Refund of service tax to exporters through the Indian Customs EDI System (ICES)

Service Tax Refund (STR) was made available to exporters (other than SEZ Units/Developers) on specified services used for export of goods covered in Notification 17/2009-ST dated 07.07.2009 (as amended) subject to certain conditions.

Now, the Government has introduced a simplified scheme for electronic refunds of service tax to exporters vide Circular No. 149/18/2011-ST dated 16.12.2011 on the lines of duty drawback.  In the new scheme, exporters will have to either opt for electronic refund through ICES system, which is based on the 'schedule of rates' or go for refund on the basis of documents, by approaching the Central Excise/Service Tax formations.

To obtain benefit under the new electronic STR scheme, which is based on the 'schedule of rates', an exporter should :

have a bank account and also a central excise registration or service tax code number and the same should be registered with Customs ICES 1.5 using 'Annexure –A' Form;

declare his option to avail STR on the electronic shipping bill while presenting the same to the proper officer of Customs.  In the 'schedule of rates', to be notified shortly, rates are specified for goods of a class or description.

express his option by mentioning in the shipping bill, chapter/sub-heading number, as applicable to the export goods declared in the shipping bill.  This chapter/sub-heading number should tally with RITC code mentioned in the Shipping Bill against the export goods.   

Eligible refund amount of service tax paid on the specified services used for export of goods declared in the shipping bill will be calculated electronically by the ICES system, by applying the rate specified in the schedule against the said goods, as a percentage of the FOB value.  Minimum STR will be Rupees Fifty for an electronic shipping bill.

Exporters who opt for claiming STR on the basis of documents, through the Central Excise/Service Tax field formations should declare chapter/subheading number as 9801 in the electronic Shipping Bill. 

[Circular No. 149/18/2011 ST dated 16.12.2011]

Settlement commission

Power of review or rectification of its own order is not available to Settlement Commission, held by ChenHC in Agarshans v The Income Tax Settlement Commission and Others — In favour of: The revenue.

The proceedings before the Settlement Commission relates to the settlement of liability and not the determination of liability.

A writ petition is not maintainable against the order of the Settlement Commission, unless the reasoning is abusive or contrary to the provisions of law and is prejudicial to the interest of the assessee.

Decided on: 22 November 2011.

Income

Collection of contingency deposit against payment of sales tax forms part of assessee’s income, held by ChenHC in CIT v Sundaram Finance Limited — In favour of: The revenue (partly).

Depreciation — As and when the assets are installed at the place of the lessee, it could be presumed that they had been used but the lessee is entitled to claim depreciation even when the assets had not yet been put to use.

Decided on: 8 December 2011.

Reassessment

Reopening of assessment on question which was examined in the original assessment proceedings is illegal — held by DelHC in CIT v Expeditors International India Pvt Ltd — In favour of: The assessee.

The assessee can object to the reopening in the appellate proceedings and it is not mandatory that a writ petition should be filed by him.

Additional ground — If the facts and material available with the Tribunal give rise to a pure question of law, then the Tribunal ought not to have any difficulty in entertaining the additional ground.

Decided on: 8 December 2011.

Registration under s 12AA

Merely because assessee was publishing newspapers in regional, national and English languages by establishing necessary facilities for the same, it cannot be made a ground to deny registration under s 12AA where no fault was found with genuineness of the trust — held by ChenHC in DIT v Vallal M D Seshadri Trust — In favour of: The assessee.

A charitable institution, if it is otherwise charitable, cannot be denied registration merely because it had made amendments to its objects in the trust deed.

As far as the amendment made to the trust deed is concerned, it is not the concern of the assessing authority, and only the civil court is empowered to decide the said issue, and in any event that cannot be the reason for denying the charitable nature of the institution, if it is otherwise charitable.

Decided on: 13 December 2011.

Return

Filing — If assessee rectifies defect in return even after expiry of fifteen days or further period allowed, but before assessment is made, AO may condone delay and treat return as valid return, held by MumHC in Crawford Bayley & Co v Union of India & Ors — In favour of: The assessee.

The problem has arisen in the present case since for AY 2009–2010 arrangements were not made by the Income Tax Department for the verification of returns uploaded electronically by digital signature. Such an arrangement has now been made from AY 2011–2012.

The Income Tax Department, though, made a provision for the electronic filing of returns; the ITR­V Form containing the due verification of the return of the assessee was required to be remitted only by ordinary post. The assessee has furnished adequate material before the Court in support of its contention that having filed the return electronically, it had also submitted the ITR­V form by ordinary post. The assessee has done so on 5 April 2010, 18 May 2010 and 18 November 2010. The communication issued by the Income Tax Department that the return was not filed is thoroughly misconceived. The order of assessment for AY 2009–2010 has still not been passed. Hence, the provisions of s 139(9) can be fulfilled by permitting the assessee to file a verification of the return before the Assessing Officer within a period of one week from today.

Decided on: 1 December 2011.

Search and seizure

Quashing of warrant of authorisation — In absence of any relevant material with authorities, which would have enabled them to have “a reason to believe” that action under s 132(1) of Act was essential, warrant of authorisation for conducting search is liable to be quashed and consequently notice under s 153A is also bad in law, held by MumHC in Spacewood Furnishers (P) Ltd and Others v DGIT and Others — In favour of: The assessee.

The satisfaction note contemplated under s 132(1) must be based upon contemporaneous material.

Decided on: 9 December 2011.

Business Expenditure

Disallowance under s 14A — Matter remitted to consider issue of disallowance since assessee failed to discharge onus placed upon him in establishing that borrowed funds had indeed been utilised for purpose of their business purposes nor had assessee proved that aforesaid investment had been made in shares out of their own interest-free funds, held by DelTrib in DCIT v Jay Pee Ventures (P) Ltd — In favour of: Others.

