TMI Tax Updates - e-Newsletter
July 1, 2016
Case Laws in this Newsletter:
TMI SMS
TMI Short Notes
Income Tax:
Summary: Rule 128 of the Income-tax Rules, 1962, addresses the conversion of foreign tax credits (FTC) into local currency using the telegraphic transfer buying rate (TTBR). The conversion rate is based on the TTBR as defined in rule 26, applicable on the last day of the month before the foreign tax payment or deduction. This guideline ensures consistency in how foreign tax payments are converted for credit purposes under the Income Tax Act.
Income Tax:
Summary: Rule 128 of the Income-tax Rules, 1962, addresses the Foreign Tax Credit (FTC) in the context of Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT). It specifies that FTC is allowed against taxes payable under MAT/AMT in the same way as against taxes under the normal provisions of the Act. However, if the FTC applicable to MAT/AMT surpasses that available under the normal provisions, the excess is disregarded when calculating MAT/AMT credit.
Income Tax:
Summary: Rule 128 of the Foreign Tax Credit under the Income-tax Rules, 1962, outlines the documentation required to claim a Foreign Tax Credit. Taxpayers must submit a statement of income from foreign sources and the corresponding foreign tax paid or deducted using Form No. 67, verified as specified. Additionally, a certificate or statement detailing the nature of the income and tax amount must be provided, either from the foreign tax authority or the entity responsible for tax deduction. This documentation should be accompanied by proof of tax payment, such as a tax challan or TDS deduction evidence.
Income Tax:
Summary: FTC credit is determined as the lower amount between the tax payable under the domestic Income Tax Act on doubly taxed income and the foreign tax paid on that income. If the foreign tax paid surpasses the tax payable under the Double Taxation Avoidance Agreement (DTAA), the excess is disregarded. This rule ensures that taxpayers do not receive a credit greater than the actual tax liability as per domestic law or DTAA provisions.
Income Tax:
Summary: Foreign Tax Credit (FTC) is permitted for disputed taxes if the taxpayer provides necessary documentation within six months following the resolution of the dispute. According to Rule 128 of the Income-tax Rules, 1962, the taxpayer must submit evidence of the dispute's settlement and proof of payment of the foreign tax liability. Additionally, an undertaking must be given that no refund for the paid amount has been or will be claimed. This rule ensures compliance and proper documentation for claiming FTC benefits.
Income Tax:
Summary: Rule 128 of the Income-tax Rules, 1962, specifies that no Foreign Tax Credit (FTC) benefit is available for interest, fees, or penalties payable under the Income Tax Act. Additionally, FTC benefits cannot be claimed for any portion of foreign tax that is disputed by the taxpayer.
Income Tax:
Summary: Foreign Tax Credit (FTC) under Rule 128 of the Income-tax Rules, 1962, pertains to the tax paid in foreign countries. For countries with which India has a Double Taxation Avoidance Agreement (DTAA), foreign tax refers to the tax covered under the DTAA. For countries without a DTAA with India, foreign tax is defined as the tax payable under the local laws of that country, similar to income tax as per clause (iv) of the Explanation to section 91 of the Income-tax Act, 1961. This includes excess profits tax or business profits tax imposed by the government or local authorities.
Income Tax:
Summary: Rule 128 of the Income-tax Rules, 1962, addresses the Foreign Tax Credit (FTC) benefit, stipulating that if income is taxed over multiple years, the FTC benefit should be allocated on a proportionate basis. This rule ensures that taxpayers receive a fair distribution of credit for taxes paid on income that spans more than one fiscal year.
Income Tax:
Summary: Indian residents are entitled to a Foreign Tax Credit (FTC) for taxes paid in a foreign country or specified territory outside India. This benefit is applicable in the year when the corresponding income is either offered for taxation or assessed for taxation in India, as per Rule 128 of the Income-tax Rules, 1962.
Articles
By: Dr. Sanjiv Agarwal
Summary: Following regional elections, policymakers advanced the Goods and Services Tax (GST) initiative with a significant meeting chaired by the Finance Minister of West Bengal. This led to the release of a model GST law, signaling consensus on key issues, despite some state disagreements. The model law includes the Goods and Service Tax Act, 2016, and the Integrated Goods and Service Tax Act, 2016, detailing provisions like registration thresholds, compliance ratings, tax levies, and input tax credit utilization. The GST aims to streamline indirect taxation and is expected to boost GDP by 2%, with implementation targeted for April 2017.
