interest justifies thedisclosure of such information.

Held accordingly, dismissing the petition, that the memosissued to the third respondent, show-cause notices andorders of censure / punishment were personal informationas defined in clause (j) of Sec.8(1) of the Act. The detailsof gifts received, investments and assets and liabilitieswere found in the income-tax return.

[Girish Ramchandra Deshpande vs. CentralInformation Commissioner and others (351 ITR 472)]

Reference to Larger Bench:

It is evident that before making a reference to a largerBench, the Court must reach a conclusion regarding thecorrectness of the judgment delivered by it previously,particularly that which has been delivered by a Bench ofnine Judges or more, and adjudge the effect of any errortherein upon the public, what inconvenience, hardshipor mischief it would cause, and what the exact nature ofthe infirmity or error that warrants a review of such earlierjudgments. In the instant case, we do not find any suchcompelling circumstances that may warrant a review,and thus, taking into consideration the facts of the present

case, we are not convinced that this matter requires areference to a larger Bench.

[State of Gujarat and another vs. Justice R. A.Mehta (retired) and others (2013) (3 SCC 1)]

Judicial Process :

This Court has consistently observed that Judges must actindependently and boldly while deciding a case, but shouldnot make atrocious remarks against the party, or a witness,or even against the subordinate court. Judges must notuse strong and carping language, rather they must actwith sobriety, moderation and restraint as any harsh anddisparaging strictures passed by them against any personmay be mistaken or unjustified and in such an eventualitythey do more harm and mischief than good, thereforeresulting in injustice. Thus, the courts should not makeany undeserving or derogatory remarks against any person,unless the same are necessary for the purpose of decidingthe issue involved in a given case. Even where criticism isjustified, the court must not use intemperate languageand must maintain judicial decorum at all times keepingin view always the fact that the person making suchcomments is also fallible. Maintaining judicial restraint anddiscipline are necessary for the orderly administration ofjustice and courts must not use their authority to ‘makeintemperate comments, indulge in undignified banter orscathing criticism’. Therefore, while formation andexpression of honest opinion and acting thereon, is anecessity to decide a case the courts must always actwithin the four corners of the law. Maintenance of judicialindependence is characterized by maintaining a cool, calmand poised mannerism, as regards every action andexpression of the members of the judiciary and not byusing inappropriate, unwarranted and contumaciouslanguage. The Court is required ‘to maintain sobriety,calmness, dispassionate reasoning and poised restraint.The concept of loco parentis has to take foremost place inthe mind of a Judge and he must keep at bay any uncalledfor, or any unwarranted remarks.’


4

5

6

mailto:[email protected].


Precedents – Ratio decidendi – Bindingeffect of the judgment :

There can be no dispute with respect to the settled legalproposition that a judgment of this Court is binding,particularly when the same is that of a coordinate Benchor of a larger Bench. It is also correct to state that even ifa particular issue has not been agitated earlier or aparticular argument was advanced but was notconsidered the said judgment does not lose its bindingeffect, provided that the point with reference to whichan argument is subsequently advanced has actually beendecided. The decision therefore, would not lose itsauthority ‘merely because it was badly argued,inadequately considered or fallaciously reasoned’. Thecase must be considered taking note of the ratio decidendiof the same i.e. the general reasons or the generalgrounds upon which the decision of the court is based,or on the test or abstract from the specific peculiaritiesof the particular case which finally gives rise to thedecision.


Criminal Trial – Practice and procedure :

The fundamental requirement is that a Judge presidingover a criminal trial has the sacrosanct duty todemonstrate that he applies the correct principles of lawto the facts regard being had to the precedents in thefield. A Judge trying a criminal case has a sacred duty toappreciate the evidence in a seemly manner and is notto be governed by any kind of individual philosophy,abstract concepts, conjectures and surmises and shouldnever be influenced by some observations or speechesmade in certain quarters of the society but not in bindingjudicial precedents. He should entirely ostracise prejudiceand bias. The bias need not be personal but may be anopinionated bias.

A criminal court while deciding criminal cases shall notbe guided or influenced by the views or opinionsexpressed by Judges on academic platforms. The viewsor opinions expressed by Judges, jurists, academicians,law teachers may be food for thought. Even thediscussions or deliberations made at the State JudicialAcademies or the National Judicial Academy at Bhopal,

only update or open new vistas of knowledge for judicialofficers. Criminal courts have to decide the cases beforethem examining the relevant facts and evidence placedbefore them, applying binding precedents. Judges’ oracademicians’ opinions, predilections, fondness,inclinations, proclivity on any subject, however eminentthey are, shall not influence a decision-making process,especially when Judges are called upon to decide acriminal case which rests only on the evidence adducedby the prosecution as well as by the defence and guidedby settled judicial precedents. The National JudicialAcademy and the State Judicial Academies shouldeducate judicial officers in this regard so that they willnot commit such serious errors in future, as in the instantcase.

It is the judge’s obligation to understand and appreciatethe case of the prosecution and the plea of the defencein the proper perspective, address the points involved fordetermination and consider the material and evidencebrought on record to substantiate the allegations andrecord his reasons with sobriety sans emotion. He mustconstantly keep in mind that every citizen of this countryis entitled to a fair trial, and further if a conviction isrecorded it has to be based on the guided parameters oflaw. And, more importantly, when the sentence isimposed, it has to be based on sound legal principles,regard being had to the command of the statute, natureof the offence, collective cry and anguish of the victimsand, above all, the ‘collective conscience’ and doctrineof proportionality. Neither his vanity nor his pride oflearning in other fields should influence his decision orimposition of sentence. He must practice the conscienceof intellectual honesty and deal with the matter with allthe experience and humility at his command. He shouldremind himself that some learning does not educate aman and definitely not a Judge. The learning has to beapplied with conviction which is based on proper rationaleand without forgetting that human nature has imperfectexpression when founded bereft of legal principle. Heshould usher in his individual satisfaction but adjudge onobjective parameters failing which the whole exercise islikely to be named ‘monstrous legalism’. A Judge, whileimposing sentence, should not be swayed away with anykind of sensational aspect and individual predilections.

[Om alias Omprakash and another vs. State ofTamil nadu (2013) (3 SCC 440)]

i i i

7

8

Glimpses of Supreme Court Rulings


Liability of Audit u/s 44AB when there isbusiness income.CIT v/s. Market Committee, Sirsa(2012) 210 Taxman 20 (P & H) (2012) 80 DTR (P& H) 213

Issue :

Whether liability u/s 44AB to get audit report extends toincome other than from Business or Profession?

Held :

Section 44AB is not applicable where there is no profitor gains of business or profession.

Chapter IV of the I.T. Act provides for ‘Computation oftotal income’. Sec. 44AB is one of the sections enactedunder chapter IV D dealing with computation of profitsand gains of business. Section 44AB becomes operativewhere profits and gains of business or profession arecomputed as a part of total income. In other words, ithas no applicability where the assessee is not involvedin or has no income from profits and gains from businessor profession.

Charitable Trust : Filing of Form No. 10 beforeassessment is made to be considered thoughfiled late :Asst. CIT v/s. Stock Exchange, Ahmedabad(2012) 210 Taxman 28 (Guj)

Issue :

Whether benefit of Form No. 10 is to be granted eventhough the same is filed late but before assessment iscompleted ?

Held :

The assessee filed Form No. 10 (Rule 17) along with therevised return. Thus evidently, the requirement of Sec.11(2) of the Act has been complied with beforecompletion of the assessment. Therefore, whilecompleting the assessments for the assessment yearsunder consideration, the A.O. had the necessaryinformation in respect of the claim for exemption u/s11of the Act made by the assessee before him. Thus,this is not a case where the information in respect of theclaim of the assessee for giving benefit of Sec. 11 of the

CA. C. R. [email protected].

Act was furnished after the assessments for the relevantassessment years were completed.

The assessee was therefore entitled to the benefit ofSec. 11 of the Act on the basis of the information suppliedby it prior to framing of the assessment orders.

Sec. 50C : Presumption in the case of purchaserCIT v/s. Khoobsurat Resorts (P) Ltd(2012) 211 Taxman 510 (Delhi) (2013) 82 DTR(Del) 290

Issue :

To what extent provisions of Sec. 50C are applicable tothe purchaser of the property?

Held :

A.O. added to Assessee’s income difference betweenconsideration mentioned in the sale deed andconsideration declared for the purpose of stamp duty.(Assessee is purchaser).

On appeal High Court has held as under :-

The Court is of the opinion that the express provision ofSec. 50 C enabling the revenue to treat the valuedeclared by an assessee for payment of stamp duty, ipsofacto, cannot be a legitimate ground for concluding thatthere was undervaluation, in the acquisition of immovableproperty. If parliamentary intention was to enable sucha finding, a provision akin to section 50C would havebeen included in the statute book, to assess income onthe basis of a similar fiction in the case of the assesseewho acquires such an asset. No doubt, the declarationof a higher cost for acquisition for stamp duty might bethe starting point of an inquiry in that regard, that inquirymight extend in analyzing sale or transfer deeds executedin respect of similar of neighboring properties,contemporaneously at the time of the transaction. Yet,the finding cannot start and conclude with the fact thatsuch stamp duty value or basis is higher than theconsideration mentioned in the deed. The compulsionfor such higher value, is the mandate of the Stamp Act.In the present case, the revenue did not rely on anyobjective fact or circumstances, consequently, the courtheld that there is no infirmity in the approach of thelower authorities and the Tribunal, granting relief to theassesse.

From the CourtsCA. Jayesh C. [email protected].

8

9

10




From the Courts

Remuneration to Partners u/s 40(b) and incomefrom Other Sources :Md. Serajuddin & Bros. v/s. CIT(2012) 210 Taxman 84 (Calcutta)(2012) 80 DTR(Cal) 46

Issue :

Whether income from other Sources is includible, incalculating remuneration to partners, and not onlyincome from business ?

Held :

Chapter –IV-D nowhere provides that method ofaccounting for the purpose of ascertaining net profitshould be only the income from business alone and notfrom any other sources of income. Sec. 29 provides howthe income from profits and gains of business or professionshould be computed. It is to be done as provided undersection 30 to 43D. By virtue of section 5 total incomeof any previous year includes all income from whateversource derived. Therefore, for the purpose of Sec.40(b)(v), read with Explanation there cannot be separatemethod of accounting to ascertain net profit and/or bookprofit. The said section nowhere provides that the netprofits as shown in the profit and loss account is not theprofit computed under the head ‘profits and gains ofbusiness or profession’.

It was held that even if the income from other sources isincluded in the profit and loss account to ascertain thenet profit qua the book profit for computation of thepartners’ remuneration, the same cannot be discarded.

Matching TDS claim with income :Laxmi Ventures (Bombay) P. Ltd. v/s. Dy. CIT(2012) 210 Taxman 560 (Bom)

Issue :

When the claim of TDS as per certificates does not matchwith the income shown therein, addition is justified ?

Held :

All three authorities under the Act had come to theconclusion that the assessee had sought higher deductionof tax at source by annexing TDS certificates and notreflecting the income as shown in the TDS certificates inits return of income. The Tribunal on consideration of allfacts had come to the conclusion that remanding thematter to the AO would not serve any purpose, as theassessee had consciously claimed credit of tax deductionon the basis of the TDS certificates and even enclosedthe same alongwith the return of income, but failed toshow it, as a part of the income. This entire excess incomeof Rs. 19.22 lakhs would not have come to light but for

the A.O. verifying each TDS certificate. The return ofincome was duly signed and verified by the directors ofthe company. In view of the above facts the Tribunalconcluded that no useful purpose would be served byremanding the matter back to the A.O.

On the basis of the record, these findings were to saythe least, reasonable. Indeed in view of the TDScertificates and the return of income filed, the conclusionof the Tribunal was justified.

Reopening : Meaning of Change of opinion :CIT v/s. Usha International Ltd.(2012) 253 CTR 113 (Del. F.B) (2012) 348 ITR485 (Del FB)

Issue :

What is the meaning of “change of opinion” in reopeningproceedings.

Held :

Full Bench of Delhi High Court has held as under :-(1) In case an issue or query is raised by the AO and

answered by the assessee in the original assessmentproceedings, and the AO. does not make anyaddition, it has to be accepted that the issue hasbeen examined and, therefore, reassessment on thesaid issue would be invalid.

(2) However, if new facts, material or informationcomes to the knowledge of the AO which was noton record and available at the time of assessment,the principle of ‘change of opinion’ does not apply.

(3) Once there has been a full and true disclosure of allmaterial and primary facts at the time of originalassessment u/s 143(3), and the assessment isreopened in respect of a matter covered by thedisclosure, it is a case of change of opinion and theassessment proceedings cannot be validly reopenedeven within four years.

Evidentiary value of statement recorded insurvey proceedings u/s 133-ACIT v/s. S. Khader Khan Son(2012) 210 Taxman 238 (SC) (2012) 224 CTR 228(SC)

Issue :

What is the evidentiary value of a statement recordedduring proceedings of survey u/s 133-A?

Held :

Section 133-A does not empower any ITO to examineany person on oath; so statement recorded u/s 133A hasno evidentiary value and any admission made during suchstatement cannot be made basis of addition.

i i i

11

13

12

14


Lenova (India) (P.) Ltd. V. ACIT 140 ITD 127(BANG.)Asst. Year. 2006-07, Order Dated: 16thMarch,2012

Basic Facts

The assessee was engaged in the business of

manufacture, import, marketing, distribution and export

of information technology systems, software and

maintenance services, etc. During the assessment

proceedings, the AO observed that the assessee had

entered into various international transactions with its

associated enterprises. In view of the same, he made a

reference to the TPO under sect ion 92CA for

determination of the arm’s length price (ALP) with regard

to the said international transactions. The TPO, after

considering the assessee’s contentions with regard to

various transactions, accepted the ALP determined by

the assessee in its section 92CA report in respect of 8

transactions but made TP adjustment with regard to (1)

sale of imported parts of raw-material; (2) purchase of

imported parts of raw material; (3) software license; and

(4) royalty paid. The TPO determined the ALP of the said

transactions as per the TNMM method and the TP

adjustment was reported to the AO. The AO, after taking

into consideration all the TP adjustments made by the

TPO, drafted the assessment order and furnished the

same to the assessee. Aggrieved by the said draft order,

the assessee approached the DRP which confirmed the

order of the AO. The AO, accordingly, passed the

assessment order making the TP adjustment. Aggrieved

by the same the appeal to the Tribunal was filed.

Issue

Whether where simi lar t ransac t ions wi th

associated enterprises for subsequent years have

been accepted by TPO without any ALP

adjustment, he should adopt TP analys isconducted by assessee for relevant assessmentyear also to be at ALP?

