/ Foreign Exchange Management Act

PURCHASE OF TENANCY RIGHTS GIVING POSSESSION, CONTROL AND TRANSFERABLE RIGHT IN FLAT WOULD PROVIDE SEC. 54F RELIEF:-

PURCHASE OF TENANCY RIGHTS GIVING POSSESSION, CONTROL AND TRANSFERABLE RIGHT IN FLAT WOULD PROVIDE SEC. 54F RELIEF:-

Section 54F, of the Income-tax Act, 1961 – Capital gains – Exemption in case of investment in residential house:-

Where assessee had substantial rights over property which were almost identical to ownership of property, exemption under section 54F was to be allowed[2015] – ITAT MUMBAI -Archana Parasrampuria v. ITO Mumbai.

Facts:-

The assessee earned long-term capital gains on sale of shares. She claimed exemption from tax on the said amount under section 54F on the plea that she had purchased a residential flat.

The Assessing Officer noted from the transfer deed that the assessee had acquired “transferable tenancy rights” and not the “ownership” of the flat. He therefore disallowed the claim under section 54F.

On second appeal to ITAT, It was held that:-

The assessee has purchased rights in one of the flats from the developer, which under the agreement were allotted to him for selling to the intended purchasers. The assessee has paid a sum as consideration/premium to the developer for obtaining the tenancy rights in the flat in question.

Though under the agreement in question, the assessee has been made liable to pay a monthly rent of Rs. 4,000 to the owner, however, in view of the overall facts and circumstances of the case and the amount of rent being a meager amount when compared to the amount of rent otherwise payable on such a property in the area, it is apparent that the assessee is not the mere tenant in the house.

She has purchased substantial rights in the flat in question. A perusal of clause-7 of the agreement reveals that the assessee is entitled to carry out repairs and renovation in the said flat except the changes which could be detrimental to the basic structure of the building.

The owner is not entitled to terminate the tenancy of the assessee in the said flat on any ground, whatsoever, except for non-payment of rent. In the event of destruction of the said building or construction of a new building, the assessee/tenant is entitled to obtain tenancy in respect of the new flat having the same carpet area on the same floor without any payment or consideration or premium to the owner under the agreement.

The assessee has absolute rights to transfer or assign the tenancy rights in respect of the said flat in favour of any person of her choice and to charge such consideration/premium for such transfer/assignment and the tenant/assessee will not be required to obtain any permission from the owner and will not be required to pay any premium for consideration to the owner for such transfer/assignment of the tenancy rights.

The tenant is also entitled to create mortgage in respect of the tenancy rights in the said flat and also bequeath the tenancy rights in respect of any person.

The rights of the assessee in the flat are not the mere tenancy rights but are substantial rights giving the assessee dominion, possession and control over the property in question with transferable rights, which are almost identical to that of an owner of the property. There is no denial that the assessee has purchased the rights in the said flat for residential purposes. (more…)

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/ Company Law Compliances

Proposal to promulgate the Negotiable Instruments (Amendment) Ordinance, 2015

Proposal to promulgate the Negotiable Instruments (Amendment) Ordinance, 2015

  • The Union Cabinet has given its approval for the proposal to promulgate the Negotiable Instruments (Amendment) Ordinance, 2015.
  • The proposed amendments to the Negotiable Instruments Act, 1881 (“The NI Act”) are focused on clarifying the jurisdiction related issues for filing cases for offence committed under section 138 of the NI Act.
  • The clarification of jurisdictional issues may be desirable from the equity point of view as this would be in the interests of the complainant and would also ensure a fair trial.
  • The clarity on jurisdictional issue for trying the cases of cheque bouncing would increase the credibility of the cheque as a financial instrument. This would help the trade and commerce in general and allow the lending institution, including banks, to continue to extend financing to the economy, without the apprehension of the loan default on account of bouncing of a cheque

