TMI Tax Updates - e-Newsletter
January 9, 2014
Case Laws in this Newsletter:
Articles
By: DEVKUMAR KOTHARI
Summary: The Tribunal addressed the issue of capital gains taxation when an advance payment for a property sale is forfeited. In this case, the seller retained the advance payment after the sale fell through. The Tribunal ruled that since there was no transfer of a capital asset, section 45 of the Income-tax Act, 1961, was not applicable, and capital gains could not be computed. Under section 51, the forfeited amount should reduce the cost of acquisition. If this results in a negative or nil cost, capital gains cannot be computed. The Tribunal upheld the Commissioner's decision to set the acquisition cost at nil, partially allowing the appeal.
By: DR.MARIAPPAN GOVINDARAJAN
Summary: The Company Law Board (CLB) has the authority to review its own interim orders. In a case involving allegations of oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956, the CLB addressed disputes over property sales at undervalued prices. Petitioners argued that properties were sold at significantly lower values, causing financial harm to the company. Respondent No. 5, a purchaser, sought to overturn a status quo order. The CLB ruled that interim orders could be modified if necessary, allowing construction to continue with conditions to protect both parties' interests, while maintaining restrictions on third-party interests.
News
Summary: The Reserve Bank of India set the reference rate for the US dollar at Rs. 62.1810 and for the Euro at Rs. 84.4960 on January 9, 2014. The previous day's rates were Rs. 62.2430 for the US dollar and Rs. 84.8185 for the Euro. Additionally, the exchange rate for the British Pound was Rs. 102.3126, and for 100 Japanese Yen, it was Rs. 59.29 on January 9, 2014. The SDR-Rupee rate will be determined based on these reference rates.
Summary: The Reserve Bank of India has revised guidelines for non-banking financial companies (NBFCs) regarding loans against gold jewellery. The Loan-to-Value (LTV) ratio has been increased from 60% to 75%, based solely on the intrinsic value of the gold without additional costs. NBFCs must certify the gold's purity and can include caveats to prevent disputes. Ownership verification of jewellery over 20 grams does not require original receipts but must be documented. Auctions must occur in the same town as the loan branch, and high-value loans over one lakh must be disbursed via cheque.
Summary: India and the World Bank have signed a loan agreement for $250 million to fund the Uttarakhand Disaster Recovery Project. The agreement was signed by representatives from the Indian government, the World Bank, and the Uttarakhand government. The project aims to restore housing, improve rural connectivity, and enhance disaster resilience in Uttarakhand. It includes six components: infrastructure reconstruction, rural road connectivity, technical assistance for disaster management, financing disaster response, project implementation support, and contingency emergency response. The initiative, set for a four-year implementation period, seeks to strengthen disaster risk management systems and benefit the entire state.
Summary: The Income Tax authorities have withdrawn the tax-exempt status of four cricket associations: Saurashtra, Baroda, Kerala, and Maharashtra. This decision follows an investigation revealing that these associations engaged in activities deemed commercial under the amended provisions of Section 2(15) of the Income Tax Act, 1961. As a result, their tax assessments are being scrutinized, and past assessments have been reopened to verify the legitimacy of their previous income tax exemption claims.
Summary: The Enforcement Directorate and Director General of Foreign Trade (DGFT) have signed a Memorandum of Understanding (MoU) to share foreign exchange realization data, known as eBRC (Electronic Bank Realization Certificate) data. This initiative, launched in 2012, aims to enhance transparency, reduce human interaction, and improve business efficiency in India by digitizing and integrating the process of Bank Realization Certificate issuance. The eBRC project has significantly reduced transaction costs for exporters and increased productivity for banks and government departments. Several state governments have also signed MoUs with DGFT to use eBRC data for VAT refunds.
Notifications
DGFT
1.
65 (RE–2013)/2009-2014 - dated
8-1-2014
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FTP
Addition of a new Policy Condition No. 10 to Chapter 87 of ITC (HS), 2012 Schedule 1 (Import Policy)
Summary: The Government of India has introduced a new Policy Condition No. 10 to Chapter 87 of the ITC (HS), 2012 Schedule 1 (Import Policy), facilitating the import of customized cars, motorcycles, and parts for race events. This amendment exempts these imports from certain conditions and does not require a Type Approval Certificate from the country of origin. A certificate from a designated Nodal Agency is required at customs clearance, and imports are restricted to specified ports. The vehicles are to be used solely for race events, cannot be registered under CMV Act/Rules, and must be re-exported within 30 days post-event.
