CORPORATE AND PROFESSIONAL UPDATE FEBRUARY 4,2016

CORPORATE AND PROFESSIONAL UPDATE FEBRUARY 4,2016

Direct Tax

CBDT Officials directed to use new Performa to request info exchange from foreign tax authorities.

Non-resident will not to be liable to deduct tax at source from payments made to persons resident in India, if the source of the aforesaid payments is located outside the Indian Territory.

CBEC amended the notifications 56-57/2002 dated 14.11.02 in relation to exemption of excise duty on certain goods in the state of J&K.

Penalty order is illegal and without jurisdiction if it was passed during pendency of assessment proceeding

Commission agent’s services are ineligible for credit as he is n’t  ‘sales promotion agent’

Taxability of Settlement amount received – The nature of settlement amount is of capital receipt and it cannot be categorized as income. Further this amount has been received against surrender of right to sue which cannot be considered for the purpose of capital gains u/s 45- In Re : Aberdeen Claims Administration Inc. and Aberdeen Asset Management Plc. – 2016 (1) TMI 793 – AAR, New Delhi

The Supply Management Services fees received by the applicant is not in the nature of FTS or royalties under the India-UK Tax Treaty- In Re : Cummins Limited – 2016 (1) TMI 792 – AAR New Delhi

Unexplained money – in cases where unaccounted entries are found recorded in the books or documents seized section 69A cannot be invoked. This provision can be invoked only when unaccounted cash bullion jewellery or any other valuable article or thing is found during search or otherwise- M/s Gardenia India Limited Versus Deputy Commissioner of Income Tax, Central Circle-7, New Delhi – 2016 (1) TMI 1029 – ITAT DELHI

Mine development expenses – deferred revenue expenditure – Though there is no reference in the Income-tax Act 1961 the accounting principle recognizes such claim proportionately. Therefore this Tribunal is of the considered opinion that the assessee has rightly claimed 1/5th of the expenditure during the year- The Asstt. Commissioner of Income-tax Company Circle II (3) /Dy. Commissioner of Income-tax Corporate Circle 2 (1) Chennai Versus M/s The India Cements Ltd – 2016 (1) TMI 1028 – ITAT CHENNAI

Reopening of assessment – return was filed before the wrong authority – Such being the facts it cannot be stated that the petitioner had filed no return. The very foundation for issuing notice therefore as recorded in the reasons would be belied- (Manishkumar Pravinbhai Kiri versus Asst. Commissioner of Income tax – 2016 (1) TMI 787 – GUJARAT HIGH COURT).

Depreciation worked out with reference to the written down value computed as a result of order passed under Section 250(6) – Higher WDV – No error could be pointed out in the approach- (Commissioner of Income-tax, Jalandhar Versus M/s Max India Ltd. – 2016 (1) TMI 784 – PUNJAB AND HARYANA HIGH COURT).

Disallowance of interest on delayed payment on excise duty or delayed payment of sales-tax – These are more or less compensatory in nature and cannot be held as any infraction or violation of any law- Asst. Addl Commissioner of Income Tax -5 (1) , Mumbai Versus Gabriel India Ltd and Vica-Versa – 2016 (1) TMI 781 – ITAT MUMBAI. 

Indirect Tax

Provision of additional services to the purchaser of Cars – collection of RTO registration charges Smart Card Fees Vehicle Registration Fees and other extra charges – Business Support Services or Not – Held No- Wonder Cars Pvt. Ltd. Versus Commissioner of Central Excise, Pune I – 2016 (1) TMI 738 – CESTAT MUMBAI

Cenvat Credit – Allocation of input services to the concerned department as earned by the Table-C department – appellant provides taxable service as well as exempted service – entire disallowance does not call for any decision in favour of Revenue- (SIFY Technologies Limited Versus Commissioner of Service Tax, LTU, Chennai – 2016 (1) TMI 768 – CESTAT CHENNAI).

Classification of Import of services from M/s. Society for Worldwide Interbank Financial Telecommunication (SWIFT) which is a non-resident entity not having an office in India – reverse charge – Demand conformed invoking the extended period of limitation- (Bank of Baroda Versus Commissioner of Service Tax, Mumbai-I – 2016 (1) TMI 767 – CESTAT MUMBAI).

