TMI Tax Updates - e-Newsletter
July 1, 2014
Case Laws in this Newsletter:
Articles
By: DR.MARIAPPAN GOVINDARAJAN
Summary: Section 454 of the Companies Act authorizes the Central Government to appoint officers for adjudicating penalties under the Act. The adjudication process involves issuing notices to companies and officers in default, allowing them to show cause, and potentially holding inquiries. Adjudicating officers have powers to summon individuals and demand evidence. Penalties are imposed considering factors like disproportionate gain and investor loss. Appeals against these penalties can be made to the Regional Director within 60 days. Non-payment of penalties within 90 days results in additional fines or imprisonment for defaulting officers. Penalties collected are credited to the Consolidated Fund of India.
By: DEVKUMAR KOTHARI
Summary: A recent Tribunal judgment denied capital gains tax exemption for the succession of a sole proprietorship to a company, highlighting procedural lapses. The case involved a proprietor converting a business into a private limited company, receiving shares as consideration. The Tribunal found that goodwill was not recorded in the original business's books, thus not qualifying for exemption under Section 47(xiv) of the Income Tax Act. The author suggests that proper valuation and documentation of all assets, including intangibles, are crucial for compliance. The judgment is contested for misinterpretation of provisions, suggesting the need for appeal or correction.
By: Dr. Sanjiv Agarwal
Summary: The article discusses the exemption of service tax on restaurant services, specifically focusing on the conditions under which restaurants are subject to this tax. Initially, restaurants with air-conditioning or central air-heating and a license to serve alcohol were taxed. However, since April 1, 2013, only those with air-conditioning or central air-heating are taxed, regardless of alcohol licenses. Non-air-conditioned establishments remain exempt. The article also covers temporary exemptions in Uttarakhand and clarifications issued by CBEC regarding service tax applicability in various scenarios. Legal challenges in Kerala and Bombay High Courts regarding the constitutional validity of such taxes are also highlighted.
News
Summary: The Index of Eight Core Industries, accounting for 37.90% of the Index of Industrial Production, recorded a 2.3% increase in May 2014 compared to May 2013, with a cumulative growth of 3.3% for April-May 2014-15. Coal production rose by 5.5%, while crude oil and natural gas production declined by 0.3% and 2.2%, respectively. Petroleum refinery output decreased by 2.3%, whereas fertilizer production surged by 17.6%. Steel production fell by 2.0%, but cement production increased by 8.7%. Electricity generation grew by 6.3%, showing an overall positive trend in industrial output.
Summary: The address at the 15th National Conference of Practicing Company Secretaries highlighted the evolving role of company secretaries in enhancing corporate governance. The new Companies Act 2013 introduces significant changes, including mandatory board composition requirements, audit committee formations, and the introduction of secretarial audits. These measures aim to improve compliance, transparency, and corporate social responsibility. The Act emphasizes the importance of company secretaries in ensuring adherence to legal frameworks and fostering a culture of integrity. Practicing company secretaries are encouraged to develop expertise and knowledge to fulfill their expanded responsibilities effectively, contributing to a more ethical and responsible corporate environment in India.
Summary: The Reserve Bank of India announced the reference rates for the US dollar and Euro on June 30, 2014. The US dollar rate is set at Rs.60.0933, while the Euro is at Rs.82.0094. On June 27, 2014, the rates were Rs.60.0958 for the dollar and Rs.81.8820 for the Euro. The exchange rates for the British Pound and Japanese Yen against the Rupee on June 30, 2014, were 102.3269 and 59.28 respectively, slightly changing from June 27, 2014, rates of 102.3972 and 59.27. The SDR-Rupee rate will be determined based on these reference rates.
Circulars / Instructions / Orders
DGFT
1.
63 (RE: 2014) /2009-2014 - dated
27-6-2014
Notification of SIONs pertaining to product group Chemical & Allied Products.
Summary: The Directorate General of Foreign Trade has issued a public notice regarding the Standard Input Output Norms (SIONs) for the Chemical & Allied Products sector, effective from June 27, 2014. The notice lists specific SIONs that require review and mandates manufacturers and Export Promotion Councils to submit production and consumption data by July 31, 2014. Failure to provide the required data will result in the suspension of benefits under the Advance Authorization schemes for the export products covered by these SIONs. This action is in accordance with the Foreign Trade Policy 2009-2014 and aims to ensure compliance and accuracy in trade data.
Companies Law
2.
26/2014 - dated
27-6-2014
Clarification with regard to use of the words “ commodity Exchange” in a company-reg.
Summary: The circular from the Ministry of Corporate Affairs clarifies that companies wishing to use the term "Commodity Exchange" in their name must obtain a "No Objection Certificate" from the Forward Markets Commission (FMC). This requirement applies to both new applicants and existing companies registered with this term prior to the circular's issuance. All other provisions of the Companies (Incorporation) Rules, 2014 remain applicable. The directive has been issued with the approval of the competent authority and is to be made available on the Ministry's website.
Highlights / Catch Notes
Income Tax
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Deduction Claim Denied: Interest Paid on Capital to Partners Violates Section 24(b) for Rental Property Income.
