June 30, 2021 / Uncategorized

CORPORATE & PROFESSIONAL UPDATE DECEMBER 20, 2015

INCOME TAX ACT

SECTION 2(15)

CHARITABLE PURPOSE

Education : Educational unit infusing sense of patriotism in people is fulfilling its ancillary object; tax exemption available – [2015] 64 44 (Uttarakhand)

SECTION 4

INCOME – CHARGEABLE AS

Share broker : Where assessee-firm acted as sub-broker and distributed NCDEX profits among its clients, merely because assessee had violated provisions of Forward Contract (Regulations) Act, 1952, profit could not be assessed as income of assessee – [2015] 63 350 (Pune – Trib.)

SECTION 10(23C)(iiiad)

EDUCATIONAL INSTITUTIONS

Advance to sister trust : Where assessee-society which was running a school, advanced an amount to its sister-trust for construction of building for educational purpose and Assessing Officer could not prove that said amount advanced was for non-charitable purpose, rejection of exemption under section 10(23C)(iiiad) was not justified – [2015] 63 165 (Chennai – Trib.)

SECTION 28(i)

BUSINESS LOSS/DEDUCTION – ALLOWABLE AS

Speculation transaction : Where loss arising out of trading in NBOT being genuine, claim of speculation loss was to be allowed – [2015] 63 350 (Pune – Trib.)

SECTION 32

DEPRECIATION – ADDITIONAL DEPRECATION

The production of radio programmes involved the processes of recording, editing and making copies prior to broadcasting – [2015] 64 164 (Delhi)

SECTION 37(1)

BUSINESS EXPENDITURE – ALLOWABILITY OF

Forward market commission : Penalties paid for violations of rules laid by Forward Market Commission (FMC), being in nature of civil liability similar to compounding fees, and not for any serious violation of provisions of law, was to be allowed under section 37(1) – [2015] 63 350 (Pune – Trib.)

SECTION 43(5)

SPECULATIVE TRANSACTIONS

Actual delivery : Where transactions were not settled by assessee on actual delivery, loss incurred by assessee in oil trading in NBOT was a speculative loss within meaning of section 43(5) – [2015] 63 350 (Pune – Trib.)

SECTION 80-IA

DEDUCTIONS – PROFITS AND GAINS FROM INFRASTRUCTURE UNDERTAKINGS

Division bench of Supreme Court refers matter to larger bench as there was difference of opinion as to whether assessee could claim simultaneous deductions under Section 80-IA/Section 80-IB and Sec 80HHC on same profits – [2015] 64 199 (SC)

SECTION 80-IB

DEDUCTIONS – PROFITS AND GAINS FROM INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKING

Housing project : Where land owner having obtained necessary permissions from local authority for construction of residential project, sold said land to various purchasers who entered into separate construction agreements with assessee, it was a case of mere ‘work contract’ and thus assessee’s claim for deduction under section 80-IB (10) was to be rejected – [2015] 64 48 (Chennai – Trib.)

SECTION 199

DEDUCTION OF TAX AT SOURCE – CREDIT FOR TAX DEDUCTED

Computation of tax credit : In terms of sub-section (1) of section 199, credit of TDS cannot be restricted only to amount of income offered in return of income or in profit and loss account – Position prior to 1-11-2011- [2015] 63 349 (Delhi – Trib.)

SECTION 244A

REFUNDS – INTEREST ON

In case of MAT Companies : Assessee-company is entitled to claim interest under section 244A on refunds which is consequential to MAT credit given under section 115JAA – [2015] 63 348 (Madras)

SECTION 254

APPELLATE TRIBUNAL – APPEALS TO

Capital gains computation : Where revenue challenged order of Tribunal on ground that Tribunal had considered fresh material without affording opportunity of hearing to them, but it was found that no fresh material was considered, no interference was called in Tribunal’s order – [2015] 63 346 (Bombay)

INCOME TAX ACT

1. INCOME TAX ACT

SECTION 2(15)

CHARITABLE PURPOSE

Object of general Public Utility : Where main object of assessee-association of state road transport undertakings, improving public transport system in country, merely because assessee received revenue from testing automobile parts and consultancy services, same could not be held for earning profit.

