TMI Tax Updates - e-Newsletter
August 11, 2015
Case Laws in this Newsletter:
TMI SMS
TMI Short Notes
Income Tax:
Summary: A director-employee of a private company in Indore receives a monthly basic salary of Rs. 90,000, along with additional benefits including a dearness allowance (DA) at 20% of the basic salary, a bonus at 30% of the basic salary, a commission of Rs. 800 per month, and a rent-free house with a lease rent of Rs. 40,000 per month paid by the employer. For the purpose of calculating the value of rent-free accommodation (RFA) as a taxable perquisite, the total salary is Rs. 16,29,600. The taxable value of RFA is determined to be Rs. 2,44,440, being the lower of the calculated options.
Income Tax:
Summary: An employee of a company in Ajmer, with a population of 18 lakh, receives a basic salary of 3,00,000, a dearness allowance of 10,000, and a commission of 5,000. The company provides rent-free accommodation, with a fair rent value of 50,000 annually. For calculating the taxable value of this perquisite, the salary is considered as the sum of basic salary, DA, and commission, totaling 3,15,000. Given the city's population, the taxable value of the accommodation is determined to be 10% of the salary, amounting to 31,500.
Income Tax:
Summary: An individual received a basic salary of 7,000 per month, a dearness allowance of 1,000 per month, and a house rent allowance (HRA) of 3,000 per month, with actual rent paid matching the HRA. To compute the HRA exemption under Section 10(13A) and Rule 2A of the Income Tax Act, the minimum of three amounts is considered: actual HRA received (36,000 annually), rent paid exceeding 10% of salary (26,400), and 40% of salary (38,400). The exempt amount is 26,400, and the remaining 9,600 is included in the gross salary.
Income Tax:
Summary: An individual received voluntary retirement compensation of Rs. 7,00,000 after over 30 years of service, with 6 years remaining. At retirement, the individual earned a basic salary of Rs. 20,000 per month plus a dearness allowance of Rs. 5,000. Under Section 10(10C) and Rule 2BA, the maximum permissible compensation is calculated as Rs. 22,50,000 or Rs. 18,00,000. The least of these calculations, Rs. 5,00,000, is exempt from tax. Thus, the taxable portion of the voluntary retirement compensation amounts to Rs. 2,00,000, derived from subtracting the exempt amount from the total compensation received.
Income Tax:
Summary: An individual received retrenchment compensation of Rs. 10,00,000 after over 30 years of service, with a basic salary of Rs. 20,000 and a dearness allowance of Rs. 5,000 per month at the time of retrenchment. According to Section 10(10B) of the Income Tax Act, the least of the following amounts is exempt from tax: Rs. 4,32,692, Rs. 10,00,000, or Rs. 5,00,000. Therefore, Rs. 4,32,692 is exempt, leaving a taxable balance of Rs. 5,67,308.
Income Tax:
Summary: An individual retired from a company after nearly 31 years of service, receiving a leave salary of 5,00,000. At retirement, the basic pay was 22,000 with a dearness allowance of 4,000, half of which counted towards retirement benefits. The employee was entitled to three months of leave per year, having used seven months and encashed four months of leave. The average salary was calculated as 24,000. For unavailed leave, the exemption under Section 10(10AA) was determined to be 2,40,000, which is the least of the calculated amounts, including the statutory limit of 3,00,000.
Income Tax:
Summary: An individual retires from a company on 31st July 2014, receiving a monthly pension of Rs. 1,000 until 31st December 2014. From 1st January 2015, 60% of the pension is commuted for Rs. 1,70,000. For non-government employees, uncommuted pension is fully taxable, while commuted pension is partly taxable. The total uncommuted pension taxable as salary is Rs. 6,200. If no gratuity is received, Rs. 1,41,667 of the commuted pension is exempt, making Rs. 28,333 taxable. If gratuity of Rs. 3,000 is received, the exemption is Rs. 94,444, and Rs. 75,556 of the commuted pension is taxable.
Income Tax:
Summary: An employee of a company not covered by the Payment of Gratuity Act, 1972, retired after 26 years of service, receiving Rs. 6,50,000 as gratuity. The employee's average monthly salary, including basic pay, dearness allowance, and commission, was Rs. 41,967. According to Section 10(10)(iii) of the Income Tax Act, the exempt gratuity amount is the least of Rs. 5,45,571, Rs. 10,00,000, or Rs. 6,50,000. Thus, Rs. 5,45,571 is exempt from tax, leaving Rs. 1,04,429 taxable for the assessment year 2015-16.
Income Tax:
Summary: An employee of a company, covered under the Payment of Gratuity Act, 1972, retired after 29 years and 8 months of service with a monthly salary of 3,100. Upon retirement on January 31, 2015, the employee received a gratuity of 62,000. For tax exemption purposes, 30 years is considered the completed service period. The least of three amounts-53,653.85 (calculated as 15 days' salary for 30 years), 10,00,000, or 62,000-is exempt from tax. Therefore, 53,653.85 is exempt under Section 10(10)(ii), while the remaining 8,346.15 is taxable for the assessment year 2015-16.
