C.A. Vipul Padliya

Overseas subsidiary with single shareholder is a separate legal entity for tax purposes

2012-02-25T11:58:00.003+05:30

AIA Engineering Ltd v. Add CIT (ITAT Ahmedabad) – It was held that investment made by AIA Engineering Limited (AIA India or the assessee) in Vega Industries (Middle East) FZE (Vega UAE) shall not be treated as investment in a proprietary concern of AIA India though Vega UAE had no other shareholder.Vega UAE is considered to be established as an independent corporate entity with separate financial liability from those of its owner in accordance with the memorandum of incorporation and the only situation where the owner will be treated as personally responsible is regarding the omission of some specified information. While Article 151 of the UAE constitution provides for supremacy of the Constitution, it recognises an exception to the laws of the Emirates for matters relating to Article 121. Accordingly, the legislation framed by the Emirates of Ajman does not appear to be in conflict with the constitution of UAE and a company formed as a FZE in Ajman, complying with respective laws, is an incorporated entity.Since Vega UAE is incorporated as a body corporate under the law of a country outside India which is a requirement of section 2(17) of the Act, Vega UAE has to be accepted as a company within the definition of section 2(17) of the Act. Thus, Vega UAE is not a sole proprietorship concern of the assessee.

No Time Limit to claim Income Tax Refund in respect of TDS on 8 % Relief Bond

2012-02-24T11:42:00.003+05:30

Instruction No. 2/2012 [F. No. 312/79/2010-OT], dated 22-2-2012

Representations have been received regarding matters of allowance of refund on the above subject. The board has decided that the time limit prescribed in clause 4 of CBDT Instruction No. 13/2006, dated 22.12.2006 for entertaining application u/s 119(2)(b) of the Act shall not apply if :

(i) the applicant has made investment in 8% Savings (Taxable) Bonds, 2003 issued by the Government of India opting for cumulative interest on maturity but has accounted interest earned on mercantile basis, and

(ii) the intermediary bank at the time of maturity has made deduction of tax at source (TDS) on the entire amount of interest paid without apportioning the accrued interest/TDS for various financial years involved.

However, other conditions prescribed in CBDT Instruction No. 13/2006 shall continue to apply.

Income Tax Refund cheque issued by CPC Bangalore Returned undelivered?

2012-02-23T12:15:00.001+05:30

Now days Assessee who file their Income tax Return online gets their refund cheque issued by CPC Bangalore. Refunds are issued by two modes:-

1. By crediting the refund amount in Assessee’s bank account if the Assessee has correctly mentioned his bank details in Income tax Return Filed by him.

2. By sending Income Tax Refund Cheque if Assessee failed to submit or correctly mention his bank account details in Income tax Return filed by him.

In case of Physical cheques there may be chances that after filing of Income tax Return Assessee has moved to new address and his Income tax Refund cheque issued by CPC Bangalore returned back for non-delivery.

There may also be a chance that although address is not changed but Assessee could not receive the refund order as no one was there on the day when cheque was delivered or Refund cheque returned undelivered by the postal department as the house was locked.

In such cases one question arises what Assessee should do to request reissue of Refund cheque or how to request Credit of that account in his bank account and how to intimate the change in address?

Please note that, in case refund-processing has failed due to one of the reasons Assessee needs to download the address/bank-details modification form (Response Sheet) from the website of Income Tax department, fill the same and after that he needs to send the same by ORDINARY or SPEED POST alongwith cancelled cheque and other supporting documents to :

“Income Tax Department – CPC, Post Bag No – 1, Electronic City Post Office, Bangalore – 560100, Karnataka”

To Download the Response Sheet Assessee need to take Following steps:-

1. Visit https://incometaxindiaefiling.gov.in/portal/index.do

2. Enter login details.

3. After login go to sub menu ‘Response Sheet For Refund Failure Status‘ under the main menu ‘My Account’

4. Download the response sheet.

It is to be noted if there is any change in address of the Assessee needs to get the same updated with PAN master database by filing Form No. 49Afor correction in PAN Data.

Deductibility of TDS on Provision for Expenses for which no invoice been received

2012-02-23T12:13:00.002+05:30

One of the most disputed arguments between assessee and income tax department is that whether payments made towards specified expenditure attracts disqualification u/s 40(a) (ia) and applicability of this section to provisions made at the year end and its implications

01. The assessee must prepare his books of accounts following the mercantile system of accounting. The same is also followed under section 145 of the Income tax act, 1961.

02. As per mercantile system of accounting, assessee had to made provision for the expenses which were incurred during the year, but their invoices were yet to be received. All this expenditure were allowable expenditure, even though made on the estimated basis. Refer Calcutta Co. Ltd v CIT 37 ITR 1 SC, 1959.

03. Further, as per AS 29, provision is the estimation of liability probability of which outflow will be ‘more likely than not’. It means here we are confirmed that whether provision made by us outflow will be there, however the amount will be still unidentifiable. Hence, in this case we can’t made credit to the party against whom we made the provision.

04. Now a days, Income tax department are verifying that TDS had been deducted on this provisional entries made on the year end and disallowing the same under section 40(a)(ia) of the Income tax act, 1961.

05. The assessee generally follows the following method of accounting for year end.

(a) At the yearend it is the common practice of a company or other individual to provide provisions for various expenses like Telephone, Electricity, Travel Claims, Conveyance reimbursements, Commission on sales to employees. Commission on sales to C&F Agent, Lunch Expenses, Rent of Office premises and guesthouse, AMC charges payable etc……

(b) Entries for Provision for expenses are passed at the yearend based on previous month expenditure or on some other relevant basis.

(d) The assessee generally books expenditure only at the time of payment of the expenditure.

06. The assessee generally does not know the exact amount of expenditure and sometime also don’t know the exact details of the vendor.

07. The Provision of section 40(a)(ia) requires that Tax has to be deducted at source when amount is paid or credited to the account of the Payee whichever is earlier. When the amount is credited to suspense account or any account by whatever name it is called, then it is treated as amount is credited to the account of the payee and tax has to be deducted at source. Hence Tax has to be deducted at source even on provisions made in the books of accounts to which TDS provisions are applicable.