Depreciation — Printer, scanner, etc, form integral part of computer system, thus entitled to depreciation at 60%.

Decided on: 7 October 2011.

Deduction under s 80-IB

Filing of an audit report in Form 10CCB for claiming a deduction under s 80-IB.

Cash credits — Where the identity and creditworthiness of the companies who had allegedly paid the share application money and the genuineness of the transaction had not been proved, the AO was justified in making an addition under s 68, as held by MadHC in CIT v AKS Alloys (P) Ltd — In favour of: The assessee.

Decided on: 14 December 2011.

Depreciation

Benefit of s 32 is available only to owner of asset — Since assessee was not owner of machinery, he is not entitled to claim depreciation on machinery bought by it on hire purchase basis and leased by him to third party, held by DelHC in Sai Industries Ltd v ACIT — In favour of: The revenue.

Appeal — High Court, in exercise of powers under s 260A, does not have power to re-examine or re-appreciate facts as first appellate forum/Tribunal, which has jurisdiction to determine and decide questions of fact and law.

Decided on: 28 November 2011.

Exemption under s 10A

The method of headcount followed by the assessee cannot be discarded merely because there can be more than one method of apportioning the common expenses between the STP and non-STP domestic units, particularly when the same has been followed consistently by the assessee in the past and has also been accepted by the department, as held by DelHC in CIT v EHPT India P Ltd — In favour of: The assessee; ITA Nos 1172, 1194/2008.

Appeal — The order of the Tribunal, based on proper reasons and settled principles of law, taking note of all the facts and relevant circumstances of the case, is not liable to be interfered with in an appeal under s 260A.

Exemption under s 10(23C)

Merely because some students have challenged the admission in the medical college run by the trust and the High court declaring certain admissions as illegal would not come in the assessee’s claim for an exemption under s 10(23C), particularly when the SLP against such an order is pending before the Apex Court and where the assessee has been granted an exemption in subsequent years, as held by RajHC in Geetanjali University Trust v CCIT and Anr — In favour of: The assessee; SB Civil Writ Petition No 11799/2010.

Decided on: 24 November 2011.

Business expenditure

The expenditure incurred on maintenance and repair on the personal property cannot be set-off and allowed as business expenditure under s 37, as held by DelHC in Mira Kulkarni v ACIT — In favour of: The revenue; ITA 199/2010.

Where the assessee failed to show that expenses incurred were wholly and exclusively for the purposes of the hotel business, the same cannot be allowed under s 37(1).

Personal expenses cannot be allowed as an expense and have to be specifically excluded, as they are not deductible.

The appellant is an individual and a part owner of a property situated at Anand Kashi Farms, a portion of which is being used as a hotel, pursuant to an agreement with Neemrana Hotels Private Limited. The assessee alleged that it had incurred expenditure which was relevant for the maintenance and running of the hotel and claimed a deduction under s 37.

The assessee could not produce evidence and material to substantiate her claim that she had incurred expenditure which was relevant for the maintenance and running of the hotel. The Tribunal has specifically recorded that 75% of the property was in the personal use of the appellant and the expenditure incurred on maintenance and repair on the personal property cannot be set-off and allowed as business expenditure under s 37 of the Act. Further, the reply given by M/s Neemrana Hotels Private Limited (NHPL), the other party to the agreement, clearly and categorically stated that as per the agreement, they were liable to carry out repair and maintenance of the property used for the hotel, the property was jointly used by both parties, as per the enclosed map, and open spaces were used by the appellant to grow agricultural produce. It was further stated that no new construction was carried out during the financial year 2002–2003, which is relevant to the assessment in question. In case the appellant wanted to take a contrary stand and explain the said reply, it could have obtained necessary clarification from NHPL and filed it before the authorities. NHPL is the business partner of the appellant. Thus, the Tribunal was justified in disallowing the assessee’s claim of business expenditure.

Decided on: 16 December 2011.

Refund

If an issue is decided in favour of the assessee giving rise to a refund in an earlier year, that refund cannot be adjusted under s 245 on account of the demand on the same issue in a subsequent year, as held by DelHC in Maruti Suzuki India Limited v Dy CIT — In favour of: The assessee; Writ Petition (Civil) No 2252/2011.

The word “recovery” is comprehensive and includes both coercive steps to recover the demand and the adjustment of a refund to recover the demand. An adjustment under s 245 of the Act is a form/method of recovery.

The conduct and action of the revenue in recovering the disputed tax in respect of additions on issues already covered against them by earlier orders of the ITAT or CIT (Appeals) is unjustified and contrary to law. Accordingly, directions were issued to refund tax.

Recovery — Section 220(6) has no application to a case where an appeal is filed before the Tribunal, though the Tribunal has inherent power to grant the stay.

Decided on: 25 November 2011.

Section 194C vis-à-vis s 194-I

The contract for transportation in respect of chartering a helicopter/aircraft does not attract TDS under s 194-I and TDS is liable to be deducted under s 194C, as held by MumTrib in SKIL Infrastructure Ltd v ITO — In favour of: The assessee.

When the running and maintenance expenditure of a vehicle is borne by the transport service providers and the assessee does not enjoy control over the vehicle, the contract is merely for availing of transportation services and is not covered by s 194-I.

Decided on: 31 October 2011.

Appeal

Findings of facts which do not give rise to a substantial question of law are not liable to be interfered with in an appeal under s 260A, as held by PHHC in CIT, Ludhiana v Ashok Kumar Dhir — In favour of: The assessee; ITA No 598 of 2010 (O&M).

Undisclosed income — Unexplained investment — Where the Commissioner has recorded findings of facts that the five persons in whose name the investment was alleged to be made were genuine partners, an addition made on account of an unexplained investment is unsustainable.

Decided on: 8 December 2011.

