TMI Tax Updates - e-Newsletter
August 13, 2015
Case Laws in this Newsletter:
Articles
By: DEVKUMAR KOTHARI
Summary: The article discusses the allowability of interest on capital borrowed under Section 36(1)(iii) of the Income Tax Act, 1961, specifically addressing changes effective from the assessment year 2016-17. Initially, the provision allowed deductions for interest on borrowed capital for business purposes, whether for capital or revenue expenditure. Amendments in 2004 and 2015 introduced restrictions, disallowing interest deductions for capital borrowed for asset acquisition until the asset is put to use. The article criticizes these amendments for creating litigation and suggests they reflect bureaucratic whims rather than legislative intent, urging the government to simplify tax provisions and avoid frequent changes.
By: DEVKUMAR KOTHARI
Summary: The article discusses the unnecessary litigation by tax authorities regarding the classification of dry docking expenses for ship repairs as revenue expenditure. The case involves a prominent public sector enterprise, which faced repeated disputes over these expenses being treated as capital rather than revenue. The author argues that dry docking is a recurring maintenance activity essential for keeping ships operational, thus qualifying as revenue expenditure. The article criticizes the tax authorities for pursuing litigation on this well-settled matter, suggesting that accepting the High Court's ruling without further appeal would prevent frivolous litigation and conserve public resources.
News
Summary: Under the proposed GST regime, both the Centre and States will levy GST on the supply of goods and services. The Centre will collect Central GST (CGST) and Integrated GST (IGST) for inter-State transactions, while States will collect State GST (SGST) for intra-State transactions. The IGST proceeds will be shared between the Centre and States as per Article 269A, based on GST Council recommendations. The CGST and the Centre's share of IGST will be distributed to States according to Article 270. GST rates will be set by the GST Council after constitutional amendments. This information was provided by a government official in response to a parliamentary question.
Summary: The 7.38% Government Stock, 2015, is due for repayment at par on September 03, 2015, with no interest accruing thereafter. If September 03 is a holiday in any state, repayment will occur on the previous working day. Holders of these securities must provide their bank account details in advance for electronic payment or submit the securities at designated offices 20 days before the due date for manual repayment. Details on the procedure for receiving payment can be obtained from the specified paying offices.
Summary: The Board of Approval on Special Economic Zones (SEZs) has decided to cancel or de-notify the formal approval of 22 SEZs due to unsatisfactory progress by developers. This decision, made on May 19, 2015, requires a certificate from the SEZ Development Commissioner confirming no tax benefits were availed or refunded, along with a no-objection certificate from the respective State Government. The SEZs affected are distributed across Andhra Pradesh (3), Haryana (7), Maharashtra (1), Tamil Nadu (7), and Uttar Pradesh (4). This information was provided by the Minister of State in the Ministry of Commerce and Industry.
Summary: The WTO is expected to release a panel ruling by September/October 2015 on a dispute involving India's domestic content requirements for solar cells and modules under the Jawaharlal Nehru National Solar Mission. The United States argues these requirements violate the GATT 1994 and TRIMs Agreement, while India defends its position under specific GATT provisions. The European Union, as a third party, supports the US stance against India's requirements. This dispute is separate from a previous WTO case on poultry imports, which will not affect the solar case. This information was provided by the Minister of State in a written reply to the Rajya Sabha.
Summary: The Central Statistics Office has shifted to measuring sector shares in Gross Value Added (GVA) rather than GDP since 2011-12. The manufacturing sector's GVA share fluctuated between 14.8% and 18.1% from 2010-11 to 2014-15. The government has implemented various measures to boost industrial growth, including simplifying Foreign Direct Investment (FDI) policies, deregulating industrial licenses, and launching the Make in India initiative. Key projects include the Delhi Mumbai Industrial Corridor and several other proposed industrial corridors. An Investor Facilitation Cell has been established to assist investors, and information on 25 key sectors is available online.