08. Further, as per Notification No. 41/2010 dated 31 May 2010, the due date for the payment of TDS deducted in the month of March becomes April 30^th and hence following are the advices from the author in respect of provision entries made on closure date of financials.

(a) Please note that failure to deduct TDS attract (i) disallowance of expenditure u/s. 40(a)(ia) on which TDS not made while computing income under normal provisions; (ii) Levy of interest under section 201 (IA) at the rate of One and Half Percent or part of the month for the period of delay in deduction and/or deposit of TDS (iii) levy of Penalty under section 271C for failure to deduct TDS.

(b) Further, please note that the expenditure relating to work/services availed during the period from April 1^st 2010 to Mach 31^st 2011 should only be accounted in FY 2010-11 and in the event any of such expenditure are accounted in the accounts of the immediately succeeding year then the same will qualify as ‘prior period expenses’ requiring reporting in annual accounts as well as in the Tax Audit Report. The amount of prior period expenses will not be allowed as deduction under Income tax Act in the succeeding year(s).

(c) In view of the above, Finance and Accounts team of each sector/company is advised to instruct each and every department in their respective company to obtain bills for the work/services rendered during the period from April 1^st 2010 to March 31^st 2011 from the vendor before April 20^th and also to provide a complete details of the expenditure under the respective expenses heads based on the service/work order and the work done by the party and for which invoice/bill is not yet raised so that necessary provision with party name and amount can be made in the accounts and TDS thereon can be discharged before the due date of April 30th. Please make sure that to the extent possible, no ad-hoc provision for expenses is to be made at the yearend since it will be difficult to make compliance of TDS provisions with respect to such ad-hoc provision as the amount is not ascertain/accurate, party may not be known, etc. etc.

Leviability of service tax on toll fee

2012-02-23T11:59:00.002+05:30

Circular No. 152/3 /2012-ST, Dated- 22^nd February, 2012

Subject: Toll in the nature of ‘user charge’ or ‘access fee’ paid by roads users — regarding.

A representation has been received by the Board, seeking clarification regarding leviability of service tax on toll fee (hereinafter referred as ‘toll’) paid by users, for using the roads. The representation has been examined.

2. Service tax is not leviable on toll paid by the users of roads, including those roads constructed by a Special Purpose Vehicle (SPV) created under an agreement between National Highway Authority of India (NHAI) or a State Authority and the concessionaire (Public Private Partnership Model, Build-Own/Operate-Transfer arrangement). ‘Tolls’ is a matter enumerated (serial number 59) in List-II (State List), in the Seventh Schedule of the Constitution of India and the same is not covered by any of the taxable services at present. Tolls collected under the PPP model by the SPV is collection on own account and not on behalf of the person who has made the land available for construction of the road.

3. However, if the SPV engages an independent entity to collect toll from users on its behalf and a part of toll collection is retained by that independent entity as commission or is compensated in any other manner, service tax liability arises on such commission or charges, under the Business Auxiliary Service [section 65(105) (zzb) read with section 65(19) of the Finance Act, 1994].

4. Further, an SPV formed as a result of agreement between NHAI or State Authority and the concessionaire under the BOT arrangement, cannot be considered as an agent of the NHAI. Renting, leasing or licensing of vacant land by the NHAI or State Authority to an SPV for construction of road and such construction do not attract service tax.

Corporates and banks mandated to issue Form 16A downloaded from NSDL Website

2012-02-23T11:57:00.001+05:30

CBDT has issued a Circular No. 03/2011 dated May 13, 2011 as per which TDS Certificates in Form No. 16A will be generated from Tax Information Network (TIN). It is mandatory for Companies and Banks to issue Form 16A from TIN to their deductees for deductions made from April 1, 2011 (F.Y. 2011-12 onwards). Taxpayers are advised to insist on Form 16A (quarterly TDS certificate) that has been downloaded by the Deductors from TIN Central System only.

SEBI standardize lot size for IPO propose to list on SME exchange/platform and for secondary market trading on such exchange/platform

2012-02-22T14:08:00.002+05:30

CIRCULAR No. CIR/MRD/DSA/06/2012 February 21, 2012
To
Managing Director / Chief Executive Officer of
Stock Exchanges and their Clearing Houses/Corporations
Dear Sir/Madam,
Sub: Standardized lot size for SME Exchange / Platform
1. SEBI vide circular dated May 18, 2010 prescribed the framework for setting up of a stock exchange/trading platform by a recognized stock exchange having nationwide trading terminals for Small and Medium Enterprises (SMEs).
2. In this regard it has been decided to standardize the lot size for Initial Public Offer proposing to list on SME exchange/platform and for the secondary market trading on such exchange/platform, as given under:

Price Band (in Rs)	Lot Size (No of shares)
Upto 14	10000
more than 14 upto 18	8000
more than 18 upto 25	6000
more than 25 upto 35	4000
more than 35 upto 50	3000
more than 50 upto 70	2000
more than 70 upto 90	1600
more than 90 upto 120	1200
more than 120 upto 150	1000
more than 150 upto 180	800
more than 180 upto 250	600
more than 250 upto 350	400
more than 350 upto 500	300
more than 500 upto 600	240
more than 600 upto 750	200
More than 750 upto 1000	160
above 1000	100

3. At the Initial Public Offer stage the Registrar to Issue in consultation with Merchant Banker/s, Issuer and the Stock Exchange shall ensure to finalize the basis of allotment in minimum lots and in multiples of minimum lot size, as per the above given table. The secondary market trading lot size shall be the same, as shall be the IPO Lot Size at the application/allotment stage, facilitating secondary market trading.
4. At the Initial Public Offering stage if the price band decided, falls within two different price bands than the minimum application lot size shall be decided based on the price band in which the higher price falls into. For example: if the proposed price band is at 24-28 than the Lot size shall be 4000 shares.
5. The lot size shall not be reduced by the exchange to below the initial lot size if the trading price is below the IPO issue price.
6. The Stock Exchanges can review the lot size once in every 6 months / wherever warranted, by giving an advance notice of at least one month to the market. However, as far as possible the stock exchange shall ensure that odd lots are not created.
7. Further, the stock exchanges shall ensure that the lot size shall be the same for a securities traded across the Exchanges.
8. In case of oversubscription, if the option to retain ten percent of the net offer to public for the purpose of making allotment in minimum lots is exercised, then it shall be ensured by the Issuer/Stock Exchanges/ Merchant Bankers that the post issue paid up capital of the issuer does not go beyond Rs.25 crore.
9. All the Stock Exchanges are advised to :

i. make necessary amendments, if any, to the relevant bye laws, rules and regulations for the implementation of the above decision;

ii. disseminate the same on their website for easy access to the issuers and other market participants;

iii. communicate to SEBI, the status of implementation of the provisions of this circular in the Monthly Development Report.