Exemption under s 10(23C)

The assessee, Delhi Music Society, teaching and promoting all forms of music and dance, western, Indian or any other, is entitled to an exemption under s 10(23C), as held by DelHC in Delhi Music Society v Director General of Income Tax — In favour of: The assessee; WP (C) No 4726/2011.

An educational institution, to be eligible for an exemption under s 10(23C), is not required to be affiliated to any university or any board.

The word “education” is not only confined to scholastic instructions. Other forms of education are also included under the word “education”.

Decided on: 16 December 2011.

Notification F.No. 1-10-2011-NS-II dated 25 November 2011 & Notification F.No. 1-12-2011-NS-II, dated 25 November 2011

Notification F.No. 1-10-2011-NS-II dated 25 November 2011

It is notified for general information that the sale of Kisan Vikas Patras shall be discontinued

with effect from the close of business on Wednesday, the 30th November, 2011.

Notification F.No. 1-12-2011-NS-II, dated 25 November 2011

In exercise of the powers conferred by clause (1) of article 283 of the Constitution, the President

hereby makes the following further amendments in the National Small Savings Fund (Custody

and Investment) Rules, 2001, namely:-

1. (1) These rules may be called the National Small Savings Fund (Custody and Investment)

Amendment Rules, 2011.

(2) They shall come into force on the 1st day of December 2011.

2. In the National Small Savings Fund (Custody and Investment) Rules, 2001, in rule 9,-

(a) In sub-rule (1),-

(i) after the words "State Government Securities", the words "or in any other

instrument" shall be inserted;

(ii) proviso shall be omitted;

(b) For sub-rule (10), the following shall be substituted, namely:-

"(10) The amount received on maturity of the investments shall be invested in the

Central Government and State Government securities. Such securities shall be

issued in accordance with the provision contained in sub-rule (3). Suitable

accounting entries as mentioned in sub-rule (5) and sub-rule (6) shall be made by

the Chief Controller of Accounts, Ministry of Finance".

Pressure mounts on RBI to cut CRR in December review

With the liquidity situation becoming tighter and inflation on the decline, the financial markets are expecting a reduction in the cash reserve ratio (CRR) — portion of bank deposits kept with the RBI — by the Reserve Bank of India to ease the money crunch in the banking system. The CRR has been left unchanged at 6 per cent since May 2010. However, the policy rates have been raised 13 times during the same period with the central bank last raising the repo rate by 25 basis points to 8.50 per cent in October 2011. As the last date for payment of advance tax is due on December 15, pressure is mounting on the RBI to cut CRR by 25-50 basis points in its mid-quarter monetary policy review on December 16. In a bid to tide over the tight liquidity situation, the RBI on Monday announced that it will purchase government securities worth Rs 10,000 crore on Thursday through Open Market Operations (OMO).

Source : Indian Express

MMRDA gets Rs55cr tax notice

The cash-strapped agency, Mumbai Metropolitan Region Development Authority (MMRDA), has come under the scanner of the income tax (I-T) department over acquisition of government land and subsequent rehabilitation of the project-affected persons (PAPs). The I-T department has deemed these two activities as taxable and slapped a Rs55 crore notice on the planning agency. The agency had acquired the said land and built houses on it, which it later gave to those people who were displaced because of its ongoing infrastructure projects in the city. "We have received a tax notice from the I-T department which wants us to pay the tax deducted at source (TDS) for the government land that we had acquired and also for the houses, which we had constructed and later gave to the project-affected people," metropolitan commissioner Rahul Asthana said on Tuesday.

Source : Hindustan Times

Direct tax code to come into force in April 2012: Pranab Mukherjee

Finance Minister Pranab Mukherjee on Wednesday expressed the hope that the Direct Taxes Code ( DTC), which seeks to modernise tax laws in the country, will come into force from April 1, 2012. "The proposed Direct Taxes Code brings together the policy initiatives on direct taxes. It is slated to come into force from the next financial year," he said while addressing an international conference on 'Tax and Equality'. In a bid to modernise the tax system, the government has proposed to replace the Income Tax Act, 1961, with a new legislation. With regard to indirect tax reforms, the minister said, "We are moving toward an economy-wide, generalised value-added tax system of Goods and Service Taxes (GST) at all levels in the country."

Source : Economic Times

Powers of Tribunal

The President of the ITAT has no power or authority to write the ACRs of the Members, as held by ChenHC in Uttam Bir Singh Bedi v UOI and Others — In favour of: The assessee; Writ Petition No 7715 of 2010 and MP No 3 of 2010.

The post of Vice President is a promotional post to that of the Member of the Tribunal.

Decided on: 30 November 2011.

Income from house property

Annual Letting Value (ALV) for purpose of s 23 — Once the property is outside the purview of the Delhi Rent Control Act, 1958, the ALV of the property cannot be determined with reference to the standard rent determinable under the Delhi Rent Control Act and rateable value, if correctly determined under the municipal law, can be taken as the ALV under s 23(1)(a) as held by DelHC in CIT v Fizz Drinks Ltd — In favour of: Others; ITA No 412/2005.

Notional interest on interest-free security cannot be taken as determinable factor to arrive at fair rent.

The matter was remitted to the AO to determine the ALV of the property, considering the decision of the Full Bench in the case of Commissioner of Income Tax v Moni Kumar Subba.

Decided on: 23 November 2011.

Business receipt

Capital receipt — High Court directed to decide issue whether sales tax subsidy is a capital receipt as held by SCI in CIT v Reliance Industries Ltd — In favour of: The revenue; Civil Appeal Nos 7769–7770, 7771 of 2011.

Dividend income — High Court directed to decide whether estimated expenditure for earning dividend income cannot be subject to disallowance while computing book profits as well as under the normal provisions of the Income-tax Act.

Decided on: 9 September 2011.

