TMI Tax Updates - e-Newsletter
April 29, 2016
Case Laws in this Newsletter:
TMI SMS
Articles
By: ARUN KUMAR V K
Summary: A foreign entity can establish a Liaison Office (LO), Branch Office (BO), or Project Office (PO) in India with permission from the Reserve Bank of India (RBI) under the Foreign Exchange Management Act, 1999. The application process involves submitting Form FNC through a designated bank, with approval routes depending on the sector's FDI regulations. Criteria include a track record of profitability and specific net worth requirements. LOs can perform non-commercial activities like communication and market research, while BOs can engage in certain business activities excluding retail and manufacturing. Project Offices require a contract and specific funding conditions. Closure involves compliance with RBI and legal requirements.
By: Dr. Sanjiv Agarwal
Summary: The article provides answers to frequently asked questions about the Goods and Services Tax (GST) in India, focusing on its structure and implementation. It explains the Central Goods and Services Tax (CGST), where the central government levies a national GST with revenue-sharing among states. The State Goods and Services Tax (SGST) allows states to levy GST independently, enhancing state revenue capacity. The Inter-state Goods and Services Tax (IGST) applies to inter-state transactions, with revenue apportioned between the union and states. The article discusses the administration, simultaneous taxation under CGST and SGST, and the proposed rate structure, including lower rates for essential items and special rates for precious metals.
News
Summary: The Ministry of Micro, Small and Medium Enterprises (MSME) has established a framework for the revival and rehabilitation of stressed MSMEs, as per a Gazette Notification issued in 2015. The Reserve Bank of India, in consultation with the Ministry, has aligned this framework with existing regulatory guidelines and issued a circular to banks. This framework applies to MSMEs with loan limits up to Rs. 25 crore and includes guidelines for identifying and managing stressed accounts. Additionally, the Ministry introduced the Udyog Aadhaar Memorandum for simplified MSME registration, resulting in over 619,501 registrations by April 2016.
Summary: The Ministry of Micro, Small and Medium Enterprises (MSME) is supporting Micro and Small Enterprises (MSEs) through subsidies under the Credit Linked Capital Subsidy Scheme (CLCSS) and the Prime Minister's Employment Generation Programme (PMEGP), reducing borrowing costs and enhancing profitability. Current insolvency laws, including the Companies Act, RDDBFI, SARFAESI, and SICA, are deemed slow and cumbersome. To address this, the government has proposed the Insolvency and Bankruptcy Bill, 2015, aiming for a more efficient process. This information was provided by the Minister of State for MSME in response to a parliamentary question.
Summary: The Reserve Bank of India set the reference rate for the US Dollar at Rs. 66.4045 on April 28, 2016, down from Rs. 66.5460 the previous day. Based on this rate and cross-currency quotes, the exchange rates for the Euro, British Pound, and Japanese Yen against the Rupee were also updated. On April 28, 2016, 1 Euro was Rs. 75.4222, 1 British Pound was Rs. 96.8310, and 100 Japanese Yen were Rs. 61.32. The Special Drawing Rights (SDR) to Rupee rate is also determined using this reference rate.
Summary: The Union Cabinet of India approved a Memorandum of Understanding (MoU) between the Insurance Regulatory and Development Authority of India and the Insurance Authority of the United Arab Emirates. Signed in February 2016, the MoU aims to enhance cooperation in insurance supervision by establishing communication channels and facilitating the exchange of regulatory and supervisory information, including confidential data. This collaboration seeks to improve mutual understanding and ensure compliance with the respective laws and regulations of both countries.
Notifications
Companies Law
1.
G.S.R 832(E) - dated
26-4-2016
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Co. Law
Section 396 of CA 2013 - Jurisdiction of the state of Telangana
Summary: The Central Government, under Section 396(1) of the Companies Act, 2013, issued a notification amending the jurisdiction of Regional Directors. Initially, the jurisdiction covered the states of Karnataka and Andhra Pradesh. This notification, effective from November 3, 2015, expands the jurisdiction to include the state of Telangana. The amendment is reflected in serial number (7) of the notification, replacing the previous jurisdictional reference to include Telangana alongside Karnataka and Andhra Pradesh. This change is formalized by the Ministry of Corporate Affairs and communicated by the Joint Secretary to the Government of India.
Customs
2.