10. This Circular is issued in exercise of the powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with Section 10 of the Securities Contracts (Regulation) Act, 1956 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and shall come into effect immediately.

Liability to pay service tax on commission paid to Foreign Service provider arises only with effect from 18.4.2006

2012-02-21T19:05:00.001+05:30

On hearing both sides, we find that the issue in dispute is as to whether service tax liability arises on recipient of commission who resides outside India and has no office in India, for the period prior to 18.4.2006. The Apex Court has held that such liability arises only with effect from 18.4.2006 with the introduction of Section 66A of the Finance Act, 1944. The ratio of the Apex Court’s decision in Union of India Vs. Indian National Ship Owners’ Association – ( 2009-IST-07-SC-ST) covers the issue in this case and following the ratio thereof, we uphold the impugned order and reject the appeal of the Revenue.

When the company is under liquidation, appeal could only be filed by official liquidator

2012-02-21T19:02:00.003+05:30

Kuber Mutual Benefits Ltd. Vs. ACIT (ITAT Delhi) - It is not in dispute that assessee company is under liquidation and official liquidator stands already appointed by the order of the Hon’ble Court. As per Companies Act, 1956, no doubt, powers of liquidator which includes the power to defend legal proceedings, civil or criminal are to be in the name and on behalf of the company. Section 178 of the I.T. Act, 1961 recognizes the official liquidator as the concerned person in the case company is under liquidation. Similarly section 2 (7) defines the word “assessee”. It includes such persons also as assessee who are deemed to be an assessee under any provision of this Act. Section 253(1) provides that an assessee aggrieved, may appeal to ITAT against such order and Rule 47(1) prescribes form No.36 for filing appeal which shall be signed by the person specified in Rule 45(2) of the I.T. Rules, 1962. Rule 45(2) provides that form No.36 shall be filed by the person who is authorized to sign the return u/s 140 of the Act. Second proviso to section 140(c) provides that in case of the company which is being wound up, it shall be singed by the liquidator. From the above noted provisions, it becomes amply clear that when the company is under liquidation, appeal could only be filed by the official liquidator. So appeal verified and singed by the managing director cannot be held to be valid appeal. As such, considering entirety of facts, circumstances and material on record in the light of relevant provisions of law, on the issue of maintainability of the appeal, when not singed by the competent person, it is held that such appeal is not maintainable. Hence, dismissed.

Section 65(105)(zm) of the Finance Act, 1994 – Banking and Other Financial Services – Service tax on Commitment charges collected by Banks

2012-02-21T18:57:00.002+05:30

Letter [F.No. 137/62/2011 - Service Tax], dated 21-10-2011

The C & A G of India has pointed out that Banks are recovering Commitment charges for keeping available the undisbursed balance of a loan commitment and they are in the nature of charges for services provided. In this regard attention is invited to the letter F. No. 345/6/2008-TRU, dated 11.6.2008 (Annexure) wherein it has been clarified that any amount collected by the service provider on account of lending is either interest or service charges. Pre-closure/fore-closure charges are not charges collected for delayed payment. These charges not being ‘interest’ are to be appropriately treated as consideration for the services provided and accordingly leviable to service tax under Section 65(105)(zm).

2. Applying the same principle it is clarified that commitment charges are not in the nature of interest. Rather, they are directly linked to the provision of service and therefore are to be included in the taxable value for payment of service tax.

3. It is requested that immediate action may please be taken to protect the Government Revenue on these lines

CBDT exempts return-filing for salaried having total income upto Rs 5 lakh

2012-02-21T18:10:00.001+05:30

NOTIFICATION NO 9/2012, Dated: February 17, 2012

In exercise of the power conferred by sub-section (IC) of section 139 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby exempts the following class of persons, subject to the conditions specified hereinafter, from the requirement of furnishing a return of income under sub-section (1) of section 139 for the assessment year 2012-13, namely:-

1. Class of persons.- An Individual whose total income for the relevant assessment year does not exceed five lakh rupees and consists of only income chargeable to income-tax under the following head,-

(A) “Salaries”;

(B) “Income from other sources”, by way of interest from a saving account in a bank, not exceeding ten thousand rupees.

2. Conditions,- The individual referred to in para 1,-

i) has reported to his employer his permanent Account Number (PAN);

ii) has reported to his employer, the incomes mentioned in sub-para (B) of para I and the employer has deducted the tax thereon;

iii) has received a certificate to of tax deduction in Form 16 from his employer which mentions the PAN, details of income and the tax deducted at source and deposited to the credit of the Central Government;

iv) has discharged his total tax liability for the assessment year through tax deduction at source and its deposit by the employer to the Central Government;

v) has no claim of refund of taxes due to him for the income of the assessment year, and

vi) has received salary from only one employer for the assessment year.

3. The exemption from the requirement of furnishing a return of income tax shall not be available where a notice under section 142 (1) or section 148 or section 153A or section 153C of the incometax Act has been issued for filing a return of income for the relevant assessment year.