Background

  • The Section 138 of the NI Act deals with the offence pertaining to dishonour of cheque for insufficiency, etc., of funds in the drawer’s account on which the cheque is drawn for the discharge of any legally enforceable debt or other liability. The section 138 of the NI Act provides for penalties in case of dishonour of cheques due to insufficiency of funds in the account of the drawer of the cheque. The object of the NI Act is to encourage the usage of cheque and enhancing the credibility of the instrument so that the normal business transactions and settlement of liabilities could be ensured.
  • Various financial institutions and industry associations have expressed difficulties, arising out of the recent legal interpretation of the place of jurisdiction for filing cases under Section 138 to be the place of drawers’ bank by the Supreme Court. To address the difficulties faced by the payee or the lender of the money in filing the cases under Section 138 of the NI Act, because of which, large number of cases were stuck, the jurisdiction for offence under Section 138 has been proposed to be clearly defined. Accordingly, the Negotiable Instruments (Amendment) Bill, 2015 (“the Bill”) in Parliament was introduced in LokSabha on 6th May, 2015 and considered and passed by LokSabha on 13th May, 2015. However, since the RajyaSabha was adjourned sine die on 13th May, 2015, the Bill could not be discussed and passed by that House and the Bill could not be enacted.
  • The Bill provides for filing of cases only by a court within whose local jurisdiction the bank branch of the payee, where the payee delivers the cheque for payment is situated. Further, where a complaint has been filed against the drawer of a cheque in the court having jurisdiction under the new scheme of jurisdiction, all subsequent complaints arising out of section 138 against the same drawer shall be filed before the same court, irrespective of whether those cheques were presented for payment within the territorial jurisdiction of that court.

(more…)

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/ Indirect Tax

PROCEDURE OF REFUND OF SERVICE TAX PAID ON INPUT SERVICES FOR EXPORT OF SERVICES

PROCEDURE OF REFUND OF SERVICE TAX PAID ON INPUT SERVICES FOR EXPORT OF SERVICES

Conditions and Limitations:-

  • Service has been exported in terms of Rule 6A*
  • Duty on the inputs, rebate of which has been claimed, has been paid to the supplier
  • Service tax and cess, rebate of which has been claimed, have been paid on the input services to the provider of service
  • Total amount of rebate of duty, service tax and cess admissible is not less than one thousand  rupees
  • No CENVAT credit has been availed of on inputs and input services on which rebate has been claimed

Procedure:-

1) Filing of Declaration:-

The provider of service to be exported shall, prior to date of export of service, file a declaration with the jurisdictional Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, as the case may be, specifying the service intended to be exported with:-

  • Description, quantity, value, rate of duty and the amount of duty payable on inputs actually required to be used in providing service to be exported;
  • Description, value and the amount of service tax and cess payable on input services actually required to be used in providing service to be exported.

2) Verification of declaration:-

The Assistant Commissioner of Central Excise or the  Deputy Commissioner of Central Excise, as the case may be, shall verify the correctness of the declaration filed prior to such export of  service, if necessary, by calling for any relevant information or samples of inputs and if after such verification, the Assistant Commissioner of Central Excise or the  Deputy Commissioner of Central Excise is satisfied that there is no likelihood of evasion of duty, or as the case may be, service tax and cess, he may accept the declaration.

3) Procurement of input materials and receipt of input services:-

The provider of service to be exported shall:-

  • Obtain the inputs required for use in providing  service to be exported, directly from a registered factory or from a dealer registered for the purposes of the CENVAT Credit Rules, 2004 accompanied by invoices issued under the Central Excise Rules, 2002;
  • Receive the input services required for use in providing service to be exported and an invoice, a bill or, as the case may be, a challan issued under the provisions of Service Tax Rules, 1994

4) Presentation of claim for rebate:-

Claim of rebate of the duty paid on the inputs or the service tax and cess paid on input services shall be filed with the jurisdictional Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, as the case may be, after the service has been exported;

Such application shall be accompanied by:-

  1. Invoices for inputs issued under the Central Excise Rules, 2002 and invoice, a bill, or as the case may be, a challan for input services issued under the Service Tax Rules, 1994,  in respect of which rebate is claimed;
  2. Documentary evidence of receipt of payment against service exported, payment of duty on inputs and service tax and cess on input services used for providing  service exported, rebate of which is claimed;

A declaration that such service, has been exported in terms of rule 6A of the said rules, along with documents evidencing such export.

The jurisdictional Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, as the case may be, having regard to the declaration, if satisfied that the claim is in order, shall sanction the rebate either in whole or in part. (more…)

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/ INCOME TAX

PERIOD OF HOLDING FOR CAPITAL GAINS AS PER THE INCOME-TAX ACT, 1961

PERIOD OF HOLDING FOR CAPITAL GAINS AS PER THE INCOME-TAX ACT, 1961

A capital asset may either be a short-term or long-term capital asset, depending on the period of holding. Gains from alienation thereof would be short-term capital gains or long-term capital gains.