59/2016 - dated
27-4-2016
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Cus (NT)
Amendment in Principal Notification No. 12/97-Customs (N.T) dated 02.04.1997
Summary: The Central Board of Excise and Customs has amended Notification No. 12/97-CUSTOMS (N.T.), dated April 2, 1997. This amendment involves the addition of a new entry in the table under serial number 4 for the State of Gujarat. Specifically, Village Sachana, Viramgam, District Ahmedabad, is now designated for the unloading of imported goods and loading of export goods. This change is formalized in Notification No. 59/2016-CUSTOMS (N.T.), dated April 27, 2016.
3.
58/2016 - dated
27-4-2016
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Cus (NT)
Appointment of Common Adjudicating Authority - M/s Bluebell India Traders, 12/190, Razia Manzil, Pazhuvil P.O., Thrissur
Summary: The Government of India, through the Ministry of Finance, has appointed the Commissioner of Central Excise, Customs, and Service Tax in Calicut as the Common Adjudicating Authority. This appointment is made under the Customs Act, 1962, to adjudicate matters related to a show cause notice issued to a trading company in Thrissur. The authority will exercise powers and duties typically held by the Commissioners of Customs in Cochin and Central Excise in Calicut, addressing issues raised in a notice dated October 15, 2015, by the Commissioner of Customs (Preventive) in Ernakulam.
4.
57/2016 - dated
27-4-2016
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Cus (NT)
Vessels carrying exclusively coastal import or export goods operating from berths- the person-in-charge of such vessel or his agent
Summary: The Government of India, through Notification No. 57/2016, mandates that vessels carrying exclusively coastal goods and operating from berths used by vessels handling import or export goods must comply with sections 30 and 41 of the Customs Act, 1962. The person in charge or their agent must submit a coastal manifest to the proper officer before the vessel's arrival or departure. The manifest includes details about the vessel, cargo, and relevant shipping information, ensuring compliance with contractual terms. This directive aims to streamline customs procedures for coastal shipping operations.
5.
56/2016 - dated
27-4-2016
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Cus (NT)
Supersession the Notification No. 43/97- CUSTOMS (N.T.), dated the 11th September, 1997 and Notification No. 15/98- CUSTOMS (N.T.), dated the 27th February, 1998
Summary: The Government of India, through the Ministry of Finance, has issued Notification No. 56/2016, superseding previous notifications dated September 11, 1997, and February 27, 1998. This notification, effective April 27, 2016, exempts vessels carrying exclusively coastal goods from the provisions of sections 92, 93, 94, 95, 97, and subsection (1) of section 98 of the Customs Act, 1962. The decision was made in the public interest under the authority granted by section 98A of the Customs Act.
VAT - Delhi
6.
No.F.3(628)/Policy/VAT/2016/113-125 - dated
28-4-2016
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DVAT
Returns in Form CR-II for the financial year 2015-16 are required to be filed by 16-May-2016
Summary: The Government of the National Capital Territory of Delhi, through the Department of Trade & Taxes, has issued a notification requiring the filing of returns in Form CR-II for the financial year 2015-16 by 16th May 2016. This directive, issued by the Commissioner of Value Added Tax, modifies a previous notification dated 15th March 2016. All other aspects of the earlier notification remain unchanged. The notification is effective immediately.
Circulars / Instructions / Orders
VAT - Delhi
1.
1/2016-17 - dated
27-4-2016
New Composition Scheme for Restaurants and Halwais
Summary: The Government of the National Capital Territory of Delhi has introduced a new composition scheme for restaurants and halwais, effective from April 1, 2016. Under this scheme, registered dealers with an annual turnover of up to Rs. 50 lakhs, selling items like cooked food and beverages, can opt to pay a 5% composition tax. Dealers transitioning from the previous scheme are not required to pay tax on opening stock, as these goods have already incurred VAT. However, they cannot claim Input Tax Credit (ITC) on closing stock as of March 31, 2016. Applications for the new scheme must be filed manually until further notice.
Income Tax
2.
PRESS RELEASE - dated
28-4-2016
Framework for computation of book profit for the purposes of levy of MAT under section 115JB of the Income-tax Act, 1961 for Indian Accounting Standards (Ind AS) compliant companies.
Summary: The Central Board of Direct Taxes (CBDT) has released a framework for calculating book profits for Minimum Alternate Tax (MAT) under section 115JB of the Income-tax Act, 1961, applicable to companies compliant with Indian Accounting Standards (Ind AS). The framework, based on recommendations from a committee, outlines adjustments to net profits, excluding net other comprehensive income, for MAT purposes. It addresses the treatment of notional/unrealized gains and losses, aligning with the Companies Act, 2013, and suggests including certain comprehensive income items in book profits at appropriate times. Stakeholders are invited to provide feedback on the proposed framework.
3.
