MAURITIUS VS INDIA TRADE ROUTE MARRED? Introduction In a complete disregard to the decision of the Supreme Court of India (“SC”) in Union of India vs. azadi Bachao Andolan, (2003) 263 ITR 706, 263 ITR 706 (SC), which had permitted the Mauritian companies having tax residency certificates to benefit from the India-Mauritius tax treaty, Circular No. 789, …
According to a press report, joining a gamut of nations, the Indian government is considering a sweeping review of its FDI guidelines “following increasing risk of terror funds being parked in the country and other investments being fraught with security implications.” Justifying its stance in the name of a fear of terrorism is a new twist. Many countries, including the United States, have protectionist legislation favoring their nationals. As a consequence, the result is often decreased trade flows and an eventual increase in tariff barriers in total contrast to the spirit of the World Trade Organization.
The media reports that the eleven-year old National Security Council (“NSC”) has, in a secret report, suggested enactment of the National Security Exception Act. The purpose of the Act is to authorize the government to “suspend or prohibit any foreign acquisition, merger or takeover of Indian companies that could be considered damaging to national interest.” Subjecting foreign investment to scrutiny in sensitive industries is not uncommon. The Indian regulators already monitor and screen applications for investment from certain countries very closely, and, in some situations, necessitating an additional approval/endorsement from the Ministry of Finance.
While giving its ruling in an application filed by Fujitsu Services Limited, the Authority of Advanced Rulings (“AAR”) held that foreign companies transferring shares of a listed company can claim benefit of a lower rate of tax on capital gains arising from the transaction.
Facts of the case:-
Fujitsu Services Limited (“Fujitsu”), a company incorporated in United Kingdom had acquired shares of an Indian company Zensar Technologies Limited (“Zensar”) constituting 26.55% of the share capital of Zensar and such shares were held for over 12 months. These shares were listed on the National Stock Exchange and the Bombay Stock Exchange. On July 04, 2007, Fujitsu sold its entire shareholding to Jubilee Investments and Industries Limited (“Jubilee”), an Indian company and Pedriano Investments Limited (“Pedriano”), a Cyprus company. Jubilee and Pedriano deducted tax from the sale consideration @ 20% but Fujitsu contended that tax ought to be deducted at 10%, the rate applicable to long term capital gain (“LTCG”).
Issues before the AAR:-
Ruling of the AAR:
The AAR held that explanation to section 112(1) is applicable to the shares held by Fujitsu but what it actually had to rule over was whether Fujitsu could take the benefit of a lesser rate of tax as per the proviso to section 112(1) of the Act. The proviso states that where tax payable in relation to any income arising from the transfer of a long term capital asset such as a listed security exceeds 10% of the amount of capital gains before giving effect to the second proviso to section 48, then such excess tax will be ignored while computing the tax payable by the assessee. The second proviso to section 48 is not applicable to any LTCG if the capital gain arises to a foreign company from transfer of shares of an Indian company. The AAR held that the words “before giving effect to the second proviso to section 48” merely imply that any calculation done under proviso to section 48 of the Act will not be considered while computing capital gains.
The AAR stated that while computing captain gains of a listed security held for more than 12 months, the indexation formula spelt out in the second proviso to section 48 of the Act cannot influence the computation process. According to the AAR, second proviso to section 48 of the Act is only a method of computing capital gains and it does not imply that the non-resident or foreign companies, who cannot avail the indexation benefit, are not eligible to the reduced rates under proviso to section 112(1). Accordingly, the AAR finally ruled that Fujitsu can claim tax deduction at a lesser rate of 10% on the sale of shares of Zensar to Jubilee and Pedriano. (more…)
INDIA OPENED ECONOMY THROUGH FDI IN MULTI-BRAND RETAIL The much awaited news arrived on a Friday, hopefully, ending a protracted controversy. The Indian Government opened its economy to FDI in multi-brand retail on September 14, 2012, subject to specific conditions. At the end of 2011, the Cabinet had approved a proposal to introduce FDI in …
Section 271(1) (c), read with section 145, of the Income-tax Act, 1961 – Penalty – For concealment of income -Estimation of income.
Where no return had been filed by assessee and income was assessed on estimate basis by revenue, no penalty could be levied for concealment of income [2015] – HIGH COURT OF GUJARAT- Income-tax Officer v. Bombaywala Readymade Stores.
FACTS
During search excess stock was found on physical verification as against book stock worked out as on date of search.
Assessee did not file return of income for relevant year in which search had been conducted.
Assessing Officer completed assessment for relevant assessment year on basis of materials available with him.
Penalty proceedings were initiated for concealing particulars of income.
The assessee file appeal before CIT appeal where the decision came in favour of assessee cancelling the penalty.
Then the department filed an appeal before ITAT.
Hon’ble Tribunal also upheld the order of the Ld. CIT (A) cancelling the penalty levied u/s.271(1)(c) of the I.T. Act holding that since no return of income had been filed by the assessee, the assessee could not be penalized for concealment of income or furnishing of inaccurate particulars of income in terms of section 271(1)(c) of the I.T. Act and further holding that since the income is assessed on estimate basis penalty for concealment of income is not leviable, ignoring the fact that the inaction of not filing return of income itself can be considered as act of concealment of particulars of income, thus, provisions of section 27(1)(c) is attracted on the facts of the case.
On appeal to High Court, Hon’ble High Court held in favour of assesee as follows:
Question of Law before High Court
Since no Income Tax Return had been filed by assessee and income was assessed on estimate basis by revenue, Whether penalty under section 271(1)(c) could be levied for concealment of income.