Provision of services in relation to filing drawback claims filing application for DEPB EPCG licences etc. – The scope of Business Auxiliary Services (BAS) does not cover the activities of appellants as they do not deal with promotion or marketing of goods or services- M/s Jak Traders Pvt Ltd Versus Commissioner of Central Excise, Kanpur – 2016 (1) TMI 739 – CESTAT ALLAHABAD

Notifications No.56/2002-CE & No.57/2002-CE both dated 14.11.2002 are amended so as to insert a sunset clause of 31.03.2016 and to deny the benefit of the exemption to goods on which certain specified processes have been undertaken vide Notification No. 03/2016 dated 22-1-2016.

Attachment and seizure by the Service Tax Department for substantial service tax dues not paid – there is no final assessment of the petitioner s duty and penalty liabilities. – Goods to be releases subject to specific conditions- M/S RS Electricals Versus Union Of India And 3 – 2016 (1) TMI 770 – Gujarat High Court

Valuation – inclusion of amount charged towards Study Material Package (SMP) supplied to students – coaching centre – clarification issued by the Board s circular No.59/8/2003 dt.20.6.2003 is illegal and contrary to the statutory exemption granted by the notification- M/s. Mastermind Classes Pvt. Ltd. Versus CCE, Indore – 2016 (1) TMI 1016 – CESTAT NEW DELHI

Export of services in relation of import of goods – In case of the commission received from foreign supplier for procuring orders from the Indian buyers to whom the goods were directly supplied by the foreign supplier the service rendered clearly satisfies the requirement of the same being the export of service- M/s National Engineering Industries Limited Versus CCE, Jaipur – 2016 (1) TMI 1013 – CESTAT NEW DELHI

Company Law

Query: Can employee of “X Ltd” be appointed as independent director of “Z pvt Ltd”. The facts relating to shareholding pattern of these companies are as under: –

• “Z pvt Ltd” is subsidiary of “A Ltd”;
•  “A Ltd” is subsidiary of “W pvt Ltd”;
•  “X Ltd” is subsidiary of “W pvt Ltd”

Just to mention that employee of “X Ltd” is not related to any of the director or shareholder of any of these companies.

Answer: No, he cannot be appointed as Independent director of Z Ltd being employee of X Ltd who is ultimate holding Company of all companies viz- Z Ltd, A Ltd & X Ltd.

Further Section 149(6)(e) provides that – An Independent director, neither himself nor any of his relatives shall-

(i) hold or has held the position of KMP or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed.

Query:  Directors in a Public Limited Company have not attended a single Board Meeting during the current Financial Year. However, they have sought Leave of Absence, which was granted by the Board in the first Board meeting. Are they deemed to have vacated office under Sec.167(b) of the Companies Act 2013?

Answer: Section 167(1) (b) states that the office of Director shall become vacant if he absent himself from all the meeting of Board of Directors held during period of 12 month with or without seeking leave of absence. In your case director was absent from all the Board meetings of the Company for a period of 12 month with the permission of Board of Directors (by leave of absence). But as per 167(1)(b) such director has been ceased and the said position shall be vacant.

Query: Our query is- in case a Private limited company is incorporated in year 2014, the first year of operation is 2014-15 and there is no question of preceding year. In such case how to ascertain if the limits under Sec 188 read with relevant rules have exceeded? The % are to be applied on the turnover, net worth etc of preceding year which is not there in case of a newly incorporated company.

Answer:  As per explanation of rule of Section 188, turnover shall be computed on the basis of Audited financial statement of preceding financial year. Therefore there is no preceding financial year so turnover will be NIL. Company has to compute limit of transaction keeping in mind that there was no turnover in the preceding financial year.

FAQ on Company Law:

Query:There are Two CA firm ABC & Associates and PQR & Associates, ABC & Associates merged with PQR & Associates on dated 1st December 2015,

• What documents/ Form to be filed by PQR & Associates to ROC ?
• Is any documents required to be filled by ABC & Associates to ROC ?
• Are Companies in which ABC & Associates were auditor, need to file any documents/Form to ROC in respect to merger of CA firm.

Answer: No form is required to be filed specifically by PQR & Associates to ROC as only Companies registered with ROC can file form with ROC.