4. This notification shall come into force from the date its publication in the Official Gazette.

Payment under inter-linked con-tracts for manufacturing attracts TDS u/s 194C

2012-02-21T12:36:00.002+05:30

CIT Vs. Nova Nordisk Pharma India Ltd (Karnataka High court)

Date of Decision. 05.01.2012, Appeal No. 1262/2006

The assessee, Nova Nordisk Pharma India Ltd, an Indian Company was engaged in marketing of pharmaceutical products. It was a subsidiary company of NOVA Nordisk, Singapore. One of the products (insulin in medically presentable form), was manufactured by M/s. Torrent Pharmaceuticals Limited (Torrent) and supplied to the assessee company. The raw material was supplied by a foreign company NOVA Nordisk, Denmark. Torrent pursuant to the contract, was required to sell entire output only to the assessee company in India.

The assessee company was to pay the manufacturing company (Torrent) 19% of the landing cost of the raw material, consumed into the production of the product. This payment was termed as ‘conversion charges’ as per the agreement between the assessee and the manufacturer. The assessee company and manufacturing company (Torrent) had entered into another agreement for supply of technical know-how, to be used for exclusive manufacture of the product, without any consideration. Further, the assessee company and manufacturing company had entered into a trade mark license agreement, allowing labelling of the products manufactured with the assessee company s brand name.

Based on the agreements the AO con-tended that the contract between the assessee and the manufacturer was not a contract of sale but a contract for manufacturing work and hence the assessee was liable to deduct TDS u/s 194C. The AO excluded the price of the material supplied by the Group company and computed the TDS @ 2% on the quantum of conversion charges. The AO also contended that the assessee was an assessee in default for non deduction of tax u/s1 94C and also levied the interest.

The division bench of Karnataka High court observed that:

- Product was manufactured out of raw materials supplied by a foreign company

- Foreign company had direct interest in the assessee company

- Product was manufactured according to the specification of the assessee company

- Technical know-how for manufacture was supplied by assessee company

- The product was labelled with the brand name of the assessee

- The entire production was to be sup¬plied exclusively to the assessee company and not to anyone else

The HC held that the transaction between the assessee and the manufacturer was not a contract for sale but a contract for manufacture. The High Court observed that “in such a situation one has to really look into the real nature of the transaction that emerges on the conjoint, reading of the three agreements”. Accordingly, HC concluded that the assessee was liable to deduct tax u/s 194C. The High Court also upheld the assessment order levying interest u/s 201 (1A) (simple interest for not deduction of tax).

Interest on Income tax refund received by foreign company taxable as interest income and not as business income

2012-02-21T12:31:00.002+05:30

Bechtel International Inc Vs. Assistant Director of Income Tax (ITAT Mumbai)

ITA No 5198 and 6998 /Mum/2010 , Date – 08.02.2012

Issue -1. Whether the interest on income-tax refund is to be considered as interest income falling within Article 11(2) of the tax treaty or as interest income attributable to permanent establishment or fixed base in India falling under Article 11(5) read with Article 7 of the tax treaty? 2. whether the expression ‘attributable’ as used in Article 11(5) of the tax treaty has to be construed as equivalent / narrower to the term ‘effectively connected’ as used under Interest Article in other tax treaties with India and thereby squarely covered by the Special Bench decision of Clough Engineering Ltd.

Held- in the light of the commentary of Klaus vogel on the reason for use of the word “attributable” in the US conventions, they are in no way different from the expression “effectively connected”. US Model convention deviates from OECD and UN Model Conventions (MCs) because the term “effectively connected” is a technical term of US domestic tax law and that it is defined in detail in I.R.C. Sec.864 (c) whereas “attributable”, though used in US domestic tax law as well, is not defined. If US MC were to refer to “effectively connected”, the question would arise whether that term would be required by Article 3(2) MC to be interpreted on the US side in accordance with its definition under US tax law, Use of the term “attributable” avoids that problem and that is the reason the expression “Attributable” is used in US Model Conventions. Therefore the term appearing in US Model Conventions have the same meaning as the expression “Effectively Connected”. The expression “Attributable” as used in Article 11(5) of the India-USA DTAA has therefore to be construed as equivalent to “Effectively connected”. The technical explanation referred to by the learned counsel for the Assessee whereby it has been observed that the term “Attributable” is to be given a narrower meaning than the expression “Effectively Connected”, we find that the said technical explanation is in the context of attribution of profits of the PE and is relevant to taxation of an Indan enterprise having PE in USA. Nevertheless, the expression “attributable” even if held to be equivalent to the expression “effectively connected” in the light of the commentary by Klaus Vogel, referred to above, then the case of the Assessee would stand squarely covered in favour of the Assessee by the decision of the Special Bench in the case of Clough Engineering (supra). Following the same, we hold that the interest income on income tax refund is to be charged to tax only under Article 11(2) of the Indo-USA DTAA and not under Article 11(5) thereof.

Comments :-While under general parlance/ Income Tax Act, the term ‘attributable’ is of wider import; the same may not be relevant while interpreting the provisions of the tax treaties. In this case ITAT dealt with the issue of whether the expression ‘attributable’ as used in Article 11(5) of the tax treaty has to be construed as equivalent / narrower to the term ‘effectively connected’ as used under Interest Article in other tax treaties with India. ITAT has subtly held that the word ‘attributable’ is in no way different from the expression ‘effectively connected’ by making reference to Commentary by Klaus Vogel. This decision bringing out the very fact that the term ‘attributable’ is analogous to the term ‘effectively connected’ for the purpose of Article 11 (5) of the tax treaty

SEBI (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2012 – Amendment in regulations 53, 70 and 93

2012-02-21T12:23:00.002+05:30

NOTIFICATION F.No. LAD-NRO/GN/2011-12/35/3186, dated 7-2-2012

In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following Regulations to further amend the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, namely:-

1. These Regulations may be called the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2012.

2. They shall come into force on the date of their publication in the Official Gazette.

3. In the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 -

(i) in regulation 53,

(1) in sub-regulation (1)-

(I) the words and symbol “if it has outstanding fully or partly convertible debt instruments at the time of making rights issue,” shall be omitted;

(II) the word “such” shall be omitted;

