TMI Tax Updates - e-Newsletter
February 1, 2014
Case Laws in this Newsletter:
Articles
By: DEVKUMAR KOTHARI
Summary: Section 234E of the Income-tax Act, 1961, effective from July 1, 2012, imposes a mandatory fee on tax deductors or collectors for late filing of prescribed statements, even when no service is rendered by the government. This fee is charged at a rate of 200 rupees per day of delay, capped at the amount of tax deductible or collectible. Additionally, Section 271H, effective the same date, allows for penalties on late or incorrect filings, which can range from 10,000 to 100,000 rupees. The imposition of such fees and penalties, seen as unjust due to their mandatory nature, raises questions about their validity and fairness.
News
Summary: The Reserve Bank of India (RBI) has entered into a Memorandum of Understanding (MoU) with the Central Bank of Sri Lanka (CBSL) to enhance supervisory cooperation and exchange of supervisory information. This agreement is part of RBI's ongoing efforts to collaborate with international supervisors, marking the nineteenth such MoU it has executed. The agreement was signed by representatives from both financial institutions, aiming to foster greater cooperation and information sharing between the two countries' banking supervisors.
Summary: The Central Statistics Office released revised estimates for national income, consumption, saving, and capital formation for 2012-13. GDP at constant prices grew by 4.5% in 2012-13, a decline from 6.7% in 2011-12. The tertiary sector showed 7% growth, while the primary and secondary sectors grew by 1% and 1.2%, respectively. Private consumption expenditure increased to Rs. 57.7 lakh crore. Gross Domestic Saving was Rs. 30.4 lakh crore, with a decrease in household savings in physical assets. Gross Capital Formation rose to Rs. 35.2 lakh crore. Per capita income at constant prices increased by 2.1% to Rs. 38,856.
Summary: Indian exports have significantly increased, reaching $300.6 billion in 2012-13 from $63.8 billion in 2003-04, driven by strategic trade policies. In December 2013, exports were valued at $26.35 billion, marking a 3.49% rise from the previous year. The total trade of goods and services now exceeds $1 trillion, accounting for 56% of GDP. Special Economic Zones (SEZs) have notably contributed, with exports reaching $87.55 billion and providing employment to approximately 1.15 million people. India has pursued trade diversification and signed various Free Trade Agreements to enhance market access globally, with ongoing negotiations with several countries.
Summary: The Reserve Bank of India announced the reference rates for the US dollar and Euro on January 31, 2014, with the US dollar at Rs.62.4768 and the Euro at Rs.84.6022. This marks a decrease from the previous day's rates of Rs.62.7335 for the US dollar and Rs.85.6075 for the Euro. Additionally, the exchange rates for the British Pound and Japanese Yen against the Rupee were Rs.102.9493 and Rs.60.96, respectively, on January 31, 2014, compared to Rs.103.8679 and Rs.61.22 on January 30, 2014.
Summary: The Fourteenth Finance Commission has refuted media reports suggesting it is seeking an extension for submitting its report. The Commission clarified that these claims are baseless and misleading, emphasizing that it is actively reviewing its progress and engaging with State Governments and other stakeholders. It remains confident in meeting the deadline of October 31, 2014, as outlined in the Presidential notification from January 2, 2013. Consequently, there is no need for an extension.
Notifications
Income Tax
1.
CBDT PRESS RELEASE - dated
30-1-2014
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IT
SECTION 90 OF THE INCOME-TAX ACT, 1961 - DOUBLE TAXATION AGREEMENT - AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION AND PREVENTION OF FISCAL EVASION WITH FOREIGN COUNTRIES - FIJI
Summary: The Government of India and the Government of Fiji signed a Double Taxation Avoidance Agreement (DTAA) on January 30, 2014, to prevent double taxation and fiscal evasion concerning income taxes. The agreement stipulates that business profits are taxable in the source state if a permanent establishment exists there, and profits from international aircraft operations are taxable in the enterprise's effective management location. Dividends, interest, royalties, and fees for technical services are taxable in both residence and source countries, subject to a maximum rate. The agreement includes provisions for information exchange, tax collection assistance, and anti-abuse measures to ensure only residents benefit.
Service Tax
2.
02/2014 - dated
30-1-2014
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ST
Seeks to amend notification No. 25/2012- Service Tax, dated the 20th June, 2012.
Summary: The Government of India, via Notification No. 02/2014, dated January 30, 2014, amends Notification No. 25/2012-Service Tax, originally issued on June 20, 2012. The amendment redefines "governmental authority" in paragraph 2, clause (s) of the original notification. A "governmental authority" is now defined as an authority, board, or body established by an Act of Parliament or State Legislature, or by the government, with at least 90% equity or control, to perform functions assigned to a municipality under Article 243W of the Constitution. This change is enacted under the powers of the Finance Act, 1994.
Circulars / Instructions / Orders
DGFT
1.
49 /(RE:2013)/2009-2014 - dated
31-1-2014
Amendments in Appendix 5 of the Handbook of Procedures (Vol.I)
Summary: The Directorate General of Foreign Trade has amended Appendix 5 of the Handbook of Procedures (Vol.I) under the Foreign Trade Policy, 2009-14. Nine new Pre Shipment Inspection Agencies (PSIA) have been added to the list, expanding the regions these agencies cover, including Malaysia, UAE, India, Latvia, Thailand, Vietnam, Saudi Arabia, Angola, Russia, South America, and Singapore. Additionally, the address for an existing PSIA in Mumbai has been corrected. These changes are effective immediately as per the public notice issued on January 31, 2014.