10/2016 - dated
26-4-2016
Limitation for penalty proceedings under sections 271D and 271E of the Income tax Act, 1961
Summary: The circular clarifies the limitation period for penalty proceedings under sections 271D and 271E of the Income Tax Act, 1961, which deal with penalties for accepting loans or deposits above the prescribed limit through non-banking channels. The Delhi High Court ruled that these penalties are independent of income assessment, and the limitation is governed by section 275(1)(c) of the Act. This means the penalty must be imposed by the end of the financial year in which the proceedings are completed, or within six months from the penalty initiation, whichever is later. The Central Board of Direct Taxes has accepted this interpretation, advising against filing appeals on this matter.
FEMA
4.
64/2015-16 [(1)/13(R)] - dated
28-4-2016
Foreign Exchange Management (Remittance of Assets) Regulations, 2016
Summary: The Foreign Exchange Management (Remittance of Assets) Regulations, 2016, effective from April 1, 2016, replace the previous 2000 regulations. Key definitions include Non-resident Indian (NRI), Person of Indian Origin (PIO), and remittance of assets. The regulations allow authorized dealers to approve remittances up to USD one million per financial year for foreign nationals, NRIs, and PIOs under specific conditions, such as retirement, inheritance, or completion of studies. Remittances by Indian companies under liquidation and contributions to expatriate staff funds are also addressed. Transactions are subject to Indian tax laws, and certain remittances require Reserve Bank approval.
5.
65 - dated
28-4-2016
Import of Goods: Import Data Processing and Monitoring System (IDPMS)
Summary: The circular addresses the implementation of the Import Data Processing and Monitoring System (IDPMS) to streamline import transactions and enhance monitoring. The Reserve Bank of India (RBI), in collaboration with various stakeholders, has developed this IT-based system. Authorized Dealer (AD) banks must upload and manage import data in IDPMS, ensuring real-time updates. The circular outlines procedures for handling write-offs, granting extensions for import dues, and following up on evidence of import. AD banks are instructed to process all import transactions through IDPMS and ensure compliance with the new system, which will replace existing manual processes.
6.
66 - dated
28-4-2016
Opening and Maintenance of Rupee / Foreign Currency Vostro Accounts of Non-Resident Exchange Houses: Rupee Drawing Arrangement
Summary: The circular addresses Authorized Dealer Category-I banks regarding the opening and maintenance of Rupee/Foreign Currency Vostro Accounts of Non-Resident Exchange Houses under the Rupee Drawing Arrangement. It highlights changes in collateral requirements, eliminating the need for mandatory collateral or cash deposits by Exchange Houses. Banks can now determine collateral needs based on factors like pre-funding status, Exchange House track record, and remittance methods. The circular updates Master Direction No.2 to reflect these changes, while other instructions remain unchanged. These directives are issued under the Foreign Exchange Management Act, 1999, and banks are advised to inform their constituents accordingly.
Companies Law
7.
4/2016 - dated
27-4-2016
Clarification with regard to Companies (Accounting Standards) Amendment. Rules 2016
Summary: The circular from the Ministry of Corporate Affairs, dated April 27, 2016, addresses stakeholder inquiries regarding the implementation of the amended Accounting Standards under the Companies (Accounting Standards) Amendment Rules, 2016. It clarifies that the amended standards are to be applied for the preparation of accounts for accounting periods starting on or after the notification date. This directive has been issued with the approval of the competent authority and is intended for all regional directors, registrars of companies, and relevant stakeholders.
Highlights / Catch Notes
Income Tax
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Ad-Hoc Disallowance Overturned: Non-Filing of Farmer Confirmations Insufficient for Purchase Rejection in Paddy Case.
Case-Laws - AT : Disallowance of purchases- Only on account of non-filing of the confirmations from the farmers who sold the paddy to the assessee, adhoc disallowance cannot be made - AT
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Taxpayer Penalized for Misrepresenting Depreciation in Section 80-IA Deduction; Penalty Upheld u/s 271(1)(c.
Case-Laws - AT : Levy of penalty u/s.271(1)(c) - assessee has wrongly computed the deduction u/s. 80-IA by showing the wrong depreciation - levy of penalty confirmed - AT
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Supreme Court clarifies tip payments to employees aren't subject to TDS u/s 192 of the Income Tax Act.
Case-Laws - SC : TDS u/s 192 - Salary - Payments of collected tips made in the manner would not be payments made “by or on behalf of” an employer - appellants are outside Section 192 - SC
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High Court Rejects Expense Allocation Method for Section 80-O Deductions; Stresses Accurate Apportionment for Foreign Income.