Summary: The Indian government has revised its Foreign Direct Investment (FDI) policy to make the country more attractive to investors. Key reforms include allowing 100% FDI in rail infrastructure and raising the cap to 49% in the defense and insurance sectors. The construction development sector has been liberalized with easier exit norms and a focus on affordable housing. The medical devices sector now permits 100% FDI under the automatic route. Non-Resident Indian (NRI) investments are treated as domestic investments. These changes aim to boost infrastructure, provide capital, and integrate domestic companies into global markets, enhancing overall economic growth.
Summary: The Project Motoring Group in the Cabinet Secretariat has launched e-Nivesh, an online platform to monitor the processing of 88 types of clearances and approvals by various Central Government Ministries and Departments. The number of clearances required depends on factors like investment size and sector. Out of these, 80 clearances have been digitized, while 4 related to the Ministry of Defence and Ministry of Home Affairs remain non-digitized due to security concerns. The digitization of the remaining 4 is nearing completion. Additionally, 5 clearances are available on the Department of Industrial Policy and Promotion's portal.
Summary: The Chief Economic Adviser reported a significant increase in indirect tax revenue collections during the first four months of the 2015-16 financial year, indicating improved economic momentum across all sectors. Indirect tax collections rose by 14.6% excluding additional revenue measures, suggesting healthy nominal GDP growth. In July 2015, collections increased by 39.1% compared to July 2014, with a cumulative increase of 37.6% from April to July 2015 over the previous year. The growth was observed across customs, central excise, and service tax, partly due to measures like excise increases on diesel and petrol, and a service tax hike.
Summary: The Reserve Bank of India set the reference rate for the US Dollar at Rs. 64.8270 on August 12, 2015, up from Rs. 64.1732 on August 11, 2015. Consequently, the exchange rates for the Euro, British Pound, and Japanese Yen against the Indian Rupee were adjusted. On August 12, 2015, 1 Euro equaled Rs. 71.8218, 1 British Pound equaled Rs. 101.0005, and 100 Japanese Yen equaled Rs. 51.91. These rates are based on the US Dollar reference rate and cross-currency quotes. The Special Drawing Rights (SDR) to Rupee rate will also be influenced by this reference rate.
Summary: India has signed a financing agreement with the World Bank for US$ 308.40 million to support the National Cyclone Risk Mitigation Project-II (NCRMP-II). The agreement aims to reduce cyclone and hydro-meteorological hazard vulnerability in coastal communities across Goa, Gujarat, Karnataka, Kerala, Maharashtra, and West Bengal. It will enhance state capacities for disaster planning and response. Key components include early warning systems, cyclone risk mitigation infrastructure, technical assistance for multi-hazard risk management, and project management support. The Ministry of Home Affairs and National Disaster Management Authority will oversee implementation, with state disaster management authorities executing at the state level.
Summary: India and the World Bank have signed a financing agreement for an additional US$ 104 million under the National Cyclone Risk Mitigation Project-I (NCRMP-I). This funding aims to reduce the vulnerability of coastal communities in Andhra Pradesh and Odisha to cyclones and other meteorological hazards. The project will enhance emergency shelter access and evacuation procedures in high-risk areas not covered by the initial project. It includes components such as an Early Warning Dissemination System, cyclone risk mitigation infrastructure, and capacity building for disaster risk management. The Ministry of Home Affairs and respective State Disaster Management Authorities will implement the project.
Summary: The number of direct tax cases pending in various High Courts as of March 31, 2015, stands at 34,281, involving an amount of Rs. 37,683.98 crore. The Income-tax Act allows senior tax officials to appeal against Income Tax Appellate Tribunal (ITAT) orders in High Courts. The Central Board of Direct Taxes (CBDT) has issued new guidelines requiring jurisdictional Chief Commissioners of Income-tax to consult with another Chief Commissioner before filing an appeal, ensuring decisions are well-analyzed. Additionally, CBDT has set timelines for filing appeals and implementing ITAT rulings, aligning with statutory requirements.