Held

The Tribunal held that there were many flaws in theTPO’s order which demonstrate that the facts of the casehave not been properly appreciated by the TPO whilemaking the TP study analysis. Another fact that theTribunal noted was that similar transactions with theassociated enterprises for the subsequent years havebeen considered by the TPO and have been acceptedwithout any ALP adjustments. There has to be a continuityand uniformity in the approach of the revenue towardsan issue and particularly in the case of the same assessee.In the case of the assessee, the adjustments have beenmade only for the relevant assessment year, whereassimilar transactions have been accepted to be at ALP forthe subsequent years even though the same method hasbeen followed by the assessee. When the facts andcircumstances are exactly the same, the revenue cannotbe permitted to take a different approach in two differentassessment years. In view of the same, the Tribunaldirected the AO to adopt the TP analysis conducted bythe assessee to be at ALP and make the assessmentaccordingly.

DCIT vs. Bisleri Sales Ltd. & ORS 151 TTJ 285(Mum)Asst. Year 1999-2000, Order Dated: 30thNovember, 2012

Basic Facts

Assessee is engaged in the business of trading aeratedwater and carbonated soft drinks. It had entered intoseparate agreement with M/s Hindustan Coca ColaBottling North- West (P) Ltd for sale of sales generatingassets, purchase of goodwill & desisting from utilizing ofbusiness know-how. The proceeds received from salesgenerating assets was credited against the block of assetswhereas the amounts received on sale of goodwill &restraint covenants amounting to Rs.6 crores werecredited directly to the capital reserve account in theBalance sheet and were not considered for MAT. TheAO rejected the assessee’s contention and added Rs. 6crore to book profit u/s 115JA. Aggrieved assesseeappealed in CIT(A) and assessee appeal is allowed.

CA. Yogesh G. [email protected]

Tribunal News CA. Aparna [email protected]

7

8




Tribunal News

Issue

Whether amount received towards goodwill andrestraint covenant and credited to capital reserveaccount directly in the balance sheet and notcredited to P&L a/c can be inc luded in bookprofit for computation of MAT liability?

Held

The AO had heavily relied upon cl.(b) of Explanation toS. 115JA which provides that the amount carried to anyreserve by whatever name called should be increased inthe book profit. The explanation is very clear that bookprofit means net profit as shown in the P&L a/c whichhas been prepared in accordance with the provision ofparts of II and III of sch. VI to the Companies Act, 1956and such profit has to be increased and reduced in viewof the provisions given in the explanation. The Explanationpre-supposes that the amount received should be debitedto the Profit &Loss Account and if the same has not beendebited and has been directly taken to the capital reserveaccount in the balance sheet, the same cannot betinkered with so as to include it in the Profit & LossAccount. Otherwise, it will enhance the scope of the AOto re-work the net profit arrived at by the company whichhas been certified by the prescribed authority and dulyapproved by the company in its general meeting. Thusdepartment appeal was quashed.

Mastek Ltd. vs. DCIT 151TTJ484 (AHD)Asst. Year. 2002-03 to 2004-05, Order Dated:11th May, 2012

Basic Facts I

For AY 2002-03, 2003-04 and 2004-05, the assesseeentered into international transactions with various AEs.When a reference was made to the TPO, it was notedthat the assessee had incurred certain costs on travellingof seconded employees. The assessee had a regularpractice of seconding various persons to its AEs locatedat USA, UK, Belgium, Singapore and Malaysia. In allthese cases, the persons ceased to remain on theassessee’s payroll and were shifted to the payrolls of theAEs. All costs for performing onsite activities were borneby the AEs. The entire revenues were also billed by theAEs on the customers in their own accounts.TPO tookthe view that any expenditure incurred for transportationof these seconded persons to the AE’s location, shouldbe borne by the AE and not the assessee. Accordingly,the TPO proposed an addition to the assessee’s income.On first appeal, the CIT(A) confirmed the addition.

Issue

Whether adjustment made towards the travellingcost of the seconded employee in determinationof ALP is justified?

Held

The tribunal noted that in case of onsite activities therevenue was earned by AE’s and accordingly in its viewthe expenses should also be borne by the AE’s. Thepurposes of travel of the secondees from India to therespective locations of AEs were to render on-siteservices. It was further noted that the travel expenses ofemployees returning to India was borne by the AE’s.While upholding the TPO’s stand the Tribunal rejectedassessee’s arguments that when the persons wereseconded, they get good field experience and some ofthose persons returned to the assessee later and work inits offshore projects thereby the assessee would be ableto utilize their experience for its benefit.

Basic Facts II

The TPO had disallowed legal fees paid to Baker &Mackenzie, which were paid in connection withincorporation of its subsidiary in Belgium. The assesseehad not recovered this expenditure from its AE, nor had itdisclosed it as an international transaction in Form 3CEB.The assessee argued that on a bonafide belief, it hadconsidered the fees to be genuine business expenditureand hence had not treated it as an international transaction.The CIT(A) ruled against assessee.

Issue

Whether TPO was justified in treating the legalcosts as recoverable from AE ?

Held

It is an undisputed fact as admitted by the assessee beforethe TPO that on a bona-fide belief it had considered it asa genuinebusiness expenditure incurred on commercialconsideration andmagnanimously conceded that it hadneither treated the same as anexpenditure relating to AEnor recovered the same from the AE. Inview of the aboveconfession, tribunal was of the considered view thatthelearned TPO was correct to treat costsrecoverable fromAE in accordance with the arm’s length principle.Whiledeciding he issue against the assesse, the tribunal observedthat the assesse has not brought on record anydocumentary clinching proof to repudiate the TPO’s stand.

Basic Facts III

The assessee, paid certain taxes in Belgium and claimeddeduction for the same u/s 37. The assessee argued that

9


Tribunal News

only Indian income-tax, levied on the profits and gainschargeable under the Income-tax Act, was not deductibleas per Sec 40(a)(ii). All other taxes levied in foreigncountries whether on profit or gain or otherwise weredeductible u/s 37 and the payment of such taxes did notamount to application of income.The AO howeverrejected the assessee’s claim.On first appeal, the CIT(A)ruled in favour of the assessee.

Issue

Whether foreign taxes paid are deductible u/s 37?

Held

From due consideration of the provisions of s.37 ands.40(a)(ii) of theAct as well, it emerges that u/s 37, alltaxes and rates are allowableirrespective of the placewhere they are levied i.e., whether on Indiansoil oroffshore, whereas u/s 40(a)(ii) of the Act, income-taxwhich is atax leviable on the profits and gains chargeableunder the Act is(sic- not) deductible. On the other hand,all other taxes levied in foreigncountries whether on profitsor gains or otherwise are deductibleunder the provisionsof s. 37 of the Act and payment of such taxesdoes notamount to application of income. The stand of CIT(A) infavour of assessee was justified.

Basic Facts IV

Another addition was made to the assessee’s incomewas on account of interest receivable on advances madeto the employees. The assessee gave advances to enablethe seconded employees to meet the requirements oflodging, boarding, food etc. during the first few days inthe AE’s country. The advance was recovered from thesalary of the employees and remitted to the assessee.The TPO took the stand that AE should bear the interestfor the period the advance were given to the secondedemployees till the date of remittance back to the assesse.The CIT(A) directed AO to delete the said adjustment.

Issues

Whether adjustment on account of unrecoveredinterest cost is justified ?

Held

Assessee has not furnished details of interest, if any,charged by it on the advances given to the persons senton the secondment to the AE. Also advances equivalentto three months’ salary have been given to the secondedemployees & that the same remained outstanding for anaverage period of three months. Hence the TPO’s standof an upward adjustment on account of interest cost notrecovered from AE’s for settling advance given wasconfirmed by Tribunal.

E.K.K. & Co. vs. ACIT CIT 151 TTJ 790(COCH)Asst. Year 2009-10, Order Dated: 16thNovember, 2012

Basic Facts

The assessee uploaded the return electronically on 25-9-2009. Though there was a controversy on the date ofdispatch of form ITR-V, the fact was that CPC admittedlyreceived it on 29-11-2010. However, it was noted thatin terms of Circular No. 3 of 2009, the time limit forfiling of form ITR-V was extended up to 31-12-2010 or120 days from the date of uploading of the returnwhichever was later. The Assessing Officer served noticeon the assessee under section 143(2) on 26-8-2011 andalso passed order, thereunder. According to the assesseesince ITR-V was received by the CPC before 31-12-2010,the date of filing of return had to be taken as 25-9-2009when it was electronically uploaded and not 29-11-2010and therefore, the notice issued was beyond the periodprovided of six months as provided under proviso to section143(2) and consequently the order passed by the assessingofficer was without jurisdiction.

Issue

Whether notice under sec. 143(2) served to theassessee beyond the period of six months fromthe end of financial year in which the returnwas furnished is valid?

Held

According to the CBDT Scheme framed in this respect,wherever the return is filed electronically without digitalsignature, the computer, on successful transmission, shallgenerate acknowledgement in form ITR-V which shallbe physically verified by the taxpayer and forwarded tothe CPC. Same is also mandatory. The period specifiedwas 31-12-2010 or 120 days from the date of uploadingthe return whichever is later. Since ITR-V, received byCPC on 29-11-2010, was within the prescribed time inthe prescribed manner and in the prescribed form, hencefor all practical purpose the date of filing of the returnshall relate back to the date on which the return waselectronically uploaded i.e. 25-9-2009. In view of above,the notice served on the taxpayer was beyond the periodof six months from the end of the financial year in whichthe return was furnished and therefore, was invalid andcould not be acted upon. Consequently the assessmentorder passed was to be quashed.

10


Global E-Business Operations (P) Ltd. vs. DCIT151 TTJ 19 (BANG)(UO)Asst. Year 2007-08, Order Dated: 4th JULY, 2012

Basic Facts

Assessee was engaged in the business of providing dataprocessing and other IT enabled services to HP group ofcompanies. HPAP (HK) was one of group companies ofHP. There was an agreement between the assessee andthe HPAP (HK), whereby they agreed to provide certainservices to the assessee, like Work force developmentservices, logistics services, IT support services, financialservices, relocation services etc. The assesse madepayment to HP AP (HK) without deducting tax at sourceon the ground that such payments were reimbursementof relocation expenses and reimbursement of paymentsmade towards employees’ awards. The AO held theseexpenses to be FTS and for want of evidence rejectedassessee’s claim of reimbursement of expenses eventhough copies of sample invoices evidencingreimbursement were filed with the AO. The CIT(A)confirmed the order of the AO and levied interest u/s201(1A) after treating the assesse to be ‘an assesse indefault’ under section 201(1) of the Act.

Issue

Whether when evidence filed by assessee givingof breakup of payments demonst ra ted thatpayments made were reimbursement of expensescan assessee be treated as assesse in defaultunder section 201?

Held

The assessee has given a break up of remittances madeto HPAP (HK). To demonstrate the fact that the paymentswere purely reimbursement of expenses incurred byentities of the HP group worldwide on behalf of theassessee which have been collated by HPAP (HK) thedetails of sample employees like invoices forreimbursement made to sample employees have beengiven. The AO has not examined the claim of the assesseein a proper perspective. Another reason given was thatno independent audit was carried out in respect of theremittances. It is held that the evidence filed by theassessee before the revenue authorities amplydemonstrates the plea of the assessee that theremittances were purely reimbursement of expenses withno element of income embedded in such payments. It isheld that there was no obligation to deduct tax at sourceand, consequently the assessee could not be treated as‘an assessee-in-default’ under section 201(1) andconsequently the levy of interest under section 201(1A)cannot also be sustained.

Tribunal News

GE India Industrial (P) Ltd. Vs CIT 152 TTJ 536(Ahd)Asst.Year2004-05, Order Dated: 4thJanuary, 2013

Basic Facts

Assesse company is engaged in manufacturing and tradingof electrical lamps, critical locomotives etc. Assessmentwas made u/s 143(3) and various adjustments/disallowancewere made to the returned income. Aggrieved assesseeappealed to the CIT(A) who deleted disallowance,however he enhanced the income of the assessee. TheCIT(A) also initiated penalty proceedings with respect tothe enhanced income. In reply to the show cause notice,the assesse requested the CIT(A) to stay the penaltyproceedings since it was to file appeal before tribunal inquantum proceedings. This request of the assesse wasnot accepted by the CIT(A) hence stay petition was filedby assesse before the Tribunal.

Issue

Whether penal ty proceedings under sec t ion271(1)(c) initiated by the CIT(A) can be stayedtill disposal of quantum appeal by the tribunal?

Held

As per provisions of s. 275(1)(a) AO cannot pass an orderimposing penalty u/s. 271(1)(c) till relevant assessmentis subject-matter of appeal before CIT(A). By the sameanalogy assessee’sprayer for stay of penalty proceedingundertaken by CIT(A) till the disposal of appeal by thetribunal doesn’t appear to be unreasonable. Further, thereis no dispute about the fact that as per the provision of s.275(1)(a),CIT(A) will get six months’ time to dispose ofthe penalty proceeding from the endof the month inwhich the order of the tribunal is received by the CIT orthe chief CIT. In view of these facts the tribunal was ofthe opinion that if CIT(A) was allowed to proceed withthe penalty proceedings, prejudice will be caused to theassessee as it will have to face multiplicity of proceedings.The Tribunal therefore to prevent multiplicity ofproceedings and harassment to the assesse, directed theCIT(A) to keep the penalty proceedings in abeyance tilldisposal of quantum appeal by tribunal. In the result stayapplication filed by the assesse is allowed.

DDIT vs. Lucent Technologies International SalesLtd. 55 SOT 271 (Delhi)Asst. Year 2002-03, Order Dated: 24th August, 2012

Basic Facts

The assessee-company registered in U.S.A. belonged tothe ALU group. During the year under consideration,the assesseesupplied telecom equipment’s to various

11 12

13


Indian companies. AO found that ALU overseas entitiesincluding the assessee had a permanent establishment(PE) in India. The AO determined net income chargeableto tax as attributable to PE in India at the rate of 2.5 percent of the sales made by the assessee in India.Accordingly, assessment was framed and interest waslevied u/s 234A, 234B and 234C. Before the CIT(A) theassessee questioned the levy of interest under section234B. The CIT(A) being convinced with the contentionof the assessee had deleted the interest levied undersection 234B following the decision of Jurisdictional HighCourt of Delhi in the case of DIT v. Jacabs CivilIncorporated/Mitsubishi Corpn. Aggrieved by the samethe revenue went in appeal before the ITAT.

Issue

Whether if payer has defaulted in deducting taxat source from payment made to non-resident,can non-resident be liable to pay advance tax?