‘Foreign healthcare services companies not liable for tax’

Foreign healthcare services firms are not liable for tax in India as payments for such services cannot be construed as royalty, according to a ruling by a Mumbai tax tribunal. The order by the Income Tax Appellate Tribunal (ITAT) was in response to the income tax department's position that foreign healthcare services firms are giving services such as providing technical skills, right to use logos, etc. Thus the payment they get from Indian companies is "royalty" that is taxable in the country.

Source : economictimes.indiatimes.com

Banks can now open branches in Tier 2 cities without RBI nod

The Reserve Bank relaxed branch authorisation policy, allowing banks to open administrative office or service branch in cities with population of over 50,000 but less than 1 lakh without its approval. "Now that general permission to banks has been extended for opening of branches in Tier 2 centres, domestic scheduled commercial banks (other than RRBs) will be allowed to open administrative offices and central processing centres (CPCs) or service branches in Tier 2 centre (with population 50,000 to 99,999 as per Census 2001)," the RBI said in a notification.

Source : economictimes.indiatimes.com

Private debt placements fall to Rs 1.02 lakh crore in H1-FY12

A high interest rate regime seems to be affecting the companies' appetite for raising capital through private placement of debt securities or bonds, as the quantum of such funds dropped by 12 per cent in the first half of the current fiscal. According to data compiled by Prime Database, Indian firms mopped-up Rs 1,02,590 crore through 96 debt private placements during April-September period of current fiscal, down from Rs 1,16,524 crore mobilised in the year-ago period.

Source : Economic Times

Rupee fell record 7% in November

The rupee suffered the worst fall in 16 years in November, plunging nearly seven per cent and hitting a record low, as persistent dollar demand from importers and portfolio outflows due to global risk aversion pounded the local unit. The rupee continues to face further depreciation threats on the back of a gaping current account deficit and slowing growth. The worst performer among its Asian peers, the rupee has lost 6.7 per cent during the month, taking its fall so far in 2011 to 14.37 per cent. On Wednesday, it closed at 52.20/21 per dollar, 0.35 per cent weaker than Tuesday's close, recovering from the day's low of 52.42 after China cut its banks' reserve requirement ratio by 50 basis points, which aided global risk appetite.

Source : Business Standard

Capital gains

For the purposes of s 2(47), in property matters, a transfer shall be deemed to be effected on the date on which the sales deed was registered and the capital gain was liable from the date of registration of the sales deed, as held by DelTrib in ACIT v Bishan Lal [HUF] and Anr — In favour of: The revenue.

Interest under 234A, 234B and 234C — The charging of interest under s 234A, 234B and 234C is mandatory in nature.

If the AO has charged interest in the ITN-150 while computing tax, the assessee’s contention that the AO did not charge interest specifically in the body of the order is not maintainable.

Appeal — The CIT(A) had jurisdiction under s 246A to decide the appeal relating to the levy of interest.

Where the revenue has raised a substantial question of law, the monetary limit for filing the appeal before the Tribunal will not be applicable.

Decided on: 30 August 2011.

Registration under s 12AA

Charitable trust — The principles laid down for excluding the income from consideration under s 10(23)(C) or ss 11 and 12 are not applicable while considering the application for registration under s 12AA — as held by PHHC in CIT v Surya Educational & Charitable Trust and Anr — In favour of: The assessee.

The Commissioner is empowered to examine the genuineness of the objects of the Trust, but not the income of the Trust, for charitable or religious purposes while granting Registration under s 12AA.

The Trust or the Institution in not required to start all its envisaged activities in the first year itself for the grant of Registration under s 12AA.

Decided on: 5 October 2011.

Income Tax relief to World Cup devoid of merit says Parliament Panel

The Parliament’s standing committee on finance has said the Rs 45 crore tax exemption extended to the International Cricket Council (ICC) for the World Cup was “unjustified and devoid of merit”. The committee also said that it is not convinced about the tenability of the tax exemption given to the ICC as the World Cup had received huge sponsorships and was patronised by the corporate sector in a big way.

The reports also said that the leniency of the IT department allowed the BCCI to enrich its coffers at the expense of the exchequer. The report also said the it was quite evident that the IT department has been rather inconsistent in bringing BCCI into the taxability net. The committee said that the department should consider levying penalty and interest while collecting tax from the BCCI.

[Source: The Times of India]

PIB Press Release, Setting up of Biotechnology Industry Research Assistance Council

The Union Cabinet today approved the setting up of "Biotechnology Industry Research

Assistance Council (BIRAC)" as 'not-for-profit' section 25 company with a vision to

stimulate, foster and enhance the strategic research and innovation capabilities of the Indian

biotech industry particularly SME's, to make India globally competitive in biotech innovation

and entrepreneurship and to create affordable products and services.

BIRAC will operate with a core budget for its regular activities and recurring expenses for

human resources and operational cost with an initial outlay of Rs.70 crore for two years.

BIRAC is being set up as a separate body for supporting product innovation and providing

required infrastructure and services at different stages of the value chain for promoting

innovation and product development.

BIRAC will provide funding/investment for

• Early and late stage, including Small Business Innovation Research Initiative (SBIRI),

Biotechnology Industry Partnership Programme (BIPP) and Ignition grant.

• Technology transfer and acquisition in national priority areas

• Technology development - incubators, parks

It will also provide support services such as IP facilitation, legal and contracts, regulatory and

clinical trail facilitation; mentoring and capacity building.

The company would function as the Government's, inter-phase agency for supporting

industry -academia interaction, which will service as a single window for the emerging

biotech industry through which they can acquire knowledge, access world class RandD

infrastructure, access rate limiting serious technologies and seek technical problem solving

help regulatory advice.

Background:

The proposal for setting up of an innovation support organisation - Biotechnology Industry

Research Assistance Council (BIRAC) will address the felt need in the government system

for providing a comprehensive enabling environment and technology related service package

to promote, nurture and support medium and high level innovation in biotech research. This

would be particularly useful for small and medium size companies, and also support and

facilitate creation of new start-ups.