Under section 2(42A) of the Income-tax Act, 1961 (Act), a short-term capital asset means a capital asset held for not more than 36 months immediately preceding the date of its transfer. However, in the following cases, an asset held for a period of 12 months or less was regarded as a short-term asset:-

Equity or preference share in an Indian company (whether listed or not)

  • Units of a mutual fund (whether listed or not).
  • Any other listed security (debentures, government securities, etc).
  • Unit of the Unit Trust of India.
  • Zero coupon bonds.

Change in period of holding of share and securities section 2(42A)

Per the existing provisions, short-term capital asset means a capital asset held by tax payer for not more than 36 months immediately preceding the date of its transfer. However, in the case of a share held in a company or any other security listed in a recognised stock exchange in India or a unit of the Unit Trust of India or a unit of a Mutual Fund or a zero coupon bond, the period of holding for qualifying it as short-term capital asset is not more than 12 months. Budget proposes that securities (other than a listed security) and units of mutual funds (other than equity oriented funds) [hereinafter referred to as ‘Securities’] shall be regarded as short term capital asset where the same are held for a period of less than 36 months.

Consequently, capital gains earned by resident & non-resident tax payers on transfer of Securities held for a period of more than 12 months but less than 36 months would be chargeable to tax @30% & 40% respectively (instead of 20% if the shares are not freely marketable or 10%1 if the shares are freely marketable, as applicable under the existing income tax provisions).

The Memorandum to the Finance (No. 2) Bill, 2014 explained that shorter period of holding of not more than 12 months for consideration as short-term capital asset was introduced for encouraging investment on stock market where prices of the securities are market determined. Question therefore arises whether withdrawal of the benefit suggest that investment in stock markets is the only avenue of foreign investment being considered favorably.

The Finance Minister in his speech mentioned that Government will endeavor not to introduce retrospective taxes. As the Budget got presented in July 2014 and the amendment to section 2(42A) was proposed to take effect from assessment year 2015-16 (i.e. April 1, 2014 onwards), the amendment could have a colour of retrospectively. However, to provide relief for taxpayers, the LokSabha (while passing the Finance (No. 2) Bill, 2014) introduced a deeming provision that such Securities shall continue to be long-term capital assets if they have been transferred during the period from 1 April, 2014 to 10 July, 2014 after holding them for a period of more than 12 months (instead of more than 36 months).

Taxability of long term capital gain: Long term capital gain shall be taxable at 20% under section 112 of income tax act. Benefit of indexation shall be available to the assessee under section 48 of income tax act 1961.There is no change in finance act 2014 and 2015 regard to indexation.

Taxability of Short term capital gain: Short term capital gain shall be taxable at normal rate i.e. 30% for resident and 40% for non resident. (more…)

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/ INCOME TAX

NO PENALTY ON SEIZURE OF GOLD IF ASSESSEE ADMITTED THAT IT WAS DERIVED OUT OF UNDISCLOSED INCOME AND PAID TAXES THEREON

NO PENALTY ON SEIZURE OF GOLD IF ASSESSEE ADMITTED THAT IT WAS DERIVED OUT OF UNDISCLOSED INCOME AND PAID TAXES THEREON

Section 271(1)(c), read with sections 69A and 271, of the Income-tax Act, 1961 – Penalty for concealment of income:-

Where assessee made statement regarding seized unaccounted gold and explained manner in which same was derived and treating its value as income paid tax, penalty was not to be levied under section 271(1)(c)(Andhra Pradesh and Telangana)-High Court Of Andhra Pradesh And Telangana -L. Giridharlal & Co. v. Income-tax Officer Search was conducted in assessee’s premises and gold was seized  Assessing Officer did not accept explanation of assessee regarding unaccounted gold and initiated penalty proceedings.However, it was found that assessee had made statements under section 132(4) regarding said gold and explained manner in which same was derived.Further, value of seized gold was treated as income of assessee and assessee paid tax thereon.It was held that assessee’s case fitted into clause (2) of Explanation 5 of section 271(1) which brought immunity to assessee and, hence, penalty was not to be levied.

CASE REVIEW:-

Asstt.CIT V.Gebilal Kanhaialal, HUF [2012] 348 ITR 561/210 Taxman 244/25 taxmann.com 214 (SC) (para 10) followed.

No reassessment on basis of info received from DIT, Investigation without recording his own satisfaction by AO:-

Section 69, read with sections 11, 12, 147 and 148, of the Income-tax Act, 1961 – Unexplained investments, Unsecured loan.

