TMI Tax Updates - e-Newsletter
March 10, 2016
Case Laws in this Newsletter:
Articles
By: Bimal jain
Summary: The Krishi Kalyan Cess, introduced on June 1, 2016, at 0.5% on all taxable services, aims to finance agricultural and farmer welfare initiatives. While Cenvat credit is allowed for service providers, manufacturers cannot avail of this credit, potentially increasing costs and prices. This new levy complicates tax compliance, requiring separate accounting and potentially hindering the "Make in India" and "Start-up India" initiatives. The cess raises the effective service tax rate to 15%, adding complexity to the tax system. The introduction of Goods and Services Tax (GST) is expected to eliminate such cesses in the future.
By: Pradeep Jain
Summary: The article discusses an amendment to Section 73 of the Finance Act, which extends the time limit for issuing show cause notices from 18 to 30 months. This change could be beneficial by increasing the likelihood of penalties being waived, as notices issued within the normal period typically don't allege fraud. However, it may also encourage delays by revenue authorities, as the gap between normal and extended limitation periods narrows. With the upcoming GST reform, the article suggests that a shorter time limit for issuing notices would be more efficient, aligning with electronic filing and faster scrutiny processes.
By: DEVKUMAR KOTHARI
Summary: The article argues against the presumptive tax on professionals, particularly the 50% net profit assumption under Section 44ADA, which is deemed unreasonable. It highlights the financial challenges faced by new professionals due to high fixed costs and low fees, exacerbated by competitive pressures. The article suggests that the presumptive tax disregards the variability in revenue and costs based on factors like seniority, location, and professional type. It proposes a more reasonable tax structure with no presumptive income for earnings up to 30 lakh and lower rates for higher earnings, advocating for concessions similar to those given to start-ups.
News
Summary: The government has implemented an investor-friendly Foreign Direct Investment (FDI) policy, allowing up to 100% FDI through the automatic route in most sectors, including investments from Non-Resident Indians (NRIs). The policy, regularly reviewed for greater investor appeal, offers special provisions for NRI investments in construction-development and civil aviation. Under Schedule 4 of FEMA regulations, investments by NRIs, Persons of Indian Origin (PIOs), and Overseas Citizens of India (OCIs) on a non-repatriation basis are considered domestic investments. FDI inflows are influenced by factors such as natural resources, market size, infrastructure, and macro-economic stability. This information was provided by the Minister of State in a written reply to the Rajya Sabha.
Summary: The Reserve Bank of India is scheduled to announce the First Bi-monthly Monetary Policy Statement for the fiscal year 2016-17 on April 5, 2016, at 11:00 a.m.
Summary: The Reserve Bank of India set the reference rate for the US Dollar at Rs. 67.4632 on March 9, 2016, up from Rs. 67.3380 on March 8, 2016. The exchange rates for other currencies against the Rupee were also announced: the Euro was Rs. 74.0611, the British Pound was Rs. 95.6965, and 100 Japanese Yen was Rs. 59.92 on March 9, 2016. These rates are determined based on the US Dollar reference rate and cross-currency quotes. The SDR-Rupee rate will also be based on this reference rate.
Summary: The government will assess the quantum of unclaimed investment funds for the financial year 2015-16 after companies file their financial statements with the Registrar of Companies by October 30, 2016. According to the Companies Act, unclaimed dividends must be transferred to the Investor Education and Protection Fund (IEPF) after seven years, with penalties for non-compliance. Approximately Rs. 1273.66 crore of unclaimed funds have been transferred to the IEPF for the period from 2001-02 to 2015-16. The penal provisions for non-compliance under the Companies Act, 2013, are yet to be notified.
Summary: The government lacks information on incomplete or incorrect company registrations with the registrar of companies. However, many companies have failed to submit their annual reports, audited reports, balance sheets, and profit/loss details. According to MCA 21 System data, 389,503 companies did not file their 2015 annual returns, 386,103 did not file balance sheets, and 374,727 did not file either. Under Section 403 of the Companies Act, 2013, documents can be filed late with additional fees within 270 days. The deadline was extended to December 30, 2015, and further to January 30, 2016, for Tamil Nadu and Puducherry.
