/ 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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/ Indirect Tax

THE SUPREME COURT ORDER: MIXTURE OF TWO OR MORE PRODUCTS THAT DOES NOT CHANGE ESSENTIAL NATURE OF PRODUCT WILL NOT AMOUNT TO MANUFACTURE:-

THE SUPREME COURT ORDER: MIXTURE OF TWO OR MORE PRODUCTS THAT DOES NOT CHANGE ESSENTIAL NATURE OF PRODUCT WILL NOT AMOUNT TO MANUFACTURE:- The Supreme Court in the case of M/s Satnam Overseas Ltd. Versus Commissioner of Central Excise, New Delhi, 2015 (318) E.L.T. 538 (S.C.) has held that a process of packing combination of mixture of …

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/ INCOME TAX

LOAN TAKEN IN CASH MORE THAN RS. 20,000 TAKEN BY BUILDER TO MEET IMMEDIATE REQUIREMENT OF BUSINESS WON’T ATTRACT PENALTY

LOAN TAKEN IN CASH MORE THAN RS. 20,000 TAKEN BY BUILDER TO MEET IMMEDIATE REQUIREMENT OF BUSINESS WON’T ATTRACT PENALTY Section 269SS, read with sections 273B and 271D, of the Income-tax Act, 1961 – Deposits – Mode of taking/accepting Circulars and Notifications: Circular Nos. 387 dated 6-7-1984 and 572, dated 3-8-1990:- Penalty under section 271D could not be …

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/ Company Law Compliances

LIST OF RESOLUTION FOR WHICH MGT-14 REQUIRES TO BE FILED

LIST OF RESOLUTION FOR WHICH MGT-14 REQUIRES TO BE FILED

The Resolutions for which MGT-14 has to be filed can be categorized in the following three categories:-

  • Board Resolutions
  • Special Resolutions
  • Ordinary Resolutions

List of board resolutions required to be filed with ROC in form MGT-14

S. No. List of board resolutions required to be filed with ROC in form MGT-14
A.       To issue securities, including debentures, whether in or outside India. (In case of shares issue of security means issue of Letter of Offer).
B.        To Borrow Monies.(Borrow Money from any sources including Director)
C.        To invest the funds of the Company.(Also follow provisions of Section 186)
D.       To grant loans or give guarantee or provide security in respect of loans. (Also follow provisions of Section 186)
E.        To approve financial statement and the Board’s report.
F.        To appoint internal auditors.
G.       To appoint Secretarial Auditor.
H.       To appoint or remove key managerial personnel (KMP) {KMP includes (MD, WTD, CEO, CFO & CS)}
I.           To make Political Contributions.
J.           To make calls on shareholders in respect of money unpaid on their shares.
K.        To authorize buy-back of securities under section 68.
L.         To Diversify the business of the company.
M.      To approve Amalgamation, Merger or Reconstruction.
N.       Take over a company or Acquire a controlling or substantial stake in another company.

List of special resolution required to be file with ROC in form MGT-14

S. No. List of special resolution required to be file with ROC in form MGT-14
Section – 8 For a company registered under Section- 8 to convert itself into a company of any other kind or alteration of its Memorandum or Articles.
Section – 12 Change of location of registered office in the same State outside the local limits of the city, town or village where it is situated.
Section – 13 Change of registered office from the jurisdiction of one Registrar to that of another Registrar in the same State.
Section – 14 Amendment of Articles of a private company for entrenchment of any provisions. (To be agreed to by all members in a private company).
Section – 14 Amendment of Articles of a public company for entrenchment of any Provisions.
Section – 13 Change in name of the company to be approved by special resolution.
Section – 13(8) A company, which has raised money from public through Prospectus and still has any unutilized amount out of the money so raised, shall not Change its objects for which it raised the money through prospectus unless a special resolution is passed by the company.
Section – 27(1) A company shall not, at any time, vary the terms of a contract referred to in the prospectus or objects for which the prospectus was issued, except subject to the approval of, or except subject to an authority given by the company in general meeting by way of special resolution.
Section – 271 (A) A company may, after passing a special resolution in its general meeting, issue depository receipts in any foreign country in such manner, and subject to such conditions, as may be prescribed. (Section still not applicable).
Section– 48(1) Where a share capital of the company is divided into different classes of shares, the rights attached to the shares of any class may be varied with the consent in writing of the holders of not less than three-fourths of the issued shares of that class or by means of a special resolution passed at a separate meeting of the holders of the issued shares of that class.
Section – 62 (1) (c) Private offer of securities requires approval of company by special resolution.
Section –    54 Issue of Sweat Equity Shares.
Section – 66 (1) Reduction of Share Capital.
Section – 67(3)(b) Special resolution for approving scheme for the purchase of fully-paid shares for the benefit of employees.
Section – 68 (2)(b) Buy Back of Shares.
Section – 71 (1) A company may issue debentures with an option to convert such debentures into shares, either wholly or partly at the time of redemption:-Provided that the issue of debentures with an option to convert such debentures into shares, wholly or partly, shall be approved by a special resolution passed at a general meeting.
Section – 94 Keep registers at any other place in India.
Section – 149(10) Re-appointment of Independent Director.
Section – 165(2) Subject to the provisions of sub-section (1), the members of a company may, by special resolution, specify any lesser number of companies in which a director of the company may act as directors.
Section – 180(a) To sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings.
Section – 180(b) To invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation.
Section – 180(c) To borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company’s bankers in the Ordinary Course of Business.
Section – 180(d) To remit, or give time for the repayment of, any debt due from a director.
Section – 185 For approving scheme for giving of loan to MD or WTD.
Section – 186 Loan & Investment by company exceeding 60% of paid up share capital or 100% of free reserve.
Section – 196 Appointment of a person as Managerial Personnel if, the age of Person is exceeding 70 year.
Schedule V Remuneration to Managerial personnel if, profits of company are Inadequate.
Section – 271 (1) (b) Special Resolution for winding up of the company by Tribunal.
Section – 271 (1) (b) Special Resolution for winding up of company.
Rule 7(1) Chapter- I Conversion of private company into One Person Company.

(more…)

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