Summary: The government is prioritizing timely tax refunds for exporters, addressing concerns from exporters' associations. Measures include duty drawbacks to offset taxes on inputs for export goods, rebates on excise duty, and CENVAT credit refunds. Exporters in sectors like garments, handicrafts, leather, and textiles benefit from duty-free import entitlements based on export performance. Additional incentives include duty exemption schemes, rebate of service tax, and income tax deductions on export profits. These initiatives, administered by the Director General of Foreign Trade and the Department of Commerce, aim to boost export competitiveness and efficiency.
Summary: A complaint regarding irregularities and mismanagement within the Delhi and District Cricket Association (DDCA) was forwarded by the Serious Fraud Investigation Office (SFIO) to the Ministry of Corporate Affairs. Consequently, an inspection under section 209A of the Companies Act, 1956, was ordered on September 28, 2012. The inspection, conducted by a team led by the Regional Director (Northern Region) with SFIO participation, led to instructions for the Regional Director and Registrar of Companies to address violations of several sections of the Companies Act, 1956, and associated Accounting Standards. This information was disclosed by the Minister of Corporate Affairs in the Rajya Sabha.
Notifications
Customs
1.
45/2015 - dated
12-8-2015
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Cus
Seeks to further amend notification no 12/2012 - Customs dated 17-03-2012 so as to increase the BCD on certain iron and steel products
Summary: The Government of India has issued Notification No. 45/2015-Customs to amend Notification No. 12/2012-Customs, increasing the Basic Customs Duty (BCD) on certain iron and steel products. Changes include revised duty rates for specific serial numbers in the notification table. For instance, a 10% duty applies to goods under serial number 329A, while goods under serial number 333B are subject to a 12.5% duty. The amendments aim to adjust the customs tariff structure for various iron and steel products, effective from the date of publication in the Gazette of India.
SEZ
2.
S.O. 2013(E) - dated
20-7-2015
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SEZ
To set up a sector specific Special Economic Zone for Information Technology and/or Information Technology Enabled Services at Plot Number 3A, Sector 126, Noida
Summary: The Central Government has approved the inclusion of an additional 0.5915 hectares at Plot Number 3B, Sector 126, Noida, Uttar Pradesh, into an existing Special Economic Zone (SEZ) for Information Technology and IT Enabled Services. This expansion was proposed by a technology company under the Special Economic Zones Act, 2005. The SEZ now totals 18.9915 hectares. This decision follows previous notifications that defined the SEZ's area as 16.91 hectares and 1.49 hectares, issued in 2006 and 2009. The notification was issued by the Ministry of Commerce and Industry on July 20, 2015.
3.
S.O. 1939(E) - dated
10-7-2015
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SEZ
Rescinds the sector specific Special Economic Zone for information technology and electronics at village Kejehra and Mastemau, Chuck Gajaria Farm, Sultanpur Road, Lucknow, Uttar Pradesh
Summary: The Central Government has rescinded the notification establishing a sector-specific Special Economic Zone (SEZ) for information technology and electronics in Lucknow, Uttar Pradesh. Initially proposed by a corporation under the Special Economic Zones Act, 2005, the SEZ covered an area of 40.469 hectares. The corporation proposed to de-notify this area, and the State Government of Uttar Pradesh provided a "No Objection" to this proposal. The Development Commissioner of Noida SEZ also recommended the de-notification. Consequently, the government has officially withdrawn the notification, maintaining only actions taken prior to this rescission.
4.
S.O. 1937(E) - dated
10-7-2015
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SEZ
To set up a sector specific Special Economic Zone for food processing sector at Vakalapudi Village, Kakinada Rural Mandal, Kakinada, Andhra Pradesh
Summary: The notification from the Ministry of Commerce and Industry announces the de-notification of 51.12 hectares from a Special Economic Zone (SEZ) for the food processing sector in Vakalapudi Village, Kakinada, Andhra Pradesh. Initially proposed by a private company under the Special Economic Zones Act, 2005, the SEZ was originally notified at 101.12 hectares. Following approval from the Andhra Pradesh State Government and recommendation from the Development Commissioner of Visakhapatnam SEZ, the Central Government has now reduced the SEZ area to 50.00 hectares. The de-notified land comprises specific survey numbers detailed in the notification.