Held

The Tribunal held that the combined reading of theprovisions of section 209(1)(d) with the provisions ofsection 234B makes it clear that the liability to pay interestu/s 234B would arise only if advance tax is payable aftermaking the necessary adjustment for tax deductible atsource. The undisputed fact in the present case remainedthat the tax on the entire income received by the assesseewas required to be deducted at appropriate rates by therespective payers under section 195(2). Had the payermade the deduction of tax at the appropriate rate, thenet tax payable by the assessee would have been Nil.Thus, there was no liability to pay advance tax by theassessee. Under similar factsthe High Court of Delhi inthe case of Jacabs Civil Incorporated/Mitsubishi Corpn.had held that section 195 puts an obligation on the payeri.e. any person responsible for paying any tax at sourceat the rates in force from such payments and if payerhas defaulted in deducting tax at source, the departmentcan take action against the payer under the provisionsof section 201. In such a case, the non-resident is liableto pay tax but there is no question of payment of advancetax and, therefore, it cannot be held liable to pay interestunder section 234B on account of default of the payer indeducting tax at source from the payments made to thenon-resident. Hence, the Tribunal dismissed the appealof the revenue.

Ramakrishna Vedanta Math V. ITO 55 SOT 417(Kolkata – Trib.)Asst. Year. 2005-06, 2006-07 & 2008-09, OrderDated: 31st July, 2012

Basic Facts

The assessee a charitable trust had made severalpayments towards charges for book binding, printing,advertisement and publicity, bus hire etc. withoutdeducting tax at source. The AO was of the opinion thatthe assessee be treated as assessee-in-default for suchnon-deduction of TDS and the same be recovered undersection 201(1), along with interest under section 201(1A).The assessee contended that since the recipients hadpaid tax on income embedded in such payments, thetaxes could not once again be recovered from theassessee. Rejecting assessee’s plea, AO held that theassessee was not able to prove that taxes on incomeembedded in such payments had duly been paid by therecipients.Further, assessee’s request to the AO tousehis statutory powers to corroborate from the payerswhether they have paid tax on their account’ was alsorejected.The CIT(A) upheld the AO’s stand.

Issue

Whether once assessee furnishes lawful lymaintained information about rec ipients AOshould ascertain related facts about payment oftaxes directly from rec ipients before invokingsection 201(1)?

Held

As far as recovery provisions are concerned, theseprovisions are set out in section 201(1) which seeks tomake good any loss to revenue on account of lapse bythe assessee tax deductor. However, the question ofmaking good the loss of revenue arises only when thereis indeed a loss of revenue and the loss of revenue canbe there only when recipient of income has not paid tax.Therefore recovery provisions under section 201(1) canbe invoked only when loss to revenue is established andthat can only be established when it is demonstratedthat the recipient of income has not paid due taxesthereon. In the absence of the statutory powers torequisition any information from the recipient of income,the assessee is indeed not always able to obtain the same.The provisions to make good the shortfall in collection oftaxes may end up being invoked even when there is noshortfall in fact. On the other hand, once assesseefurnishes the requisite basic information, the AO can verywell ascertain the related facts about payment of taxeson income of the recipient directly from the recipients ofincome. It is not the revenue’s case that on the facts ofthis case such an exercise by the AO was not possible. Itdoes put an additional burden on the AO before he caninvoke section 201(1).The matter was restored to thefile of the AO in the light of above observations.

i i i

14

Tribunal News


In this issue we are giving gist of the decisionrendered by the Hon’ble Gujarat High Court in thecase of Heavy Metal & Tubes Limited relating toreassessment u/s 147 on the issue for which detailswere called for in the original assessmentproceedings, such details were supplied, but nocognizance of the same was taken by A.O. at thetime of original proceedings.The Hon’ble Highdealt with several decided cases to quash suchnotice u/s 148 on the ground of change of opinion.We hope the readers would find the same useful.

In the High Court of Gujarat at AhmedabadSpecial Civil Application No. 2463 of 2013

=========================================================================Heavy Metal & Tubes Limited…… Petitioner(s)

Versus

Deputy Commissioner of Income Tax AhmedabadCircle-4 & 1 ….Respondent(s)

=========================================================================Appearance :

Mr. R.K. Patel, Advocate for the Petitioner(s) No. 1

Mrs. Mauna M. Bhatt, Advocate for the Respondent(s)No. 1===========================================================================

Coram : Honourable Mr. Justice Akil Kureshiand

Honourable Ms Justice Sonia Gokani

22nd April, 2013

Oral Order [Per: Honourable Ms. Justice Sonia Gokani]

Gist of the Judgment

In this Writ Petition under Article 226 of the Constitutionof India, the Petitioner challenged the noticed dated 12/3/2012 u/s 148 of the Act and also pending the hearingand final disposal of the writ petition request court todirect the respondent [Assessing Officer] not to proceedwith the assessment u/s 147 and also to restrain himfrom taking any further proceedings under the IncomeTax Act.

CA. Sanjay R. [email protected]

Brief facts of the case are as under:

i) The petitioner-Company for A.Y. 2008-09 had filedits return of income with relevant documents. TheAssessment was framed u/s 143(3) after issuingnotice us/ 142(1) wherein a specific query regardingaccounting of indirect taxes, rates applicable andstatements showing that the accounting system doesnot affect the profits of the company were calledfor by the A.O.

In response to the same, detailed submissions weremade by the petitioner and the relevant details werefiled.

ii) The A.O. framed the assessment u/s 143(3) on 27/12/2010 makings disallowance of Rs.7.90 crores.However, he did not dwell on the point about thetreatment of accounting of indirect taxes, etc. forwhich he had sought the information from thepetitioner.

iii) Thereafter, on 12/3/2012, i.e. within 4 years of theAssessment Year, the A.O. issued notice u/s 148 ofthe Act for re-opening of the assessment. In thereasons recorded for re-opening, he mentioned thatassessee is following exclusive method of accountingfor CENVAT. From financial accounts of the assessee,it is noticed that the CENVAT receivables as on 01/04/2007 was of Rs.88,03,406/- and as on 31/03/2008 was of Rs.5,57,57,871/-. As per provisions ofsection 145A of the IT Act, the difference ofRs.4,69,54,465/- is to be included in the closing stockof the assessee. The assessee had not included theamount of Rs.4,69,54,465/- in its closing stock.Therefore, its income was under assessed by amountof Rs.4,69,54,465/-.

In view above, A.O. felt he has reason to believethat the income of the assessee is under assessedby amount of Rs.4,69,54,465/-.

iv) The petitioner objected to the same on the groundthat it is merely change of opinion since the A.O.had already called for information relating to thesame in the course of scrutiny assessment u/s 143(3)

Unreported Judgements



and also that following the exclusive method ofaccounting there would not be any change in theprofit of the year even if the A.O. makes thecomputation on the basis of inclusive method ofaccounting.

v) The department argued that the A.O. had not formed

any opinion in respect of this issue in scrutiny

assessment u/s 143(3) and also because

reassessment is initiated within period of four years,

the notice u/s 148 is valid notice.

vi) The petitioner argued that even if notice is within

period of four years, the issue having been examined

by the A.O. in scrutiny assessment, he had already

formed an opinion and the fact that there was no

discussion in the assessment order should not matter.

He also raised second contention that notice has

been issued because of audit objection and hence

there is no application of mind by the learned A.O.

and hence the same should be quashed.

Decision of the Hon’ble High Court

The Hon’ble Court observed as under :

i) The A.O. at the time of original assessment had

called for details from the assessee in respect of the

unutilized CENVAT credit as well as the treatment

of indirect taxes with reference to provisions of

section 145A, which was duly complied with by the

petitioner. The A.O., however, chose not to deal

with the same in his order u/s 143(3).

ii) Under such circumstances, the Hon’ble Gujarat High

Court followed its decision in the case of Lanxes

ABS Limited v/s DCIT [Special Civil Application

No.17530 of 2011 : decided on 11th April, 2012],

wherein they had dealt with an identical issue

whereby following Supreme Court decision in the

case of CIT v/s Kelvinator of India Limited 2 SCC

273, CIT v/s Eicher Ltd. 294 ITR 310 (Delhi) and

also Gujarat High Court decision in the case of

Gujarat Power Ltd. v/s ACIT 350 ITR 266 held that

when the A.O. has called for the details and not

discussed in the order in the original proceedings,

later on for the same issue he cannot reopen the

assessment.

Unreported Judgements

iii) In view of the aforesaid decisions, the Gujarat High

Court observed as under :

“In light of the afroementione discussion, it could

be held that the Assessing Officer has sought to

reopen the assessment previously framed. The very

issue of accounting treatment that the unutilized

CENVAT credit should receive for the purpose of

valuing the closing stock has been examined by the

Assessing Officer. Entire relevant materials had been

placed before him. No addition on this count was

made, without of course, giving any reasons. In other

words, Assessing officer, for whatever reasons has

chosen not to opine after having made the scrutiny

on the very issue of the accounting method. In

absence of any tangible material that existed already

before the Assessing Officer, the notice for reopening

issued by the Assessing Officer should be held to

have been based on mere change of opinion. In the

instant case, we are of the firm opinion that the

Assessing Officer cannot be permitted to go ahead

with the re-assessment proceedings, in view of the

fact that he raised the query as to why unutilized

CENVAT credit should not be included in the closing

stock. He was aware fully regarding the

accountability of CENVAT credit, its utilization and

the fact that no wrong benefit was availed by the

assessee. He still preferred not to make any addition

on account of accountant ability of such credit and

hence, he must be held to have formed an opinion

and this exercise is nothing but an attempt to review

its own order, which is impermissible under the law.”

“As a parting note, it is needed to be mentioned

that one of the issues raised by the petitioner is of

notice of reopening having been issued only on the

basis of audit objections and this has not been

objected to by the otherside since on the first ground

itself we have found the notice not sustainable under

the law, we have chosen not to dwell further into

the second objection raised.”

In the result, Writ Petition was allowed and the noticeu/s 148 was quashed.

i i i


CA. Nehal H. [email protected]

InternationalTaxation CA. Dhinal A. Shah

[email protected]

Delhi Tribunal rules on attribution of profits to an Indianpermanent establishment of a US company

This article summarizes a recent ruling of the Delhi Income

Tax Appellate Tribunal (Tribunal) in the case of ConvergysCustomer Management Group Inc. (Assessee) on the issueof attribution of profits to a permanent establishment (PE)

in India under the India-US Double Taxation AvoidanceAgreement (DTAA). The Assessee, who is engaged in

providing customer management services, outsourced theprovision of some of the services to its subsidiary in India

(IndCo). Under the facts of the case, after holding that theAssessee has a fixed place PE in India, the Tribunal had todecide on the extent of profits to be attributed to the PE.

As a general principle, the Tribunal recognized that

attribution of profits to the PE is a transfer pricing issue andno further profits can be attributed to a PE once an arm’s

length price has been determined for IndCo, if the transferpricing analysis subsumes the risk profile of the PE. TheTribunal also observed that in the facts of the case the risk

of service delivery resides outside India and cannot thereforebe attributed to the PE. The Tribunal however ruled that

some part of the residual profits earned by the Assesseefrom the contracts that were outsourced to IndCo should

be attributed to the PE. Accordingly, the Tribunal held thatan attribution of 15% of the residual profits, determined byapplying the global operating income percentage to the

revenues from contracts outsourced to IndCo, as reducedby the operating profit of IndCo, would be a reasonable

basis for attributing profits under the facts of the case.

Background and facts

The Assessee, a tax resident of the United States,provides customer management services by utilizingadvanced information system capabilities, human

resource management skills and industryexperience.The Assessee has a subsidiary in India, IndCo. The

Assessee procures services fromIndCo on a principal-to-principal basis for providing services to its customers.IndCo functions a limited risk service provider to the

Assessee.

During the course of audit proceedings the TaxAuthority alleged that the Assessee has a PE under

the provisions of Article 5 of the DTAA. The TaxAuthority, for the purpose of attributing profits to thePE, allocated global revenue and expenses (excluding

direct expenses) in proportion to the number ofemployees considering all employees to be delivering

the same value to the revenue of the Assessee.

The Assessee filed an appeal before the Commissionerof Income-tax (Appeals), which is the first appellate

authority, against the assertion of PE and the approachadopted for attribution of profits.

The First Appellate Authority upheld the Tax Authority’sposition that the Assessee has a PE in India. With regard

to profit attribution to the PE, The Appellate Authorityheld that no further profits can be attributed to the

Assessee’s PE to the extent that the transfer pricinganalysis of IndCo has already captured such functions,assets and risks. However, further profit was required

to be attributed on account of:

Certain assets of the Assessee being deployed inIndia.

Entrepreneurial services tomanage risk related to

the service delivery are performed by the Assesseein India.

In computing the profits to be attributed, the FirstAppellate Authority considered total revenue of

Assessee pertaining to contracts/ projects in respect ofservices were procured from IndCo. However, while

computing profits, the First Appellate Authority did notallow deduction for expenses such as research anddevelopment, depreciation, amortization etc. The

Appellate Authority also considered only 50% of selling,general and administrative expenses and limited the

quantum of deduction for “head office” expenses tothe ceiling prescribed under domestic tax law.

The Assessee filed an appeal against the order of the

First Appellate Authority before the Income-tax




Appellate Tribunal regarding the PE determination as

well as the approach to attribution of profits to the PE.The Tax Authority also filed an appeal before theTribunal against the First Appellate Authority’s order

for changing the Tax Authority’s approach to profitattribution.

Before the Tribunal, in addition to advocating a number

of arguments to support its position of not having aPE as well on the inappropriateness of the profit

attribution methodology adopted by the Tax andAppellate Authority, the Assessee also pointed outthat while on one hand additional profits have been

attributed to the alleged PE of the Assessee in India,on the other hand a transfer pricing adjustment has

also been made in the hands of IndCo. Thus, the sameincome attributable to India has been taxed twice, oncein the hands of the Assessee, as a PE and then in the

hands of IndCo as a transfer pricing adjustment.

Tribunal’s ruling

The Assessee’s employees frequently visited thepremises of IndCo and some of its seconded employees

worked in keypositions such as Country Head,Managing Director etc. of IndCo. Accordingly, as suchemployees have a “fixed place” at their disposal and

IndCo as a practical matter was the projection of theAssessee’s business in India, the Assessee had a fixed

place PE in India.

The methodology adopted by the Tax Authority andthe First Appellate Authority for attribution of profits to

a PE cannot be accepted as they have consideredrevenue of the Assessee as the starting point for arrivingat the profits attributable to the PE of the Assessee in

India. The revenue of the Assessee cannot beconsidered as the revenue of the PE. The attribution of

profits to the PE should be based on transfer pricingprinciples as held by the Supreme Court of India in thecase of Morgan Stanley Inc.