SECTION 32

DEPRECIATION – ALLOWANCE/RATE OF PLANT AND BUILDING

Plant v building : Where assessee installed machinery for which it required clean rooms, since payment were made by assessee for installation and commissioning of clean rooms, same were in nature of building.

SECTION 36(1)(iii)

INTEREST ON BORROWED CAPITAL

Reassessment : In absence of failure on part of assessee to disclose all material facts necessary for assessment, Assessing Officer could not reopen assessment after expiry of four years from end of relevant year to reconsider allowability of expenditure being broken period interest.

SECTION 45

CAPITAL GAINS – CHARGEABLE AS

Business income v. Capital gains – Land dealing : Where intention of assessee at time of acquisition of land was to hold same as capital asset but subsequently land was transferred to developer as per development agreement, subsequent events mostly occurring after date of development agreement, cannot change nature and character of land into stock-in-trade.

SECTION 68

CASH CREDIT

Accommodation entries : Where Assessing Officer as a result of search conducted under section 132 on one ‘F’, who was engaged in providing accommodation book entries to assessee, passed block assessment order on assessee and added credit entries found in bank account of assesseeon ground that said entries were not explained by assessee, impugned addition on above ground was not justified.

SECTION 80 IC

DEDUCTIONS – SPECIAL PROVISIONS IN RESPECT OF CERTAIN UNDERTAKINGS IN CERTAIN SPECIAL CATEGORY STATES

Reassessment : Though in case of section 143(1)(a), any argument of it being illegal because of change of opinion is not sustainable, however, there has to be some tangible material in possession of Assessing Officer to reopen such cases.

SECTION 90

DOUBLE TAXATION RELIEF – WHERE AGREEMENT EXISTS

Ahmedabad ITAT interprets MFN clause of India-Dutch treaty; imports ‘make available clause from India-US DTAA to decide taxability of ‘Fee for Technical Services’

SECTION 92C

TRANSFER PRICING – COMPUTATION OF ARM’S LENGTH PRICE

Comparables and adjustments/Adjustments – Related party transactions : No comparable can be excluded from TP study mere relying on legal proposition that companies having related party transactions of more than 15 per cent cannot be considered as comparable, without supporting evidence on record

SECTION 115 WB

FRINGE BENEFITS

Employer-employee relationship : Employer-employee relationship between assessee and person on whom expenses are incurred is a sine qua non for expenses being subjected to FBT

SECTION 139

RETURN OF INCOME

Extension of time for filing : Delhi High Court denied to extend date for filing of returns due by 30-9-2015 for assessment year 2015-16 holding that once audit is complete, time admittedly available from 29-7-2015/7-8-2015 on which prescribed Income-tax forms were notified by department to 30-9-2015 was sufficient to fill up forms as per audit already completed and to file ITRs

SECTION 234 E

FEES FOR DEFAULT IN FURNISHING STATEMENTS

Constitutional validity : Constitutional validity of unamended section 234E cannot be challenged on ground that it does not provide for condonation of delay and an appeal.

SECTION 14A

EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME

Res judicata : Where following Tribunal’s order in earlier year, assessee itself made disallowance of two months’ salary of staff in respect of exempt income, impugned disallowance made by Assessing Officer by invoking provisions of section 14A was to be deleted – [2015] 63 322 (Hyderabad – Trib.)

SECTION 36(1)(iii)

INTEREST ON BORROWED CAPITAL

Explanation 8 to section 43(1) : Assessee was entitled to claim revenue expenditure on payment of interest on borrowings made in relation to hotel projects for expansion of business – [2015] 64 14 (Delhi)

SECTION36(1)(viia)

BAD DEBTS

in case of banks : Deduction under section 36(1)(viia) cannot be restricted to extent of provision for bad and doubtful debts relating to rural advances only – [2015] 63 322 (Hyderabad – Trib.)

SECTION37(1)

BUSINESS EXPENDITURE – ALLOWABILITY OF

Sweat Equity Shares : Where Sweat Equity Shares were issued to two employees by assessee company for value addition in form of their vast experience in new business concepts and professional experience and, accordingly, value addition took character of an intangible asset, issuance of shares was capital expenditure –[2015] 63 140 (Mumbai – Trib.)