Circulars / Instructions / Orders
DGFT
1.
46 /2009-2014 (RE- 2013) - dated
8-1-2014
EDI Procedure for claiming benefits in respect of Third Party exports
Summary: The Directorate General of Foreign Trade has issued a public notice introducing new procedures for claiming benefits related to Third Party exports under the EDI system. Two new paragraphs, 9.14 and 9.15, have been added to the Handbook of Procedures (Vol. I) 2009-14. Paragraph 9.14 outlines that the First Party must initiate the process by linking shipping bills and BRCs, and may authorize a Third Party to claim benefits for specific shipping bill items. Paragraph 9.15 details currency conversion procedures, using exchange rates notified by CBEC for currencies, and converting to US$ for others.
2.
47 /2009-2014 (RE- 2013) - dated
8-1-2014
Processing of claims where an exporter gets payment by Insurance Agencies (not through banks).
Summary: The Directorate General of Foreign Trade has amended the Handbook of Procedures to introduce a new procedure for processing claims when exporters receive payments through insurance agencies instead of banks. Two new sub-paragraphs, 2.25.2 (a) and (b), have been added. Exporters must present proof of payment from the insurance agency to the relevant Regional Authority (RA). The RA will verify the claim, obtain approval from the Additional DGFT (EDI), and upload the value into the EDI system. If the payment proof shows both foreign exchange and INR values, the foreign exchange value will be used; otherwise, the INR value will be converted to USD using the applicable exchange rate.
Customs
3.
01/2014 - dated
9-1-2014
Classification of Human Embryo – regarding.
Summary: The circular addresses the classification and importation of human embryos frozen in liquid nitrogen under the Customs Tariff Act, 1975. The Central Board of Excise & Customs, after consulting with the Indian Council of Medical Research (ICMR), has determined that human embryos should be classified under CTH 0511 9999 as animal embryos. The import policy for human embryos, as finalized by the Directorate General of Foreign Trade (DGFT), categorizes them as restricted, requiring a No Objection Certificate (NOC) from ICMR for importation. Pending cases should be resolved according to these guidelines, and any difficulties should be reported to the Board.
4.
02/2014 - dated
9-1-2014
Classification of “Transmission shafts / Power takeoff (PTO) shafts” in the HS Harmonised Customs Tariff - regarding
Summary: The circular addresses the classification of "Transmission shafts / Power takeoff (PTO) shafts" under the Harmonized Customs Tariff. It clarifies that these shafts should be classified under heading 8483, subheading 848310, and Tariff Item 84831099, rather than headings 8432 or 8433, which pertain to parts of agricultural machinery. This decision aligns with the General Rules of Interpretation and Section Note 2(a) of Section XVI of the Customs Tariff Act, 1975. The circular instructs relevant authorities to finalize pending assessments based on this classification and to report any difficulties to the Board.
Highlights / Catch Notes
Income Tax
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Muslim Religious Organization Secures Section 12AA Registration Benefits, Qualifying as General Public Utility Entity.
Case-Laws - AT : The assessee was founded for development of Muslim religion, cannot be denied the benefit of registration under section 12AA of the Act on the plea that it was only for the purpose of Muslim religion, as it was for the purpose of a section of the public amounts to an object of general public utility - AT
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Tribunal Rules AMP Expenses Benefit Only Local Operations, Not Foreign AE, Affecting Transfer Pricing Adjustment.
Case-Laws - AT : Transfer pricing adjustment in respect of Advertising, Marketing & Promotion (AMP) expenses -The assessee was a full fledge distributor and as such the benefit of AMP expenses did not spill over to the foreign AE - AT
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Income from Sections 68 and 69 Additions Not Export-Derived, Even for Export-Oriented Units.
Case-Laws - AT : The income resulting on account of additions u/s. 68/69 of the Act cannot be considered as income derived from export activities though it is income of export oriented unit - AT
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No disallowance u/s 40(a)(ia) if tax is not deducted due to genuine belief.
Case-Laws - AT : Due to the bonafide belief if a person does not deduct the tax while making payment, then there can be no disallowance under section 40(a)(ia) of the Act - AT
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TDS Demand u/s 154 Invalid if Based Solely on System Errors; No Redeposit Required for Assessee.