Income Tax:
Summary: An employee of the Central Government received a gratuity of 9,20,000 upon retirement on December 31, 2014. This gratuity is fully exempt from tax under section 10(10)(i) of the Income Tax Act. The tax exemption remains applicable even if the individual joins a private sector company after retiring from government service.
Articles
By: Bimal jain
Summary: The Karnataka High Court ruled that service tax exemptions under the Finance Act are conditional, unlike the mandatory "not to pay" provision under Section 5A of the Central Excise Act. The case involved a job worker, FMGIL, paying service tax on chrome plating services despite an exemption, and passing the Cenvat credit to the principal manufacturer, FMTPR. The court found that the exemption notification requires the principal manufacturer to discharge appropriate excise duty, and since Section 5A does not apply, the service tax payment and credit availment were valid.
By: DR.MARIAPPAN GOVINDARAJAN
Summary: Chapter 3 of India's Foreign Trade Policy 2015-2020 introduces the Merchandise Exports from India Scheme (MEIS) and Service Exports from India Scheme (SEIS) to reward exporters and mitigate infrastructural inefficiencies. Under MEIS, exporters receive duty credit scrips, which are freely transferable and can be used to pay various duties and fees. The scheme consolidates five previous export reward schemes into one, with no conditions on scrip usage. MEIS rewards are based on the FOB value of exports, with specific exclusions, including certain goods and export categories. The scheme took effect on April 1, 2015, with provisions allowing government adjustments.
News
Summary: Indian Micro, Small, and Medium Enterprises (MSMEs) are struggling against competition from inexpensive Chinese imports, which have significantly increased from 2011-12 to 2014-15. These imports, primarily in the electrical, electronics, mechanical, metallurgical, chemical, glass, and ceramics sectors, constituted 74% of India's total imports from China in 2014-15, impacting MSMEs adversely. The Indian government has imposed anti-dumping and safeguard duties to protect domestic industries. Additionally, various schemes like the National Manufacturing Competitiveness Programme and Credit Guarantee Scheme are being implemented to enhance the competitiveness of MSMEs against Chinese imports. This information was disclosed by the Union Minister for MSMEs in a Lok Sabha session.
Summary: The Reserve Bank of India set the reference rate for the US Dollar at Rs. 63.7590 on August 10, 2015, compared to Rs. 63.8061 on August 7, 2015. Based on this rate and cross-currency quotes, the exchange rates for the Euro, British Pound, and Japanese Yen against the Rupee were updated. On August 10, 2015, the Euro was Rs. 69.8799, the British Pound was Rs. 98.7563, and 100 Japanese Yen was Rs. 51.22. The Special Drawing Rights (SDR) to Rupee rate will also be determined using the reference rate.
Summary: The Finance Minister emphasized the importance of prudent expenditure management and urged officers of the Indian Cost Accounts Service (ICoAS) to enhance their skills to support government cost efficiency. At the inaugural Indian Cost Accounts Service Day, he highlighted the need for effective expenditure management to avoid financial crises like Greece. The Secretary of Expenditure noted ICoAS officers' roles in pricing, subsidies, and fiscal advice, contributing to government savings. The focus is on fiscal consolidation through subsidy reforms and efficient resource allocation. The ICoAS plays a crucial role in advising on cost management and revenue enhancement for fiscal stability.
Summary: The government has launched the Suraksha Bandhan drive to promote enrolment in the Pradhan Mantri Suraksha Bima Yojana (PMSBY) and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) through banks and insurance companies. This initiative, coinciding with Raksha Bandhan, aims to extend social security to the poor and underprivileged by offering affordable insurance schemes. It includes the Atal Pension Yojana for old-age income security. Special gift cheques and deposit schemes are available to facilitate enrolment. The enrolment deadline is extended to September 30, 2015, with no health certificate required for PMJJBY during this period.
Highlights / Catch Notes
Income Tax
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Receipt Not Linked to Asset Transfer or Non-Compete Covenant; Not Classified as Business or Casual Income.
Case-Laws - AT : The receipt in the case of the Assessee is not attributable to transfer of any asset or right and the mere fact that the receipt is not attributable to non-compete covenant it cannot be automatically concluded that the receipt was either from business or income of a casual or recurring nature - AT
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Taxpayer's Penalty Waived: Reasonable Cause for Non-Audit u/s 44AB, Sections 273B and 271B Considered.
Case-Laws - AT : Tax Audit - prescription of section 44AB of the Act was triggered only after AO rejected the assessee’s methodology of booking profit from its project - aving regard to the provisions of section 273B r.w.s. 271B of the Act, there was a reasonable cause prevailing with the assessee for not getting its accounts audited under section 44AB - penalty waived - AT
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Expenses for New Manufacturing Unit in China Deemed Capital Due to Enduring Benefits.