(III) after the words “the holders of outstanding” and before the words “convertible debt instruments”, the word “compulsorily” shall be inserted;

(IV) after the words “convertible debt instruments” and before the words “in proportion to the” the symbols and words “, if any,” shall be inserted;

(2) in sub-regulation (2)-

(I) after the words “The equity shares” and before the words “reserved for the holders”, the word “so” shall be inserted;

(II) after the words “fully or partially” and before the words “convertible debt instruments”, the word “compulsorily” shall be inserted;

(III) the word “on” appearing after the words “on the same terms” and before the words “which the equity shares offered”, shall be substituted with the word “at”;

(ii) in regulation 70, after sub-regulation (3) a new sub-regulation (4) shall be inserted, namely:-

“(4) The provisions of sub-regulation (2) of regulation 72 and sub-regulation (6) of regulation 78 shall not apply to a preferential issue of specified securities where the proposed allottee is a Mutual Fund registered with the Board or Insurance Company registered with Insurance Regulatory and Development Authority. “

(iii) in regulation 93,

(1) in sub-regulation (1)-

(I) the words and symbol “if it has outstanding fully or partly convertible debt instruments at the time of making the bonus issue,” shall be omitted;

(II) the word “such” shall be omitted;

(III) after the words “the holders of outstanding” and before the words “convertible debt instruments”, the word “compulsorily” shall be inserted;

(IV) after the words “convertible debt instruments” and before the words “in proportion to the” the symbols and words “, if any,” shall be inserted;

(2) in sub-regulation (2)-

(I) after the words “The equity shares” and before the words “reserved for the holders”, the word “so” shall be inserted;

(II) after the words “fully or partly” and before the words “convertible debt instruments”, the word “compulsorily” shall be inserted;

(III) the word “on” appearing after the words “or same proportion” and before the words “which the bonus shares”, shall be substituted with the word “at”;

Banks eligible to claim deduction for bad debts u/s 36(1)(vii) in respect of advances and also claim provision for bad and doubtful debts u/s 36(1)(viia)

2012-02-21T12:21:00.002+05:30

Catholic Syrian Bank Ltd vs. CIT (Supreme Court)

Under Section 36(1) (vii) of the ITA 1961, the tax payer carrying on business is entitled to a deduction, in the computation of taxable profits, of the amount of any debt which is established to have become a bad debt during the previous year, subject to certain conditions. However, a mere provision for bad and doubtful debt(s) is not allowed as a deduction in the computation of taxable profits. In order to promote rural banking and in order to assist the scheduled commercial banks in making adequate provisions from their current profits to provide for risks in relation to their rural advances, the Finance Act, inserted clause (viia) in sub section (1) of Section 36 to provide for a deduction, in the computation of taxable profits of all scheduled commercial banks, in respect of provisions made by them for bad and doubtful debt(s) relating to advances made by their rural branches. The deduction is limited to a specified percentage of the aggregate average advances made by the rural branches computed in the manner prescribed by the IT Rules, 1962. Thus, the provisions of clause (viia) of Section 36(1) relating to the deduction on account of the provision for bad and doubtful debt(s) is distinct and independent of the provisions of Section 36(1) (vii) relating to allowance of the bad debt(s). In other words, the scheduled commercial banks would continue to get the full benefit of the write off of the irrecoverable debt(s) under Section 36(1) (vii) in addition to the benefit of deduction for the provision made for bad and doubtful debt(s) under Section 36(1) (viia) . A reading of the Circulars issued by CBDT indicates that normally a deduction for bad debt(s) can be allowed only if the debt is written off in the books as bad debt(s). No deduction is allowable in respect of a mere provision for bad and doubtful debt(s). But in the case of rural advances, a deduction would be allowed even in respect of a mere provision without insisting on an actual write off. However, this may result in double allowance in the sense that in respect of same rural advance the bank may get allowance on the basis of clause (viia) and also on the basis of actual write off under clause (vii) . This situation is taken care of by the proviso to clause (vii) which limits the allowance on the basis of the actual write off to the excess, if any, of the write off over the amount standing to the credit of the account created under clause (viia) . However, the Revenue disputes the position that the proviso to clause (vii) refers only to rural advances. It says that there are no such words in the proviso which indicates that the proviso apply only to rural advances. We find no merit in the objection raised by the Revenue. Firstly, CBDT itself has recognized the position that a bank would be entitled to both the deduction, one under clause (vii) on the basis of actual write off and another, on the basis of clause (viia) in respect of a mere provision. Further, to prevent double deduction, the proviso to clause (vii) was inserted which says that in respect of bad debt(s) arising out of rural advances, the deduction on account of actual write off would be limited to the excess of the amount written off over the amount of the provision allowed under clause (viia) . Thus, the proviso to clause (vii) stood introduced in order to protect the Revenue. It would be meaningless to invoke the said proviso where there is no threat of double deduction. In case of rural advances, which are covered by the provisions of clause (viia), there would be no such double deduction. The proviso limits its application to the case of a bank to which clause (viia) applies. Clause (viia) applies only to rural advances. This has been explained by the Circulars issued by CBDT. Thus, the proviso indicates that it is limited in its application to bad debt(s) arising out of rural advances of a bank. It follows that if the amount of bad debt(s) actually written off in the accounts of the bank represents only debt(s) arising out of urban advances, the allowance thereof in the assessment is not affected, controlled or limited in any way by the proviso to clause (vii).

Additional depreciation allowable qua industrial undertaking and not qua the whole business of the assessee.

2012-02-13T12:54:00.001+05:30

NRB Bearings Ltd Vs DCIT (ITAT Mumbai) -The Tax Payer was conducting manufacturing activities at four different locations across India. It had installed additional machinery to increase capacity at one of the locations i.e. the Aurangabad unit. The assessee claimed additional depreciation on the new machinery as per the provisions of the Income Tax Act which permits the assessee to additional depreciation on installation of new machinery. The same was allowed by the Tax Officers (TO) as well.