Summary: There is no official report on the global ranking of start-ups in the country or estimates of investment in them. However, an action plan for start-ups was announced by the Prime Minister on January 16, 2016. The plan focuses on simplification and support, funding and incentives, and partnerships between industry and academia, including incubation. These details are publicly accessible. This information was provided by the Minister of Corporate Affairs in response to a question in the Rajya Sabha.
Summary: The Ministry of Corporate Affairs clarified in a circular dated January 12, 2016, that company boards have the discretion to decide whether unspent amounts from the minimum required Corporate Social Responsibility (CSR) expenditure should be carried forward to the next year. This rule applies to all CSR-eligible companies, including Public Sector Undertakings (PSUs). This information was provided by the Minister of Corporate Affairs in a written response to a question in the Rajya Sabha.
Summary: The Serious Fraud Investigation Office (SFIO) was established by the Indian government to investigate serious corporate frauds. Since its inception, the SFIO has completed numerous investigations and filed prosecutions, with 22 investigations and 45 prosecutions in 2012-13, and 39 investigations and 44 prosecutions by the end of 2015. Detected frauds include falsified financial statements, deceptive deposit collections, fraudulent transactions, and fund diversion. To combat these issues, the government has introduced measures such as declaring fraud a substantive offense, granting statutory status to SFIO, implementing stricter corporate governance norms, and utilizing technology for early fraud detection.
Summary: The Cabinet has approved the Stand Up India Scheme to foster entrepreneurship among Scheduled Caste/Scheduled Tribe individuals and women. The scheme offers composite loans ranging from Rs. 10 lakh to Rs. 100 lakh for establishing new enterprises in the non-farm sector. These loans are eligible for refinance and credit guarantee cover. A credit guarantee fund of Rs. 5,000 crore has been sanctioned to provide guarantee cover for loans over the next five years, with an initial capital provision of Rs. 500 crore in the fiscal year 2016-17. This was confirmed by the Minister of State in the Ministry of Finance in a Lok Sabha session.
Summary: The Central Government's subsidy bill ranged from Rs. 2.50 lakh crore to Rs. 2.58 lakh crore between 2014-15 and 2016-17, while the fiscal deficit was between Rs. 5.11 lakh crore and Rs. 5.35 lakh crore. Both figures declined as a proportion of GDP during this period. Subsidies were allocated to food, fertilizer, petroleum, and other areas. The Direct Benefit Transfer (DBT) system, initiated in 2013, expanded in 2015 to include cash transfers to beneficiaries, with LPG subsidies directly deposited into bank accounts. The 2016-17 Union Budget proposed a pilot DBT for fertilizer in select districts, with no set timeline for full implementation.
Summary: A White Paper by CRISIL Ratings and ASSOCHAM India estimates a need for Rs. 31 lakh crores in infrastructure investment from 2015-2020, with 70% required for power, roads, and urban sectors. Two-thirds of this investment is expected to be funded through debt, with the remainder through equity. The government is mobilizing funds via Infrastructure Debt Funds, REITs/InvITs, relaxed ECB and FDI norms, PPPs, liberalized bank lending norms, and investments from EPFO/pension funds, alongside establishing the National Infrastructure Investment Fund, as stated by the Minister of State in the Ministry of Finance.
Summary: The Indian economy is projected to grow robustly, with GDP growth expected between 7% and 7.75% in the coming year, according to the Central Statistics Office. Despite global economic uncertainties, India's GDP growth was 7.6% in 2015-16. The fiscal deficit for 2015-16 is estimated at 3.9% of GDP. Private corporate sector investment rose from 11.7% of GDP in 2013-14 to 12.3% in 2014-15. The government has implemented initiatives like Make in India and Start-up India to improve the business climate and attract investment. The Reserve Bank of India reduced policy repo rates by 125 basis points in 2015.
