TMI Tax Updates - e-Newsletter
April 24, 2014
Case Laws in this Newsletter:
Articles
By: DR.MARIAPPAN GOVINDARAJAN
Summary: The article discusses the registration of charitable trusts and institutions under the Income Tax Act, 1961, focusing on the definition of "charitable purpose" under Section 2(15). It outlines activities considered charitable, such as education and medical relief, and conditions under which activities involving trade or business are excluded. The process for registration under Section 12AA requires the Commissioner to assess the genuineness of the trust's activities and objectives. Various court rulings are cited, emphasizing that profit generation does not necessarily disqualify an institution from being charitable. The article also covers the cancellation and refusal of registration, emphasizing adherence to charitable objectives.
By: Madhukar N Hiregange
Summary: The article examines the eligibility of input service credits under the CENVAT scheme following amendments in 2011, which introduced limitations to the definition of "input service." The scheme allows offsetting duties paid on inputs and services against liabilities on manufactured goods or output services. The revised definition excludes certain services, such as construction and personal employee benefits, from credit eligibility. Judicial decisions have clarified the scope of eligible services, like accounting, auditing, and market research, while excluding others like canteen expenses and personal insurance. The article emphasizes the importance of understanding these changes to avoid disputes and ensure compliance.
News
Summary: The Reserve Bank of India (RBI) has rejected the application for a banking license from Karnataka Rajya Kaigarika Vanijya Sahakara Bank Niyamitha, Bangalore, due to its failure to meet regulatory requirements under the Banking Regulation Act, 1949. The bank's financial instability, including negative net worth and inadequate capital to risk assets ratio, led to this decision. The RBI has requested the Registrar of Co-operative Societies to initiate the bank's liquidation, ensuring depositors receive compensation up to Rs. 1,00,000 from the Deposit Insurance and Credit Guarantee Corporation. The bank is prohibited from conducting banking operations effective immediately.
Summary: The Reserve Bank of India set the reference rate for the US dollar at Rs.61.0683 and for the Euro at Rs.84.4860 on April 23, 2014. The previous day's rates were Rs.60.7147 for the US dollar and Rs.83.7695 for the Euro. Based on these reference rates and cross-currency quotes, the exchange rate for the British Pound was Rs.102.7657 and for 100 Japanese Yen was Rs.59.51 on April 23, 2014. The SDR-Rupee rate will be determined based on these reference rates.
Summary: The Deputy Governor of the Reserve Bank of India addressed challenges in India's currency management at the Banknote Conference 2014. India, as a major consumer of banknote production materials, faces constraints due to its reliance on global suppliers. Key issues include forecasting currency demand, ensuring banknote durability, and addressing counterfeit threats. Recent initiatives involve private sector involvement in distribution and direct remittance from printing presses to banks. The RBI emphasizes the importance of vendor responsibility in maintaining banknote integrity and environmental sustainability. The conference aims to foster global cooperation among stakeholders to enhance currency management efficiency.
Highlights / Catch Notes
Income Tax
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Losses Don't Justify Rejecting Profit Split Method in Transfer Pricing; Arm's Length Price Must Be Fairly Assessed.
Case-Laws - AT : TPA - Determination of ALP - The factum of the assessee having a loss is no ground to reject PSM as the MAM - AT
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Section 272A(2)(k) Penalty Imposed for Not Furnishing Quarterly Tax Deduction Statements; No Reasonable Explanation Given u/s 273B.
Case-Laws - AT : Penalty u/s 272A(2)(k) - Quarterly statements with details of tax deducted at source not furnished - since the assessee has failed to offer reasonable explanation in terms of section 273B of the Act, imposition of penalty is justified - AT
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Transfer Fee from CGHS Members Not Taxable Due to Mutuality Principle.
Case-Laws - AT : Taxability of transfer fee received from members by the CGHS – Principle of Mutuality – Merely because the amount may be appropriated earlier, it will not lose the character of the amount being paid by a member - not taxable - AT
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Assessing Officer's Right to Review Bad Debt Write-offs Requires Advance Details Disclosure, CIT(A) Involvement Crucial.
