CORPORATE AND PROFESSIONAL UPDATE JANUARY 23, 2016

CORPORATE AND PROFESSIONAL UPDATE JANUARY 23, 2016

INCOME TAX ACT

SECTION 2(22)

DEEMED DIVIDEND

Loans or advances to shareholders : Where assessee was a shareholder in a company holding 41 per cent of shares and during year he and his son and daughter had overdrawn certain amount from said company and Assessing Officer treating said amount as deemed dividend under section 2(22)(e) added same in income of assessee, since both son and daughter were not shareholders in company and during year company got only negative accumulated profits, provisions of section 2(22)(e) could not be invoked – [2016] 65  255 (Kolkata – Trib.)

SECTION 28(i)

BUSINESS INCOME – YEAR IN WHICH TAXABLE

Upfront payments : Where assessee-port received non-refundable upfront premium from various parties for permitting them to develop various facilities such as docking of ships, loading and unloading of containers on land provided by it for a period of 30 years, entire amount of premium was to be brought to tax in assessment year in question itself – [2016] 65  210 (Bangalore – Trib.)

SECTION 37(1)

BUSINESS EXPENDITURE – YEAR IN WHICH DEDUCTIBLE

Audit fees : Where assessee made contain provision in its profit and loss account in respect of accounting and auditing charges, matter was to be remanded back to Assessing Officer with direction to verify whether assessee was following practice of recognizing expenditure of audit fee pertaining to each year irrespective of actual payment and, if yes, then, it should not be disallowed for year under consideration – [2016] 65  210 (Bangalore – Trib.)

SECTION 55

CAPITAL GAINS – COST OF ACQUISITION

Trademark : Where assessee, during assessment year 1996-97, in terms of a settlement agreement entered into between it and an international company ‘S’, had transferred its trademark to ‘S’ for certain consideration, transfer of trademark was liable to tax under section 55(2)(a) only from 1-4-2002 and not in assessment year in question -[2016] 65  253 (Karnataka)

SECTION 69A

UNEXPLAINED MONEYS

Reopening of assessment : Where at time of making assessment, assessee disclosed all material facts relating to income assessable under section 69A, Assessing Officer could not initiate reassessment proceedings after expiry of four years from relevant year taking a view that addition under section 69A was deemed income of assessee and, thus, brought forward business loss and depreciation could not be set off against said income -[2016] 65  221 (Madras)

SECTION 80-IC

DEDUCTION – SPECIAL PROVISION IN RESPECT OF CERTAIN UNDERTAKINGS, OR ENTERPRISES IN CERTAIN SPECIAL CATEGORY STATES

Manufacturing : Where end product is outcome of combination of employment of man and machine and after raw material goes through various processes, and is known commercially different article/thing/product, it is a manufacturing activity entitled for deduction under section 80-IC – [2016] 65  191 (Mumbai – Trib.)

SECTION 92C

TRANSFER PRICING – COMPUTATION OF ARMS LENGTH PRICE

Where assessee claimed that copyright infringement settlement expenses paid to AE was to be allowed as deduction from operating cost of transactions entered into with said AE, it was to be concluded that unless expenditure was found to be not relating to normal business operations of assessee company, it could not be directed to be excluded from operating cost of assessee. Since all facts relating to issue in dispute were not on record i.e., whether infringement of copyright was with regard to international transactions and whether it formed part of operating expenditure or not, matter was to be remanded back to TPO/AO for disposal afresh – [2016] 65 306 (Hyderabad – Trib.)

Comparables and adjustments/Adjustments – Interest : Domestic prime lending rate would have no applicability and it is LIBOR rate which has to be considered while determining arm’s length interest rate in respect of an International transaction – [2016] 65  240 (Hyderabad – Trib.)

Comparables and adjustments/Adjustments – Corporate guarantee : It would be appropriate to charge corporate guarantee fee at 0.50 per cent where assessee, through a common facilities agreement in connection with overseas acquisition of subsidiary companies, had provided corporate guarantee in favour of its AE – [2016] 65  240 (Hyderabad – Trib.)

Comparables and adjustments/Adjustments – General : Adjustment arising out of Arm’s Length Price (ALP) has to be restricted to only International Transactions with Associated Enterprise instead of entire turnover of assessee – [2016] 65  155 (Bombay)

Comparables and adjustments/Adjustments – Interest : Domestic prime lending rate would have no applicability and it is LIBOR rate which has to be considered while determining arm’s length interest rate in respect of an International transaction – [2016] 65  240 (Hyderabad – Trib.)

Comparables and adjustments/Adjustments – Corporate guarantee : It would be appropriate to charge corporate guarantee fee at 0.50 per cent where assessee, through a common facilities agreement in connection with overseas acquisition of subsidiary companies, had provided corporate guarantee in favour of its AE – [2016] 65  240 (Hyderabad – Trib.)