News
Summary: The Central Board of Excise and Customs has amended the tariff values for various commodities under the Customs Act, 1962. The updated values include crude palm oil at $676 per metric tonne, RBD palm oil at $700, and crude soyabean oil at $765. Brass scrap is set at $2903 per metric tonne, poppy seeds at $2533, and areca nuts at $2630. Gold is valued at $430 per 10 grams, while silver is at $594 per kilogram. These changes are part of the notification No. 36/2001-Customs, reflecting adjustments in the import duties for these goods.
Summary: The Government of India, in consultation with the Reserve Bank of India, announced the auction schedule for Treasury Bills for the quarter ending September 2016. The auctions will occur weekly, with notified amounts varying by date: 91-day bills at Rs. 8,000-9,000 crore, 182-day bills at Rs. 5,000-6,000 crore, and 364-day bills at Rs. 13,000-15,000 crore. The total issuance for the quarter is Rs. 1,85,000 crore. The government retains the flexibility to adjust the auction amounts and timing based on fiscal needs and market conditions, with any changes communicated via press releases.
Summary: The government has issued new rules under section 9(1) of the Income-tax Act, 1961, concerning the fair market value and reporting requirements for indirect transfers involving Indian assets. These rules address the computation of fair market value for Indian and global assets of foreign companies, determining income linked to Indian assets, and the documentation Indian entities must maintain and submit. Following public consultation on draft rules released on May 23, 2016, the finalized rules were notified on June 28, 2016, and are effective immediately. This initiative aims to establish a predictable, transparent, and fair tax regime.
Summary: The Reserve Bank of India set the reference rate for the US Dollar at Rs. 67.6166 on June 30, 2016, compared to Rs. 67.7443 on June 29, 2016. The exchange rates for other currencies against the Rupee were also provided: the Euro was Rs. 75.0071, the British Pound was Rs. 90.5183, and 100 Japanese Yen was Rs. 65.91 on June 30, 2016. The SDR-Rupee rate will be determined based on this reference rate.
Summary: The Union Cabinet, led by the Prime Minister, approved the implementation of the 7th Central Pay Commission's recommendations on pay and pension benefits, effective from January 1, 2016. This decision impacts over 1 crore employees, including central government and defense personnel. Key changes include the replacement of Pay Bands and Grade Pay with a new Pay Matrix, an increase in minimum pay from Rs. 7,000 to Rs. 18,000 per month, and a fitment factor of 2.57 for pay revision. The Cabinet also enhanced gratuity ceilings, revised Military Service Pay, and retained certain interest-free advances. Committees were established to address allowance rationalization and pension system streamlining.
Notifications
Customs
1.
92/2016 - dated
30-6-2016
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Cus (NT)
Tariff Notification in respect of Fixation of Tariff Value of Edible Oils, Brass Scrap, Poppy Seeds, Gold and Sliver
Summary: The Government of India, through the Ministry of Finance's Central Board of Excise & Customs, issued Notification No. 92/2016-CUSTOMS (N.T.) on June 30, 2016, amending the earlier notification No. 36/2001-Customs (N.T.). This amendment sets new tariff values for various goods, including crude palm oil, RBD palm oil, crude palmolein, RBD palmolein, crude soybean oil, brass scrap, poppy seeds, gold, silver, and areca nuts. The tariff values are specified in US dollars per metric tonne or per unit, depending on the product, and are intended to standardize import duties on these commodities.
Income Tax
2.
55/2016 - dated
28-6-2016
-
IT
Income-tax (19th Amendment), Rules, 2016 - prescribes new rule for - (i) Fair market value of assets in certain cases - (ii) Determination of Income attributable to assets in India - (iii) Information or documents to be furnished under section 285A
Summary: The Income-tax (19th Amendment), Rules, 2016, introduces new regulations for determining the fair market value of assets, the income attributable to assets in India, and the information required under section 285A. It outlines methods for calculating the fair market value of various assets, including shares of Indian companies, interests in partnerships, and other assets. The amendment specifies the procedures for determining income from the transfer of shares or interests in foreign entities with assets in India. It also mandates Indian concerns to furnish specific information and documents electronically within a set timeframe when involved in such transactions.
3.
54/2016 - dated
27-6-2016
-
IT
Foreign Tax Credit - Income-tax (18th Amendment) Rules, 2016
Summary: The Government of India, through the Central Board of Direct Taxes, issued the Income-tax (18th Amendment) Rules, 2016, effective April 1, 2017. These rules introduce provisions for Foreign Tax Credit (FTC) for residents, allowing credit for foreign taxes paid on income taxed in India. The credit is subject to conditions, including non-disputed taxes and proportional allocation across years if income is taxed over multiple years. FTC is available against Indian taxes but not against interest or penalties. Documentation, including Form No. 67, is required for claiming FTC, and the credit is calculated based on the lower of Indian or foreign tax payable.