Circulars / Instructions / Orders
Customs
1.
12/2015 - dated
28-7-2015
Integration of Extra Duty Deposit modules in ICES reg.
Summary: The Customs authority has announced the integration of Extra Duty Deposit (EDD) modules into the ICES system, effective from August 1, 2015. This change allows importers and Customs Brokers to pay EDD online via e-payment, addressing delays and storage issues associated with manual payments. The new procedure requires importers to approach the Appraising Officer to generate an EDD challan, which is then processed through ICES 1.5 for e-payment. Manual payments will no longer be accepted after July 31, 2015. Any difficulties in implementation should be reported to the Customs office.
2.
12/2015 - dated
14-7-2015
Notice for exporters to submit the SDF form along with Shipping bills for export of gods.
Summary: Exporters are required to submit the SDF form along with Shipping Bills for exporting goods. However, the RBI has removed the necessity for the SDF form for exports through EDI ports, as per recent amendments in the Foreign Exchange Management regulations. Instead, exporters must include a declaration regarding foreign exchange remittance compliance under the Foreign Exchange Management Act, 1999, within the Shipping Bill. Notification No. 46/2015-Customs (NT) mandates this change. Exporters and Customs House Agents must immediately incorporate this declaration in the Shipping Bill, replacing the SDF form requirement.
3.
11/General/2015 - dated
13-7-2015
Notice for all concerned regarding an empanelment o Charted Engineers for valuation of of second hand/old and used imported/exported goods/ machinery
Summary: The Office of the Commissioner of Customs (Import & General) in New Delhi announces the empanelment of Chartered Engineers for valuing second-hand or used imported/exported goods and machinery. Chartered Engineers are invited to apply by August 10, 2015, using the provided proforma and including relevant certifications. Applications will be evaluated and referred to the Institute of Engineers for eligibility confirmation. Once empanelled, a public notice will list approved engineers. Selected engineers must submit bi-annual self-appraisal reports to assess their continued suitability. Applications should be submitted in a sealed cover for scrutiny and evaluation.
4.
10/2015 - dated
1-7-2015
Extortion of money in the names of Customs Officers - reg.
Summary: Instances of fraud involving impersonation of Customs Officers have been reported, where individuals are deceived into paying money under the guise of Customs Duties for parcels. Fraudsters create fake bank accounts and issue fictitious receipts to extort money. The public is informed that legitimate Customs Duties should be paid to the Commissioner of Customs via designated nationalized banks, not to individuals. Customs Officers will not request payments to personal accounts. Importers and exporters must submit documents and pay duties as specified. For verification, contact designated Customs Officers at provided phone numbers.
5.
08 /General/2015 - dated
15-6-2015
Notice for all the Authorized Couriers, Airlines, Exporters, Importers, Custodians, Trade & Industry and all other Stake Holders.
Summary: The circular issued by the Commissioner of Customs (General) in New Delhi outlines the regulations governing the import and export of goods through courier services at the Delhi Customs station. It highlights the requirements for authorized couriers, including registration, financial viability, security deposits, and adherence to specific procedures for customs clearance. The document emphasizes the importance of maintaining secure and verifiable processes, prohibits unauthorized subcontracting, and mandates compliance with various customs regulations. Custodians at the New Courier Terminal must implement mechanisms for tracking and managing goods, ensure proper documentation, and restrict unauthorized access to customs areas. Compliance with the Handling of Cargo in Customs Areas Regulation, 2009, is also required.
Highlights / Catch Notes
Income Tax
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Court Rules Voluntary Income Foregoing for Religious Congregations Requires TDS Deduction u/s 192.
Case-Laws - HC : TDS u/s 192 - the voluntary foregoing of the income in favour of the religious congregation of which they were members, was an instance of application of income and not a diversion of income by overriding title - TDS requires to be deducted - HC
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High Court Rules Assessee Can Use Different Accounting Methods for Newspaper Sales and Advertisements Revenue.