SECTION43(1)

ACTUAL COST

Explanation 3 : Where assessee-company acquired business of another company as a going concern, since valuation of assets was supported by registered valuer’s report and, moreover, said amount was higher than book value of assets standing under Companies Act, AO was not justified in making addition in respect of excess claim of depreciation by invoking Explanation 3 to section 43(1) – [2015] 63 364 (Delhi – Trib.)

SECTION 2

LOSSES – CARRY FORWARD & SET OFF OF BUSINESS LOSSES

Debatable issue – Set off of interest income : Question of setting off business loss by interest earned by money lender was a debatable issue and could not be dealt in rectification proceeding under section 154 –[2015] 63 343 (Karnataka)

SECTION 92 C

TRANSFER PRICING – COMPUTATION OF ARM’S LENGTH PRICE

Comparables and adjustments/Adjustment – Royalty : Where assessee, which had been granted a non-exclusive, non-assignable right to duplicate and sub-license products of its holding company (Oracle) in India, changed rate and base for calculation of royalty payable to Oracle in view of liberalised foreign exchange regime but effective royalty paid out to Oracle during current year remained less than earlier years, no TP adjustment could be made in royalty pay out – [2015] 64 69 (Delhi – Trib.)

SECTION 131

DISCOVERY, PRODUCTION OF EVIDENCE, ETC

Sub-section (1A) : Powers under section 131(1A) given to five specified authorities are not hindered by conduct of search; It can be invoked both before and after conduct of search – [2015] 64 67 (Jharkhand)

SECTION 145

METHOD OF ACCOUNTING

Rejection of accounts : Rejection of system of accounting maintained by assessee in subsequent year cannot be a reason for reopening an already concluded assessment – [2015] 64 68 (Karnataka)

SECTION 220

COLLECTION AND RECOVERY OF TAX – WHEN TAX PAYABLE AND WHEN ASSESSEE DEEMED IN DEFAULT

Stay of demand : Where Assessing Officer had imposed upon assessee a penalty of Rs. 10 crores and thereafter he, on application of assessee moved under section 220(6), passed a conditional order directing assessee to pay Rs. 5 crores, since assessee had already deposited a sum of Rs. 5 crores, it was entitled to have stay of balance amount of Rs. 5 crores till disposal of appeal filed against penalty order – [2015] 64 45 (Madras)

SECTION 271 AAA

PENALTY – WHERE SEARCH HAS BEEN INITIATED

Assessee’s admission, effect of : Penalty under section 271AAA could not be levied merely on admission of assessee during search proceedings and there must be some conclusive evidence before Assessing Officer that entry made in seized documents represented undisclosed income of assessee – [2015] 63 193 (Kolkata – Trib.)

5. SERVICE TAX

SECTION 67

Where service tax is not charged separately on pretext that services are not taxable, sums so received should be regarded as cum-tax and in event of demand, service tax must be worked out accordingly – [2015] 64 23 (Mumbai – CESTAT)

SECTION 93

EXEMPTIONS – SERVICE TAX – REFUND OF TAX PAID ON SERVICES RECEIVED BY SPECIAL ECONOMIC ZONES/DEVELOPERS

Rent-a-cab services provided to a unit located in SEZ for transportation of employees to and from their residences located outside SEZ, are eligible for exemption from service tax – [2015] 64 21 (Mumbai – CESTAT

SECTION 65(25b)

TAXABLE SERVICES – COMMERCIAL OR INDUSTRIAL CONSTRUCTION SERVICES

Where input service credit under abatement scheme was denied only from 1-3-2006, already accrued credit pertaining to input services received upto 28-2-2006 can be taken even on or after 1-3-2006.

SECTION 84

REVISION – OF ORDERS BY COMMISSIONER OF CENTRAL EXCISE

Notice under section 84 for revision of adjudication order granting refund, must be issued within time-limit of section 73 viz. 1 year from date of grant of refund; time-limit of 2 years in section 84 is for passing of revisional order.

SECTION 107

SERVICE TAX VOLUNTARY COMPLIANCE ENCOURAGEMENT SCHEME

Where assessee had paid interest/penalty wrongly without any knowledge of VCES, then, on filing declaration under VCES, assessee could file application for correction of accounting codes and seek adjustment of wrongly paid interest/penalty against ‘tax dues’ under VCES.