Circulars / Instructions / Orders
FEMA
1.
79 - dated
30-6-2016
Deferred Payment Protocols dated April 30, 1981 and December 23, 1985 between Government of India and erstwhile USSR
Summary: The circular addresses all Category-I Authorized Dealer banks regarding the Deferred Payment Protocols between the Government of India and the former USSR, dated April 30, 1981, and December 23, 1985. It informs banks about the revision of the Rupee value of the Special Currency Basket, which has been updated to Rs. 83.5796140 effective from June 23, 2016. The banks are instructed to communicate this update to their relevant constituents. The directions are issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999, without affecting other legal permissions or approvals.
2.
80 - dated
30-6-2016
External Commercial Borrowings (ECB) – Approval Route cases
Summary: Attention is drawn to Authorized Dealer Category-I banks regarding changes in the approval process for External Commercial Borrowings (ECB) under the approval route. ECB proposals exceeding a certain threshold will now be reviewed by an Empowered Committee before the Reserve Bank makes a final decision based on their recommendations. This aims to streamline and expedite the approval process. All other ECB policy aspects remain unchanged, and banks are advised to inform their clients of these updates. The Master Direction No. 5 is being updated to incorporate these changes, as per the Foreign Exchange Management Act, 1999.
3.
81 - dated
30-6-2016
Settlement System under Asian Clearing Union (ACU)
Summary: The circular addresses Authorised Dealer Category-I Banks regarding the settlement system under the Asian Clearing Union (ACU). It references a previous circular allowing transactions to be settled in 'ACU Dollar' or 'ACU Euro'. Due to a review of the payment channel for 'ACU Euro' transactions, operations in 'ACU Euro' are temporarily suspended from July 1, 2016. Eligible transactions in 'Euro' may be settled outside the ACU mechanism until further notice. Banks are instructed to inform their constituents, and the directions are issued under the Foreign Exchange Management Act, 1999.
Highlights / Catch Notes
Income Tax
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SMS Credit Sales Exempt from TDS u/s 194C Due to Lack of Human Intervention in Activity.
Case-Laws - AT : TDS on SMS charges - sale of SMS credits - the activity carried on in the instant case does not fall under the definition of ‘work’ in terms of section 194C as it does not involve any human intervention - AT
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Rule 8D Application u/s 263 Not Automatic; AO Must Explore Other Measures First Before Applying.
Case-Laws - AT : Revision u/s 263 - mandation for the AO to apply Rule 8 - Rule 8D is not automatic and can be resorted to by the AO only as a measure of last resort. - Revision order quashed - AT
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Section 80IC Deduction for Transport Charges and Subsidy: Not Resolving u/s 154 Due to Debate.
Case-Laws - AT : Withdrawal of deduction u/s 80IC on transport charges & transport subsidy - whether a mistake apparent from record in terms of section 154 - It is a highly debatable issues which cannot be resolved in the proceedings u/s 154 - AT
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Taxpayer Ineligible for Higher Depreciation Rate on Hiring Vehicles; No Rectification u/s 154 of Income Tax Act.
Case-Laws - AT : Higher rate of depreciation on account of hiring of vehicles - Since the issue in the instant case is a highly debatable issue, i.e. whether the assessee is entitled to higher rate of depreciation on account of hiring of vehicles, therefore, we are of the considered opinion that it is not a case for rectification u/s.154 - AT
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Assessee's Agricultural Income Claim Rejected Due to Inadequate Records and Lack of Evidence.
Case-Laws - AT : Agricultural income - assessee had expressed its inability to substantiate the same on the ground that he has not maintained any books of account. Under these circumstances, the entire agricultural income declared by the assessee cannot be accepted. - AT
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Disallowance u/s 14A Not Applicable: No Dividend Income or Borrowed Funds for Share Investment.
Case-Laws - AT : Disallowance u/s 14A - no dividend income has been received during the year under assessment nor it has borrowed any funds to invest in the share to earn the dividend income, the question of making disallowance by invoking provisions u/s 14A read with Rule 8D does not arise - AT
Customs
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Court Dismisses Appeal Over 19-Year Delay in Filing Without Condonation, Deemed Time-Barred.