Reassessment

The requirement of “new material” coming in possession of the AO as a prerequisite for the reassessment is applicable only where he made an assessment earlier — as held by MumTrib in ACIT v Maersk Global Service Center (India) P Ltd — In favour of: The assessee.

Transfer pricing — Arm’s length principle — If the TPO wants to exclude any of such comparables given by assessee, he has to justify the exclusion by adducing cogent reasons in absence of same, a presumption has to be drawn that those cases are comparable.

The Departmental Representative, while arguing the appeal, cannot improve the order of the AO/TPO by contending that the TPO was wrong in accepting a particular claim of the assessee.

Decided on: 9 November 2011.

Direct Tax Notification, Dated: 25-11-2011 [F.No. 1-12-2011-NS-II]

Notification regarding authorised Standardised Agency System (SAS) and Mahila Pradhan Kshetriya Bachat Yojana (MPKBY) for canvassing/securing investments in the small savings schemes

The Central Government hereby notifies that the authorised Standardised Agency System

(SAS) and Mahila Pradhan Kshetriya Bachat Yojana (MPKBY) agents for

canvassing/securing investments in the small savings schemes as per the terms of agreement

executed by them under the Standardised Agency System (SAS) and Mahila Pradhan

Kshetriya Bachat Yojana (MPKBY) will be paid commission at the rate indicated below:

(A) Mahila Pradhan Kshetriya Bachat Yojana (MPKBY) Rate

(i) Five-Year Recurring Deposit Account - 4%

(B) Standardised Agency System (SAS)

(i) One-Year Time Deposit - 0.5%

(ii) Two-Year and 3-Year Time Deposit - 0.5%

(iii) Five-Year Time Deposit - 0.5%

(iv) Monthly Income Account Scheme - 0.5%

(v) Five/Six-Year National Savings Certificate (VIII-Issue) - 0.5%

(vi) Ten-Year National Savings Certificate (IX-lssue) - 0.5%

2. Payment of commission on Public Provident Scheme (1%) and Senior Citizens Savings

Scheme (0.5%) shall be discontinued.

3. Incentive, if any, paid by State/Union Territory Governments shall be reduced from

commission paid by the Central Government.

4. These instructions shall take effect from the 1st day of December, 2011.

PIB Press Release, Dated: 26-11-2011

India and Nepal to Sign Revised Double Taxation Avoidance Agreement; Finance Minister to Leave for a Day’s Visit to Nepal Tomorrow

Double Taxation Avoidance Agreement (DTAA) between India and Nepal will be signed

tomorrow by the Finance Ministers of both the countries in Kathmandu. This Agreement

(DTAA) would replace an earlier Agreement between two countries which was signed way

back in 1987. The Union Finance Minister Shri Pranab Mukherjee will be visiting Nepal on a

day's visit tomorrow at the invitation of the Finance Minister of Nepal Shri Barshaman Pun

'Ananta'. During his visit, the Finance Minister Shri Mukherjee will also call on the Rt

Hon'ble President and Rt Hon'ble Prime Minister of Nepal.

During the visit, the two Finance Ministers will also exchange views on the further

development of bilateral relations and review the progress on implementation of the action

plan agreed upon during the last visit of the Prime Minister of Nepal to India on October 21,

2011.

Notification, Dated: 25-11-2011 [F.No. 1/9/2011-NS-II]

Section 3 of the Public Provident Fund Act, 1968 (23 of 1958) — Amendment to the Public Provident Fund Scheme, 1968

Section 3 of the Public Provident Fund Act, 1968 (23 of 1958) - Amendment to the

Public Provident Fund Scheme, 1968

In exercise of the powers conferred by sub-section (4) of section 3 of the Public Provident

Fund Act, 1968 (23 of 1958), the Central Government hereby makes the following further

amendment to the Public Provident Fund Scheme, 1968, namely :-

1. (1) This Scheme may be called the Public Provident Fund (Amendment) Scheme, 2011.

(2) It shall come into force on the 1st day of December 2011.

2. In the Public Provident Fund Scheme, 1968, -

(i) in paragraph 3, in sub-paragraph (1), for the letters and figures “Rs 70,000/-”, the letters

and figures “Rs 1,00,000 shall be substituted;

(ii) in paragraph 11, in sub-paragraph (2), for the words “one per cent, per annum”, the words

“two per cent, per annum” shall be substituted;

(iii) in Form-A, in paragraph (iv), for the letters and figures “Rs 70,000/-”, the letters and

figures “Rs 1,00,000 shall be substituted.

 

Rentals of retail spaces may rise with more FDI

Retail space rentals in India may go up as big global players try to expand rapidly in the country in the medium to long term following the government's decision to relax FDI norms in the sector further, according to realty consultants. "A lot of international brands will look at entering India and scout for retail spaces. The vacancy level will come down for the existing supply available in the market," Cushman & Wakefield (C&W) India Director (Retail Services) Jaideep Wahi told PTI. Asked about the rentals, he said there would be an upward trend in successful shopping centres and high-street sites, but declined to give any percentage of increase. Expressing similar views, CB Richard Ellis (South Asia) Chairman and Managing Director Anshuman Magazine said: "There could be marginal increase in rentals of major high-street destinations and shopping centres as there is very limited supply there."

Source : Business Standard

Body to monitor accounting & auditing

The government proposes to establish a National Financial Reporting Authority (NFRA) for better monitoring of corporate financial management, going by the revised Companies Bill, 2011. NFRA is, in fact, the renamed version of the earlier proposed National Advisory Committee on Accounting and Auditing Standards. Such an authority, says the Bill which the Cabinet cleared yesterday, will have the mandate to ensure scrutiny and compliance of accounting and auditing standards. It will also ascertain the quality of the service of professionals associated with the compliance. NFRA will have quasi-judicial powers. It can order investigation, levy penalty and bar professionals from practice in case of their indulgence in professional or other misconduct. The creation of this body may create a problem with the Institute of Chartered Accountants of India(ICAI), a senior expert associated with a leading CA firm pointed out on condition of anonymity.