The view espoused by the FirstAppellate Authority

that further profit is to be attributed on account ofentrepreneurial services to manage risk by the Assessee

in India is not appropriate since IndCo is remuneratedon a cost plus basis irrespective of the service delivery.Therefore, his risk resides outside India. Even otherwise,

the charge for the seconded employees/employees

visiting India to provide technical services is subsumed

in the TP analysis of the IndCo. An overall attributionof profits to the PE is a transfer pricing issue and nofurther profits can be attributed once an arm’s length

price has been determined for IndCo, as the transferpricing analysis subsumes the risk profile of the PE.

Thus, there can be further attribution only on accountof providing “free of cost” assets and software.

The correct approach to arrive at the profits attributable

to the PE is as under:

Step 1: Compute global operating income/profit

percentage of a particular line of business as perannual report of the Assessee.

Step 2: This percentage should be applied to the

end customer revenues with regard to contracts/projects where services are procured from IndCo.

The amount arrived at is the operating income/profits from Indian operations.

Step 3: Operating income/ profits from Indiaoperations is to be reduced by the profit before

tax of IndCo. This residual profit, which representsincome of the Assessee is to be apportioned

between US (Head Office) and India (PE).

Step 4: Profit attributable to the PE should beestimated on residual profits.

In providing the above approach, the Tribunal observed asfollows:

The Tax Authority’s estimation involves an unrealistic

method of counting the worldwide number ofemployees and dividing it with the Assessee’s global

revenue without considering the relevant aspects. Thefiner and material aspects about the status and capacityof the employees are overlooked and the results

become very vague and distorted. Therefore, themethod adopted by the Tax authority cannot be relied

on as the most appropriate method.

Though the First Appellate Authority accepted theproposition that there cannot be notional addition toIndia revenue, however, his method also does not

become rational as deduction for various expendituresincurred by Assessee such as research and

International Taxation

contd. on page no. 119


Issue:

Whether the expenditure incurred on the buy-back of equity shares will be treated as Revenue

Expenditure or Capital Expenditure?

Proposition:

When expenditure is incurred in-connection with buy backof shares there is no increase in the capital employed.

Such an expenditure must be treated as revenueexpenditure as it cannot be said that in such a casecompany has acquired benefit or advantage of enduring

nature because total fund which will be available withthe Company would not be increased but will be reduced

and so it is proposed that the expenditure incurred onbuy back of equity share is deductible as revenueexpenditure.

View against the proposition:

If an expenditure which is incurred in-connection with

equity share capital of the company such expendituremust be treated as Capital expenditure. There are two

conditions to be applied for treatment of capitalexpenditure v/s. revenue expenditure in-connection with

the equity shares of the Company.

1] When expenditure is incurred on issue of equityshares Supreme Court has decided in 60 ITR 52that expenditure incurred on issue of equity shares

results into advantage of enduring nature in thecapital field and hence, it is capital expenditure.

2] If expenditure is incurred in-connection with the

equity structure of the Company i.e. change inauthorized capital then though company does not

receive any funds, such an expenditure must betreated as capital expenditure.

In the case of Punjab State Industrial DevelopmentCorporation 225 ITR 792 (SC) a Bench of 3 judge

resolved a long standing issue relating to fees paid toRegistrar of Companies for enhancement of capital byholding that it is capital expenditure.

The Supreme Court in Brooke Bond India Ltd. v. CIT[1997] 225 ITR 798, 801 (SC) rendered on 27th February,1997, while following the decision in Punjab StateIndustrial Development Corporation’s case (supra), hadindicated a possible exception in cases where suchexpansion was for purposes of meeting the need forworking funds of the assessee company. After citing sucha claim by the assessee in this case, it dismissed theclaim only on the ground that in the statement of thecase, the Tribunal did not indicate a finding that theexpansion was for meeting working capital needs andhence it concluded “we, therefore, cannot proceed onthe basis that the expansion of the capital was undertakenby the assessee for the purpose of meeting the need forworking capital funds of the assessee to carry on itsbusiness.” In CIT v. Hindustan Insecticides Ltd.[2001] 250ITR 338 (Delhi), following these two decisions, theamount was disallowed and it was further found thatsuch amount would not be admissible on a staggeredbasis even under section 35D in view of the fact that itwas limited to the circumstances cited therein and notfor mere expansion of the capital base. Section 35D wouldallow amortization of such expenses incurred at the timeof initial setting up or in connection with setting up anew industrial unit but not for meeting the expendingneeds of the business.

Deductibility of cost of issue of equity shares for raisingworking capital was the issue raised in B.S.L.Ltd. v. CIT[2004] 267 ITR 754 (Cal) on the basis of an observationin Brooke Bond India Ltd.’s case (supra), where a claimfor exception for share capital issues for working capitalwas not entertained, because there was no factual findingin the order of the Tribunal to justify such a claim. Theargument on the part of the taxpayer in this case on thisbasis was, that the Supreme Court had indicated itsreadiness to accept the claim for deduction, if it were forraising working capital. This argument was not foundacceptable to the High Court, especially in the light ofanother decision of the Supreme Court in Punjab StateIndustrial Development Corporation Ltd.’s case (supra)laying down the broader proposition, that expansion ofcapital base is on capital account for the enduringadvantage of the business.

CA. Kaushik D. [email protected].

Controversies



Controversies

In Mohan Meakin Breweries Ltd. v. CIT 117 ITR 505, theassessee company paid a sum of Rs.30,000 to the Registerof Companies as a fee for the increase of its authorizedcapital from Rs.1 crore to Rs.5 crores and claimed thesame as revenue expenditure incurred by it in the courseof carrying on its business under section 37(1) of theIncome-tax Act, 1961 which was not accepted by thecourt.

The Himachal Pradesh High Court held that once thelimit of the authorized capital of the company was raisedto Rs.5 crores, the company would be entitled to issuefresh shares and thereby to increase its capital. Byincreasing its capital the company would be enabled tohold a more extensive business than it was holding before.Therefore, the increase in the limits of its authorizedcapital would not only increase its capital but would alsoresult in an advantage of enduring nature. The advantagewas so enduring that it would last till the company itselfwas alive.

The Court concluded that the expenditure of Rs.30,000/- for increase of its authorized capital incurred by theassessee-company was, therefore, one of the capitalnature and could not be allowed as a deduction undersection 37 of the Act.

A similar view was taken by the Punjab and HaryanaHigh Court in Groz-Beckert Saboo Ltd. v. CIT 160 ITR743, wherein it was held that the fee paid under theCompanies Act for increasing the share capital was anexpenditure of capital nature and not allowable asbusiness expenditure. Thus expenditure incurred inconnection with capital structure of the company wasdisallowed.

In Ahmedabad Manufacturing and Calico Pvt. Ltd. v.CIT 162 ITR 800, the Gujarat High Court laid down thatexpenses incurred in connection with the issue of bonusshares are incurred by the company for its permanentstructure and are directly connected with the acquisitionof capital and advantage of an enduring nature. It is,therefore, not deductible as revenue expenditure.

In CIT v. Commonwealth Trust Ltd. 167 ITR 365expenditure was incurred for the purpose of changingthe capital structure of the assessee company andtransferring them to Indian citizens, thereby convertingwhat was a non-resident company into a residentcompany. The expenditure was incurred for creating orcuring or perfecting title to the share capital of the

company in accordance with the requirement of thestatute and not for the protection of the business of thecompany. The Kerala High Court held that theexpenditure incurred was capital in nature and was notdeductible as business expenditure.

Thus, it is submitted that if any expenditure is incurredin-connection with capital structure of the company theexpenditure structure has to be disallowed treating it ascapital expenditure.

View in favour of the Proposition:

The Supreme Court decided in the case of CIT vs. IndiaCement 60 ITR 52 that the expenditure incurred on issueof equity shares has to be treated as capital expendituresince funds obtained by the company gives advantageof enduring nature to the company. However, when buyback of shares take place there is no question of companyderiving any advantage of enduring nature since, it doesnot receive any fund on such buy back on the contraryfunds of the company get reduced.

In the case of Britannia Industries Ltd the Kolkata ITATwhile confirming the order of the CIT(A) and dismissingthe appeal of revenue held that the expenses for buybackof shares are revenue expenses.

In the case of CIT Vs. General Insurance Corporation(2008 -TMI - 6547 - Supreme Court) has held thatexpenditure on bonus share is not a capital expenditureas there is no increase in the capital base of the companybecause existing free reserves of the company are utilizedfor issue of bonus shares.

The Bombay Burmah Trading Corporation Ltd. hasincurred the following expenditure in connection withthe issue of Bonus Shares and splitting up of shares, whichmainly included printing and stationery and postage andtelegrams and the company had also incurred legalexpenses. The above expenditures were disallowed bythe assessing officer treating them as capital in nature.The company appealed before the Bombay high courtand finally considering the facts the High court allowedthe expenditure u/s 37(1) of the Income-Tax Act. [BombayBurmah Trading Corporation Limited v. CIT, 145 ITR 793(Bom.)]

The Supreme Court has now upheld the decision renderedby the Bombay High Court in CIT Vs. General InsuranceCorporation [2006] 286 ITR 232 (SC) and therefore thefiling fees, stamp duty and registration charges for issue


of bonus shares would be revenue expenditure deductibleunder section 37(1) of the Income Tax act.

Summation:

It is submitted that the principle of Capital vs. revenuein-connection with expenditure incurred on equity shareis very clear. If company increases authorized capital orissues shares including right shares as held by SupremeCourt in ‘India Cement’ the expenditure incurred has tobe treated as capital expenditure. However, differentsituation arise when company incurres expenditure onbuy back of shares. It does not obtain any advantage ofenduring nature as company does not receive any fundswhatsoever and hence, the expenditure has to be treatedas revenue expenditure. The payment is made as a normalbusiness activity in order to maintain good and cordialrelationship with the share holders and at the same timesafeguarding the interest of existing share holders. Thusit is an expenditure incurred wholly and exclusively forthe purpose of business and should be allowed as businessexpenditure.

Further, it is submitted that Bombay Burma TradingCorporation Ltd. vs. CIT 145 ITR 793 (Bom), the BombayHigh Court has held that expenses on issue of BonusShares are allowable as revenue expenditure on theground that :

“Expenses cannot be said to have been incurred for thepurposes of raising any additional capital. These areexpenses which have been incurred in the normal courseof business and merely because the printing was done inconnection with bonus shares or the stationery was utilizedprobably for printing in one way or other, related to thedeclaration of bonus shares, it is not necessary for us totreat these expenses as being of a capital nature.”

The Hon. Supreme Court in the case of CIT vs. GeneralInsurance Corporation 286 ITR 232 held that expensesby way of stamp duty and registration of issue of bonusshares are revenue expenditure. Though this expensesare incurred in-connection with the capital base of theAssessee Company. The Apex Court held that since thereis no increase in the capital employed it cannot be saidthat the company had acquired benefit or advantage ofenduing nature.

It would be interesting to note that the decision ofSupreme Court in the case of Brooke Bond India Ltd. V.CIT (1917) 225 ITR 798 and Punjab State Industrial

Development Corporation Ltd. vs. CIT [1997] 225 ITR792 are distinguishable judgments as these cases relatedto the issue of fresh shares which led to an inflow offresh funds into the company which adds to its capitalemployed in the Company resulting in the expansion ofits profit making apparatus. The expenditure incurredfor the purpose of increasing the company is share capitalby the issue of fresh shares would be treated as capitalexpenditure as held in this cases.

The useful reference can be made to the decision ofHon. Delhi High Court in the case of CIT vs. Selan

Exploration Technology Ltd. 188 Taxman 1. In the saidcase their lordship of Delhi High Court decided that theconsultancy fee for advisory services paid by the assessee

company for buy back of shares will result in decrease inthe funds of the company. The assessee has not acquired

any advantage of enduring nature because at the buyback the advantage of enduring nature would not arise

as capital employed in fact goes down. The expenditureincurred is also not related to bringing into existence anyasset. The argument of the revenue that with the lesser

capital, dividend in future shall be less and therefore itshould be treated as a benefit of enduring nature was

not accepted by the Court.

Their lordship of Delhi High Court referred to and acceptedthe following operative para of the order of Hon. Tribunal.

“Once we decide that the impugned expenditure is notcapital in nature, we have to see its allowability under

section 37. In this regard, we find that the expenses wereincurred by the assessee company as per SEBI guidelines

with regard to buyback of shares. The buyback of sharesis stated to be for the purpose of providing an existingopportunity to the existing shareholders who so desire.

This Tribunal is taking a consistent view that expenditureincurred with regard to AGM is business expenditure.

The AGM is held by a company for the benefit of existingshareholders. On the same reasoning, the impugned

expenditure which were also incurred for the benefit ofexisting shareholders in the ordinary course of businessis also an expenditure incurred for business purpose and

hence the same is allowable under section 37. We,therefore, decide this issue in favour of the assessee.”

i i i

Controversies


CA. Ashwin H. [email protected]

Statute Updates(A) Service Tax Judgements

In this issue, judgement on Adjustment of excesspayment of service tax, Management ConsultancyService and Cenvat Credit are reproduced belowfor the benefit of Members.

1 ) Whether assessee can claim set-off of excesspayment against short-payment?

[2013] 32 taxmann.com 145 (New Delhi -CESTAT) CESTAT, NEW DELHI BENCH NewIndia Assurance Co. Ltd. v. Commissionerof Service Tax, Delhi-I

Facts:-

Assessee paid excess service tax and madeadjustment against the short payment of service tax.Thereafter demand was confirmed against assesseeon ground of short-payment during June 2004 andJuly 2004. Assessee argued that they had paid excessservice tax during April 2004 and May 2004, whichwas adjusted against the short payment of serviceand the said point should have been considered.

Held :-

It was held that there was short deposit of ServiceTax during month of June 2004 and July 2004 &excess deposit of Service Tax in the month of April2004 and May 2004. Also the assessee havesubmitted a letter dated 12/10/2009 stating correctpayment of service tax but the lower authority hasnot considered the amount of service tax paid bythem in excess in the month of May 2004 and April2004 . Thus the amount of service tax is alreadypaid by them and there is no outstanding tax againstthem.

It was further held that it was the contention of theapplicant that they have paid the amount in excessin the month of April 2004 and May 2004 andtherefore the fact regarding excess payment isrequired to be verified by the Commissioner (Appeal).Accordingly the pre-deposit was waived andremanded the case back to Commissioner fordecision on merit after ascertaining the excessdeposit of service tax. The Stay petition as well asAppeal are disposed of by way of remand.

2) Where a person ac tual ly func t ions asManaging D irec tor of two companies,Whether the sa id se rv ice prov ided andremunerat ion received by him in capacityas Managing Di rec tor amount to‘Management Consultancy Serv ices’ andliable to service tax ?

