TMI Tax Updates - e-Newsletter
August 11, 2016
Case Laws in this Newsletter:
TMI SMS
Articles
By: DEVKUMAR KOTHARI
Summary: The Delhi High Court case involved a dispute between the tax authorities and a telecommunications company over the interpretation of Section 80IA of the Income Tax Act. The tax authorities attempted to apply restrictive interpretations of deductions under sub-sections (1) and (2) to limit the company's tax benefits. However, the Tribunal allowed the company's claim under sub-section (2A), which provides a broader deduction for telecommunications services without the "derived from" limitation. The court criticized the tax authorities for unnecessary litigation, noting that the company's status as a public sector entity made such disputes particularly unwarranted. The appeals were dismissed, affirming the Tribunal's interpretation.
By: Monarch Bhatt
Summary: The Goods and Services Tax (GST) constitutional amendment bill, described as the most popular since India's independence, was passed by the Rajyasabha on August 3, 2016, following its approval by the Lokshabha in May 2015. Key features include mandatory compensation to states for revenue loss under the GST regime for five years, the removal of a 1% additional tax on goods and services, and the establishment of a dispute resolution forum through the GST Council. The bill does not set an upper limit for GST rates, leaving rate recommendations to the GST Council. The bill's progression involves ratification by at least 15 state assemblies and presidential assent.
By: Raja krishnan
Summary: Under Notification No: 25/2012-ST, effective from July 1, 2012, the Indian government exempted health care services from service tax. This exemption applies to services provided by clinical establishments, authorized medical practitioners, and paramedics. The definition of health care services includes diagnosis, treatment, and care for various medical conditions, excluding cosmetic procedures unless medically necessary. Veterinary services and ambulance services are also exempt. The notification does not specify recognized systems of medicine but includes allopathy, yoga, naturopathy, Ayurveda, homeopathy, siddha, and unani under the Clinical Establishments Act, 2010.
News
Summary: The Minister of State for Finance and Corporate Affairs emphasized the importance of efficient resource management and the proactive role of the Indian Cost Accounts Service (ICoAS) in implementing the Goods and Services Tax (GST) and executing government projects. The minister highlighted the need for ICoAS officers in all government departments for cost-effective project execution and suggested conducting SWOT analyses for service growth. The Finance Secretary stressed fiscal consolidation by reducing subsidies and optimizing resource use. ICoAS officers are recognized for their expertise in costing, pricing, and financial management, aiding various ministries in complex cost-related issues and GST implementation.
Summary: The Reserve Bank of India set the reference rate for the US Dollar at Rs. 66.7442 on August 10, 2016, down from Rs. 66.9633 on August 9, 2016. Based on this rate and cross-currency quotes, the exchange rates for other currencies against the Rupee were as follows: 1 Euro was Rs. 74.3797, 1 British Pound was Rs. 87.0411, and 100 Japanese Yen was Rs. 65.84 on August 10, 2016. The Special Drawing Rights (SDR) to Rupee rate is determined based on this reference rate.
Summary: The government has launched the Technology Acquisition and Development Fund (TADF) under the National Manufacturing Policy to support SMEs in acquiring and developing clean technology. The scheme, applicable to MSMEs including those in National Investment and Manufacturing Zones, offers a subsidy of up to 10% on capital expenditure for pollution control, energy reduction, and water conservation, capped at Rs. 50 lakhs. Incentives include interest reimbursement, capital subsidy, grants for environmental audits, subsidies for zero water discharge systems, and support for technology acquisition costs. This initiative was announced by the Commerce and Industry Minister in the Rajya Sabha.
Summary: As of March 31, 2016, there are 204 operational Special Economic Zones (SEZs) across various States and Union Territories. The government continuously reviews SEZ operations, incorporating stakeholder feedback to enhance policy and implementation. Efforts include meetings with Development Commissioners, open forums with stakeholders, and promotional roadshows. SEZs benefit from fiscal concessions and tax incentives as outlined in the SEZ Act, 2005, applicable nationwide. State governments can also provide tax exemptions. This information was presented in a written response by the Commerce and Industry Minister in the Rajya Sabha.