Case-Laws - AT : Condonation of delay of 19 years in filing an appeal - Recovery of penalty - The present appeal is barred by time as the same has been filed after the expiry of more than 19 years and that too without seeking condonation - appeal dismissed. - AT
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Goods Confiscation Deemed Illegal Due to Non-Fraudulent IGM Error; Redemption Fine and Penalty Waived.
Case-Laws - AT : Discrepancy in furnishing of IGM (import manifest or import report) - Goods (transit cargo) were not mentioned in IGM - As there is no fraudulent intention, the confiscation is illegal - redemption fine and penalty waived - AT
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Refund of Special Additional Duty Hinges on Sale of Goods Act Compliance; Case Remanded for Further Review.
Case-Laws - AT : Refund of SAD - Once such ingredient of the Sale of Goods Act, 1930 is complied with, in that circumstance, sales can be said to have been effected. Otherwise it is a mere case of stock transfer in the guise of sale - matter remanded back - AT
Service Tax
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Refund of Service Tax on Construction Services Limited to One-Year Claim Period Due to Error in Payment.
Case-Laws - AT : Refund of service tax paid on Construction of complex service wrongly - even if service has been paid under the mistake of law, the period of limitation of one year is applicable - AT
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Intellectual Property Services Import Not Taxable If Rights Aren't Recognized by Indian Law.
Case-Laws - AT : Import of Intellectual Property Services (IPR services) - there can be no liability to service tax under the head of IPR services in respect of an Intellectual Property Right that is not recognised by the law in India. - AT
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Appellant Secures Full Waiver of Pre-Deposit for Franchise Operations u/s 65(47) of Finance Act 1994.
Case-Laws - AT : Franchise Service - appellant gave right to use its name for running pre-primary and preparatory schools - scope of the definition of “Franchise” given in Section 65(47) of the Finance Act, 1994 during the relevant period - appellant has made out a strong case for full waiver of pre-deposit - stay granted - AT
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Subcontractors Not Liable for Service Tax if Main Contractor Paid; RTI Proof Validates No Additional Demand.
Case-Laws - AT : Levy of service tax under the sub-contract agreement - validity of proof of payment of tax by the principal obtained through RTI upheld - When main contractor has discharged the service tax liability, there can be no demand against the subcontractor for the same services for the same period - AT
Central Excise
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Cenvat Credit Valid on Photocopy of Courier Bill of Entry u/r 9 of Cenvat Credit Rules 2004.
Case-Laws - AT : The cenvat credit on photocopy of the Courier Bill of Entry cannot be denied as the same is a proper document under Rule 9 of the Cenvat Credit Rules 2004. - AT
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Reversal of 5% or 10% Value Not Applicable to Non-Excisable Bagasse and Pressmud Due to Common Input Non-Usage.
Case-Laws - AT : As the bagasse and pressmud are non-excisable, the question of reversing 5% or 10% of the value of goods does not arise as the common inputs not used in the manufacturing of waste - AT
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Refund Approved for Excess Excise Duty Due to Software Error, Goods Not Sent to Buyers, Duty Unrecovered.
Case-Laws - AT : Refund - unjust enrichment - excess excise duty paid due to the failure of computer software cleared to their depots - Since the goods have not been sent to third party on the basis of such invoices, it cannot be said that the duty has been recovered from the buyers - Refund allowed - AT
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Ayurvedic creams taxed under ETH 3003.39; Nigh Skin care cream under CETH 3304.00 of Central Excise Tariff Act.
Case-Laws - AT : Classification - No marks cream/lotion are ayurvedic medicines and duty is chargeable under ETH 3003.39 of CET - Nigh Skin care cream is classifiable under CETH 3304.00 of CETA. - AT
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Refund Allowed: Rule 5 CENVAT Credit Rules Misinterpreted, Initial Rejection Overturned for Export Clearance Below 50% Requirement.
Case-Laws - AT : Refund - Rule 5 of the CENVAT Credit Rules, 2004 - Refund was rejected on the ground that the average export clearance of final products of the appellant in the preceding quarter was less than 50% of the total clearance and did not satisfy the condition in Notification No. 5/2006 (C.E.) N.T. dated 14.3.2006 - The interpretation resorted by the authorities is incorrect - refund allowed - AT
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Valuation u/s 4 Excludes Excise Duty, Sales Tax, and Entry Tax for Goods Calculation Purposes.
Case-Laws - AT : Valuation - the value u/s 4 does not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods - entry tax paid by the appellant is not includible in the value for excise duty. - AT
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