Case-Laws - HC : Apportionment of expenses to determine the Foreign Income for the purposes of deduction u/s 80-O - method of apportionment of expenses between domestic business and income from foreign commission is clearly unacceptable - HC
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Section 50C Excludes Leasehold Rights from Capital Gains Calculation in Income Tax Act Transfers.
Case-Laws - AT : Provisions of section 50C of the Act cannot be invoked to compute the capital gains arising on transfer of leasehold rights - AT
-
Section 50C Inapplicable: Compensation for Relinquishing Sale Deed Rights Not Treated as Land or Building Asset.
Case-Laws - AT : Addition u/s 50C - Whatever compensation received would be for relinquishment of right to obtain a sale deed, which is also a “capital asset” within the meaning of section 2(14) of the Income Tax Act but not akin to land or building. Therefore, in this case, no addition can be made with the aid of section 50C in the hands of the assessee - AT
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Section 271(1)(c) Penalty Contested: Lack of Evidence on Incorrect Scrap Valuation Beyond Assessing Officer's Estimation.
Case-Laws - AT : Penalty u/s 271(1)(c) - incorrect valuation of scrap - Apart from the estimation made by the Assessing Officer, there is nothing to show that the assessee had valued the scrap incorrectly - AT
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NBFC Investment Gains or Losses Not Classified as Business Income Under Current Terminology.
Case-Laws - AT : Loss from speculation business of sale of shares - the assessee by virtue of being an NBFC is authorised to invest in shares and such a terminology does not indicate that the loss or gains from investments made by assessee is to be treated as business income. - AT
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Flats and land sale profits are business income, not capital gains; Section 50C valuation doesn't apply.
Case-Laws - AT : Sale of flat and plots of land - the profit derived from sale of plots and flat should be assessed only as income from business and not as capital gains. Accordingly the adoption of value determined by stamp valuation authorities u/s 50C of the Act does not arise - AT
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Assessing Officer's Actions Deemed Unauthorized: No TDS Deduction Obligation u/s 192, Rule 30(2) Clarified.
Case-Laws - AT : TDS u/s 192 - Non deduction of TDS - liability to deposit sum, not deducted or collected, with the Govt. treasury does not arise under Chapter XVII-B of the Act read with Rule 30(2) of the Income Tax Rules 1962 - action of the AO u/s 201(1) & 201(1A) imposing liability towards unpaid salary is without authority of law - AT
Customs
-
Show Cause Notice Invalidated: Overlooked Verified Certificates of Origin and Based on Invalid Circular, Rules High Court.
Case-Laws - HC : SCN suffers from the fatal flaw and has been issued overlooking the COOs produced by the said importer verified by Issuing Authority. Since the SCN has been issued on the basis of an invalid Circular, held to be invalid and unsustainable in law - HC
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High Court Jurisdiction for Writ Petitions Against Customs Act Appellate Orders Lies with Original Authority's Region.
Case-Laws - HC : High Court having jurisdiction to entertain writ petitions against orders passed by the appellate authorities under the Customs Act, would be the High Court having jurisdiction over the original authority, that passed the first order in adjudication proceedings under the Act - HC
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Strict Adherence to CHALR and CBLR Timelines Essential for Legal Validity of Proceedings.
Case-Laws - AT : Time limit prescribed under the CHALR/CBLR are to be strictly adhered to - Delay in proceedings, in any stage, will have a bearing on the legality of the proceedings - AT
Corporate Law
-
Amended Accounting Standards Effective for Periods Starting Post-Notification Date.
Circulars : The amended Accounting Standards should be used for preparation of accounts for accounting periods commencing on or after the date of notification - Circular
Service Tax
-
Free Materials Excluded from Gross Value in Service Tax Calculations, Case Law Confirms.
Case-Laws - AT : Value of supply of free material should not be included for arriving at gross value for charging service tax liability - AT
Central Excise
-
Electrodes Eligible for Cenvat Credit Under New Input Definition Effective April 1, 2011.
Case-Laws - AT : As per substituted definition of inputs with effect from 1/4/11, electrodes admittedly used by appellant in the factory of production, allowable for Cenvat credit - AT
VAT
-
Entities Must Provide VAT Benefits When Deducting Tax at Source Under Bihar VAT Rules; Violations Constitute Non-Compliance.
Case-Laws - HC : Bihar VAT - it is not permissible for the person making the deduction of tax at source to continue to make deduction of the entire amount from the bills without giving the benefit as provided under the Rules which is couched in the form of injunction and violation of the same - HC
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