Summary: The Government of India plans to establish the National Industrial Corridor Development Authority (NICDA) to oversee the integrated development of industrial corridors nationwide. NICDA will manage central and institutional funding, ensuring projects align with national industrial and urban development goals. It will be responsible for project development, appraisal, sanctioning, implementation, coordination, and monitoring of industrial corridor projects. The Delhi-Mumbai Industrial Corridor (DMIC) is currently being developed at four locations: Ahmedabad-Dholera in Gujarat, Shendra-Bidkin in Maharashtra, Greater Noida in Uttar Pradesh, and Vikram Udyogpuri in Madhya Pradesh. This was announced by the Commerce and Industry Minister in a Rajya Sabha session.
Summary: The Department of Expenditure, Ministry of Finance, has issued new guidelines to enhance the efficiency of appraising and approving public funded schemes and projects. These guidelines, released on August 5, 2016, aim to implement outcome evaluation for better public service delivery, aligning with the government's expenditure reforms. The guidelines eliminate the Plan Non-Plan distinction, simplifying the appraisal framework. Ministries can now appraise projects up to Rs. 500 crore through their Standing Finance Committees and Delegated Investment Boards, with specific timeframes established for faster decision-making. This initiative is part of a broader effort to create a growth-friendly financial ecosystem.
Summary: The Government of India has introduced a draft circular for a combined annual return form for Central Excise and Service Tax assessees. This new form, replacing previous forms ER-4 to ER-7, is structured into three parts: Part A for general information, Part B for business-related details, and Part C for detailed reconciliation with financial statements. Specific annexures within Part C cater separately to Central Excise and Service Tax assessees. Feedback on the proposed form is solicited from departmental officers and trade members by August 20, 2016.
Summary: The Taxation Laws (Amendment) Bill, 2016, proposes changes to the Income-tax Act, 1961, and the Customs Tariff Act, 1975. It aims to redefine "demerger" to include the splitting or reconstruction of former public sector companies following a government share transfer. The bill also seeks to amend Section 80JJAA, reducing the required employment period for apparel manufacturing employees from 240 to 150 days for tax deductions. Additionally, it proposes increasing the customs duty on marble and granite blocks/slabs from 10% to 40% to allow more flexibility in tariff rates.
Summary: The draft circular issued by the Indian Ministry of Finance addresses the application of the principle of "unjust enrichment" in refund cases under the Central Excise Act, 1944, Service Tax, and Customs Act. It outlines situations where this principle does not apply, such as duty paid on exports and inputs for exported goods. The circular emphasizes uniformity in accounting and documentation for refund claims and specifies self-certification for refunds up to Rs. 25 lakhs, while higher amounts require certification by a Chartered Accountant. It also details procedures for refunds related to inputs, capital goods, discounts, provisional assessments, and favorable appellate orders.
Summary: Net revenue collections from indirect taxes in India up to July 2016 reached Rs. 2,71,719 crore, marking a 29.9% increase from the same period last year. This accounts for 34.9% of the budget estimates for the fiscal year 2016-17. Central Excise collections in July 2016 were Rs. 31,782 crore, a 53.8% rise from July 2015. Service Tax collections rose by 25% to Rs. 19,600 crore in July 2016. However, Customs collections declined by 11% in July 2016 to Rs. 16,959 crore. Overall, Customs collections for the first four months increased by 7.9% to Rs. 71,767 crore.
Summary: Direct tax collections in India up to July 2016 reached Rs. 1.59 lakh crore, marking a 24.01% increase from the same period the previous year. This amount represents 18.82% of the fiscal year 2016-17's direct tax budget estimates. Corporate Income Tax (CIT) gross revenue grew by 11.65%, while Personal Income Tax (PIT) saw a 31.47% increase. After adjusting for refunds, CIT net growth was 2.84% and PIT net growth was 46.55%. Refunds issued from April to July 2016 totaled Rs. 64,181 crore, 10.43% higher than the previous year.
Notifications
Income Tax
1.