Case-Laws - AT : Debit balance written off as bad debt – segregation of advances and bad debts - If the details were furnished before CIT(A) then the AO should have been given opportunity to consider the same and rebut the same if so desired. - AT
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AO Can Redraw Profit and Loss Account for Deductions u/s 80IB; Proportionate Head Office Expenses Permitted.
Case-Laws - AT : Deduction u/s 80IA(10) –A O is justified in redrawing the Profit and Loss A/c. based on the turnover of the assessee's units so as to grant deduction u/s. 80IB - proportionate head office expenditure allowed - AT
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Section 54 Exemption Valid Even if Property Used Non-Residentially Later, Initial Residential Status Suffices.
Case-Laws - AT : Disallowing the exemption claimed u/s 54 - Mere nonresidential use subsequently would not render the property ineligible for benefit u/s 54F, if it is otherwise a residential property - AT
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Assessment Order Overturned u/s 263 for Inadequate Inquiry on Applicability of Section 2(22)(e) by Assessing Officer.
Case-Laws - AT : Validity of setting aside of assessment order u/s 263 - AO has not at all examined the applicability of Section 2(22)(e) and, it is a case of lack of inquiry. - AT
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Assessee penalized for not disclosing income until section 148 notice; deemed income escapement due to non-filing.
Case-Laws - AT : Assessee had a taxable income in India which it did not disclose voluntarily but disclosed only after the issuance of notice u/s 148 - it is a clear case where there was escapement of income due to non-filing of return by the assessee - decided against the assessee - AT
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High Court Examines Taxation of Loans as Deemed Dividends u/s 2(22)(e) of Income Tax Act; Seeks Legislative Clarity.
Case-Laws - HC : Deemed dividend u/s 2(22)(e) - if the intention of the Legislature was to tax such loan or advance as deemed dividend at the hands of deeming shareholder, then the legislature would have inserted deeming provision in respect of shareholder as well - HC
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Gujarat Vibrant Summit Fees Recognized as Tax-Deductible for Assessee-Company Supporting State Development Initiatives.
Case-Laws - AT : Amount paid by the assessee-company way by way of participation fees to Gujarat Vibrant Summit to encourage development activities in the State - expense allowed - AT
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Taxpayer's Claim Upheld: Interest Disallowance and Audit Report Delay u/ss 80IB and 10CCB, Rule 46A Not Penalized.
Case-Laws - AT : Disallowance of Interest u/s. 80IB - audit report u/s 10CCB – Belated filed Audit Report under Rule 46A - the otherwise admissible claim of the assessee cannot be defeated for technical reason - AT
Customs
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High Court Upholds Tribunal's Decision on Penalty for Misdeclared Goods, Finds No Reason for Further Intervention.
Case-Laws - HC : Imposition of penalty - Misdeclaration of goods - Abetment in pilferage – whatever leniency he deserves, is already meted out to him at the hands of Tribunal - Accordingly, no reason to interfere - HC
Central Excise
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Court Deliberates Including Pre-Delivery Inspection and Free After-Sales Service Charges in Vehicle Valuation for Excise Duty.
Case-Laws - AT : Valuation of goods - Inclusion of Pre-Delivery Inspection (PDI) and “free after sales service(FASS) charges in the assessable value of the vehicles manufactured and sold by the appellant to their dealers - stay granted - AT
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Appellant Penalized for Failing to Cancel Invoice and Inform Department After Clandestine Goods Removal.
Case-Laws - AT : Duty demand - Penalty - Clandestine removal of goods - Even if the order was cancelled, it was obligatory on the part of the appellant to cancel invoice subsequently and intimate the deptt. accordingly. - AT
VAT
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Railway Batteries Classified as 'Part Thereof' Under Entry 76, Taxed u/s 4(1)(a) KVAT Act.
Case-Laws - HC : Rate of Tax - KVAT - it is clear that the battery is an integral part of the railway coaches, engines and wagons and falls under the ‘part thereof’ under Entry 76 - it has to be taxed under Section 4(1)(a) - HC
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Karnataka VAT Act: Penalty Collection Without Order u/s 53(12)(c) Deemed Illegal and Unsustainable.
Case-Laws - HC : Collection of penalty without order - Karnataka Value Added Tax Act, 2003 - collection of penalty without an order u/s Section 53(12)(c), is illegal and can hardly be sustained - HC
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