Source : Business Standard

No plans to reduce taxes on petroleum goods

The government today said that it is concerned about frequent hike in prices of petroleum products but does not plan to reduce taxes on oil goods. "No, Sir. There is no such proposal (to reduce or withdraw taxes imposed on petroleum products) at this stage," Minister of State for Finance S S Palanimanickam told Lok Sabha. The Government, he added, was concerned about the frequent hike in prices. The government in the recent past has increased prices of petroleum goods including petrol, diesel, LPG and kerosene several times in view of the rising prices of crude oil in the international market. Taxes account for nearly 45 per cent of the retail price of petrol. In order to insulate the common man from the impact of rise in international oil prices, Palanimanickam said the government "modulates the retail selling prices of diesel, PDS kerosene and domestic LPG."

Source : Economic Times

Additional evidence

Powers under s 250(4) and Rule 46A — If the CIT(A) exercises his powers under s 250(4) to call for additional evidence, the AO need not be given an opportunity to show-cause; however, if the CIT(A) acts on an application under r 46A, then the requirement of giving the AO an opportunity as per r 46A(3) is mandatory — as held by DelHC in CIT v Manish Build Well Pvt Ltd — In favour of: Others.

The conditions prescribed in r 46A must be shown to exist before additional evidence is admitted and every procedural requirement mentioned in the Rule has to be strictly complied with so that the Rule is meaningfully exercised and not exercised in a routine or cursory manner.

Account — In the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method.

In favour of: The assessee.

Deemed dividend

When the shareholding of the assessee in the company who has advanced the payments to the assessee is less than 10%, provisions of s 2(22)(e) is not attracted — as held by AhdTrib in ACIT v Medical Technologies Pvt Ltd — In favour of: The assessee.

Disallowance under s 43B — When the service tax has neither been claimed as a deduction nor forms part of the receipt of the relevant period, no disallowance can be made under s 43B.

Bad debt — Deduction under s 36(1)(vii) can be allowed only when the assessee fulfils the requirement of s 36(2).

In favour of: The revenue.

Decided on: 20 October 2011.

Direct Tax Order, Dated: 21-11-2011[F. No. 504-31-2010-FTD-I]

Information on tax matters to be sought by field officers of the Income Tax Department from countries/jurisdictions with which India has Double Taxation Avoidance Agreement (DTAA) or Tax Information Exchange Agreement (TIEA) under the relevant “Exchange of Information” Article of DTAA/TIEA

1. Kindly refer to the above.

2. Information on tax matters is being sought by field officers of the Income Tax Department

from countries/jurisdictions with which India has Double Taxation Avoidance Agreement

(DTAA) or Tax Information Exchange Agreement (TIEA) under the relevant 'Exchange of

Information' Article of DTAA/TIEA through the office of competent authority viz. the Joint

Secretary in the Foreign Tax and Tax Division, CBDT. Presently the above information is

being sought obtained in a prescribed checklist/proforma (copy enclosed as Annexure-A).

Further in the case of U.K. for obtaining banking information, a separate proforma has been

prescribed by U.K. tax authorities (copy enclosed as Annexure-B).

3. Considering the developments at International Forums including the Model Proforma for

the exchange of information being developed by the OECD, it is proposed to change the

existing proforma. Further, it is proposed to have a separate proforma for obtaining any

information relating to Transfer Pricing and prescription of a separate proforma for the same.

4. In view of the above, I am directed to request you to give your comments and views on the

following to the FT and TR division by the 15th December, 2011:

(a) for developing separate proforma (T.P.) for Transfer Pricing cases

(b) for any improvement required to be made to the present Proforma prescribed for

obtaining information from countries/jurisdictions with which India has DTAA/TIEA.

(c) Any other suggestion relating to the above

5. I am also directed to state that, at present, the request may be sent to FTandTR Division by

the concerned Commissioner of Income Tax/Director of Income Tax as per the following

guidelines:

(a) Request should be made in the checklist/proforma as per Annexure A and

Annexure B.

(b) Request for the exchange of information may be addressed by the concerned

Commissioner of Income Tax/Director of Income Tax to JS (FT and TR-I), CBDT,

New Delhi, for the North America including Caribbean Island, Europe and Japan and

to JS(FT and TR-II), CBDT, New Delhi, for the rest of the world.

(c) The request for exchange of information for the cases getting time barred on 31st

December, 2011 should be received in the office of JS (FT and TR-I) or JS(FT and

TR-II), as the case maybe, by 15th December, 2011.

(d) Separate requests should be made for different tax payers even if the case pertains

to same country or same foreign entity. Further, separate requests should be made for

different countries even if the cases pertain to the same assessee.

6. The above may be brought to the notice of all officers of your region. This issues with the

approval of Chairman, CBDT.

Annexure - A

"Exchange of Information" Proforma/Checklist

Proforma for Seeking Specific Information under the Provisons of "Exchange of

Information" Article of Double Taxation Avoidance Agreement

1. Name and address of the specific taxpayer whose tax liability is the subject of

investigation.

2. Name and address of the concerned foreign person(s)/entity/company etc.

3. The specific tax periods (years) involved please specify the start date and ending date of

the tax year, e.g. April 1, 2002 through March 31, 2003.

4. The specific taxes involved; e.g. individual income, corporate income.

5. The specific question(s)/point(s) of the which information is needed.

6. Relevance of why the information is needed and the issue being examined; e.g. unreported

income, need bank records from taxpayer's account with XYZ bank in the concerned country,

specify the time period when records are required, if the time period is outside the year(s)

under investigation, please specify why this additional information is required.