Case-Laws - AT : TDS demanded u/s 154 – Merely because the Department’s system does not indicate the amount of TDS refund, it cannot be held that the assessee should be compelled to deposit the amount once again - AT
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Tribunal can't amend order under Sec 254(2) of Income Tax Act; must first confirm land is agricultural.
Case-Laws - AT : Rectification of order u/s 254(2) of the act – The tribunal cannot decide whether profit on sale of land is exempt from capital gains on the ground the land is agricultural land, without first establishing that the land was in fact agricultural land - no mistake in the order - AT
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Penalty u/s 272A(2)(k) deemed inappropriate for minor breach of Rule 31-A of Income Tax Rules.
Case-Laws - AT : Penalty u/s 272A(2)(k) of the Act – penalty U/s 272-A(2)(k) could not have been levied on the assessee for the venial breach of the Rule 31-A of the Income Tax Rule - AT
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TDS Applicability: Payments for Hiring a Plant Considered a Service Contract u/s 194C, Not Rent.
Case-Laws - AT : TDS u/s 194C or 194I - Contract of service OR Rent for hiring a plant - It will be covered under sec. 194C of the Act because the vehicle has been made available as a matter of service - AT
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Tax Authority Reviews Permanent Establishment Status and Profit Taxability; Urges Lower Authorities to Examine Relevant Articles Thoroughly.
Case-Laws - AT : Status of Assessee – Taxability of Profits - Technically, CIT (A) has decided the issue relating to PE - but, in order to have a complete holistic view, it is necessary that all the relevant Articles dealing with the issue are considered by the lower authorities before arriving at any conclusion - AT
Customs
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Anti-Dumping Duty Imposed on Acetone Imports from EU, Chinese Taipei, Singapore, South Africa, and USA to Protect Local Industry.
Case-Laws - AT : Imposition of anti dumping duty - import of acetone originating in or exported from EU, Chinese Taipei, Singapore, South Africa and USA - levy upheld - AT
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Re-imported products with flash point of 34.5^0C don't meet 35^0C requirement; additional duty of Rs. 2/liter dismissed.
Case-Laws - AT : RE-import - The products which were re-imported have the specifications of flash point of 34.5 deg C as against the minimum requirement of 35 deg C, such a difference can not be considered as minor variation - demand of additional duty of Rs. 2 per liter set aside - AT
Wealth-tax
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Immovable property valuation report not needed with tax return; present evidence at hearing instead.
Case-Laws - HC : Valuation of immovable property - filing of the valuation report along with the return was not mandatory. Production of the same at the time of hearing was enough. The assessee cannot be denied a right to adduce evidence to substantiate his contention at the hearing - HC
Service Tax
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Tax Payments Made During Appeals Considered Under Protest, Time Bar Not Applicable.
Case-Laws - AT : When an assessee is contesting the leviability of a tax by filing appeals the entire payment of tax, during the period of contest, is treated as deemed protest and time bar is not applicable in such cases - AT
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Refund Claim Denied: Business Auxiliary Service Demand Dispute Over Excise Duty Payment Responsibility in Job Work Case.
Case-Laws - AT : Rejection of refund claim - Demand under Business Auxiliary Service - Job work where principal is liable to pay excise duty - not liable to pay service tax - AT
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Court Sets Aside Service Tax Demand on Transfer of Intellectual Property as 'Scientific and Technical Service' Unjustified.
Case-Laws - AT : Demand of service tax - Transfer of intellectual property right - Hdemand under ‘scientific and technical service' is not sustainable hence set aside - AT
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High Court Rules Goods in Works Contracts Exempt from Service Tax; Not Subject to Service Tax Levies.
Case-Laws - HC : Division of service - goods which were deemed to be sold in the execution of works contract that shall not enter into the purview of the levy of Service Tax - HC
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Assessee Not Liable for Service Tax on Pre-July 1, 2010 Constructions Due to Section 65(106)(zzzh) Explanation Absence.
Case-Laws - AT : Constructions on behalf of the assessee were during the period prior to 1-7-2010 when the explanation was not yet appended to Section 65(106)(zzzh) of the Act, there is no liability on the assessee to remit tax under the then extant legislative regime - AT
Central Excise
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Small-Scale Exemption Valid Despite Same Brand Name on Different Products Under Central Excise Law.
Case-Laws - AT : SSI Exemption - Brand name - Demand - Limitation - if the brand name is being used on two different products, the debarring clause of small scale exemption notification would not get attracted - AT
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