67/2016 - dated
9-8-2016
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IT
Income-tax (20thAmendment) Rules, 2016
Summary: The Income-tax (20th Amendment) Rules, 2016, issued by the Central Board of Direct Taxes, amends the Income-tax Rules, 1962. Effective from its publication date, the amendment revises Form 10A in Appendix II. Specifically, it updates item 4 to require details of authors or founders, including name, address, and Permanent Account Number (PAN). Similarly, item 6 now requires details of trustees or managers with the same information. This notification was published in the Official Gazette and follows previous amendments made in June 2016.
2.
66/2016 - dated
9-8-2016
-
IT
An e-Return Intermediary shall now also include, Company Secretary or Cost Accountant with Chartered Accountants and Advocates - Amendment in Notification No. S.O. 1281(E) dated the 27th July, 2007 -
Summary: The Central Board of Direct Taxes has amended Notification No. S.O. 1281(E) to expand the definition of an e-Return Intermediary. The amendment now includes Company Secretaries and Cost Accountants alongside Chartered Accountants and Advocates. This change applies to both firms and individuals, provided they have been allotted a permanent account number. The amendment is aimed at broadening the professional base eligible for facilitating electronic tax return filings. This notification was issued under the authority of the Income Tax Act, 1961, and is part of ongoing efforts to streamline tax processes.
SEZ
3.
G.S.R. 772(E) - dated
5-8-2016
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SEZ
Special Economic Zones Rules (Amendment) Rules, 2016 - Jurisdiction for Refund and Provisions for Audit in Special Economic Zones for indirect taxes
Summary: The Special Economic Zones Rules (Amendment) Rules, 2016, effective from August 5, 2016, amend the Special Economic Zones Rules, 2006. The amendments specify that matters related to refunds, demands, adjudications, reviews, and appeals concerning authorized operations under the Special Economic Zones Act, 2005, will be handled by the Jurisdictional Customs and Central Excise Authorities following relevant laws. Additionally, all authorized operations in Special Economic Zones will be audited by Customs officers selected by the Jurisdictional Development Commissioner in consultation with the Jurisdictional Chief Commissioner of Customs and Central Excise.
4.
G.S.R. 771(E) - dated
5-8-2016
-
SEZ
Special Economic Zones (Amendment) Rules, 2016
Summary: The Special Economic Zones (Amendment) Rules, 2016, issued by the Ministry of Commerce and Industry, amend the Special Economic Zones Rules, 2006. Effective upon publication, these amendments introduce a new clause in rule 2 defining "Registration-cum-Membership Certificate" as issued by the Export Promotion Council for Export Oriented Units and Special Economic Zones. Additionally, rule 22 is amended to require units, developers, and co-developers to obtain this certificate to access exemptions, drawbacks, and concessions. The principal rules were initially published in February 2006 and last amended in August 2015.
Highlights / Catch Notes
Income Tax
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Interest on NPAs Not Taxable on Accrual Basis as per RBI Guidelines.
Case-Laws - HC : Interest on NPA - interest on non performing assets is not taxable on accrual basis looking to the guidelines of the Reserve Bank of India - HC
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Taxpayer Escapes Penalty u/s 271(1)(c) Due to Reliance on Professional Advice Deemed Non-Compliant.
Case-Laws - AT : Levy of Penalty u/s. 271(1)(c) - assessee had acted on the advice of a professional and his advice was found not as per the provisions of the Act - No penalty - AT
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Share Premium Used for Business Purposes, Not Added u/s 56 of Income Tax Act. No Additions Made.
Case-Laws - AT : Share premium received - additions u/s 56 - how the conclusion was drawn that the share premium money was utilised for business purposes and not preserved for the purposes for which it was collected - No additions - AT
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Court Rejects Claim on Long-Term Capital Gains for Furniture Due to Lack of Transfer Mention in Agreement.
Case-Laws - AT : LTCG in connection with the furniture and fixtures attached with the transfer of tenancy rights - Since agreement nowhere speaks about the transfer of furniture and fixture, claim of the assessee not admitted - AT
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Assessing Officer Needs Tangible Material to Reopen Income Tax Assessment for Escaped Income.
Case-Laws - HC : Reopening of assessment - AO must have some tangible material having live link with the escapement of the income on the basis of which he can form a bonafide belief of escapement of income chargeable to tax - HC
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Taxpayer's Income Classified as House Property Due to Deemed Ownership; Eligible for Associated Benefits Under Law.