Summary: As of February 24, 2016, the Department of Posts has installed 550 ATMs out of a target of 1,000 across India. Scheduled Commercial Banks have 193,434 ATMs nationwide, with 33,249 in rural and 51,925 in semi-urban areas. The Reserve Bank of India mandates a minimum of five free monthly transactions at own bank ATMs and three at other bank ATMs in six metro centers, with different rules for non-metro areas. RBI also allows non-bank entities to set up White Label ATMs in smaller towns, with 11,706 such ATMs established by February 2015.
Summary: According to the Insurance Regulatory and Development Authority of India, insurance products sold online by public sector insurance companies are generally cheaper than their offline counterparts because they do not include agent commissions. However, costs related to system establishment and customer support services are added to the price of online products, leading to price variations between online and offline sales. The online payment systems of these insurance companies are reported to be functioning effectively, with no issues noted by the authority. This information was provided by a government official in response to a parliamentary question.
Notifications
SEZ
1.
S.O. 264 (E) - dated
22-1-2016
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SEZ
De-Notification of 41.32 hectares of sector specific Special Economic Zone for textiles at Hassan in the State of Karnataka
Summary: The Central Government has de-notified 41.32 hectares from a sector-specific Special Economic Zone (SEZ) for textiles located in Hassan, Karnataka. Initially notified in 2006, the SEZ covered 233.307 hectares. The de-notification was proposed by the Karnataka Industrial Area Development Board and received a "No Objection" from the State Government. The Development Commissioner of the Cochin SEZ recommended this proposal. Following the de-notification, the SEZ now comprises 191.987 hectares. The de-notified areas are detailed by village and survey numbers.
Circulars / Instructions / Orders
VAT - Delhi
1.
40/2015-16 - dated
8-3-2016
Scrutiny of Returns
Summary: The circular from the Department of Trade and Taxes, Government of Delhi, addresses the scrutiny of VAT returns under the Delhi Value Added Tax Act, 2004. It highlights the transition from manual to software-based validation of tax returns, enhancing checks and validations to protect revenue. The circular identifies issues with unscrupulous dealers evading taxes through practices like false central sales and misuse of statutory forms. Ward officers are directed to monitor specific dealer behaviors, such as rapid growth in gross turnover, frequent refund claims, and non-filing of returns. The circular supersedes previous guidelines and emphasizes the need for vigilance and expedited recovery proceedings.
Income Tax
2.
F.NO.279/MISC./M-142/2007-ITJ (PART) - dated
8-3-2016
Clarification on Applicability of Circular 21 OF 2015
Summary: The circular clarifies the applicability of Circular 21 of 2015 regarding monetary limits for filing appeals. The limits are set at Rs. 10 lakhs for the Income Tax Appellate Tribunals (ITAT) and Rs. 20 lakhs for High Courts. It specifies that these limits also apply to cross objections under section 253(4) of the Income-tax Act and to references under sections 256(1) and 256(2). Cross objections and references below these monetary limits should be dismissed as withdrawn or not pressed. The clarification should be communicated to all relevant parties.
3.
F. NO. 312/109/2015-OT - dated
7-3-2016
U/s 245 of Income Tax Act 1961 revised timeline for verification of arrear of demand
Summary: A government circular revises the timeline for verifying arrear demands under section 245 of the Income Tax Act. The Central Board of Direct Taxes reduced the response period from 30 to 15 days for both taxpayers and Assessing Officers to expedite pending refund processing. This temporary measure applies to notices issued until March 31, 2016, aimed at clearing the backlog of refunds and addressing procedural delays in tax verification.
Customs
4.
08/2016 - dated
8-3-2016
Dispensing of Customs Baggage Declaration Form for domestic passengers
Summary: The circular issued by the Central Board of Excise & Customs, dated March 8, 2016, addresses the removal of the requirement for domestic passengers traveling on international flights within a domestic leg to file a Customs Baggage Declaration Form. This decision, discussed in a meeting on December 19, 2015, is to be implemented strictly at all airports. Chief Commissioners of Customs are instructed to ensure compliance with this directive.
Highlights / Catch Notes
Income Tax
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Trust's 12AA(3) Registration Denied: Activities Benefit Specific Group, Not General Public Utility.