7. Statement that the information is required purely for taxation purposes and will be used

solely for taxation purposes.

(It may be noted that CHECK LIST should be furnished in duplicate, meant for each country

separately, if information is required from more than one country)

Annexure - B

Details Required to Obtain Banking Information

1. Full name, date of birth and nationality (of both spouses if applicable).

2. Residence position if not of Indian origin (date became resident for tax purposes in India)

3. The date your investigation commenced, and the reasons for the investigation, for instance

if living beyond declared means then, a best estimate of annual expenditure should be given

together with known/declared income for the years covered by the request.

4. If self-employed, the following in respect of for the years covered by the request

• Nature of business operated

• Business address (if different from the private address)

• Annual value of sales (turnover)

5. If employed/ a director, the following in respect of for the years covered by the request

a. Name of the employer(s)

b. Date employment(s)/directorship (s) commenced/ceased

c. Amount of remuneration declared upon personal tax returns (and within company

accounts if a director)

d. The nature of the employers business

6. Full details of any other declared upon personal tax returns (on a yearly basis) by the

family unit in respect of for the years covered by the request.

7. Confirmation of whether or not any interest figure declared upon the personal tax returns in

the period covered by the request has been reconciled to known accounts, together with the

number of known accounts held

a. With Indian banks

b. Other banks

c. Clarifying whether or not any interest earned on the U.K. accounts may have been

omitted.

8. A comment convening cases involving capital accumulation, detailing the source, if

known, or extent of explanation provided.

9. The period of the investigation and the period for which the information is required, it is

different

10. A description of the documents/information required. In the case of bank statements all

the following is required.

a. Name of the bank

b. Sort code or branch address.

c. Account number.

11. The relevant fact or evidence established so far, identifying the source of the information

(that is the taxpayer's statement, third party statements, and documents). Copies of relevant

documents should be enclosed.

12. The relevance of the required documents. What you think they will show, how the will

assist your investigation and why they are considered essential to the outcome of your

investigation, (for instance the extent to which the transactions /income reflected therein are

suspected of being suppressed/needed for verification purpose etc.)

13. Details of any other irregularities uncovered by your investigation, any inferences or

conclusions drawn so far with reasoning. This is very important, if any irregularities have

already been discovered, then this carries a lot of weight before the Commissioners.

14. The actions already taken as part of your investigation to obtain the required documents

and the extent of the taxpayers' co-operation in this endeavour, (has the taxpayer made any

admissions or denials, or refused to provide either the documents or an authority enabling

you to approach the bank direct?). It may be appropriate to say that "All informal avenues

have been exhausted".

Revision

Where AO has granted depreciation on aircraft owned by assessee at 40% in accordance with the provisions of the Rule, therefore, such grant of depreciation cannot be considered to be a claim not supported by law, as the department cannot straightaway show that such claim of depreciation was not in accordance with the law and, in such, circumstances, the powers under s 263 could not be invoked — as held by DelTrib in SRC Aviation (P) Ltd v DCIT — In favour of: The assessee.

Depreciation — The difference between “aeroplane” and “aircraft”, in respect of depreciation being eligible under Income-tax Rules has been omitted in respect of assessment years falling after AYs 1987–1988.

Disallowance under s 14A — Rule 8D is inapplicable prior to AY 2008–2009, but the AO is duty bound to make the disallowance under s 14A, thus the matter is remitted to AO.

Deduction under s 40A(2)(b) — The matter remitted to the AO with directions to consider the issue whether payments made by the assessee to its directors were excessive or unreasonable.

In favour of: Others.

Disallowance under s 40A(3) — The payments made by the assessee in cash to AAI in relation to flights undertaken by the assessee in the course of its regular activities as certified by AAI, case of assessee fall under the exceptions specified in Rule 6DD(k) and thus no disallowance can be made under s 40A(3).

In favour of: The assessee.

Decided on: 26 August 2011

 

Disallowance under s 14A

No disallowance under s 14 or Rule can be made unless AO records a finding that the assessee’s calculation is wrong — as held by DelHC in Maxopp Investment Ltd v CIT — In favour of: Others.

If the expenditure in question has a relation or connection with or pertains to exempt income, it cannot be allowed as a deduction even if it otherwise qualifies under the other provisions of the said Act.

If no expenditure is incurred in relation to the exempt income, no disallowance can be made under s 14A.

The AO cannot proceed to determine the amount of expenditure incurred in relation to exempt income without recording a finding that he is not satisfied with the correctness of the claim of the assessee.

Decided on: 18 November 2011.

Additional evidence

Parties to the appeal shall not be entitled to produce additional evidence, either oral or documentary, before the Tribunal as a matter of right as — held by PHHC in CIT v Avinash Chander Ghai HUF and Others — In favour of: The assessee.

Additional evidence is admissible is only when Income Tax authorities have decided the case without giving opportunity to the assessee to adduce evidence, or if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, and not at the instance of the revenue.

Decided on: 15 November 2011.

Rectification

The omission to apply the judgment of the Supreme Court is a glaring and obvious mistake of law which can be corrected under s 154 — as held by DelHC in CIT v Satish Kumar Agarwal — In favour of: The revenue.

Non-consideration of the judgment of the Supreme Court and non-application of the ratio of the said judgment to the facts of the present case, with reference to the claim of the assessee under s 80HHC, is a glaring, patent and obvious mistake of the law which can be rectified by resorting to s 154 of the Act.

Decided on: 8 November 2011.

Penalty under s 271(1)(c)

Merely because the assessee made claim of deduction under a wrong head, would not mean that the claim was false for imposition of penalty under s 271(1)(c) — as held by DelHC in CIT v Sumangal Overseas Ltd — In favour of: The assessee.