Later, The Commissioner of Income-tax (CIT) initiated revision proceedings under the powers given to him under the Act. The TO disallowed the additional depreciation as the increased installed capacity of the new machinery to the assessee’s entire business was less than10% which was a requirement under the conditions mentioned in the IT Act.

The Tax Court observed that each of the assessee’s units, even though manufacturing similar automobile components, were located in different places and were independent in their existence and manufacturing activity. Accordingly, each unit could be considered an independent industrial undertaking. Since, the assessee had claimed additional depreciation for only one unit and not on the entire assets of all the units, it will not be practical to consider

the capacity of the entire business if the assessee was manufacturing different products in different places. The TO was not justified in comparing the increased capacity with the entire business of the assessee. For granting additional depreciation to an existing unit, the increased capacity considered, should be with reference to the products manufactured in that particular undertaking. There was no dispute that the production capacity of the Aurangabad unit had increased by more than 10%. Accordingly, the assessee was eligible to claim additional depredation for the Aurangabad unit.

Service tax on Construction Services- CBEC Clarification

2012-02-13T12:50:00.001+05:30

Circular No. 151/2/2012-ST

F.No.332/13 /2011-TRU

New Delhi, 10th February, 2012

Many issues have been referred by the field formations, in the recent past, seeking clarification regarding the levy and collection of service tax on construction services [clauses (zzq),(zzzh) of section 65(105) of the Finance Act, 1994], in the light of varying business models. Across the country, divergent business models and practices are being followed in the construction sector. Some of these business models and practices could be region specific.
2. From the issues referred by the field formations, important ones have been identified model wise, examined and clarified as follows:
2.1. Tripartite Business Model (Parties in the model: (i) landowner; (ii) builder or developer; and (iii) contractor who undertakes construction): Issue involved is regarding the liability to pay service tax on flats/houses agreed to be given by builder/developer to the land owner towards the land /development rights and to other buyers.
Clarification: Here two important transactions are identifiable: (a) sale of land by the landowner which is not a taxable service; and (b) construction service provided by the builder/developer. The builder/developer receives consideration for the construction service provided by him, from two categories of service receivers: (a) from landowner: in the form of land/development rights; and (b) from other buyers: normally in cash.
(A) Taxability of the construction service:

(i) For the period prior to 01/07/2010: construction service provided by the builder/developer will not be taxable, in terms of Board’s Circular No.108/02/2009-ST dated 29.01.2009.

(ii) For the period after 01/07/2010, construction service provided by the builder/developer is taxable in case any part of the payment/development rights of the land was received by the builder/ developer before the issuance of completion certificate and the service tax would be required to be paid by builder/developers even for the flats given to the land owner.

(B) Valuation:

(i) Value, in the case of flats given to first category of service receiver, is determinable in terms of section 67(1)(iii) read with rule 3(a) of Service Tax (Determination of Value) Rules, 2006, as the consideration for these flats i.e., value of land / development rights in the land may not be ascertainable ordinarily. Accordingly, the value of these flats would be equal to the value of similar flats charged by the builder/developer from the second category of service receivers. In case the prices of flats/houses undergo a change over the period of sale (from the first sale of flat/house in the residential complex to the last sale of the flat/house), the value of similar flats as are sold nearer to the date on which land is being made available for construction should be used for arriving at the value for the purpose of tax. Service tax is liable to be paid by the builder/developer on the ‘construction service’ involved in the flats to be given to the land owner, at the time when the possession or right in the property of the said flats are transferred to the land owner by entering into a conveyance deed or similar instrument(eg. allotment letter).

(ii) Value, in the case of flats given to the second category of service receivers, shall be determined in terms of section 67 of the Finance Act, 1994.

2.2 Redevelopment including slum rehabilitation projects: Generally in this model, land is owned by a society, comprising members of the society with each member entitled to his share by way of an apartment. When it becomes necessary after the lapse of a certain period, society or its flat owners may engage a builder/developer for undertaking re-construction. Society /individual flat owners give ‘No Objection Certificate’ (NOC) or permission to the builder/developer, for re-construction. The builder/developer makes new flats with same or different carpet area for original owners of flats and additionally may also be involved in one or more of the following:

(i) construct some additional flats for sale to others;

(ii) arrange for rental accommodation or rent payments for society members/original owners for stay during the period of re-construction;

(iii) pay an additional amount to the original owners of flats in the society.

Clarification: Under this model, the builder/developer receives consideration for the construction service provided by him, from two categories of service receivers. First category is the society/members of the society, who transfer development rights over the land (including the permission for additional number of flats), to the builder/developer. The second category of service receivers consist of buyers of flats other than the society/members. Generally, they pay by cash.
(A) Taxability:

(i) Re-construction undertaken by a building society by directly engaging a builder/developer will not be chargeable to service tax as it is meant for the personal use of the society/its members. Construction of additional flats undertaken as part of the reconstruction, for sale to the second category of service receivers, will also not be a taxable service, during the period prior to 01/07/2010;

(ii) For the period after 01/07/2010, construction service provided by the builder/developer to second category of service receivers is taxable in case any payment is made to the builder/ developer before the issuance of completion certificate.