2013] 32 taxmann.com 30 (Mumbai -CESTAT)CESTAT, MUMBAI BENCH BoschChassis Systems India Ltd. v.Commissionerof Central Excise, Pune-I

Facts:-

Assessee company’s Managing Director (MD) wasalso acting as MD of M/s. Brembo and was devoting80% time for assessee and 20% for M/s. Brembo.M/s. Brembo was paying remuneration for MD’sservices to assessee and assessee was passing entiresum to MD. Department issued a show cause noticeand argued that sum received by assessee was formanagement consultancy services provided byassessee to M/s. Brembo

Held:-

It was held that the assessee company have notrendered any Management Consultancy Services toM/s Brembo Brakes India Ltd. Their MD was workingin the same capacity on a part time basis for M/sBrembo Brakes India Ltd. and he was required to becompensated. The compensation was routed throughthe appellant and on receipt of the same, theycredited the entire amount to the account of theMD. This activity of settlement of management staffdoes not constitute Management ConsultancyServices and, therefore, they are not liable to anyService Tax.

It was further held that if at all, any advisory activitywas undertaken by the said person, the demand forService Tax can be made only on him and not onthe appellant. Further, there is no evidence on recordto show that the MD of the appellant firm renderedany consultancy/advisory services. He actuallyfunctioned as the MD of the other company also,



therefore, the remuneration received by him throughthe appellant company does not come under thecategory of ‘Management Consultancy Services’ .Thus, the appeal succeeds and is allowed. The stayapplication is also disposed of.

3) Whether CENVAT credit of the service taxpaid on ‘rent-a-cab service’ for transportationof staf f from the ra i lway sta t ion to thecontainer freight station run by the appellantis eligible input service?

[2013] 31 taxmann.com 410 (Mumbai -CESTAT) CESTAT, MUMBAI BENCH AllcargoGlobal Logist ics Ltd. V. Commissioner ofCentral Excise, Raigad

Facts:-

Assessee running a container freight station tookcredit of ‘Rent-a-cab service’ for transportation of

(A) Service Tax Legal Judgements

staff from railway station under Rule 2(l) of theCENVAT Credit Rules, 2004.

Held:-

The issue in the present case is whether service taxpaid on ‘rent-a-cab service’ for transportation of stafffrom Vashi railway station to the container freightstation run by the appellant is an eligible input serviceunder Rule 2(l) of the Rule or not. The Hon’ble HighCourt of Karnataka in the case of Stanzen ToyotetsuIndia (P.) Ltd. (supra) and Bell Ceramics Ltd. (supra)has held that these services are eligible input serviceunder CENVAT Credit Rules, 2004 and CENVATCredit o the service tax paid thereon is available.Respectfully, following these decisions, the appealwas allowed with consequential relief, if any andthe stay application is also disposed of.

i i i

Jewellery ValuationJewellery Valuation for

Income Tax & Wealth Tax Purpose to

DINESH L. SALVI / MANISH D. SALVI.

Govt. Approved Valuer with a proven Track Record

Offers Top of the WorldJewellery Valuation Services.

B-402, Juhu Trishul, 6th Gulmohar Cross Road,Juhu Scheme, Mumbai - 400 049.

Tel.:(022) 26206157 * Cell: 9821147696 *E-mail [email protected]

SHRI PARSHAV NATHAY NAM:



CA. Savan [email protected]

Investment by Nav ra tna Public Sector

Undertak ings ( PSUs) , OVL and OIL inunincorporated entities in oil sector abroad

Ref. : A. P. (DIR Series) Circular No. 99 dated

April 23, 2013

Attention is invited to the Notification No. FEMA.120/

RB-2004 dated July 7, 2004 [Foreign ExchangeManagement (Transfer or Issue of any Foreign Security)

Regulations, 2004] (the Notification), as amended fromtime to time, and A.P. (DIR Series) Circular No. 59 datedMay 18, 2007 and para 3(i) of A.P. (DIR Series) Circular

No. 48 dated June 03, 2008 in terms of which NavratnaPublic Sector Undertakings (PSUs) and ONGC Videsh Ltd

(OVL) and Oil India Ltd (OIL) are allowed to invest inoverseas unincorporated entities in oil sector (for

exploration and drilling for oil and natural gas, etc.), whichare duly approved by the Government of India, withoutany limits under the automatic route.

2. On a review, it has now been decided that such

facility is also extended to the overseas investmentsin the incorporated JV / WOS in oil sector (forexploration and drilling for oil and natural gas, etc.)

by the Navratna Public Sector Undertakings (PSUs)and ONGC Videsh Ltd (OVL) and Oil India Ltd (OIL),

which are duly approved by the Government of India,without any limits under the automatic route.

3. All the other terms and conditions prescribed underthe Circulars and Notification under reference shall

remain un-changed.

Overseas Direct Investments – Clarification

Ref.: A. P. (DIR Series) Circular No. 100 dated

April 25, 2013

Attention is invited to Foreign Exchange Management(Transfer or Issue of any Foreign Security) Regulations,

2004 notified by the Reserve Bank vide Notification No.FEMA 120/RB-2004 dated July 07, 2004 and as amendedfrom time to time.

2. It has been observed that eligible Indian parties are

using overseas direct investments (ODI) automatic

route to set up certain structures facilitating trading

in currencies, securities and commodities. It has

come to the notice of the Reserve Bank that such

structures having equity participation of Indian parties

have also started offering financial products linked

to Indian Rupee (e.g. non-deliverable trades involving

foreign currency, rupee exchange rates, stock indices

linked to Indian market, etc.). It is clarified that any

overseas entity having equity participation directly /

indirectly shall not offer such products without the

specific approval of the Reserve Bank of India given

that currently Indian Rupee is not fully convertible

and such products could have implications for the

exchange rate management of the country. Any

incidence of such product facilitation would be

treated as a contravention of the extant FEMA

regulations and would consequently attract action

under the relevant provisions of FEMA, 1999.

Foreign Direct Investment (FDI) in India - Issue

of equity shares under the FDI scheme allowed

under the Government route against pre-

operative/pre-incorporation expenses

Ref.: A. P. (DIR Series) Circular No. 104 dated

May 17, 2013

Attention is invited to to Para 3 (II) of A.P. (DIR Series)

Circular No. 74 dated June 20, 2011 read with A.P. (DIR

Series) Circular No. 55 dated December 9, 2011, allowing

thereby issue of equity shares/ preference shares under

the Government route by conversion of import of capital

goods, etc., subject to terms and conditions stated therein.

2. On review of the policy, it has now been decided to

amend condition at (c) in the aforesaid para. The

amended condition is given in the Annexure as

under:

Statute Updates(B) Foreign Exchange Management Act (FEMA)



c.f. A.P.(DIR Series) Earlier Condition Revised conditionCircular No. 74 datedJune 30, 2011

Para 3(II)(c) Payments should be made directly by Payments should be made by the foreignthe foreign investor to the company. investor to the company directly orPayments made through third parties through the bank account opened byciting the absence of a bank account or the foreign investor as provided undersimilar such reasons will not be eligible FEMA Regulations; andfor issuance of shares towards FDI; and

3. All the other conditions contained in the A.P. (DIR Series) Circulars No. 74 dated June 20, 2011 and No. 55dated December 9, 2011, shall remain unchanged.

FDI Statistics:

Ref.: Fact Sheet on Foreign Direct Investment (FDI) by DIPP – February, 2013

A. FDI Inflows During Financial Year 2012-13 (from April, 2012 to February, 2013):

1. Total FDI Inflows Into India - US$ 33,912(Equity inflows + ‘Re-invested earnings’ + ‘Other capital’) million(as per RBI’s Monthly bulletin dated: 10.04.2013).

2. FDI Equity Inflows Rs. 113,610 US$ 20,899crore million

B. FDI Equity Inflows (Month-Wise) During The Financial Year 2012-13:

Financial Year 2012-13 ( April-March ) Amount of FDI Equity inflows

(In Rs. Crore) (In US$ mn)

1. April, 2012 9,620 1,857

2. May, 2012 7,229 1,327

3. June, 2012 6,971 1,244

4. July, 2012 8,182 1,475

5. August, 2012 12,578 2,264

6. September, 2012 25,552 4,679

7. October, 2012 10,295 1,942

8. November, 2012 5,798 1,058

9. December, 2012 6,012 1,100

10. January, 2013 11,719 2,157

11. February, 2013 9,654 1,795

2012-13 (up to February, 2013) # 113,610 20,899

2011-12 (up to February, 2012) # 156,953 33,493

%age growth over last year ( - ) 28 % ( - ) 38 %

· Services sector (US$ 4,747 mn) was once again the most attractive sector followed by Hotel & Tourism (US$3,217 mn), Metallurgical Industries (US$ 1,393 mn) and Automobile sector (US$ 1,303 mn).

· Mauritius (US$ 8,970 mn) was again the top investing country with Japan (US$ 2,111 mn) and Singapore (US$1,984 mn) at the second and third spot respectively.

i i i

(B) Foreign Exchange Management Act (FEMA)


CA. Bihari B. [email protected].

Statute Updates(C) Value Added Tax (VAT)

[I] News About The Proposed Goods andService Tax Act:

a) Annual Turnover Threshold for GST set to beRs. 25 Lakh:

b) Dealers having turnover up to Rs. 60 Lakh canopt with 1% levy.

The Centre and States have crossed another hurdlein the way of Goods and Service Tax (GST) byagreeing on an annual turnover threshold of Rs. 25Lakh. This means businesses with annual turnoverless than Rs. 25 Lakh would be kept out of the GSTpurview.

To address the issue of dual control of traders – byboth the Union Government and State Governmentsin GST, it has been decided that tax payers withannual turnover of over Rs. 1.5 crore would be taxedby the Centre, which will later disburse their share tostates. Similarly, those below Rs. 1.5 crore turnoverwould deposit their taxes to States, which wouldsubsequently pass on to the Centre for its share.

Also, there would be a composition scheme(presumptive tax) for dealers with annual turnoverof up to Rs. 60 Lakh. A dealer would be able to optfor a compounded levy of one per cent on taxableturnover, instead of paying GST at the standard rate;but he would lose the right to claim the tax credit.

These decisions were taken in Patna by a technicalcommittee on GST, comprising officials from boththe Centre and States.

[II] Important Judgements :

[A] Royalty received from franchisee for use ofTRADEMARK is liable to tax as transfer ofright to use goods: (Kerala Value AddedTax Act, 2003)

Malabar Gold Pvt. Ltd. V. CTO, CIRCLE III,Kokhikode and Others (2013) 58 VST 191(KER)

The assessee is a dealer registered under the Actand is engaged in the business of marketing, trading,import and export business. In the year 2008-2009,the assessee entered into agreement with various

companies wherein the said companies were allowedto use the trademark owned by the assessee. Theassessee was receiving royalty from such companiesfor use of the trademark owned by the assessee. Theassessee obtained registration under the Finance Act,1994 since the franchisee service was considered asservice activity under that Act.

The assessee, considering the royalty received fromthe franchisees as the income received towardsservices did not pay any tax under the Act. Accordingto the assessee, there was no transfer of right to usethe goods and hence there was no tax liability underthe Act.

The Hon’ble Kerala High Court on perusing theagreement held that the franchisee had exclusiveright to use assessee’s trademark within theirterritories. The royalty was paid to the assessee forsuch use. Therefore, there was transfer of right touse trademark.

[B] There i s no deemed sale of ink used inprinting works contract. (Assam Value AddedTax Act, 2003)

Dainik Janmabhumi V. State of Assam andOthers (2013) 58 VST 519 (Gauhati)

The assessee is a dealer registered under the Actand is publisher of daily newspaper. The assesseegot this newspaper printed on job work basis. Theassessee supplied to the printer the papers. Theprinting work was done by the job worker printer inwhich ink and other materials were used.

At the instance of the printer, the assessee madean application to the Commissioner under section105 of the Act for determination of a questionwhether there was deemed sale of the ink used inthe printing job work? The Commissioner held thatso far as the work is concerned, there was transferof property in goods during execution of workscontract and therefore, there was deemed sale ofink used in the printing of newspaper. Beingaggrieved, the assessee filed a writ petition beforethe Gauhati High Court.

The Hon’ble Gauhati High Court referring to thedecision of the Bombay High Court in the case ofCommissioner of Sales Tax v. R.M.D.C. Press Pvt.



Ltd. [1999] 112 STC 307 (Bom) and the SupremeCourt decision in case of BSNL [2006] 145 STC 91(SC) held that no sale of goods is involved inexecution of works contract of printing merelybecause the printer has used ink in the process. Theuse of ink in the process cannot be held to be transferof goods by the printer to the person for whom theprinting job is executed.

(This decision is useful for Gujarat Dealers).

[C] There is no requirement of getting freshregistration certificate if any partner retiresfrom the partnership firm as interpreted inSection 25.

M/s. Jayvandan Traders S. A. No. 226 of2010 decided on 11.04.2011 Reported at2011 GSTB Page No.1515.

The appellant, a Partnership firm started carryingon business from 01.04.2005 and holding registernumber under Sales Tax Law. One of the Partnerswas retired and the Partnership firm automaticallystood dissolved and converted from Partnership firmto Proprietorship firm in the name of the remainingone partner. The Ld. Dy. Commissioner ofCommercial Tax rejected the application filed bythe proprietor with observation that the appellant isrequired to file a new application for new registrationin view of section 26 of the GST Act and cancelledthe registration number. He added that thepartnership firm stands dissolved and it loses itsexistence in the eye of law. The Government Agenthas filed written submission that as per section26(1)(d) & 26(6) if a proprietor is carrying on businesshe had to apply for new registration. He also reliedupon section 27(e) of the Act. The Hon. Tribunalconsidered section 4 of the Partnership Act. Furtherthe Hon. Tribunal considered that both assessingauthority and appellate authority have not properlyappreciated the facts of the case and not interpretedsection 25(b)(2) and sec. 26(1)(2) of the Act.

The order passed by Commercial Tax Officer andLd. Dy. Commissioner of Commercial Tax arequashed and set aside.

[D] Whether a tax invoice is compulsory forc la iming tax credit or tax cred it can beavailed on the strength of a retail invoice?

M/s. GILL & CO. P. Ltd. Vs. State of Gujaratdated 25.3.2013.

The appellant is a reseller and exporter of cottonbales. Cotton is one of the declared goods.