Case-Laws - AT : Capital or revenue expenditure - the expenditure incurred by the assessee for the purpose of establishing a new manufacturing unit in China and the expenses incurred for feasibility status of the company given enduring benefit to the company which proposed to be established by the assessee - held as capital in nature - AT
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Ambiguity in Section 271(1)(c) of Income Tax Act Leads to No Penalty Imposed by Authorities.
Case-Laws - AT : Penalty u/s 271(1)(c) - it is clear that the departmental authorities are not sure as to which limb of the penalty provision is attracted - no penalty - AT
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Court Rules Estimating Rental Income on Unsold Flats as House Property Income Unjustified; No Rental Intent Proven.
Case-Laws - AT : Computation of annual value - The three flats which could not be sold at the end of the year was shown as stock-in-trade. Estimating rental income by the AO for these three flats as income from house property was not justified insofar as these flats were neither given on rent nor the assessee has intention to earn rent by letting out the flats - AT
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Calculating Book Profit for MAT u/s 115JB: Start with Net Profit, Apply Prescribed Additions and Deductions.
Case-Laws - AT : Computing book profit u/s 115JB - MAT - The net profit disclosed in the Profit and Loss account prepared in accordance with the Companies Act should be the starting point to which the additions and deductions prescribed in that provision are required to be added and deduction - AT
Customs
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Court Clarifies Courier Agents' Liability for Import Duties Without Proper Authorization in Duty-Free Gift Cases.
Case-Laws - HC : Suspension of the courier licences - Illegitimate benefit of duty free Bona fide gifts – Once an authorisation is not produced, the courier agent becomes the importer - HC
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Courier Agency Must Prove Consignment as Bona Fide Gift to Avoid Customs Duty Payment.
Case-Laws - AT : Demand of customs duty from the courier agency - the burden of showing that the consignment was a bona fide gift falls on the appellant and in the absence of discharge of such obligation, the appellant prima facie becomes liable to pay duty.- AT
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Supreme Court: No Countervailing Duty When Domestic Goods Lack Excise Duty, Clarifying Protective Measure Limits.
Case-Laws - SC : Levy of Countervailing Duty – Once there was no excise duty on such goods produced domestically question of levying additional duty in form of giving such protection does not arise at all - SC
Central Excise
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CENVAT Credit Valid Despite ISD Receiving Services Pre-Registration, No Denial for Appellant.
Case-Laws - AT : CENVAT Credit - distribution of credit by the Input service distributor (ISD) - Cenvat Credit to the appellant cannot be denied on the ground that input service distributor have received services prior to the obtaining registration as input service distributors - AT
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Denial of SSI exemption due to invoice manipulation; HR trimmings confiscated and penalties imposed under Central Excise laws.
Case-Laws - AT : Denial of SSI Exemption - Manipulation of invoices - Since they have changed the name of the consignee in spite of the fact that the goods were being transported to Viramgam or nearby area in different State, the HR trimmings cleared have therefore become liable for confiscation as discussed earlier and they are liable to penalty - AT
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Appellant Wins SSI Exemption Case Despite Using German-Owned Brand Name TEGU Registered in India.
Case-Laws - AT : SSI Exempiton - whether brand name TEGU, registered in the name of the appellant in India, is not sufficient to claim SSI exemption when the same belongs to a German company - benefit of exemption allowed - AT
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Bubble Gum Classified Separately from Chewing Gum, Eligible for Concessional Duty Rate under Tariff Heading 170410.
Case-Laws - AT : Concessional rate of duty - bubble gum - bubble gum and chewing gum are two different commodities and, therefore, the word "chewing gum" in heading 170410 of the 8 digit Tariff w.e.f. 28/2/2005 cannot be considered as including bubble gum - benefit of exemption allowed - AT
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Authority's Decision to Confiscate Goods and Impose Redemption Fine in De-Novo Adjudication Deemed Unsustainable.
Case-Laws - AT : Confiscation of the goods and imposition of redemption fine in respect of the seized goods by the Adjudicating authority in de-novo adjudication cannot be sustained. - AT
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Company Denied Refund for New Product Production Post-2005 Cut-Off; Billets and Ingots Not Identical Products.
Case-Laws - AT : Refund - area based exemption - Commencement of production of new product after the cut-of date i.e. 31.12.2005 or increased the capacity of the production - Concast Machine was installed for manufacturing of the Billets after 31.12.2005. - Billets and Ingots are not identical - Refund not allowed - AT
VAT
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High Court: Dealers' Input Tax Credit under TNVAT Act Sec 19(1) Can't Be Reversed Due to Sellers' Non-Payment.
Case-Laws - HC : Reversal of input tax credit - ITC claimed by the dealers cannot be reversed under Section 19(1) of TNVAT Act on the ground that the sellers have not paid the tax to the department - HC
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