Case-Laws - HC : Registration of a trust under section 12AA(3) - the activities of the trust would fall within the ambit of 'education and 'advancement of any other object of general public utility' though the objects and the activities of the trust are towards a group of person/employees engaged by the settlers and not for the purpose of general public at large - HC
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Court Orders Prompt Hearing on Tax Appeal; Account Attachment Vacated Despite Pending TDS Issues.
Case-Laws - HC : Recovery of demand - attachment of account whereas the appeal was pending - AO refused to grant stay - non deduction of TDS - attachment vacated - CIT(A) to hear the appeal as early as possible - HC
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Assessee's Tax Calculation Deemed Proper; Additional Tax Imposed Due to Officer's Misinterpretation Deleted.
Case-Laws - AT : Computation of MAT credit - Assessee has relied on the ITR–6 format to arrive at the total liability as well as the MAT credit calculations and paid tax accordingly. In our view, the assessee had followed the procedure properly and the Assessing Officer had made the calculations applying his own interpretation or relied on the programme, we are not sure whether it is programme hitch or the interpretation of Assessing Officer was not in line with the calculations proposed in ITR-6. Therefore, we delete the addition made. - AT
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Monetary Limit of Rs. 10 Lakhs for ITAT Appeals Applies to Cross Objections u/s 253(4) of the Act.
Circulars : The monetary limit of ₹ 10 lakhs for filing appeals before the ITAT would apply equally to cross objections under section 253(4) of the Act. Cross objections below this monetary limit, already filed, should be pursued for dismissal as withdrawn/not pressed.
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New Timeline for Verifying Tax Arrears: CPC to Issue Refunds if No AO Response in 30 Days u/s 245.
Circulars : U/s 245 of Income Tax Act 1961 revised timeline for verification of arrear of demand - In case no response is received from the AO within thirty days. CPC would issue the refund without any adjustment. The responsibility of, non-adjustment of refund against outstanding arrears, if any, would lie with the Assessing Officer.
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Trust Receives Rs. 51 Lakh as Capital Asset Premium from Tenants; Subject to Capital Gains Tax, Not Rental Income.
Case-Laws - AT : The grant of tenancy rights by the assessee trust and the premium of ₹ 51.00 lakhs received in lieu thereof from the tenants is a capital asset in the hands of the assessee and is therefore liable for capital gains and is not advance rent exigible to tax under the head income from house property. - AT
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Interest Deduction Disallowed: Property Not Let Out or Self-Occupied u/s 24(b) for Tax Purposes.
Case-Laws - AT : Disallowance of interest on borrowed capital u/s 24(b) - whether property should be let out for claiming deduction of interest? - the assessee’s claim has no tenability as neither property is self-occupied nor its reasonable rental ALV is offered for tax and at the same time a claim of deduction of interest is made. - AT
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Taxpayer Can't Offset Business Losses Against Interest Income Due to Lack of Business Activity in Relevant Year.
Case-Laws - AT : Set off of business loss against interest income taxable under the head income from other sources - as the assessee has not carried out any business activity during the year under appeal, then there remains no possibility of set off of business loss against interest income taxable under the head income from other sources. - AT
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Partnership Firm Converts to Company: No Capital Gains Tax Due per Section 47(xiii) of Income Tax Act.
Case-Laws - AT : Capital gain - conversion of the partnership firm into company - the conditions laid down under section 47(xiii) of the Act have been fulfilled in this case. Therefore, no capital gain is chargeable under the provisions of section 45(4) of the Act. - AT
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Section 14A Disallowance: Rule 8D(iii) Not Automatically Applicable if Misaligned with Taxpayer's Investment and Business Expenses.
Case-Laws - AT : Disallowance u/s 14A - if at all any indirect expenses is to be attributable, then same has to be estimated having regard to the accounts and nature of expenditure incurred by the assessee. The blanket application of Rule 8D(iii) that is 0.5% of the average investment may not be acquired to do so because it is not commensurate with the nature of activity of investment carried out and the expenses debited by the assessee which is mostly for its business activities - AT
Customs
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Manufacturer-Exporter Misuses Advance Licence by Diverting Duty-Free Imports, Faces Denial of Benefits and Confirmed Demand.