SECTION 93

EXEMPTIONS – SERVICE TAX – REFUND OF TAX PAID ON SERVICES USED FOR EXPORT GOODS
Refund of service tax paid on services used for export of goods cannot be denied on ground that drawback is claimed – [2015] 64 22 (Mumbai – CESTAT)

CENTRAL EXCISE ACT

SECTION 2(f)

MANUFACTURE
Where assessee received hot-rolled Stainless Steel (SS) patta/patti from other manufacturers and undertook process of cold-rolling whereby gauge of SS patta/patti was reduced, said process of cold-rolling would amount to manufacture in view of Note 4 of Chapter 72 of the Central Excise Tariff Act, 1985. – [2015] 64 224 (SC)

SECTION 3A

CHARGE/LEVY – EXCISE DUTY BASED ON PRODUCTION CAPACITY In absence of any procedure for grant of abatement in case of closure of factory, there is no requirement of any ‘order of abatement’ and assessee may himself compute abatement and suo motu adjust same gainst duty payable for subsequent months – [2015] 64 57 (Gujarat)

SECTION 2

CLASSIFICATION – FRUIT PREPARATION/JUICE

There is no distinction between fruit juice and fruit juice beverages; hence, diluted fruit juice is also ‘fruit juice’ and classifiable as ‘preparation of fruit’ under Heading 20.01 and not under Heading 22.02 as ‘non-fruit beverages’.

7. CUSTOMS ACT

SECTION 127B

SETTLEMENT OF CASES – APPLICATION FOR

Where settlement provisions mandated prior payment of interest under section 28AB and at relevant time, section 28AB had been deleted and interest was payable only under section 28AA, assessee was right in not making payment of interest under deleted section 28AB and requesting Settlement Commission to issue appropriate directions as to payment of interest under section 28AA.

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SECTION 3

CHARGE/LEVY – EXCISE DUTY ON DTA CLEARANCES BY 100 PER CENT EOU

In case of DTA clearances by 100 per cent EOUs, excise duty is deemed equal to ‘customs duty leviable’; therefore, in computing ‘customs duty leviable’, customs exemptions would be taken into account

SECTION 11

LEVY AND COLLECTION OF DUTY – RECOVERY OF SUMS DUE TO GOVERNMENT

Where assessee had only purchased assets of a company which was ordered to be wound up and said company was not taken over as a running business, liability of past Central Excise dues payable by old company could neither be fastened nor be recovered from assessee – [2015] 64 20 (Allahabad)

SECTION 35R

APPEALS – NOT TO BE FILED IN CERTAIN CASES

Since instructions under excise/customs/service tax law do not provide that revised monetary limits shall apply only to prospective appeals and not to already-filed appeals, any revision in monetary limits for filing appeal vide instructions under excise/customs/service tax law would apply to appeals posted before court on or after coming into force of said instructions – [2015] 64 39 (Allahabad – CESTAT)

STATUTES

DIRECT TAX LAWS

Income-tax (Nineteenth Amendment) Rules, 2015 – Amendment in rules 10D, 10THA, 10THB, 10THC, 10THD and FORM No.3CEFB – NOTIFICATION NO.90/2015[F.NO.142/7/2014-TPL]/SO 3312, DATED 8-12-2015

CORPORATE LAWS

Facility for Basic Services Demat Account (BSDA) – CIRCULAR NO.MRD/DP/20/2015, DATED 11-12-2015

COMPANIES ACT

SECTION 111

TRANSFER OF SHARES – RECTIFICATION OF REGISTER ON

Where upon death of director of company, petitioner being legal heir filed company petition seeking declaration of ownership over shares and their transfer in his name, petition would be maintainable – [2015] 64 115 (CLB – Mumbai)

SECTION 397

OPPRESSION AND MISMANAGEMENT

Where respondents had without any sufficient cause, refused to transmit shares in name of petitioner and rectify Register of Members, it constituted an act of oppression – [2015] 64 115 (CLB – Mumbai)

SECTION 433

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

Where even though petitioning creditors had made a case for winding up of respondent company on ground of its inability to pay its debts, they had no absolute right to insist on winding up and Court in its discretion was justified in giving time to admit and advertise petitions, so that all stakeholders would be in a position to come before Company Court and be heard in matter before a final decision on winding up was taken

INDIRECT TAX LAWS (ST./EX./CUS. & (CST & VAT)