(C) Value Added Tax (VAT)

During the year 2007-08 the appellant had purchasedcotton bales worth Rs. 6,26,76,347/- from registereddealers for which ‘H’ forms were promised to begiven. When the appellant purchased such cottonfrom registered dealers, the appellant had offeredfrom foreign parties to buy the cotton, and hence,the appellant had promised to issue ‘H’ forms to theGujarat sellers. The sellers sold under ‘Retail Invoice’as that was a mandate in proviso to section 60(1) ofthe Gujarat Value Added Tax Act, 2003 (Gujarat VatAct). However, after the purchase, the foreignimporters withdrew their offers and hence theappellant informed the vendors that the appellantwould not be in a position to issue ‘H’ forms and thatthe vendors should send debit notes for tax. Theappellant had claimed the tax credit for the amountsreflected in the debit notes, by invoking the provisionscontained in section 11 of the Gujarat Vat Act. Sincethe appellant had paid tax on the purchase of cottonbales, the appellant was entitled to claim input taxcredit as per section 11 of the Gujarat Vat Act.However, the claim of the appellant for granting inputtax credit was disallowed by the assessing officer bystating that the purchases were made against RetailInvoice and not against Tax Invoice.

During the argument, the reliance was placed onthe following judgments.

[a] Kiritkumar Dahyabhai Mohita v. V. K. Trivedi58 STC 125.

[b] Vimal Enterprise v. U.O.I. 195 ELT 267 (GUJ)

[c] Shree Shaym Enterprise v. Joint Commissionerof Sales Tax 49 VST 177.

[d] National Stone Crushing Co. Chandigarh(Haryana Tax Tribunal)

Second appeal is allowed and it is held that the appellantis entitled to claim input tax credit even in the absenceof tax invoice, looking to the peculiar facts of the presentcase and more particularly all the requirements containedin Rule 42(3) are satisfied while issuing debit notes andthat the amount of tax collected from the appellant wasduly deposited by the vendor with the authorities.Consequential liability of the appellant with regard tointerest and penalty is also deleted.

(Full judgment is available at the office of theAssociation.)

i i i


CA. Chirag M. [email protected]

Statute Updates(D) Corporate Laws

A. Case Laws :

1. Lakshmiji Sugar Mills Company v. Unionof India ([2013] 32 taxmann.com 309 DelhiHC March 21, 2013 )

Issue:-

Where appellant-company in a schemeof arrangement had discr iminated inpayments made to secured creditors,Govt. company whose payments hadbeen reduced was to be excluded frompurview of scheme?

Facts:

The Appellant - Laxmi Sugar Mills CompanyLtd. (The Company) has filed appeal againstthe order of Company’s Judge, wherein oneLender viz. Sugar Development Fund (SDF –part of Ministry of Food) was kept outside thepurview of the Scheme of Compromise andArrangement. The Company was registered assick company before the BIFR and winding upof the Company was recommended.

During the pendency of the petition, theManagement / Promoters of the Company filedthe scheme for Revival and a separateapplication was filed for convening the Meetingof the Shareholders, Secured Creditors andUnsecured creditors of the Company. The Chairperson appointed for convening the meetinghas wrongly recorded that SDF had voted infavour of the Scheme. However, SDF had inclear terms informed to the Company that itshould be kept outside the scope, as it is notpossible to write-off its loan under Extant Rules.

The scheme was subsequently approved bykeeping SDF outside the scheme, on the groundthat the revival scheme may benefit employeesand unsecured creditors to recover part of theirmoney. And if the scheme is not approved, theonly recourse left with the Company is to windup the Company, in such case, unsecured

creditors and employees may not realize anydues.

2. Zhuhai Hansen Technology Co. Ltd. v.Shilpi Cable Technologies Ltd. [2013] 32taxmann.com 194 DELHI HC Dt. MARCH 19, 2013

Issue:

Where there were disputes betweenparties on whether supplies by petitionerwere complete and whether respondentwas justified in not accepting deliveryof consignments , defense rai sed byrespondent was not a sham one and,therefore, wind ing up pet i t ion f i ledagainst it was to be dismissed?

Facts:

M/s. Zhuhai Hansen Technology Co. Ltd.(Zhuhai –Petitioner ) filed a petition for winding-up Shilpi Cable Technologies Ltd. (Shilpi -Respondent). The Petitioner used to supplycables and accessories to Shilpi which was usedin tele-communication industry.

Zhuhai filed winding up petition against Shilpistating that Shilpi had admitted its liability, butit has raised dispute regarding the quality ofgoods just to avoid making payment. On theother side Shilpi raised plea that the Zhuhaifailed to supply accessories alongwith cablesand non-supply of accessories adversely affectedthe corresponding obligations of Shilpi towardsits customers. The Non-acceptance of deliveryof assignment was on valid reasons as observedby the Hon’ble Delhi High Court and the Shilpiwas justified in not accepting the delivery anddefence raised by it was not a “Sham” since ithas raised disputes regarding the quality ofgoods prior filing of the winding up petition andit can not be said that the Shilpi was unable topay its debts. Winding up petition was notmaintainable as observed by the Court.



3. ZTE Corporation v. Siddhant Garg [2013]

32 taxmann.com 193 (Delhi HC) MARCH 14,

2013

Issue:

Merely because a financial loss would

be suffered by appellant qua arbitration

awards which had been passed against

it would not ent itle it to come under

except ion seeking a re fusa l of

restoration of company.

Facts:

M/s. ZTE Corporation, a Chinese Company (The

Appellant) had entered into a Consultancy

Agreement with Value Added Services Pvt. Ltd.

(The Company). The dispute there was between

the Appellant and the Company which was

referred to Arbitration at Singapore. The

Company obtained Arbitration award in 2009

– 10 and entitled to compensation of USD 1

Million. The Company’s name was stuck off

from the register of the RCO under simplified

Exist Scheme 2003 on 29.12.2006.

Subsequently Siddhant Garg & others- two

creditors of the company (petitioners) have filed

application for restoration of the Company on

20.04.2011 by informing that they are entitled

to the unpaid salaries for the year 2000

amounting to Rs.6.50 Lacs. The Appellant took

the objection that at the time when the award

was given to the Company was non-existence

and as such the award Nullity.

The appellant also raised objection that the

application filed by the petitioner in collusion

with the company was a malafide exercise and

the petition U/s.560 was a collusive petition,

wherein the Company choose not to oppose

the petition only for ulterior purposes.

The Judge referred to the requirement of

Sec.560(6) of the Act, which lays down that

when an application is filed by the Company,

Member or the creditor before the expiry of 20

years from the publication in the official gazette,

the Tribunal may restore the defunct company

if it is satisfied that (1) the Company was one

at the time of striking off carrying on business

or in operation or otherwise (2) that it is “Just”

that the Company be restored to the Registrar.

The Court observed that this appears to be a

classic case where the appellant is making

desperate effort by one way to ward off its

liability which he admittedly owes to the

company in terms of the Arbitral Awards which

has been passed against him. It is also not a

case where the appellant would be remediless,

he has the option to contest the Award at the

time as and when the execution proceedings

are filed by the company.

(B) Circulars -

(1) CLARIFICATION ON OVERSEAS DIRECT

INVESTMENTS (A.P. (DIR SERIES 2012-

13) CIRCULAR NO. 100, DATED 25-4-

2013)

Reserve Bank of India has clarified on Overseas

Direct Investment (ODI) vide circular dated

25.04.2013. It has observed that Indian parties

are using ODI automatic root to set up certain

structures for facilitating in trading currencies,

securities and commodities. RBI further noticed

that such entities having equity participation

have started offering financial products linked

to Indian Rupees, Non-deliverable trades

involving foreign currency, Rupee Exchange

rates, stock indices linked to Indian Market etc.

RBI has further clarified that ODI having equity

participation directly or indirectly shall not offer

such products without the specific approval of

RBI since the currency Indian Rupee is not fully

convertible and such products would have

implication for exchange rate management of

the country, non compliance of above shall

amount to contravention of the FEMA

regulations and legal and penal actions.

i i i

(D) Corporate Laws


Income Tax

1) Issue of TDS Certificate in pursuance withthe provisions of section 203 of the Income-tax Act read with the Rule 31 of the Income-tax Rules

All deductors (including Government deductors whodeposit TDS in the Central Government Accountthrough book entry) shall issue Part A of Form No.16 only by generating it through TRACES Portal andafter duly authenticated by the deductor either byusing manual signature or by using digital signaturein accordance with sub-rule (6) of Rule 31.

It is further clarified that Part A of Form No. 16 issuedby the deductors as per the procedure, formats andstandards specified by the Director General ofIncome-tax (Systems) and containing UniqueIdentification Number shall only be treated as a validcompliance to the issue of Part A of Form No. 16 forthe purpose of section 203 of the Act read with rule31 of the Rules.

Part B (Annexure) of Form No. 16 shall be preparedby the deductor manually and issued to the deducteeafter due authentication and verification alongwiththe Part A of the Form No. 16 stated above. (Forfull Text, refer Circular No.4 , dated 17/04/2013)

2) Determination of Arm’s length Price for AY13-14

The Central Government in pursuance of sub-section(2) of sec 92C of the Income Tax Act hereby notifiesthat where the variation between the arm’s lengthprice and the price at which the internationaltransaction or specified domestic transaction hasactually been undertaken does not exceed 1% ofthe price at which the international or specifieddomestic transaction takes place in case of wholesaletraders and 3% in all other cases then the arm’slength price shall be the price at which theinternational transaction or specified domestictransaction has actually been undertaken

(Refer Notification No.30 dated 15/04/2013)

Service Tax

1) Amendment in Notification 26/2012 dated20/06/2012 regarding abatement in case ofconstruc t ion of complex , bui ld ing, c iv i lstructure or a part thereof:-

The central government hereby amends notification26/2012 by substituting serial number 12 which iselaborated as under:-

In case of Construction of a complex, building, civilstructure or a part thereof, intended for a sale to abuyer, wholly or partly, except where entireconsideration is received after issuance of completioncertificate by the competent authority, the rate ofabatement is prescribed as follows:-

a) For a residential unit wherein the carpet area isless than 2000 sq. ft. and the amount chargedfor the unit is less than 1 crore rupees , the rateof abatement is 25%

b) In any other case the rate of abatement is 30%

Provided the cenvat credit of inputs used forproviding the taxable service is not taken andthe value of land is included in the amountcharged from the service receiver.

(For full Text refer Notification No. 9/2013 dated 8th May,2013)

2) Service Tax Amnesty Scheme

The Serv ice Tax Voluntary ComplianceEncouragement Scheme (VCES) has come into effectupon enactment of the Finance Bill, 2013 videnotification no-10, dated 13th May,2013.

The VCES rules regarding the form and manner ofdeclaration, form and manner of acknowledgementof declaration, manner of payment of tax dues andform and manner of issuing acknowledgement ofdischarge of tax dues has been issued to bring intoeffect the said scheme.

(For Full Text, refer Notification No.10, datedthe 13th May, 2013)

Further CBDT vide Circular No.169 dated 13/05/2013 clarifies certain issues regarding scope andapplicability of the Service Tax Voluntary ComplianceEncouragement Scheme (VCES).

i i i

CA. Kunal A. [email protected]

Statute Updates(E) Circulars and Notifications

(Income Tax and Service Tax)



AS-16 Borrowing Cost

Godrej Properties Limited - 2011-2012

Notes to Accounts

Note 1 Accounting policies:

j ) Borrowing cost

Interest and finance charges incurred in connectionwith borrowing of funds, which are incurred for thedevelopment of long- term projects, are transferredto Construction Work-in-Progress/ Due onManagement Project, as a part of the cost of theprojects at weighted average of the borrowing cost/rates as per Agreements respectively.

Other borrowing costs are recognized as an expensein the period in which they are incurred.

GMR Infrastructure Limited - 2011-2012

Note 2.1 SIGNIFICANT ACCOUNTING POLICIES

h) Borrowing Costs

Borrowing costs include interest, amortization ofancillary costs incurred in connection with thearrangement of borrowings and exchange differencesarising from foreign currency borrowings to theextent they are regarded as an adjustment to theinterest cost.

Borrowing costs directly attributable to theacquisition, construction or production of an assetthat necessarily takes a substantial period of time toget ready for its intended use or sale are capitalizedas part of the cost of the respective asset. All otherborrowing costs are expensed in the period theyoccur.

Gokul Refoils and Solvent Ltd – 2011-12

Note 1 significant Accounting Policies and Notesforming part of the Accounts

M) Borrowing Cost:

Borrowing cost that is attributable to the acquisitionor construction of qualifying assets is capitalized aspart of the cost of such assets. A qualifying asset isone that necessarily takes substantial period of time

to get ready for intended use. All other borrowingcosts are charged to profit and loss Account.

Cairn India – 2011-2012

Notes to financial statements

2.1 Summary of significant accounting policies

k) Borrowing costs

Borrowing costs include interest and commitmentcharges on borrowings, amortization of costs incurredin connection with the arrangement of borrowings,exchange differences to the extent they areconsidered a substantial to the interest cost andfinance charges under leases. Costs incurred orborrowings directly attributable to developmentprojects, which take a substantial period of time tocomplete, are capitalized within the development/producing asset for each cost- centre.

All other borrowing costs are recognized in thestatement of profit and loss in the period in whichthey are incurred.

IL&FS Engineering and ConstructionCompany Limited - 2011-12

Notes to consolidated financial Statements forthe 18 months ended September 30, 2012

n) Borrowing Costs

Borrowing cost includes interest, amortization ofancillary costs incurred in connection with thearrangement of borrowings and exchange differencesarising from foreign currency borrowings to theextent they are regarded as an adjustment to theinterest cost.

Borrowing costs directly attributable to theacquisition, construction or production of an assetthat necessarily takes a substantial period of time toget ready for its intended use or sale are capitalized/ inventorized as part of the cost of the respectiveasset/ project. All other borrowing costs are expensedin the period they occur.

CA. Pamil H. [email protected]

From Published Accounts




Cabinet nod to I-T Department restructuring

The union cabinet on Thursday approved a proposal torestructure the Income Tax Department and add 20,751posts in the Department with an eye on improving its taxcollection efforts and boost the revenue by at least Rs.25,000 cr. a year.

“It will not happen in a year but over time this will helpcollect, increased revenue and provide better tax payerservice” said Finance Minister P. Chidambaram in a pressbriefing.

(Source: Extracts from The Mint dated 24th May, 2013)

The incumbent Vinod Rai gets a conservativesuccessor:

Shashi Kant Sharma secretary in the Ministry of Defenceand a 1976 batch Indian Administrative Service (IAS)officer of the Bihar cadre, has been appointed the newComptroller and Auditor General (CAG) of India. He willsucceed Vinod Rai, who is set to retire tomorrow.

A press statement issued by the CAG’s office said, “ThePresident of India has appointed Shashi Kant Sharma,IAS, as Comptroller & Auditor General of India, in termsof Article 148 (1) of the Constitution of India.”

Sharma holds a master’s degree in political science fromthe University of York. As is the case with his predecessorRai, Sharma has also served as secretary in theDepartment of Financial Services.

The CAG is appointed for a six years, or till the incumbentis 65, whichever is earlier.