Case-Laws - AT : Taxability of income - deemed ownership - the income of the assessee is liable to be treated as under the head income from house property and accordingly the assessee would also to be entitled for the consequential benefit as per law. - AT
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Section 32(1)(iia): One-Time Additional Depreciation to Boost Industrialization Must Be Interpreted Liberally for Effective Application.
Case-Laws - AT : Additional depreciation allowed u/s 32(1)(iia) is a one time benefit to encourage industrialization, and the provisions related to it have to be construed reasonably, liberally and purposively, to make the provision meaningful - AT
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Employer Pays Taxes Directly to Authority: Non-Monetary Transaction Exempt u/s 10(10CC) of Income Tax Act.
Case-Laws - AT : Tax perquisites - tax borne by employer is paid directly to the tax authority and there is no payment to the tax employee, the tax so borne is a non-monetary transaction and the same is exempted u/s 10(10CC) - AT
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Tax Assessment Addition Deleted: Section 153A/143(3) Addition Invalid, No Assets Found in Assessee's Locker.
Case-Laws - AT : Assessment u/s 153A r.w.s. 143(3) - the addition has to be deleted for the reason that, the same is not based on the assets founds in the locker of the assessee - AT
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Taxpayer's Claim to Apply Peak Credit Theory for Unexplained Credits Dismissed u/s 68 by IT Commissioner.
Case-Laws - AT : Unexplained credit u/s 68 - peak credit theory - CIT(A) has rightly rejected the claim of the assessee of adopting peak theory for considering unexplained credit - AT
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Section 40(A)(3) of Income Tax Act: Cash Payments Over Rs. 20,000 Deemed Genuine, No Income Additions Made.
Case-Laws - AT : Disallowance of purchases u/s 40(A)(3) - cash payment exceeding ₹ 20,000/- the genuineness of the transactions being free from vice of any device of evasion of tax is relevant consideration - No additions - AT
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No Penalty Imposed u/s 271(1)(c) After Income Surrender in Assessment u/ss 153A and 143(3.
Case-Laws - AT : Penalty u/s 271(1)(c) - assessment u/s 153A r.w.s. 153B/143(3) - surrender of income by assessee inclusive of out of pocket diary expenses was made in the year under appeal - No penalty - AT
Customs
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Reasonable Period for Show Cause Notice in Customs Law: Actual User Condition Violation Not Time-Barred.
Case-Laws - SC : Period of limitation - violation of actual user condition - At the time of import, the importer only gives declaration. It is the actual use, which event takes place much after the import, from where it can be gathered as to where the import is made for the purpose for which it was done. As soon as the aforesaid information was gathered by DRI, show cause notice was issued. Therefore, the show cause notice had been issued within a reasonable period and it cannot be treated as time barred - SC
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Supreme Court Rules Import of Crude Palm Oil Violates Actual User Condition Due to By-Product Issue.
Case-Laws - SC : Violation of actual user condition - crude palm oil which was imported was used for making edible products like refined oil/Vanaspati - If in the process 25% of fatty (palm) emerges as a by-product it cannot be said that first requirement of exemption notification is satisfied. - SC
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Re-export of Imported Goods Allowed After Bond Expiry, Even with Demand Notice or Auction Pending.
Case-Laws - HC : Warehousing - if a request is made seeking permission to re-export the goods imported, the same may be allowed, even if the permitted period for bonding has expired and demand notice has been issued or it has been decided to put the goods under auction. - HC
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Tribunal Can't Address Baggage Issue Due to Appellant's Option for Revision Through Revisionary Authority.
Case-Laws - AT : Tribunal has no jurisdiction to entertain a baggage matter for which the appellant may choose to exercise its right of revision before the Revisionary Authority - AT
Corporate Law
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Company Struck Off at Directors' Request, No Grounds for Aggrieved Claim Under Companies Act.