Case-Laws - AT : Entitlement of benefit - import against Advance Licence as Actual user manufacturer-exporter - it misused the advance licence and contravened the Customs Notification by diverting the duty free imported raw materials instead of utilizing the same for manufacture of resultant export products, hence not entitled for benefit - demand confirmed - AT
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Goods Classified as Heavy Melting Steel Scrap After Inspection; Clearance Permitted Post-Mutilation Under Customs Supervision.
Case-Laws - AT : Classification - Whether the goods imported are Heavy Melting Steel Scrap or Secondary Welded Pipes - The pre-shipment inspection certificate clearly indicates that HMSS supplied was 'unshredded' and justifies the bonafide of appellant being an actual user. Therefore, the goods imported are "Heavy Melting Steel Scrap" and the clearance is allowed after mutilating the goods under customs supervision- AT
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Contract Dismissed Due to Tile Size Mismatch; Valuation Based on Similar, Higher-Value Imports per Bills of Entry.
Case-Laws - AT : Valuation - The rate in the contract would not show whether it is FOB/ CIF basis. It is particularly noted that the certain size of tiles imported by the appellant are not tallied with the contract. Therefore, the contract is discarded and the price of contemporaneous imports at / around the time of import of impugned goods at higher value, as evident from 4 Bills of Entry is adopted - AT
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EOU's Exemption Denial Overturned: Reimbursement Confirms No Duty-Free Diversion, Complies with Notification No. 53/1977-Cus.
Case-Laws - AT : 100% EOU - Denial of exemption - Even the supplier reimbursed the amount towards shortage noticed in weight which also supports the view that there was no diversion of the duty free goods. Thus none of the conditions of the exemption Notification No. 53/1977-Cus. are violated - AT
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CHA Penalized for Inefficiency, Not Gross Negligence, Under Regulation 13(n) Due to Regular Importer Dealings.
Case-Laws - AT : CHA - Some inadvertence or lack of efficiency took place on part of the CHA and that is because of a regular dealing with the said importers and not because of gross negligence or misconduct in discharge of duty. Therefore, the appellant needs to be visited with some penal action in view of violation of Regulation 13(n). - AT
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Domestic Passengers on International Flights Exempt from Filing Customs Baggage Declaration Form During Domestic Leg.
Circulars : The domestic passengers who board international flights in the domestic leg are not required to file the Customs Baggage declaration form.
Service Tax
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Service Tax Demand Confirmed for "Transport of Export Cargo" Due to No Exemption from June 16-23, 2005.
Case-Laws - AT : The demand of service tax along with interest is confirmed under the category of “Transport of Export Cargo” as there was no exemption of service tax on the said service from 16.06.2005 to 23.06.2005 - AT
Central Excise
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Cenvat Credit Approved for Business Club Membership Expenses as "Input Service" Qualifies for Tax Credit Claim.
Case-Laws - AT : Cenvat Credit denied of service tax paid on club membership of Association - the expenses incurred on the membership of the business club is an “input service” and appellant can legally take Cenvat Credit of the expenses incurred on the membership of the club - AT
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Jute Mattings Qualify for Tax Benefits Under Notification No. 29/95-CE Without Exclusive Floor Covering Use Requirement.
Case-Laws - AT : Jute mattings manufactured - whether are floor coverings or not ? - Notification No. 29/95-CE dt 16/3/1995 benefit claimed - as per this meaning the mattings can also be used & understood as floor coverings. The argument taken by the Revenue that floor coverings of jute should be exclusively used for floor covering is not supported by as such specific mention in the exemption notification. - AT
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Refund Approved for Exported Goods Despite Late ARE 2 Form Submission; Necessary Customs Documents Were Provided.
Case-Laws - AT : Rejection of refund claim - export of goods - in appellants case the ARE 2 for export has to be filed within 24 hours of clearance and as such, there is no scope for prior verification of the goods by the officers. The cleared goods have been exported and all the relevant customs clearance documents have been filed. - Refund allowed - AT
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