Case-Laws - HC : Method of accounting - according to the Revenue, in respect of all the activities of the assessee, the accounting of income and expenditure should be under the same system, i.e. the assessee having adopted mercantile system of accounting, it cannot adopt accounting on cash basis in respect of sales of newspaper and advertisement revenue alone - contention of revenue is not correct - HC
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ITAT Deletes Disallowance u/s 32AB; Assessing Officer Can't Challenge Net Profit Beyond Section 32AB(3) Limits.
Case-Laws - HC : Disallowance made under Section 32AB - Investment deposit account - ITAT deleted disallowance - HThe Assessing Officer does not have jurisdiction to go behind net profit shown in profit and loss account except to extent provided in Section 32AB(3). - HC
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Court Rules Director Can Enter Asset Transfer Agreement; Company is Separate Legal Entity Under Companies Act 1956.
Case-Laws - HC : Royalty payment to a related person - it is wrong to conclude that that Tarun Mohan being a Director of the respondent was not entitled to enter into an agreement for the transfer of his assets to the company - This ignores the fundamental concept that the assessee being a company incorporated under the Companies Act, 1956 is a separate legal juristic entity - HC
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High Court Upholds Terminal Depreciation Claim u/s 32 of Income Tax Act; Terminology Not a Disqualification.
Case-Laws - HC : Claim of terminal depreciation - assessee had in fact claimed depreciation as contemplated under section 32 merely because it was termed as "terminal depreciation" was no reason to disallow the claim - HC
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Donors' Creditworthiness Confirmed; Gifted Amounts Recorded, No Extra Tax Levied Under Income Tax Provisions.
Case-Laws - HC : Unaccounted gifts - All the donors were the Income-tax assessees. When it is so then the creditworthiness is proved. The amount was reflected in the books of account. - No addition - HC
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Section 271(1)(c) Penalty Upheld: Interest Income Not Part of Assessee's Business, Fails Section 10B Deduction Requirements.
Case-Laws - AT : Penalty u/s. 271(1)(c) - interest income does not form part of the assessee’s business, the same could not in any case be said to be derived there-from, a condition precedent for the income of the assessee’s export business from being eligible for deduction u/s. 10B. Penalty u/s. 271(1)(c) confirmed - AT
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Tax Commissioner Misunderstands Section 143(2) Notice as Formality, Revealing Systemic Issues in Tax Administration.
Case-Laws - AT : Validity of assessment - CIT(A) had a mistaken belief that issuance of notice u/s 143(2) is an empty formality inspite of the legal position on this statutory mandate - it throws a very public glare on the “serious malaise” which the tax administration can be said to be infected with - AT
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Interest Payments by Banks to State Industrial Development Authorities Exempt from TDS u/s 194A(3)(iii)(f) of Income Tax Act.
Case-Laws - AT : Liability to deduct tax at source u/s 194A on interest paid to NOIDA - payment of interest by banks to the State Industrial Development Authorities does not require any deduction of tax at source in terms of section 194A(3)(iii)(f) - AT
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Microsoft Software Purchase Costs Shared Without Mark-Up; No TDS Required u/s 195.
Case-Laws - AT : Withholding of tax - The software has been purchased from Microsoft, the cost of which has been distributed amongst all the group entities. It is pure case of reimbursement of cost and admittedly, there is no mark-up - No TDS u/s 195 - AT
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Section 10B Deduction Must Be Granted to 100% EOU if Previously Approved and Facts Remain Unchanged.
Case-Laws - AT : Disallowance of deduction u/s.10B - 100% export oriented unit (EOU) - deduction u/s. 10B cannot be denied to assessee especially when in the last year, same was allowed after examining the facts in detail and there was no change in the facts during the year - AT
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Tax Implications on Property Sale: Fair Treatment of Appellant Under Revenue Law Section.