Where in reassessment, Assessing Officer made additions on account of unsecured loans merely on basis of information from DIT Investigation without recording his own satisfaction for issuing reassessment, reassessment was not valid.

[2015] (Delhi – Trib.) -ITAT DELHI – Monarch Educational Society v.Income-tax Officer (Exemption):-

Notice of reassessment was issued to assessee-trust on ground that assessee made accommodation entries and arranged funds through prohibited means.

Assessing Officer issued notice under section 148 on basis of same material which was before him during original assessment.

Assessing Officer simply reproduced details received from Director of Income-tax, Investigation and recorded his satisfaction without any verification and examination of information received and only mentioned that he had reason to believe that income chargeable to tax had escaped assessment.

He made additions on account of unsecured loans which had not been mentioned in reasons recorded for issuance of notice – Whether reassessment was not valid.

CASES REFERRED TO:-

Rajat Export Import India (P.) Ltd. v. ITO [2012] 341 ITR 135/206 Taxman 50/18 taxmann.com 311 (Delhi) (para 12), Signature Hotels (P.) Ltd. v. ITO [2011] 338 ITR 51/[2012] 20 taxmann.com 797 (Delhi) (para 13), Jai Bharat MarutiLal v. Asstt. CIT [2013] 351 ITR 342/215 Taxman 113 (Mag.)/33 taxmann.com 361 (Delhi) (para 13) and RashiBuildcon (P.)Ltd. [IT Appeal No. 407 (Agra) of 2012] (para 13). (more…)

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/ INCOME TAX

No more sending ITR-V by post after income tax filing – Verification with Aadhar card introduced:-

No more sending ITR-V by post after income tax filing – Verification with Aadhar card introduced

CBDT vide its circular no 41/2015 dated 15.04.2015 recently announced that taxpayers who filed their income tax returns online will no longer have to send the paper acknowledgement by post to CPC Bangalore, if they have aadhar card which can be used for verification purpose.

Instead of manual verification, a new Electronic Verification Code has been introduced to verify the e-returns. For that one will have to mention their aadhar card number in ITR form, and tax-payer will get an OTP number on their mobile for verification, which needs to be completed on the website of tax filing. Below is a snapshot of the new ITR form where aadhar card number is asked in case you have it.

Issues with the legacy system:-

Earlier the process was like this. Once you e-filed your tax returns, you then had to send the acknowledgement copy within 120 days to CPC Bangalore. Only those who had signatures could do verification online, but it was very rare, hence millions of tax-payers had to take the pain of manually sending the form. However, the old system was not robust and a big number of people used to get messages that their acknowledgement has not reached tax department and other manual errors used to happen. (more…)

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/ Indirect Tax

TACKLED OF NEW SERVICE TAX CHANGES APPLICABLE FROM 1st JUNE 2015

TACKLED OF NEW SERVICE TAX CHANGES APPLICABLE FROM 1st JUNE 2015

As the service tax rate 14% will be applicable from 1st June 2015 vide Notification No. 14/2015.

How change in Service Tax rate should be tackled?

Please keep in mind the following yourself and prepare accordingly

  • Service Provision is complete till 05.2015 and Invoice raised till 31.05.2015 but Payment received on or after 01.06.2015-12.36% applicable
  • Service complete till 05.2015, Invoice raised on or after 01.06.2015 but Payment is received till 31.05.2015 -12.36%
  • Service Provision complete till 05.2015 and Invoice raised on or after 01.06.2015 and Payment also received after 01.06.2015-14%
  • Invoice raised till 05.2015 in advance and some part of total consideration has been paid till 31.05.2015 but Service Provision is being done on or after 01.06.2015 -12.36% for such part payment, 14% for balance to be recd
  • Entire consideration received till 05.2015 but no invoice raised till 31.05.2015 and no service provided -14%
  • Even if entire service has been provided on or after 06.2015 but both payment as well as invoicing has been done till 31.05.2015 then -12.36

(more…)

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/ Indirect Tax

HIRING OF MOTOR VEHICLES – SERVICE TAX

HIRING OF MOTOR VEHICLES – SERVICE TAX Renting of any motor vehicle – 40% taxable Abatement of 60%. This is subject to the condition that input, input services  and capital goods , used for providing the taxable services has not been taken under the provision of CENVAT Credit Rules. In the case Services of Transport of passenger …

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