Case-Laws - HC : The Company having been struck off on the prayer of the Company itself and/or its directors, there can be no question of the Company being aggrieved by the striking off. - HC
Indian Laws
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Amendment Bill 2016 to Revise Income Tax Act, 1961 & Customs Tariff for Better Compliance and Economic Growth.
News : THE TAXATION LAWS (AMENDMENT) BILL, 2016 - Further to amend Income Tax Act, 1961 and Custom Tariff
Service Tax
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Tour Operator Services Case: Lack of Evidence on Vehicles Meeting Tourist Criteria Raises Compliance Concerns.
Case-Laws - AT : To provide tour operator service, the vehicle should necessarily be tourist vehicles - No evidence found that the vehicles used by the respondents were the tourist vehicles - AT
Central Excise
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CBEC Seeks Public Input on Applying "Unjust Enrichment" Principle in Tax Refunds for Fair Processes.
News : CBEC issued a Draft circular inviting suggestions on the issue of Application of principle of “unjust enrichment” in case of refund
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Crushing Coal Not Considered Manufacturing; Crushed Coal Not a Manufactured Product, Per Legal Analysis and Case Law.
Case-Laws - AAR : Whether the process of crushing of coal would amount to manufacturing activity - the activity could not be covered as a ‘manufacturing activity’ nor the crushed coal could be manufactured product - AAR
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Loading Business Software Not Manufacturing, No Excise Duty: Authority for Advance Rulings Decision.
Case-Laws - AAR : The activity of loading of business software in the Hardware / Nucleus Device by the applicant will not constitute manufacture under the Central Excise Law - not liable to duty of excise - AAR
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Steel Scrap Processing into Blended Scrap Subject to Central Excise Duty Due to Distinct Types.
Case-Laws - AAR : Processing of secondary raw materials (steel scrap of difference and variable composition) into blended steel scrap is liable for payment of Central Excise duty - Though both (input and output) would fall under the category of scrap, but are completely different types of scraps - AAR
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CENVAT Credit Reversal Under Sub-Rule (3A) is Procedural, Not Mandatory; Revenue's Mandatory Assertion Rejected.
Case-Laws - AT : Reversal of cenvat credit - Sub-Rule (3A) is only a procedure - Consequently, the argument of Revenue is that the appellants exercising option is mandatory and on its failure, the appellant has no other option but to accept and apply Rule 6(3)(i) and make payment of 5%/10% of the sale price of the exempted goods or exempted services is not acceptable - AT
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Cenvat Credit Allowed for Rectified Spirit (Ethyl Alcohol) Not for Human Use Under Tariff Item 22072000.
Case-Laws - AT : Cenvat credit - the rectified spirit which is not used for human consumption is nothing but ethyl alcohol and is finding place in tariff item no. 22072000 - credit allowed - AT
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Appellant Entitled to Refund for Bonded Exports u/r 5 of Cenvat Credit Rules 2004, Not for Rebate Claims.
Case-Laws - AT : Refund - Rule 5 of Cenvat Credit Rules 2004 - As regard the goods exported under bond, the appellant is entitled for the refund, however the refund related to the export made under claim of rebate is not admissible - AT
VAT
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Assessee Must Prove Direct Link Between Penultimate Sale and Export for VAT and Sales Tax Compliance.
Case-Laws - HC : Penultimate sale - export - The burden is entirely on the assessee to establish the link in transactions relating to sale or purchase of goods and the export; that the penultimate sale is inextricably connected with the export of goods by the exporter to the foreign buyer. - HC
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Tax Authority Cannot Force Method Limiting Tax Deferment Benefits, Upholds Taxpayer's Right to Maximize Input Tax Credit.
Case-Laws - HC : Input tax credit – preference of set off - local sale, inter-state sale and export - Assessing Authority cannot insist on the assessee adopting a particular method which would deny them the benefit of utilization of the balance available tax deferment in its entirety, and instead of paying tax. - HC
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Tribunal's Rejection of Dealer's Input Tax Credit Claim Overturned; Dealer Proved Tax Payment and Compliance.
Case-Laws - HC : Input Tax Credit - Tribunal was not justified in rejecting the claim of input tax credit merely on technicalities, when the dealer was able to show that the tax had been paid to the selling dealer and duly deposited with the State - HC
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