Case-Laws - AT : Sale consideration from transfer of property of the Company - whether taxable in the hands of the appellant? - Officers of the Revenue should not try to later advantage of the ignorance of the Assessee. - AT
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Chit Fund Contributions Not Considered Investments; Assessee Eligible for Exemption u/s 11 of Income Tax Act.
Case-Laws - AT : Eligibility to claim exemption u/s 11 - contribution to chit funds - it is wrong to conclude that assessee has with an intention to earn profit or income made a contribution to the chit fund - not in the nature of investment - exemption allowed - AT
Customs
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High Court Confirms Duty and Penalty for Undeclared Baggage Through Green Channel at Customs.
Case-Laws - HC : Import of baggages – Non declaration of contents and value – opting green channel - demand of duty with levy of penalty confirmed - HC
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Supreme Court Overrules High Court, Applies Section 15 of the Prevention of Corruption Act in Forged Bills Case.
Case-Laws - SC : Criminal misconduct by public officer – Forged shipping bills – High Court was not justified in stating that Section 15 of Prevention of Corruption Act, 1988 could not be invoked - SC
Corporate Law
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Official Liquidator Ensures Workmen's Dues; State Financial Corporations Keep Secured Creditor Status, No Unsecured Downgrade.
Case-Laws - SC : Jurisdiction of Official liquidator - its specific purpose being to protect the pari passu charge of the workmen’s dues. After ensuring that this purpose is achieved or ensured, the State Financial Corporations can continue to enjoy their statutory rights as secured creditors. They will not be reduced to the status of unsecured creditors and equally will not be required to prove their debts nor will be required to stand in line with other unsecured creditors - SC
Wealth-tax
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Rental Income as Business Income: Commercial Property Excluded from Wealth Tax u/s 2(ea) of Wealth Tax Act.
Case-Laws - AT : Determination of net wealth of assessee - Renting of property - once the rental income from the property is treated as “business income” and the character of the asset remains as commercial establishment or commercial complex as envisaged in sub-section 5 of clause (i) of section 2(ea) of the Wealth Tax Act, the same cannot be brought into the ambit of Wealth - AT
Service Tax
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Service Tax Not Applicable on Barge Transport from Vessel to Jetty; Part of Import Duty Process.
Case-Laws - SC : The question of rendering any service in respect of goods by way of cargo handling or otherwise can take place only after the customs transaction is completed. Therefore, the question of levying to service tax the transportation by barges from the mother vessel to the jetty onshore, would not arise at all since the said activity is part of the import transaction leviable to import duty
Central Excise
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Appellant Denied CENVAT Credit for Failing to Prove Use of Old Machinery in Final Products.
Case-Laws - AT : Denial of CENVAT Credit - the appellant received old and used machinery, apparently, which cannot be used in the final products. The appellant failed to produce any evidence of use of the items - credit denied - AT
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12% Interest on Duty Refunds Deposited Under Protest, Excluding Fines or Penalties.
Case-Laws - SC : Interest on refund claim - duty was deposited under protest - Interest at the rate of 12% shall be paid to the respondents on the amount of duty and not on fine and penalty - SC
VAT
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Cine Wall Posters Printing Exempt from CST Before April 1, 2005, Not Classified as Works Contracts u/s 2(ja).
Case-Laws - HC : Levy of sales tax / CST on printing of cine wall posters - It was only after 01.04.2005 that all kinds of works contracts were brought within ambit of works contracts as defined in Section 2(ja) of CST Act – Therefore no tax could have been levied on such works contracts under CST Act also - HC
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Court Rules Appellants Must Return Tax Collected from Customers to Prevent Unjust Enrichment.
Case-Laws - HC : As appellants were not exigible to tax during relevant period, appellants cannot be permitted to retain amount collected by them from their customers as that would resulted in their unjust enrichment - HC
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High Court Rules Drug Discount Practices Outside Sales Tax Commissioner's Jurisdiction; Unfair Trade Allegations Unfounded.
Case-Laws - HC : Unfair trade practices - high discount on the sale price of the drugs -it is beyond the scope of Commissioner of Sales Tax, to probe - HC
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