During the penalty proceedings, it is open to the Tribunal to look into the transaction to see as to whether the claim was bona fide or it was bogus and result of falsehood even where no appeal is preferred by the assessee against the quantum order.

Decided on: 18 November 2011.

When two views were possible and the assessee made the claim on the basis of advice of the consultants, no penalty should be imposed under s 271(1)(c) — as held by DelHC in CIT v KAS Movie Pvt Ltd — In favour of: The assessee.

The assessee’s claim was rejected purely on legal grounds. The return was prepared as per the guidance/supervision of the tax consultant; there was no basis to hold that the claim was dishonestly made in collusion with the auditors, and no penalty should be imposed under s 271(1)(c).

Deduction under s 80HHF — Ownership of goods is not essential for the purpose of claiming benefit under s 80HHF.

Decided on: 18 November 2011.

Interest under s 220(2)

Where the original assessment order dated 28 February 1997 was set aside by the ITAT, once the fresh assessment order is passed dated 24 December 2006, the demands arising therefrom would not relate back to the date of service of the original demand notice and interest under s 220(2) would be leviable after thirty days of the service of the demand notice dated 24 December 2006 — as held by MumHC in CIT v Chika Overseas Pvt Ltd — In favour of: The assessee.

CIT v Chika Overseas Pvt. Ltd.

High Court of Bombay

ITA No. 3737 of 2010

J.P. Devadhar and A.R. Joshi, JJ

Decided on: 18 November 2011

Counsel appeared:

Vimal Gupta for the appellant

Ms. Aarti Vissanji with S.P. Mehta for the respondent

Oral Judgment (Per J.D. Devadhar, J.)

1. Whether the ITAT was justified in holding that the assessee was liable to pay interest u/s.

220(2) of the Income Tax Act, 1961 (‘the Act’ for short) after thirty days from the service

of the fresh demand notice dated 24/12/2006 pursuant to the fresh assessment order passed

under section 143(3) of the Act, is the question raised in this appeal.

2. The assessment year involved herein is AY 1994-95.

3. Initially, by an assessment order passed under section 143(3) of the Act on 28/2/1997, the

income for the assessment year in question was assessed at Rs.2.05 crores and by a demand

notice dated 28/2/1997, demand of Rs.1.76 crores was raised against the assessee. On appeal

filed by the assessee, the CIT(A), by his order dated 8/9/1997 partially allowed the claim of the

assessee, as a result whereof the income was reduced to Rs.18.30 lakhs. Lateron, the ITAT set

aside the assessment order dated 28/2/1997 and directed the assessing officer to pass fresh

assessment order.

4. Accordingly, the matter was heard afresh and by a fresh assessment order dated 24/12/2006

the assessing officer assessed the income at Rs.44.88 lakhs and raised a demand of Rs.22.02

lakhs. The assessee paid the amount beyond thirty days from the service of the demand notice

dated 24/12/2006. The assessing officer held that the assessee was liable to pay interest under

section 220(2) of the Act after thirty days from the service of the original demand notice dated

28/2/1997. Challenging the aforesaid order, the assessee filed an appeal before the CIT(A) who

held that the assessee is liable to pay interest after thirty days from the date of service of

demand notice dated 24/12/2006 and not after thirty days from the service of demand notice

dated 28/2/1997. The said order was upheld by the ITAT. Challenging the aforesaid order, the

revenue has filed the present appeal.

5. The argument of the revenue is that even though the original assessment order dated

28/2/1997 was set aside by the ITAT, once the fresh assessment order is passed, the demands

arising therefrom would relate back to the date of service of the original demand notice. In the

present case, the original demand was served on 28/2/1997 and, therefore, interest under

section 220(2) would be leviable after thirty days from 28/2/1997.

6) We see no merit in the above contention. Under section 156 of the Act, service of the

demand notice is mandatory. Section 220(2) of the Act provides that if the amount specified

in any notice of demand under section 156 is not paid within the period prescribed under

sub-section (1) of section 220, then, the assessee shall be liable to pay simple interest at the

rate prescribed therein.

7) In the present case, it is not in dispute that the original assessment order dated 28/2/1997 was

set aside by the ITAT with a direction to pass fresh assessment order. Accordingly, fresh

assessment order was passed on 24/12/2006 and the demand notice was served on 24/12/2006.

As per section 220(1) of the Act, the assessee was liable to pay the amount of demand within

thirty days from the service of demand notice dated 24/12/2006. It is only if the assessee fails to

pay the amount demanded, within thirty days of the service of the demand notice dated

24/12/2006 as stipulated under section 220(1) of the Act, the assessee was liable to pay

interest under section 220(2) of the Act. If the liability to pay interest under section 220(2)

arises after thirty days of the service of the demand notice dated 24/12/2006, the question of

demanding interest for the period prior to 24/12/2006 does not arise at all. Neither the

assessment order dated 24/12/2006 nor the demand notice dated 24/12/2006 required the

assessee to pay interest after thirty days from the date of service of the original demand notice

dated 28/2/1997. Since the demand itself was crystallized under the assessment order dated

24/12/2006 and the assessee under section 220(1) of the Act had time to pay that demand

upto thirty days of the service of the demand notice dated 24/12/2006, the argument of the

revenue that the assessee was liable to pay interest under section 220(2) of the Act, for

the period prior to the crystallization of the demand on 24/12/2006 cannot be sustained.

Therefore, in the facts of the present case, the decision of the ITAT in holding that the assessee

is liable to pay interest under section 220(2) of the Act from the end of the period mentioned in

section 220(1) of the Act i.e. thirty days after the service of notice of demand dated

24/12/2006 till the date on which the amount demanded was paid cannot be faulted.

8. In the result, we see no merit in the appeal and the same is hereby dismissed with no order as

to costs.