Customs
2.
03/2014 - dated
30-1-2014
All Industry Rates of Duty Drawback, effective 21.9.2013 - Reg.
Summary: The circular from the Ministry of Finance, dated January 30, 2014, addresses amendments to the All Industry Rates of Duty Drawback effective from September 21, 2013. Following feedback from various industry stakeholders, changes have been implemented effective January 25, 2014, via Notification No. 05/2014-Customs. Key amendments include the creation of separate tariff entries for specific products like freeze-dried crustaceans and sports gloves, adjustments to drawback caps for certain items, and modifications to drawback rates for products under chapter 87. The circular advises issuing public notices for guidance and reporting implementation difficulties to the Board.
Highlights / Catch Notes
Income Tax
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Section 50B Clarifies Slump Sales: Asset Transfers for Shares Viewed as Exchange, Not Sale, Affecting Tax in Amalgamations.
Case-Laws - AT : Application of Section 50B - Slump sale u/s 2(42C) - amalgamation - where a person carrying on business, transfers assets to a company in consideration of allotment of shares, it would be a case of exchange but not of sale - AT
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Court Rules Cement Division Losses Cannot Offset Finance Division Profits for Tax; RBI Act Not Enforceable Here.
Case-Laws - HC : Whether the loss in the cement division be set off against the profits from the finance division - The income tax authorities are not empowered to enforce the provisions powers of the RBI Act - HC
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Employers Must Deduct Tax on Salaries Using Income Estimates, Not Precise Calculations.
Case-Laws - HC : TDS on salaries - The employer while making deduction of tax at source is only required to have a broad picture of the estimated income on which tax is to be deducted. He is not supposed to calculate the income minutely to precession - HC
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Court Rules Agricultural Property Sale Not a Business Activity, Affecting Tax Implications Under Relevant Law.
Case-Laws - HC : Whether the sale of property was adventure in the nature of trade - Held no - The sale of agricultural plot was not by way of business purpose - HC
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Can Sale of Going Concern Be Taxed as Capital Gains Pre-Section 50B Amendment? Slump Sale Clarified.
Case-Laws - HC : Whether sale consideration of a going concern be taxed as capital gains prior to the amendment introducing section 50B - Slump sale - Merely because the assessee has given split up figures and received the consideration from the purchaser, it would not take the goods out of slump sale - HC
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Assessee Can Claim Depreciation on CANSTAR Loss as Revenue Expenditure in Business Operations.
Case-Laws - HC : Depreciation on the loss incurred units of CANSTAR or revenue expenditure - The assessee would be entitled to the claim as expenditure incurred in the business - HC
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High Court: LTCG Exemptions Unaffected by Site Reallocation u/ss 54EC and 54F of Income Tax Act.
Case-Laws - HC : Exemption u/s 54EC and 54F - LTCG - Merely because the original site which was allotted was cancelled, yet another site was allotted and the said site was also cancelled and thereafter the present site was allotted, in law - would make no difference - HC
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Tax Audit Penalty u/s 271B Applies Equally to Speculative and Normal Business Sales Without Exemptions.
Case-Laws - AT : Penalty u/s 271B - Tax Audit - It does not differentiate between commodities sold under the head speculative business or normal business - penalty confirmed - AT
Corporate Law
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Amalgamated Company's Tenancy Ends Automatically Upon Dissolution; No Legal Protection for Continued Occupancy.
Case-Laws - HC : Tenancy - Petitioner Company did not vacate tenanted premises even after amalgamation - once the company stood dissolved the tenancy would automatically perish - Order of Amalgamation would not protect the tenancy - HC
Service Tax
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No Service Tax on Underwriting Fees and Commissions for Primary Dealers in Government Securities Transactions.
Case-Laws - AT : There is no service tax liability on underwriting fee or underwriting commission received by the primary dealers for dealing in Government securities; the same logic would apply in respect of brokerage also - AT
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Computer Data Processing Excluded from Business Auxiliary Service, Classified as IT Service per Case Laws and Tax Guidelines.
Case-Laws - AT : Computer Data Processing comes under Information Technology Service and is excluded from the scope of Business Auxiliary Service - AT
Central Excise
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Rebate on Automobile Cess Inadmissible u/r 18 of Central Excise Rules, 2002, per 2004 Notification.
Case-Laws - CGOVT : Rebate of Automobile Cess levied and collected under Automobile Cess Rules, 1984 and S.O. No. 247(E), dated 22-3-1990 is not admissible under Rule 18 of Central Excise Rules, 2002 read with Notification No. 19/2004-C.E. (N.T.), dated 6-9-2004. - CGOVT
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Cenvat Credit: Inputs Must Be Used in Final Product Manufacture or Production; No Claim Under Different Rule Entry.
Case-Laws - HC : Cenvat credit - When there is a specific entry in a rule and the said entry pre-supposes that for the purpose of eligibility of credit of duty of inputs, those inputs must be used for manufacture of final products or for any other purpose within the factor of production, the assessee cannot take shelter under a different entry. - HC
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Furniture Assembly Only: CKD Furniture Cleared, Demand Set Aside for On-Site Assembly.
Case-Laws - AT : The furniture manufactured was cleared in CKD condition for ease of transportation and the respondents were only assembling the parts of the furniture at site - demand set aside - AT
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Excise Duty Applicable on Free Promotional and Trade Packs Regardless of Cost-Free Supply Status.
Case-Laws - AT : Duty of excise on promotional pack and trade pack - D Merely because the same is supplied free-of-cost, it does not obliterate the liability to pay excise duty of the promotional pack - AT
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