TODAYS UPDATES

Direct Tax:

Even if income by way of rent is enhanced with retrospective effect, it accrues only when a right to receive the income is vested in the assessee. A notice u/s 148 seeking to assessee the income prior to its accrual is without jurisdiction. A reading of the decision of this Court in E.D. Sassoon (supra) would go to show that the income to be chargeable to tax must accrue or arise at any point of time during the previous year. This Court in E.D. Sassoon (supra) has held in categorical terms that income can be said to have accrued or arisen only when a right to receive the amount in question is vested in the assessee.(P.G. & W. Sawoo Pvt. Ltd vs. ACIT) SUPREME COURT

Transfer pricing of AMP Expenditure: In the case of a manufacturer operating in a competitive industry, high AMP expenditure cannot be assumed to have been incurred for the benefit of the brand owner. The TPO has to prove that the real intention of the assessee in incurring AMP expenses was to benefit the AEs and not to promote its own business. Also, if the assessee has reported high turnover & profits & offered to tax, the basic ingredient required to invoke s. 92 that there is transfer of profit from India remains unproved. In the absence of the AO/ TPO showing that there is a formal/ informal agreement to share the AMP expenditure, the adjustment cannot be made. The matter cannot be remanded to the AO/ TPO for reconsideration.(LÓreal India Private Limited vs. DCIT)- ITAT MUMBAI

Indirect Tax:

Whether service tax on works contract may be paid on gross amount (with credit) instead of at abated rate as provided under Rule 2A of Valuation Rules? Tribunal had held that credit may be taken But In The High Court did not go into substantive provision of law and held that revenue is not at loss when the credit has been availed after paying tax on gross amount. Revenue’s appeal against Tribunal order allowing credit to assessee, not entertained. (CST.,Vapivs S.V. Jiwani) 2016(42) S.T.R. 209 (Bom.)

Attachment and recovery of service tax demand from bank account of a company as against the dues recoverable from a proprietorship concern is illegal and impermissible. Held that  When the petitioner company is a separate and independent entity, the bank account of the petitioner company cannot be attached for the dues of the proprietorship concern . The attachment in respect of the petitioner company stands raised. (Atchaya Engineering Pvt Ltd VsAddl Commissioner) 2016- TIOL-662-HC-MAD-ST

In order to conclude that Nortel India constitutes a Dependent Agent PE it would be necessary for the AO to notice at least a few instances where contracts had been concluded by Nortel India in India on behalf of other group entities. In absence of any such evidence this view could not be sustained.(M/s Nortel Networks India International Inc. Versus The Director of Income Tax -I- 2016 (5) TMI 373 – DELHI HIGH COURT)

Depreciation in respect of electrical installations, elevators, DG sets installed in the building, which have been let-out by the assessee, which is receiving rental income from the said building shall be allowed. In the given case it is held by the Karnataka High Court that – The lessee is required to pay not only the rentals on the building but also charges for the facilities provided by the assessee. The facilities and services provided by the assessee are at Annexure 2 to the said agreement. On a conjoint reading, it becomes clear that the rental income is income from house property. But the charges received towards provision and maintenance of facilities and services as per Annexure-2 cannot be construed to be income from house property. The said income, in our view, has to be considered as income from business and therefore, the claim for depreciation has to be allowed.

Company Law:

Query:  M/s. ABC, a firm of chartered accountants is internal auditor of XYZ Pvt. Ltd. for the year ending 31st March, 2016. Can M/s. ABC is eligible for appointment as statutory auditor of XYZ Pvt. Ltd. in the Annual General Meeting to be held in June, 2016?

Answer: No, Section 144 of the Companies Act 2013 abstains the Statutory auditor of the company for conducting Internal audit of the same company in which he has been appointed as Statutory auditor.

Query: Can an NRI hold 100% shareholding with his NRI family having four to five NRI persons in an Indian Pvt Ltd Company?

Answer: Yes, NRI can hold 100% shareholding with his NRI family having four to five NRI persons in an Indian Pvt Ltd Company. There is no provision in Companies Act abstaining the NRI for holding complete shareholding in an Indian Private limited company. Only condition is that there should be two or more than two shareholders in a Private limited company, who can be two or more NRIs as the case may be.

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