Comparables and adjustments/Adjustments – General : Adjustment arising out of Arm’s Length Price (ALP) has to be restricted to only International Transactions with Associated Enterprise instead of entire turnover of assessee – [2016] 65 155 (Bombay)

SECTION 147

INCOME ESCAPING ASSESSMENT – GENERAL

Computation of limitation period : Proviso to section 147 does not use expression ‘assessment’ or ‘reassessment’ and, therefore, starting point for period of limitation cannot be date of assessment or revised assessment or reassessment – [2016] 65  221 (Madras)

SECTION 148

INCOME ESCAPING ASSESSMENT – ISSUE OF NOTICE FOR

Recording of reasons : Justification for reopening of assessment has to be tested only on strength of order recording reasons for reopening under section 148(2) – [2016] 65  221 (Madras)

SECTION 192

DEDUCTION OF TAX AT SOURCE – SALARY

Assessee-employer deducted TDS as per section 192 in respect of salary of the employees who failed to furnish their correct PAN. – [2016] 65  292 (Visakhapatnam – Trib.)

SECTION 271(1)(c)

PENALTY – FOR CONCEALMENT OF INCOME

Estimation of income : Where Assessing Officer framed assessment of assessee for assessment year 2007-08 under section 144 and after rejecting account books adopted net profit rate of 8 per cent, which was reduced by Tribunal to 7 per cent, and in mean time Assessing Officer also levied penalty under section 271(1)(c), since assessee was an existing assessee and it did not file return for above assessment year and Assessing Officer and Tribunal adopted different estimates, no penalty under section 271(1)(c) was leviable upon assessee – [2016] 65  248 (Chandigarh – Trib.)

COMPANIES ACT

SECTION 10F

COMPANY LAW BOARD – APPEALS AGAINST THE ORDERS 

Where CLB dismissed interim relief sought by petitioner in petition alleging irregularity in election process of director and appeals against said order were dismissed, review petitions filed were to be dismissed as no new grounds had been made out and points agitated were already negated by Court in its earlier order – [2016] 65 305 (Madras)

SECTION 433

WINDING UP – CIRCUMSTANCES IN WHICH A COMPANY MAY BE WOUND UP

Where liability regarding payment of salary as claimed by petitioner in winding up petition was disputed by respondent-company on various grounds, company could not be ordered to be wound up under section 433(e) -[2016] 65  260 (Rajasthan)

SERVICE TAX

SECTION 65(19)

TAXABLE SERVICES – BUSINESS AUXILIARY SERVICE

Where assessee-bank acted as ‘agency bank’/’receiving office’ for sale of bonds issued by RBI, brokerage/commission earned would be taxable under head ‘business auxiliary service’; as no custodial services were rendered, same could not be categorised as ‘banking or other financial service’ – [2016] 65  242 (Mumbai – CESTAT)

Professional tea tasters engaged in: (a) fixing value of tea, (b) completion of negotiation between buyer and exporter and finalization of contract; (c) assisting in grading and standardization of tea; (d) monitoring shipment; (e) verifying shipment documents, port regulations and other formalities for export; (f) collecting sale proceeds, etc., are not ‘commission agent’; however, commission/consideration earned by them is liable to service tax under Business Auxiliary Services. – [2016] 65 205 (Chennai – CESTAT)

SECTION 65(25b)

TAXABLE SERVICES – COMMERCIAL OR INDUSTRIAL CONSTRUCTION SERVICES

Interior services such as wooden and metal partition, plastering, painting, civil work, joinery items, floor and wall tiling, etc. in respect of buildings or civil structures are ‘completion and finishing services’ and not eligible for abatement; however, materials will not form part of value of services as per Not. 12/2003-ST – [2016] 65 251 (New Delhi – CESTAT)

SECTION 65(30a)

TAXABLE SERVICES – CONSTRUCTION OF COMPLEX SERVICES – STAY ORDER

Where assessee was constructing independent residential buildings, which were not connected in plinth, had separate boundary wall, entrance and separate electricity and water connection, then, in absence of any common facilities, it could not prima facie be regarded as Construction of Complex service. – [2016] 65  195 (New Delhi – CESTAT)

SECTION 65(64)

TAXABLE SERVICES – MANAGEMENT, MAINTENANCE OR REPAIR SERVICES

Providing technical engineers/software personnel to others amounts to manpower supply services and liable to service tax accordingly; it cannot be regarded as ‘Information Technology Software Services’ – [2016] 65 198 (Chennai – CESTAT)

SECTION 76

PENALTY – GENERAL

After issuance of Order-in-Original (OIO), adjudicating authority becomes functus officio; therefore, if penalty is not levied in OIO, he cannot issue addendum to said OIO to impose penalty without any notice to assessee -[2016] 65 204 (New Delhi – CESTAT)

SECTION 86

APPEALS – MAINTAINABILITY OF – APPELLATE TRIBUNAL

When pre-deposit order has been passed by Commissioner (Appeals) based on an incorrect fact, then, Commissioner (Appeals) has power to rectify said mistake apparent from record and, consequently, modify pre-deposit order. – [2016] 65  195 (New Delhi – CESTAT)

STATUTES

DIRECT TAX LAWS

Gold Monetization Scheme, 2015 – Modification in Said Scheme – PRESS RELEASE, DATED 24-1-2016

Gold Monetization Scheme, 2015 – Notified Refineries Granted Licence as on (19-1-2016) – PRESS RELEASE, DATED 26-1-2016

Gold Monetization Scheme, 2015 – Notified A&H Centres Qualifying to Act as CPTC (as on 20-1-2016) -PRESS RELEASE, DATED 26-1-2016

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