Daman and Diu Value Added Tax (Amendment) Regulation, 2015 – Amendment in Regulation 4 and Third Schedule – NO.2 OF 2015, DATED 10-12-2015

CUSTOMS ACT

SECTION 75

DRAWBACK – ON MATERIALS USED IN MANUFACTURE/PROCESSING OF EXPORT GOODS
Even if conversion of free shipping bills into drawback shipping bills is denied, Commissioner must consider drawback claim at All Industry Rates on merits and said drawback cannot be denied on ground that goods were not physically examined at time of export – [2015] 64 54 (SC)

CUSTOMS TARIFF ACT

SECTION 2

CLASSIFICATION – EMBROIDERY MACHINE

Goods are to be classified in condition in which they are imported; hence, assessee had imported non-computerised machine with control devices, same could not be classified as ‘Computerised Machines’ – [2015] 64 58 (SC)

CUSTOMS, CENTRAL EXCISE DUTIES AND SERVICE TAX DRAWBACK RULES, 1995

RULE 12

DRAWBACK – CONVERSION OF FREE SHIPPING BILLS INTO DRAWBACK SHIPPING BILLS

As per Rule 12 of Drawback Rules, 1995, conversion of free shipping bills into drawback shipping bills, is permissible only if drawback was not claimed by exporter ‘for reasons beyond his control’; merely because assessee was not aware of correct legal position would not afford any such ground that it was beyond his control – [2015] 64 54 (SC)

COMPETITION ACT

SECTION 3

PROHIBITION OF AGREEMENTS – ANTI-COMPETITIVE AGREEMENTS

COMPAT sets aside the impugned order passed by the CCI whereby the appellants were held guilty of having acted in violation of Section 3(3)(a) and 3(3)(b) read with Section 3(1) of the Competition Act, 2002 and penalty @ 0.5 times of net profit was imposed on ten appellants (manufacturers of cement) and penalty of 10% on total receipts for two years was imposed on the Cement Manufacturer’s Association. COMPAT also, remitted the matter to CCI for fresh adjudication of the issues relating to alleged violation of Sections 3(3)(a) and 3(3)(b) read with Section 3(1) of the Act by the appellants and also directed the CCI to refund the 10 % of the penalty amount the companies had deposit with the Commission. – [2015] 64 200 (CAT)

SECTION 4

PROHIBITION OF ABUSE OF DOMINANT POSITION

Where compared to OP, real estate developer, there were many bigger and established players such as Unitech, Vatika, Ansal, DLF etc. which were operating in relevant market for services of development and sale of commercial space in Gurgaon, OP was not dominant in relevant market and, therefore, no case of contravention of section 4 was made out – [2015] 64 30 (CCI)

3. SEBI ACT

REGULATION 16G OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (STOCK BROKERS AND SUB-BROKERS) REGULATIONS, 1992

PAYMENT OF FEES AND CONSEQUENCES OF FAILURE TO PAY FEES

Whether where there were five partners, of which three partners subsequent to corporatization jointly held 40 % paid-up equity capital and were also the Whole-time Directors of the company, then the departure of the other two erstwhile partners would not deny the corporate entity the benefits of fee continuity under Paragraph I(4) of Schedule III of the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992.

4. FOREIGN CONTRIBUTION (REGULATION) ACT, 1976

SECTION 4

PERSONS TO WHOM SECTION 3 SHALL NOT APPLY

Gift received by MLA from his father who is NRI out of the latter’s personal funds through normal banking channels is outside the purview of FCRA,1976/FCRA,2010 as the same cannot be said to be received from a “foreign source”. Such a gift would be outside the realm of both these legislations as the transaction is between an Indian father and an Indian son. The contribution made by a citizen of India living in another country (Non-Resident Indian), from his personal savings, through the normal banking channels, is not treated as foreign contribution. However, while accepting any donation from such NRI, it is advisable to obtain his passport details to ascertain that he/she is an Indian Passport holder.

CONSTITUTION OF INDIA

ARTICLE 226

WRIT PETITION – ALTERNATIVE REMEDY

Non-consideration of assessee’s principal contentions by adjudicating authority/Commissioner (Appeals) amounts to violation of principles of natural justice; therefore, writ petition filed against order of Commissioner (Appeals) is maintainable because appeal remedy before Tribunal is not effective in such cases – [2015] 64 56 (Gujarat)

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