(B) Valuation:
Value, in the case of flats given to second category of service receivers, shall be determined in terms of section 67(1)(i) of the Finance Act, 1994.
2.3 Investment model: In this model, before the commencement of the project, the same is on offer to investors. Either a specified area of construction is earmarked or a flat of a specified area is allotted to the investors and as it happens in some places, additionally the investor may also be promised a fixed rate of interest. After a certain specified period an investor has the option either to exit from the project on receipt of the amount invested alongwith interest or he can re-sell the said allotment to another buyer or retain the flat for his own use.
Clarification: In this model, after 01/07/2010, investment amount shall be treated as consideration paid in advance for the construction service to be provided by the builder/developer to the investor and the said amount would be subject to service tax. If the investor decides to exit from the project at a later date, either before or after the issuance of completion certificate, the builder/developer would be entitled to take credit under rule 6(3) of the Service Tax Rules, 1994( to the extent he has refunded the original amount). If the builder/developer resells the flat before the issuance of completion certificate, again tax liability would arise.
2.4 Conversion Model: Conversion of any hitherto untaxed construction /complex or part thereof into a building or civil structure to be used for commerce or industry, after lapse of a period of time.
Clarification: Mere change in use of the building does not involve any taxable service, unless conversion falls within the meaning of commercial or industrial construction service.
2.5 Non requirement of completion certificate / where completion certificate is waived or not prescribed: In certain states, completion certificates have been waived or are considered as not required for certain specified types of buildings. Doubts have been raised, regarding levy of service tax on the construction service provided, in such situations.
Clarification: Where completion certificate is waived or is not prescribed for a specified type of building, the equivalent of completion certificate by whatever name called should be used as the dividing line between service and sale. In terms of the Service Tax (Removal of Difficulty) Order, 2010, dated 22/06/2010, authority competent to issue completion certificate includes an architect or chartered engineer or licensed surveyor.
2.6 Build- Operate – Transfer (BOT) Projects: Many variants of this model are being followed in different regions of the country, depending on the nature of the project. Build-Own-Operate-Transfer (BOOT) is a popular variant. Generally under BOT model, Government or its agency, concessionaire (who may be a developer/builder himself or may be independent) and the users are the parties. Risk taking and sharing ability of the parties concerned is the essence of a BOT project. Government or its agency by an agreement transfers the ‘right to use’ and/or ‘right to develop’ for a period specified, usually thirty years or near about, to the concessionaire.
Clarification: Transactions involving taxable service take place usually at three different levels: firstly, between Government or its agency and the concessionaire; secondly, between concessionaire and the contractor and thirdly, between concessionaire and users, all in terms of specific agreements.
At the first level, Government or its agency transfers the right to use and/or develop the land, to the concessionaire, for a specific period, for construction of a building for furtherance of business or commerce (partly or wholly). Consideration for this taxable service may be in the nature of upfront lease amount or annual charges paid by the concessionaire to the Government or its agency. Here the Government or its agency is providing ‘renting of immovable property service’ (renting of vacant land to be used for furtherance of business or commerce) and in such cases the concessionaire becomes the service receiver.
In this model, though the concessionaire is undertaking construction of a building to be used wholly or partly for furtherance of business or commerce, on the land provided by the government or its agency for temporary use, he will not be treated as a service provider since such construction has been undertaken by him on his own account and he remains the owner of the building during the concession period.
At the second level, transaction can take place between a concessionaire and the contractor. Where the concessionaire himself does not have exposure to construction sector, he may engage a contractor for undertaking construction of a building on the land, in respect of which right to use has been obtained in his favour, from the Government or its agency. If the concessionaire is himself a builder/developer, this level of transaction may not arise. Where an independent contractor is engaged by a concessionaire for undertaking construction for him, then service tax is payable on the construction service provided by the contractor to the concessionaire.
At the third level, the concessionaire enters into agreement with several users for commercially exploiting the building developed/constructed by him, during the lease period. For example, the user may be paying a rent or premium on the sub-lease for temporary use of immovable property or part thereof, to the concessionaire. At this third level, concessionaire is the service provider and user of the building is the service receiver. The concessionaire may provide to the users, taxable services such as ‘renting of immovable property service’, ‘business support service’, ‘management, maintenance or repair service’, ‘sale of space for advertisement’, etc. Service tax is leviable on the taxable services provided by the concessionaire to the users.
There could be many variants of the BOT model explained above and implications of tax may differ. For example, at times it is possible that the concessionaire may outsource the management or commercial exploitation of the building developed/constructed by him, to another person and may receive a pre-determined amount as commission. Taxable service here will be business auxiliary service and service tax is leviable on the commission.
(A) Taxability:

(i) the service provided by the Government or its agency to the concessionaire is liable to service tax;

(ii) the construction services provided by the contractor to the concessionaire would be examined from the point of taxability as to whether the activity is not otherwise excluded;

(iii) the services provided by the concessionaire to the user of the facility are liable to service tax;

(B) Persons liable to pay tax:
Government or its agency and concessionaire are liable to pay tax on the services being provided by them. There could be several other persons liable to pay service tax, depending on the variant of the BOT model followed.
2.7 Joint Development Agreement Model: Under this model, land owner and builder/developer join hands and may either create a new entity or otherwise operate as an unincorporated association, on partnership /joint / collaboration basis, with mutuality of interest and to share common risk/profit together. The new entity undertakes construction on behalf of landowner and builder/developer.
Clarification: Circular 148/17/2011-ST dated 13/12/2011, particularly paragraphs 7, 8, 9 apply mutandis mutandis in this regard.

Section 143(3) assessment order without AO’s signature is Void – ITAT Mumbai

2012-02-11T12:38:00.002+05:30

Vijay Corporation Vs. ITO (ITAT Mumbai) – Provisions of Sec. 143(3) of the Act contemplates that the AO shall pass an order of assessment in writing. The requirement of signature of the AO is therefore a legal requirement. The omission to sign the order of assessmenet cannot be explained by relying on the provisions of Sec.292B of the Act. Tax computation is a ministerial act as observed by the Hon’ble Supreme Court in the case of Kalyankumar Ray (supra) and can be done by the office of the AO if there are indications given in the order of assessment. But the notice of demand signed by the office of the AO without the existence of a duly signed order of assessment by the AO, in our view cannot be said to be a omission which was sought to be covered by the provisions of Sec.292B of the Act. If such a course is permitted to be followed than that would amount to delegation of powers conferred on the AO by the Act. Delegation of powers of the AO u/s. 143(3) of the Act is not the intent and purpose of the Act. An unsigned order of assessment cannot be said to be in substance and effect in conformity with or according to the intent and purpose of the Act.

RBI permission no longer required for cut in sanctioned ECB limit

2012-02-11T12:34:00.003+05:30

As per the extant ECB procedures, requests for reduction in the amount of ECB, changes in the drawdown schedule and reduction in the all-in-cost of the ECB after obtaining the loan registration number (LRN) is required to be referred by the bank concerned to the RBI for necessary approval. Simplifying norms for overseas borrowers, the RBI said vide A.P. (DIR Series) Circular No. 75 Dated -February 07, 2012 that they will no longer require its approval to raise an amount lesser than sanctioned ECB as the power to authorize the same has been delegated to banks.