(Source: Extracts from The Business Standard dated 22nd

May, 2013)

SEBI seeks Sweeping Powers

India’s capital market regulator won’t extend thedeadline for listed firms to meet the minimum publicshareholding limit of 25%, Securities and Exchange Boardof India (Sebi) chairman U.K. Sinha said in an interviewon Tuesday. The regulator is working on penalties forcompanies that don’t meet the norm, Sinha said.

Some 150 non-state listed firms are yet to comply withthe minimum public shareholding norm—they have until4 June to do so. State-owned companies have until 31August to ensure at least 10% of their equity is held by

the public. The government has told Sebi that all publicsector units will meet the deadline.

The regulator, which celebrates its 25th year on Friday,is also seeking sweeping powers to pass so-called ceaseand desist orders on offenders. Such orders seek to stopindividuals or companies from pursuing a particular activityand not resume it. Enhanced powers will allow Sebi torecover penalties—it is owed at least Rs.150 crore.

(Source: Extracts from The Mint dated 22nd May, 2013)

GOODBYE to GOLD

Gold demand is likely to fall as easing of general inflationrate will make investment in financial products moreattractive than the yellow metal, PMEAC Chairman CRangarajan said today.

Also, the steps being taken to curb gold demand areexpected to bring down the current account deficit (CAD)by 0.4-0.5 per cent of GDP in the current fiscal, he said.

“Some action has been taken by RBI in terms ofcontrolling gold demand. To supplement these actions,as inflation comes down and returns on financial productsbecome more attractive, it will be possible to containgold demand,” Rangarajan said on the sidelines of goldsummit organised by Assocham.

The Prime Minister’s Economic Advisory Council (PMEAC)Chief further said that “inflation is showing signs of comingdown and therefore attraction of financial products willbe greater”. The overall inflation came down to overthree year low to 4.89 per cent in April.

Expressing concern about higher gold imports in April,he said: “The imperative to contain gold import hasbecome urgent. The recent surge in gold demand ishowever creating some distortions and need to be rolledback to boost growth by reversing the trend of decliningfinancial savings and keeping CAD within prudent limitby contain gold demand. Asked if more curbs will beimposed in the coming days, Rangarajan said: “Theapproach of the government and RBI have been verycautious. ...Some fiscal and administrative actions suchas the increase of import duty can be, and recently havebeen, taken to dampen demand.”

Compiled by :CA. Arpit T. ShahNews Lounge


The country’s CAD has widened due to increased goldimports, which rose to 1017 tonnes in 2012-13 from 471tonnes in 2000-01. Gold imports during last year accounted72 per cent of the CAD.

(Source: Extracts from The Economic Times dated 15TH

May, 2013)

Is CBI a “Caged Parrot”?

The Supreme Court has questioned the credibility of CBIprobe into the coal scam and has asked for a thoroughand qualitative investigation.

Expressing strong displeasure at govt’s interference inthe Coalgate probe report, the apex court said, “the heartof the report was changed on the suggestions of thegovt officials.”

“The heart of the report was changed on suggestions ofgovernment officials,” the court said in an apparentreference to the raging controversy over the sharing ofthe draft status report with political executive and jointsecretaries in the coal ministry and the PMO.

Raising questions on the independence of CBI, the apexcourt called it a “caged parrot speaking in its master’svoice”.

The court making a scathing comment on the functioningof the investigating agency said, “It’s a sordid saga thatthere are many masters and one parrot.”

If the CBI is not made independent, we will step in, theSC observed.

“Job of CBI is not to interact with government officialsbut to interrogate to find the truth,” the SC said. Thejudges remarked that the CBI must know how to standup against all pulls and pressures by government and itsofficials.

Commenting on law minister Ashwani Kumar’s role, theapex court said that a minister can ask for a report butcan’t interfere with the CBI probe.

The court questioned how the CBI could have regularinteractions with the ministry officials.

Slamming the action of joint secretaries who saw theprobe report, the SC said, What business does the twojoint secretaries have in visiting the CBI office?

Defending his role, attorney general GE Vahanvati said,

“My meeting with CBI officials took place only on

suggestions of the law minister.”

I have neither asked nor got CBI’s probe report in coal

scam,the attorney general said.

The apex court observations came on CBI director Ranjit

Sinha’s second affidavit filed on Monday, stating that

law minister Ashwani Kumar and senior officials of the

PMO and coal ministry had made changes in the Colagate

probe report.

(Source: Extracts from The Times of India dated 08TH May,

2013)

Two Tax officials convicted in Bangalore for graft

Two tax officials have been convicted by a special CBI

court in Bangalore in bribery cases and sentenced to two

years of imprisonment.

"The special judge for CBI cases, Bangalore has convicted

A Vanangamudi, then Superintendent of Service Tax,

Service Tax Commissionerate, Bangalore to undergo two

years Simple Imprisonment with fine Rs 20,000 in a brib-

ery case," CBI spokesperson said here today in a state-

ment.

Vanangamudi was caught while demanding and accept-

ing a bribe of Rs 25,000 from a businessman for not im-

posing heavy service tax liability on his firm and closing

the case file, it said.

"In an another case, the special judge for CBI cases, Ban-

galore has convicted D Shashireka, then Income Tax In-

spector, working in the office of Commissioner of Income

Tax-I, Income Tax Appellate Tribunal, Bangalore and sen-

tenced her to undergo two years Simple Imprisonment

with fine of Rs 20,000 in a bribery case," it said.

The spokesperson said probe revealed that Shashireka

was caught while accepting illegal gratification of Rs

10,000 from the complainant for processing the file for a

lower rate of TDS deduction U/s 197 of Income Tax Act.

(Source : New Delhi, May 24, 2013 (PTI))

i i i

News Lounge


appoint an Auditor within 30 days before the end of eachFinancial Year.

In case of first year of incorporation, the auditor must beappointed before the end of the first Financial year.

Who shall appoint the auditor?

The auditor of a Limited Liability Partnership shall beappointed by the Designated Partners who standresponsible for the compliances of LLP.

In case the designated partners fail to appoint the auditor,then the auditor shall be appointed by the other partners.

Time limit of holding office by the Auditor andappointment of new Auditor:

The auditor shall remain in the office until

o A new auditor is appointed or;

o The majority partners have given a notice for thenon-appointment of existing auditor.

The notice for non-appointment of existing auditor maybe in hard copy or electronic form and it must beauthenticated by the partners giving such notice.

Remuneration of Auditor

The Auditor’s remuneration shall be as decided/fixed bythe Designated Partners. Where a procedure for providingremuneration to the Auditors has been prescribed in theLLP Agreement, then the same shall be followed.

Resignation of Auditor

The Auditor may, after giving a notice in writing, deliveredat the Registered Office of the LLP, resign from his officeas an Auditor.

Such a notice must be accompanied by a statement ofcircumstances which are relevant with his cessation ofholding the office.

When the existing Auditor is not willing to get re-appointed, then a notice of not less than 14 days shallbe given in writing at the Registered Office of the LLP.

Removal of Auditor

An auditor may be removed from his office at any timeas per the procedure mentioned in the LLP Agreement.

In the absence of LLP Agreement the auditor may beremoved with the consent of all the Partners

Audit of Limited Liability Partnerships

As per the provisions of Limited Liability Partnership Rules,Limited Liability partnerships are required to get theiraccounts audited in the same manner as applicable toCompanies.

Is audit of all LLPs mandatory?

Limited Liability Partnerships that fulfill the belowmentioned criterions are required to get the books ofaccounts audited by a Chartered Accountant in practice:

- Contribution exceeds Rs. 25 Lakhs. or;

- Turnover exceeds Rs. 40 Lakhs.

Limited Liability Partnership, not required to get itsaccounts audited mandatorily, may also voluntarily gettheir accounts audited as per Limited Liability PartnershipRules, 2009.

If the partners decide not to get the books of the accountsof the LLP audited, a statement must be included in theStatement of Account and Solvency by the partners tothe effect that the partners acknowledge theirresponsibilities for complying with the requirements ofthe Act and the Rules with respect to preparation of booksof account and a certificate in the form mentioned below:

“We declare that the turnover does not exceed/exceeds40 lakh or the contribution does not exceed/exceeds 25lakh rupees. The partners/authorized representativeshave taken proper care and responsibi lity formaintenance of adequate accounting records andpreparation of accounts in accordance with the provisionsof the LLP Act and the Rules made there under”.

This certificate is to be filed with the Registrar ofCompanies, LLP along with e-form 8

Form of Contribution

Section 23(2) of the LLP Act defines the contribution of apartner and according to it, the contribution of a partnermay consist of tangible, movable or immovable orintangible property or other benefits brought or contributionby way of an agreement or contract for services shall bevalued by a practicing Chartered Accountant or by apracticing Cost Accountant or by approved valuer fromthe panel maintained by the Central Government.

Time Limit for appointment of auditor

In case of Limited Liability Partnerships that are requiredto get the books of accounts audited as per statute must

Compiled by :CA. Atul R. ShahMore Unknown Than Known



1. ICAI enter s into ar rangement wi thTAXMANN to prov ide the contents of itswebsite to the members of ICAI:

ICAI enters into an arrangement with TAXMANN toprovide its content:

1. www.internationaltaxation.taxmann.com at Rs.6000 p.a.

2. www.internationaltaxation.taxmann.com plusInternational Taxation-A monthly magazine atRs 9000/-p.a. to the members of ICAI - (11-02-2013)

As an ongoing attempt to enable the membersto keep pace with the latest developments ininternational taxation, the International TaxationCommittee of ICAI has entered into anarrangement with Taxmann, a reputed and awell known publisher, wherein Taxmann hasagreed to provide materials that are publishedand made available by it as a part of its standardpractice and procedure on the following:

1. www.internationaltaxation.taxmann.com at asubsidized price of Rs. 6000/- p.a. vis-a- vis itsprinted price which is Rs.12500/-

2. www.internationaltaxation.taxmann.com plusInternational Taxation-A monthly magazine atsubsidized price of Rs 9000/- p.a vis-a- vis itsprinted price which is Rs.17500/-

2. Contact Details required for Membership inEntrepreneurship and Public Services

The ICAI has constituted a special committee, the“Committee for Members in Entrepreneurship& Public Services” to recognize their contributionto the economy as a whole and factor in their visionand perspectives in the work program of ICAI.

The ICAI looks forward to interacting with thesepersons of eminence from time to time at variousplatforms and would also like to work with them

and provide any support that they may wish to havefrom ICAI membership at large.

The Committee of ICAI is compiling a database ofICAI Members who have established themselves assuccessful Entrepreneurs or are engaged in PublicServices such as Public Servants i.e. MP/MLA, thoseassociated with Constitutional Authority i.e. Judiciary/Appellate Tribunal, working with Regulatory bodiesi.e. SEBI, RBI, IRDA etc, are Civil Servants/servingCentral or State Government, Members of LocalBodies, etc.

The details are to be provided in the formatprescribed to Mudit Vashishtha, Secretary at e-mail: [email protected]. He can be contacted at 011-30110487/9350594067. The prescribed format isavailable on the Institute’s Website

3. Exposure Dra ft: Def ined Benefi t P lans:Employee Contr ibut ions ( Proposedamendments to IAS 19) issued by the IASB

The International Accounting Standards Board (IASB)has published the Exposure Draft to set out theproposed amendments to IAS 19 Employee Benefits.This Exposure Draft addresses the accounting forcontributions from employees or third parties whenthe requirement for such contributions is set out inthe formal terms of a defined benefit plan. It proposesthat such contributions may be recognised as areduction in the service cost in the same period inwhich they are payable if, and only if, they are linkedsolely to the employee’s service rendered in thatperiod.

ASB has invited comments on the said Exposure Draftfrom the public. The downloadable version of theDocument is available at: www.ifrs.org/Current-Projects/IASB-Projects/Defined-Benefit-Plans-Em ployee- Con t r i but i ons /Ex posure - Dra f -M a r c h % 2 0 2 0 1 3 / D o c u m e n t s / E D -A m e n d m e n t s - t o - I A S - 1 9 - E m p l o y e e -Contributions.pdf

Compiled by :CA. Uday I. Shah

New Delhi Times

http://www.internationaltaxation.taxmann.com





http://www.ifrs.org/Current-


4. Exposure Draft: Regulatory Deferral Accounts

issued by the IASB

The International Accounting Standards Board (IASB)

has published for public comment the Exposure Draft

Regulatory Deferral Accounts as part of its reactivated

Rate-regulated Activities research project.

Many jurisdictions applying International Financial

Reporting Standards (IFRS) have industry sectors that

are subject to rate regulation, such as the

transportation and the utilities sectors. Rate

regulation can have a significant impact on the timing

and amount of an entity’s revenue. Existing IFRS

does not provide any specific guidance for rate

regulated activities.

In response to feedback from its agenda consultation,

the IASB has initiated a project to consider whether

Following latest information / judgements are available

on the website of the Association www.caa-ahm.org

High Court Judgements

1. Heavy Metal & Tubes Ltd. v. DCIT (Gujarat)

S.145A - Valuation of closing stock- effect of modvat

credit/excise. No reopening even within 4 years

even if no specific opinion in scrutiny assessment

order.

2. CIT v. Panchmahal Steel Ltd. (Gujarat)

The transactions in foreign exchanges were

incidental to the assessee’s regular course of

business and the loss was thus not a speculative

loss u/s 43(5) but was incidental to the assessee’s

business and allowable as such.

On the Webiste of CAA

3. CIT v. Namaste Chemicals Pvt. Ltd.(Gujarat)

Share application money can’t be added u/s 68

when notice served on applicants but not replied.

Lovely Exports (SC) followed.

4. CIT v. Panchmahal Steel Ltd. (Gujarat)

Loss claimed due to cancellation of foreign

exchange forward contract with bankers is not a

speculative loss.

The Journal of the Association for the month of

April 2013 is also available on the website of CAA

i i i

the IASB should develop specific guidance for Rate-

regulated Activities and, if so, what information

about the consequences of rate regulation would

be most useful for users of financial statements. At

this stage, the IASB is proposing an interim Standard

that would allow entities to preserve the existing

accounting policies that they have in place for rate-

regulated activities with some modifications designed

to enhance comparability.

ASB has invited comments on the said Exposure Draft

from the public. The downloadable version of the

Document is available at: www.ifrs.org/Current-

P r o j e c t s / IA S B - P r o j e c t s / Ra t e - r e gu l a t e d -

a c t i v i t i e s / E x p o s u r e - D r a f t - A p r i l - 2 0 1 3 /

D o c u m e n t s / E D _ R e g u l a t o r y -

Deferral%20Account.pdf

i i i

New Delhi Times

http://www.caa-ahm.org

http://www.ifrs.org/Current-


Supreme Court has said that no person should bearrested for posting objectionable comments on socialnetworking sites without taking prior permission fromsenior police officials. The Apex Court refused to passan order for a blanket ban on the arrest of a personmaking objectionable posts/likes/comments on socialmedia websites as in such cases operation of section66A of The Information Technology Act has not beenstayed by the said Court which is examining itsconstitutional validity and also instructed the StateGovernments to ensure strict compliance of the advisoryissued by The Department of Electronics and InformationTechnology which says that a person should not bearrested without taking prior permission of senior policeofficials.