Case-Laws - AT : Deduction of u/s 24(b) from house property (rental) income – Interest paid on capital to partners – the claim of the assessee is in clear violation of the provisions of section 24(b) and it cannot be allowed - AT
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Advertisement Costs for Brand Value Deductible as Revenue Expenditure Under Income Tax Act Section 37(1.
Case-Laws - AT : Expenses on advertisement - creation of brand value - capital or revenue in nature - it has been rightly treated by it as revenue expenditure, admissible u/s.37(1) of the Act - AT
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Gifts from Son Under Scrutiny for Tax Omission, But Donor's Financial Capacity Not in Question.
Case-Laws - AT : Confirmation of addition – Receipt of gifts from son – Simply because such a transaction of gift has not been mentioned in the income tax return of income of the donor filed in India, it cannot lead to any inference that he did not had the capacity - AT
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Penalty u/s 158BFA(2) Confirmed but Not Levied Due to Estimation-Based Additions in Income Tax Case.
Case-Laws - AT : Confirmation of penalty u/s 158BFA(2) of the Act – Furnishing of inaccurate particulars - U additons have been upheld on estimation basis , thus, no penalty is leviable - AT
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Assessee Entitled to Interest After Paying Rs. 4.50 Crores Self-Assessment Tax u/s 140A, Section 244A Applies.
Case-Laws - AT : The tax paid by the assessee for a sum of Rs. 4.50 crores, is nothing but tax paid under self–assessment tax for the purpose of section 140A and once that is so, the assessee is entitled for interest under section 244A - AT
Customs
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Sony Cassettes Import Exemption Granted for Manufacturing Use Under Specific Clauses and Export-Import Policy Conditions.
Case-Laws - AT : Import of Sony Video/Audio Cassette - nexus with manufacture - Since the goods imported had been used for the purposes specified in Clause (a) to (d) or for the purposes of specified in the export import policy, exemption to be allowed - AT
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Iron Ore Export Case: Inflated Freight Charges Affect Valuation; No Waiver for Pre-Deposit Duty Granted.
Case-Laws - AT : Valuation - export of Iron Ore Fine and Lumps - Addition of inflated freight to the assessable value to export of goods - prima facie the applicant had not made a case for waiver of pre-deposit of duty. - AT
Service Tax
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Petitioners must quickly address incorrect facts recorded by the tribunal to ensure timely correction.
Case-Laws - HC : The petitioner, if felt aggrieved by such wrong recording of the facts by the tribunal, has to approach the same Authority promptly before it fades from its memory. - HC
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Court Rules No Stay on Tax Demand Penalties u/ss 76 & 78 via Article 226 Petition.
Case-Laws - HC : Penalty u/s 76 & 78 - Failure to remit tax - no direction can be issued to keep in abeyance the demand of tax assessed and penalty levied, on that ground, under Article 226 of the Constitution of India. - HC
Central Excise
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Court Rules Non-Woven Fabric Not Dutiable Due to Lack of Marketability Evidence Under Central Excise Act.
Case-Laws - HC : Captive consumption - marketability - non-woven fabric - Department led no evidence whatsoever to establish that the impugned product in the form that it is, is marketable and therefore dutiable under the provisions of the Act - HC
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High Court Upholds Order to Detain Tea Garden Lessee's Assets for Unpaid Excise Duty.
Case-Laws - HC : Recovery of duty from lessee of the tea garden - Default to pay excise duty - power to issue the attachment/detention order for realization of dues - order of recovery sustained - HC
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Applicant's Battery Packing and Branding May Not Constitute Manufacturing Under Central Excise Law, Prima Facie Case Favors Assessee.
Case-Laws - AT : Rechargeable battery and battery charger - manufacture - marketability - principal activity/processes carried out by the applicant are in the nature of packing and branding - prima facie case is in favor of assessee - AT
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Typographical error on PAC identified as procedural mistake; ensures substantive rights aren't denied at Makarpura unit.
Case-Laws - AT : Wrong mentioning of address in the PAC was only due to typographical mistake. A procedural mistake cannot be made the basis for denying substantive right when such a manufacturing facility is not available at their Makarpura unit of the appellant. - AT
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Pharmaceutical Manufacturer Denied SSI Exemption for Using Non-Owned Brand Name, Failing Central Excise Criteria.
Case-Laws - AT : SSI exemption - Manufacturing of pharmaceuticals in name of other person - respondent failed to satisfy condition of SSI benefit manufacturing branded goods of others not proving that the brand name was its own - AT
VAT
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High Court Rules "RA THERMOSEAL" and "THERMOSEAL" Classified as Toothpaste, Affecting VAT and Sales Tax Regulations.
Case-Laws - HC : Classification of “RA THERMOSEAL” and “THERMOSEAL” - medicine or toothpaste - Even if one were to apply the common parlance test to the said products of the Applicant, they would be “products capable of being used as toothpaste” - HC
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Legal Error in LPG and Kerosene Pricing: Deductions Disallowed for Credit Notes to Oil Marketing Companies.
Case-Laws - HC : Determination of selling price - pricing system of LPG and kerosene assigned to Petroleum Planning and Analysis Cell (PPAC) - The authority committed an error of law in disallowing the deductions from total turnover on the basis of credit notes issued to Oil Marketing Companies - HC
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