ARGUMENTS BY DEPARTMENT
Department counsel submitted that the decision of the Hon’ble ITAT is against the objectives of penal provisions included in the Income Tax Act. The decision not only allows the assessee to go scot free even when discrepancies have been found in the business a result of a search and which have been upheld in quantum appeal. It also encourages the assessee for not complying with the duty of filing return of income u/s. 139 of the I.T. Act. The decision of the Hon’ble ITAT in fact rewards the assessee for not filing the return.
It is further submitted it is the primary responsibility of the assessee to file the return of income. The correct income for a particular year is best known to the assessee only. In spite of several opportunities given to it, the assessee failed to file the return of income. The AO had therefore no option but to compute the income to the best of his judgment and information available to him. It is important to note that there is no contention on the part of the assessee that it has not earned income. The only contention is that income is estimated and hence penalty is not leviable. The computation of income has reached finality, according to which the assessee has substantial income chargeable under the Act. The estimate of income was resorted to by the AO only as a last resort after the assessee failed to disclose the income by filing return of the income. Thus, the inaction on the part of the assessee itself is the act of concealment of particulars of income. The word “concealment” presupposes some act on the part of the assessee. In the present case, the inaction of not filing return of income itself can be considered as act of concealment of particulars of income. Thus, provision of section 271(1)(c) is attracted on the facts of the case. It is also pertinent to mention here that an assessee not filing the return of income and not showing the income therein cannot be better off or in advantageous position than the person filing the return of income and not showing the correct income in the return. Both the persons are equally responsible for concealment of particulars of income. Thus, even though Explanation 3 to section 271(1)(c) is not attracted, the provision of section itself, irrespective of any explanation, is attracted. (more…)
The Cabinet Committee of Economic Affairs (“Committee”) on September 14, 2012 approved the proposal of Department of Policy and Promotion (“DIPP”) for permitting foreign airlines to make Foreign Direct Investment (“FDI”) in the aviation sector. Once the proposal is implemented, the prevailing restriction on foreign airlines from investing in the airline business will be removed. Prior to the change in policy, foreign airlines were permitted to invest and participate in equity only in companies operating cargo airlines, helicopter and seaplane services.
The change in FDI shall permit foreign airlines to invest in “scheduled and non-scheduled air transport services.” The investment will be allowed under the approval route up to a maximum of 49%. In addition to this, any investment in the aviation sector must also comply with the relevant regulations of Securities Exchange Board of India such as the Issue of Capital and Disclosure Requirements Regulations/Substantial Acquisition of Shares and Takeovers Regulations, as well as other applicable rules and regulations.
The announcement by the Committee also lists certain specific conditions which form the basis for permitting FDI up to 49% by a foreign airline. Firstly, for a Company (in which 49% FDI has been allowed ) to obtain a scheduled operator’s license, its principal place of business and registered office must be in India, the Chairman and at least two- third of the directors of the company must be Indian citizens and substantial ownership and effective control should be in the hands of Indian nationals. Secondly, any foreign national who will be associated with Indian scheduled or non-scheduled operations, i.e. who will be appointed to the board of the Indian airline which has received FDI, must also go through and obtain security clearance, presumably from the Ministry of Home Affairs before beginning any work in India. Lastly, the Committee has also mentioned that all import of technical equipment as a result of the investment under the 49% limit must be approved by the Ministry of Civil Aviation. Though these specific conditions have been mentioned, the directives for implementation are yet to be announced and it is likely that these directives will be made public by mid October. (more…)
CHECKLIST FOR UNLISTED COMPANY THOSE ISSUE OF SWEAT EQUITY SHARES S.NO. Procedures 1 Sweat Equity is covered by Sec. 79A of the Companies Act – 1956. 2 It Can be issued to Directors or Employees of the Company at a discount or for consideration for other than cash 3 The provision of Sweat Equity …
Finance Bill, 2015 has got President Assent on 14th May, 2015 and has become Finance Act, 2015. As you know, Finance Bill 2015 has proposed lot of changes in Service tax provisions, applicable with effect from various dates.
Now with the enactment of Finance Bill, 2015, following changes are applicable:
1) Government defined in Service Tax Law:
“Government means the Departments of the Central Government, a State Government and its Departments and a Union territory and its Departments, but shall not include any entity, whether created by a statute or otherwise, the accounts of which are not required to be kept in accordance with article 150 of the Constitution or the rules made there under”
2) Amendment in definition of ‘service’ i.e. Section 65B(44):
Following activities has been specifically excluded from the term ‘transaction in money’ or we can say following activities has been specifically included in definition of ‘service’:-
a)Services by chit fund foreman by way of conducting a chit
b)Services in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing a lottery of any kind
3) Clarification on classification of input services used for providing output services:
Section 66F(1) provides that an input service shall be classified independent to the nature of main services, for the provision of which it is utilized. Finance Bill 2015 has clarified this through following illustration:-
“As illustrated, reference to service provided by the Reserve Bank of India (RBI), in section 66D (b) does not include any agency service provided by other banks to RBI, as such agency services are input services used by RBI for provision of its main service. Accordingly, banks providing agency service to or in relation to services of RBI, are liable to pay Service tax on the agency services so provided by virtue of the existing section 66F (1).”
4) Definition of ‘consideration’ has been amended to include reimbursement of expenses in value of taxable service. (more…)
BASIC FOR THE ISSUE OF BUSINESS VISAS AND EMPLOYMENT VISAS FOR FOREIGN NATIONALS The Department of Industrial Policy and Promotion of the Ministry of Commerce and Industry notified certain guidelines for the issue of Business Visas (“BVs”) and Employment Visas (“EVs”) to foreign nationals.As Per these guidelines all foreign nationals in India who were on …
A Faster Way to Exit Route For the Defunct Companies – Shut down your Defunct Companies The Scheme provides an easy route for the defunct companies to make an application to the ROC to remove their names from the ROC register which has not been doing any business activity in the previous financial year, commenced …