• No form is required to be filed specifically by ABC & Associates to ROC as only Companies registered with ROC can file form with ROC.
• Companies in which ABC & Associates was Auditor are required to file Form ADT-3 enclosing a letter directed to ROC and specifying that ABC & Associates has been merged with PQR & associates. So, ABC & Associates has come to end. And Form ADT-1 is required to be filed regarding the appointment of new merged firm so formed.

Query:We are incorporating a company in which NRI is initial shareholder of the Company. Now, he wants to transfer the said share application cum subscription amount from his NRO Account maintained in India. So, is he required to file Form FCGPR in this respect with the RBI. Please advice?

Answer:   In case of transfer of subscription money from the NRO Account maintained in India by NRI to the Account of Company. There is no inflow of funds from a country outside India. So, it is not FDI.

Thus, there is no requirement of filing Form FCGPR regarding the same.

Query: A company (Y Ltd.) is engaged in the business of providing works contract service. Few days back, it had received a notice from excise authority raising a demand of service tax on works contract services provided by it of Rs. XXX. Recently Y Ltd. paid the demand. In the books the payment is being recorded as extra ordinary expenditure. Whether payment of tax demand raised by the taxation authority can recognise as extra ordinary item?

Answer No. As per Para 4.2 of AS 5, “Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies” extraordinary items are income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and, therefore, are not expected to recur frequently or regularly. In the given case, providing works contract service is ordinary activity of Y Ltd. Thus, service tax paid either pursuant to the demand raised by the excise authority or otherwise in this connection is also a part of ordinary activity of Y Ltd. Recognising such payments as extra ordinary item is contrary to Para 4.2 of AS 5.

Query: Can the CSR expenditure be spent on the activities beyond Schedule VII?2013

Answer General Circular No. 21/2014 dated June18, 2014 of MCA has clarified that the statutory provision and provisions of CSR Rules, 2014, is to ensure that while activities undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the Companies Act 2013. However, the entries in the said Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule. The items enlisted in the Schedule VII of the Act, are broad-based and are intended to cover a wide range of activities.

 Query:Whether CSR expenditure of a company can be claimed as a business expenditure?

Answer The amount spent by a company towards CSR cannot be claimed as business expenditure. The Finance Act, 2014 provides that any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.

 Query:What tax benefits can be availed under CSR?

Answer No specific tax exemptions have been extended to CSR expenditure per se. Finance Act, 2014 also clarifies that expenditure on CSR does not form part of business expenditure. While no specific tax exemption has been extended to expenditure incurred on CSR, spending on several activities like contributions to Prime Minister’s Relief Fund, scientific research, rural development projects, skill development projects, agricultural extension projects, etc., which find place in Schedule VII, already enjoy exemptions under different sections of the Income Tax Act, 1961.

MCA Update

MCA has recently introduced the Companies (Incorporation) Amendment Rules 2016 vide Notification dated 22/01/2016 which shall be effective with effect from 26/01/2016.

MCA has released Addendum to Original Order dated 4th Aug, 2013 regarding Internship Scheme in Ministry of Corporate Affairs for students pursuing post-graduation/ research in Commerce, Law, Economics and Management Streams.

Other Updates

SEBI has issued next set of  FAQ’s on SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

C&AG invite online applications for Empanelment of CA firms / LLPs for the Audit of Govt. Companies/PSUs for the year 2016-17. The Application Format is available online on www.saiindia.gov.in till 15 FEB 2016.

RBI has made amendments to its Master Direction on Gold Monetization Scheme to make it more customer-friendly.

SEBI with an endeavour to make the public issue process more efficient and robust has issued Clarification Circular on Streamlining the Process of Public Issue of Equity Shares and Convertibles.

Import of Natural Rubber will not be allowed during the period 21st January 2016 to 31st March 2016 under Advance Authorisations to be issued or revalidated on or after 21st January, 2016 vide Notification No. 33/2015-2020 dated 21.01.2016.

Key Dates

E- Return of D VAT for the quarter ending December: 25/01/2016

DVAT online services and DVAT applications will not be available during period from 08:00 AM to 10:30 AM on 24-01-2016 due to server maintenance activities.

CBDT allows generation of EVC using details of bank account and Demat account vide Notification dated 19.01.2016.

Extension of last date of filling of online return in form 9 for the year 2014-15,prescribed under Rule 4 of Central Sales Tax (Delhi) Rules,2005 to 29/02/2016 [Circular No.34 of 2015-16].

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