In view of misuse of section 66A of The InformationTechnology Act resulting in massive media coverage andpublic protests over people being arrested hastily forposting/liking/making comments on Facebook, a famoussocial networking site, The Department of Electronicsand Information Technology, on January 9 ‘2013, hasissued advisory to all States and Union Territories statingthat – ‘State Governments are advised that as regard toarrest of any person in complaint registered under section66A of The Information Technology Act, the concernedpolice officer of a police station may not arrest any personuntil he/she has obtained prior approval of such arrest,from an officer, not below the rank of Inspector Generalof Police in metropolitan cities or of an officer not belowthe rank of Deputy Commissioner of Police orSuperintendent of Police at district level, as the case maybe.’ The advisory issued by The Department of Electronicsand Information Technology to all the States and UnionTerritories of India also states that – ‘due diligence andcare may be exercised while dealing with the cases arisingout of the alleged misuse of cyberspace.’

Section 66A of The Information Technology Act statesthat –

‘any person who sends, by means of a computer resourceor a communication device, –

(a) any information that is grossly offensive or hasmenacing character; or

(b) any information which he knows to be false, but forthe purpose of causing annoyance, inconvenience,danger, obstruction, insult, injury, criminalintimidation, enmity, hatred or Ill will, persistentlyby making use of such computer resource or acommunication device; or

(c) any electronic mail or electronic mail message forthe purpose of causing annoyance or inconvenienceor to deceive or to mislead the addressee or recipientabout the origin of such messages;

shall be punishable with imprisonment for a termwhich may extend to three years and with fine.’

Explanation – For the purpose of this section, terms“electronic mail” and “electronic mail message” meansa message or information created or transmitted orreceived on a computer, computer system, computerresource or communication device (means cell phones,personal digital assistance or combination of both or anyother device used to communicate, send or transmit anytext, video or image) including attachments in text,images, audio, video and any other electronic record,which may be transmitted with the message.

The matter war referred by the Apex Court on a petitionfiled challenging the validity of section 66A (pertaining toobjectionable matters, including online defamation) afterthe arrest of two girls recently, in Palghar, Thane district,under section 66A of The Information Technology Act,after one of them posted a comment on her profile againstthe shutdown in Mumbai following the Shiv Sena leaderBal Thakerey’s death and the other liked it. However, thecontroversial provision in cyber law under which the twogirls were arrested for making comments on Facebookand liking the same, does not curb the freedom of speechas provided by Articles 14, 19(1)(a) and 21 of theConstitution of India and the high handedness of certainauthorities does not mean that the said provisions of theAct are unconstitutional or bad in law, it only implies thatthe police officials applied the provisions of section 66A ofthe Act along with other related provisions of Indian PenalCode, draconically and the arrests were hasty andunjustifiable. The Government of Maharashtra, in reply tothe notice issued by the Supreme Court, stated that the

Section 66A of theInformation Technology Act

Contributed by :Aditya Gupta- Cyber Law Consultant


arrests of the young girls in Thane district were“unwarranted” and “hasty”, which “cannot be justified”.As a consequence, the Superintendent of Police ThanePolice (Rural) has been suspended for arresting the girlsdespite of the instruction by the Inspector General of Police,not to take such action.

In a similar case, a Hyderabad based woman activistwas arrested under section 66A of the said Act andimprisoned for posting comments on Facebook containing

Growth Innovation- 2011-12

Notes to the financial statements

Note 2: Significant Accounting Policies

k ) Borrowing costs

Borrowing costs that are directly attributable to theacquisition of an asset that necessarily takes asubstantial period of time to get ready for its intendeduse are capitalized as part of the cost of that assettill the date it is put to use. Other borrowing costsare recognized as an expense in the period in whichthey are incurred.

On Mobile Global Limited – 2012

Notes to Consolidated Financial Statements

1 significant accounting policies

objectionable and defamatory matter against Governorof Tamil Nadu, K Rosaiah and Congress MLA AmanchiKrishna Mohan. However on filing a petition, wasreleased by the district court. According to the statementgiven by the police officials, before posting commentsonline, she allegedly distributed pamphlets makingdefamatory allegations against K Rosaiah and AmanchiKrishna Mohan.

i i i

contd. from page 110 From Published Accounts

L ) Borrowing cost

Borrowing costs incurred for the acquisition ofqualifying assets are recognized as part of cost ofsuch assets when it is possible that they result infuture economic benefits to the company while otherborrowing costs are expensed.

Power Finance Corporation Ltd – 2011-2012

Notes to financial statements

2. Summary of significant accounting policies

k ) Borrowing Cost

Borrowing cost is charged to the statement of profit& loss for the year in which it is incurred except forcapital assets which is capitalized till the date ofcommercial use of the assets.

i i i

Section 66A of the Information Technology Act

contd. from page 113 More Unknown Than Known

Due Date of Filling of income Tax Return under IT Act incase of LLP:

As per the IT Act, LLP is treated at par with PartnershipFirm (Section 2(23)).

According to Explanation 2 (a) (ii) and (iii) to Section139(1) the due date for filling of IT return in case of afirm (including LLP) is 30th of September if the accountsare required to be audited under this Act (Turnoverexceeding 1 crore U/s. 44AB) or under any other law(LLP Act)

Under LLP Act the limits are; Contribution exceeds Rs.25 Lakhs Or Turnover exceeds Rs. 40 Lakhs and also LLPcan opt to get its accounts audited voluntarily and whichwill be treated as audit under the LLP act.

Thus if the accounts of the LLP are audited eithermandatorily or voluntarily under the LLP Act or Underthe IT Act, due date of filling of IT return will be 30th

September, otherwise it will be 31st of July.

i i i


1. Learn to use “bcc” options for sending mails tolarge number of users. Bcc stands for “blind carboncopy”. It simply hides the names of recipientsmaking it easy for the reader to glance through.

2. Ids in “To” and “cc” options are visible to all. Sobe careful using the “cc” option. It is surprising the“carbon copy” option still stands in soft format.

3. Many users do not differentiate the implications of“To” and “cc” options. Generally one should use“To” option when some action is expected fromthe person. “cc” option is merely for information.I generally do not take emails received by me with“cc” option seriously.

4. There are users who invariable reply to a mail toall. This results into huge traffic in the mail box.Sometimes important mails are missed or lost sightof due to overloaded inbox. Be selective in choosingthe names of recipients.

5. Sometimes it is a good practice to send copy toSecretary of the recipients especially when thesame is sent to higher management like CMD orGovernment Secretary. Of course private andconfidential mails cannot be shared with others.

6. There are users writing long essays in the bodypart. Today, no one has time to read long mails. Itis likely that the core of the mail might miss theattention. Over a long period, the such sender earnbad names and their mails tend to be blocked ortrashed without opening.

7. It is better to use only one email account as liveone. It is necessary to have multiple email ids forseveral reasons. Many sites ask for alternate emailid too. Still all emails can be linked to one activeaccount. It is easy to deal with all mails andchances of losing or ignoring mails can beminimised.

8. It is easy to access mails today on mobile,blackberry, tablets and I Pads. To ensure that allmails are dealt with timely and properly, the sameneed to be kept in sync mode.

9. Using public mail accounts like yahoo and g mailusing outlook or other email client, it is advisableto keep copy on the original mail box.

10. Many email client software have auto save optionsfor the id and password for quick log in next time.Avoid this setting if you use emails for sensitiveand confidential information.

11. Learn to keep logical folders for quicker retrievalof mails in future. One can use filter option to autosend the mails to relevant folders.

12. Do not fall prey to store all mails. It is commonexperience that more than 30% mails have noretention value. Delete them immediately.

13. Never use ALL CAPITAL LETTERS for message. Itis insult to the reader.

14. Use proper words, correct sentence and followgrammar while sending mails to senior persons.Colleagues may not mind language lapses.

15. Never, never open mails from unknown senders.Many a times, merely opening a mail might triggera virus or Trojan or malware damaging the dataunknowingly.

16. This may sound slightly unprofessional. But neverform habit of replying all mails outside office hoursinstantly. Once done, the recipients would expectquick reply all time or else you are branded as lazyand careless.

17. Avoid sending large attachments in mails. Itconsumes large bandwidth, slows down the receiptof mails and overloads the mail box. Better optionis to use web services like Drop box to upload filesfor others to see. Google Doc is another service forcollaborative working. There are endless options.

18. Use advanced features of email software forcontrolling the incoming mails. Based on thesender, header or words in contents, a mail canbe trashed or diverted to spam.

Use of E mail :Tips, Tricks and Tracks

Contributed by :CA. Bhupendra M. Shah


19. Learn to block the unwanted and unsolicited mailsfrom unknown senders by transferring the mails toblacklist.

20. There are people who have ample time in the worldto update us, educate us and amuse us on all thathappened at every corner of the world. While Iknow few mails are informative and inspiring,largely it is a waste of time and resource and unfairto encroach upon someone’s privacy and leisuretime. It is advisable not to be part of such a chain.

21. Registering official mail id with several websites aspart of regular update service should also beavoided. This keeps on bombarding with largenumber of mails of little significant and are worthsending to garbage. There is a site giving freeforecast based on one’s birthday and birth place.Once registered, one is sure to get long mails ofadvice almost every day.

22. Though I suppose now all email users know aboutfishing and related scams, make it a mantra not todivulge any personal information in reply to mails.

Unknowingly your bank account will be wiped out! We all know how smart persons also have beenrobed off though Nigerian frauds.

23. Advice for those who use official email id. Sincethe change in service or position is quite common,registering official email ids to important portalslike banks, insurance companies, share brokers,demat agency etc need regular updates. It isadvisable to have one permanent personal id on apublic service like yahoo or google for convenienceand long time continuity.

24. Practice to store the incoming mails in logicalfolders for easy and quick retrieval. I do not meanfolder by names. People use folders like ‘Today’,‘By week end’, ‘Never’ to decide about its disposalbased on its importance.

25. Lastly never be part of hate mails, chain mails orpropaganda mails. The damage it can create couldrange from loss of vital data from your mail box toserious legal issues.

i i i

contd. from page 96 International Taxation

development, depreciation, amortization, 50% of

selling, general and administrative expenses have beenignored along with other expenses incurred by theAssessee outside India for earning the revenue from

end customers. For the purpose of attribution of residualprofits to the PE, reliance was placed on two Supreme

Court rulings that dealt with profit attribution underdomestic tax law. In the case of Anglo French TextileCo, 10% attribution was held reasonable and in Hukum

Chand Mills Ltd, 15% attribution was held reasonable.Having regard to the two rulings, the Tribunal concluded

that adoption of the higher figure of 15% for attributionof the Assessee’s PE will meet the ends of justice.

Comments

When the existence of a PE is confirmed, Article 7 of theDTAA provides for tax-sharing rights over the profits earnedby a US enterprise that carries on business through a PE inIndia. Article 7(2) deals with ascertainment and allocationof such profits by means of application of the transfer pricingprinciples based on the arm’s length standard. Consistent

with a number of other rulings in India, including that of theSupreme Court, this Tribunal ruling re-affirms that attributionof profits to a PE should be based on transfer pricingprinciples. The ruling also reiterates the general principlethat no further profits can be attributed to a PE if the transferpricing analysis of the affiliate subsumes the risk profile ofthe PE.

Despite the recognition of arm’s length principles for profitattribution, while concluding on the extent of profitsattributable to the PE, the Tribunal appears to have adopteda formulary apportionment approach. Further, the rationalefor attributing a part of the “residual profits” to the PE doesnot appear to be very clear from the facts of the case.Under general transfer pricing principles, residual profits aretypically allocated to an enterprise that owns valuableintangible property or makes other non-routine contributions.The ruling also does not seem to have explicitly addressedthe economic double taxation argument of the Assessee ina situation where the residual profit that is attributed to thePE is also taxed in the hands of Ind Co by way of a transferpricing adjustment.

i i i

Use of E mail : Tips, Tricks and Tracks


CA. Chintan M. DoshiHon. Secretary

Forthcoming Programmes

Date/Day Time Programmes Speaker Venue

06.06.2013 05.00 pm to 1st PD Committee Programme- Dr. Nilesh V. Suchak H. K. CollegeThursday 07.00 pm VCES-The Service Tax Conference Hall,

Voluntary Compliance Ashram Road,Encouragement Scheme, 2013 Ahmedabad

15.06.2013 09.00 am to 1st Brain Trust cum CA. Kapil Goel ICAI Bhawan,Saturday 01.00 pm Worshop on “Issues in 123, Sardar Patel Colony,

Income Tax - A Mixed Bag” Naranpura, Ahmedabad.

29.06.2013 09.00 pm Gujarati Drama Jai Shankar Sundari Hall,Saturday “Rahi Gayo Hu Kuwaro” Raikhad, Ahmedabad.

02.08.2013 40th Residential Various Speakers The Golden Palms Hotel & to Refresher Course Spa,05.08.2013 Bangalore.

14.08.2013 07.00 pm Entertainment Evening Fire & Flames, Alpha One Mall,Wednesday Vastrapur, Ahmedabad.

Association News CA. Abhishek J. JainHon. Secretary

2nd Knowledge Clinic

2nd Knowledge Clinic on Direct Taxes is to be held on Friday 28-06-2013 at the office of the Association from 4.00 p.m. to5.00 p.m. Members having queries on the topic may send by email or by hand delivery on or before 17-06-2003.

Glimpses of Events Gone By1. Study Circle Meeting

On 16-05-2013, 1st study circle meeting was held on the topic of “Important Amendments for A.Y. 2013-14”. Thespeaker for the program was CA. Kaushik D. Shah. The program was well received by the members.

(L to R – CA. Shailesh C. Shah, CA. Chintan M. Doshi, CA.Kunal A. Shah, CA. Jayesh C. Sharedalal,CA. Kaushik D. Shah, CA. Prakash B. Sheth and CA. Ronak M. Khandwala)

2. Knowledge Clinic

The first Knowledge Clinic on “Direct Taxes” was held on 24-05-2013 at the office of the Association. Associationhad received various queries from the members. All the queries were discussed and resolved by the panelist CASanjay R. Shah and CA Jayesh C. Sharedalal.

Members are requested to actively participate in the Knowledge Clinic that would enable them to get their quiresresolved arising in the course of professional practice.

i i i