“As a measure of simplification of existing procedures, it has been decided to delegate powers to the designated AD category-I banks to approve… requests from ECB borrowers for reduction in loan amount in respect of ECBs availed under the automatic route,” the Reserve Bank said in a circular.

The step comes at that time when more and more companies are resorting to external borrowings amid high interest rates in the domestic economy,

India Inc raised over $4.46 billion from overseas markets in December 2011, the latest month for which data is available, through external commercial borrowings (ECB) and foreign currency convertible bonds (FCCB) compared to $1.58 billion in November.

The RBI circular said the reduction in loan amount can be sanctioned if the consent of the lender for such a step been obtained. Besides, the average maturity period of the ECB has to be maintained and there has to be no change in the other terms and conditions of the ECB.

The apex bank also said that the drawdown schedule, or the estimate of the gradual transfer of the committed investment funds, can be modified or changed by the banks provided there are there are no changes in the repayment schedule of the ECB and the average maturity period of borrowing is reduced as against the original average maturity period stated at the time of obtaining the LRN.

The bank must also ensure that the reduced average maturity period complies with the stipulated minimum average as ECB guidelines.

“Any elongation/rollover in the repayment, on expiry of the original maturity, of the ECB, would however, continue to require the prior approval of the RBI,” it said.

The circular further said: “The designated AD Category-I bank may approve requests from ECB borrowers for reduction in all-in-cost, in respect of ECBs availed both under the automatic and approval routes.”

The all-in-cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian Rupees.

The modifications will come into immediate effect, the RBI said.

Clarification regarding Filing of conflicting ROC returns by contesting parties

2012-02-11T12:32:00.001+05:30

F. No. 17/135/2011-CL V

Government of India, Ministry of Corporate Affairs

Dated the 10th February 2012

I am directed to invite a reference to Ministry’s circular No. 19 and 20 of 2011 issued on 02.05.2011 laying down certain procedure to regulate cases wherein filing of conflicting returns with regard to appointment of Directors or change of Director/Directors was laid down. In the light of some specific cases wherein it appears that either there was lack of consent of the removed/changed director or due process of Law were not followed, it has been decided to supercede the circulars.

2. In order to avoid such eventualities wherever there is management dispute, the company is required to mandatorily file the attachment relating to cause of cessation alongwith Form 32 with the ROC concerned irrespective of the ground of cessation, viz (a) retirement; (b) disqualification; (c) death; (d) resignation; (e) vacation of office u/s 283 or 313 or 260; (f) removal u/s 284; (g) withdrawal of nomination by appointing authority or (h) absence of re-appointment.

3. In case, any Director is aggrieved with his cessation in the company, he may file complaint in the Investor Complaint Form. On receipt of complaint, the ROC concerned will examine the complaint and mark the company as having ‘management dispute’. Also, the ROC will issue a letter to the company and the parties to settle the matter amicably or get an order/interim order from a Court or Tribunal of competent jurisdiction. Till such dispute is settled, the documents filed by the company and by the contesting groups of Directors will not be approved/registered/recorded and will thus not be available in the registry for public viewing.

Can excess TDS Paid for last Financial year can be adjusted against current financial year

2012-02-10T13:41:00.003+05:30

The answer is ‘NO’ there is no such provisions in the Income tax Act /rules to adjust the same by assesee himself. If the excess is related to perriod up to 31.03.2010 then Assesssee can claim refund of the same as per the provisions of CIRCULAR NO. 2/2011 [F.NO. 385/25/2010-IT(B)], DATED 27-4-2011.
All refund related to period on or after 01.04.2010 are governed by the Provisions of section200A of the Income Tax Act, 1961.

[Processing of statements of tax deducted at source.

200A. (1) Where a statement of tax deduction at source has been made by a person deducting any sum (hereafter referred to in this section as deductor) under section 200, such statement shall be processed in the following manner, namely:—

(a) the sums deductible under this Chapter shall be computed after making the following adjustments, namely:—

(i) any arithmetical error in the statement; or

(ii) an incorrect claim, apparent from any information in the statement;

(b) the interest, if any, shall be computed on the basis of the sums deductible as computed in the statement;

(c) the sum payable by, or the amount of refund due to, the deductor shall be determined after adjustment of amount computed under clause (b) against any amount paid under section 200 and section 201, and any amount paid otherwise by way of tax or interest;

(d) an intimation shall be prepared or generated and sent to the deductor specifying the sum determined to be payable by, or the amount of refund due to, him under clause (c); and

(e) the amount of refund due to the deductor in pursuance of the determination under clause (c) shall be granted to the deductor :

Provided that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the statement is filed.

Explanation.—For the purposes of this sub-section, “an incorrect claim apparent from any information in the statement” shall mean a claim, on the basis of an entry, in the statement—

(i) of an item, which is inconsistent with another entry of the same or some other item in such statement;

(ii) in respect of rate of deduction of tax at source, where such rate is not in accordance with the provisions of this Act.

(2) For the purposes of processing of statements under sub-section (1), the Board may make a scheme for centralised processing of statements of tax deducted at source to expeditiously determine the tax payable by, or the refund due to, the deductor as required under the said sub-section.]

Bank Guarantee Commission not liable to TDS U/s. 194H as it is is not a transaction between principal and agent

2012-02-10T13:36:00.000+05:30

Kotak Securities Limited vs. DCIT (ITAT Mumbai) – When we look at the connotations of expression ‘commission or brokerage’ in its cognate sense, as in the light of the principle of noscitur a sociis as we are obliged to, in our considered view, scope of expression ‘commission’, for this purpose, will be confined to ‘an allowance, recompense or reward made to agents, factors and brokers and others for effecting sales and carrying out business transactions’ and shall not extend to the payments, such as ‘bank guarantee commission’, which are in the nature of fees for services rendered or product offered by the recipient of such payments on principal to principal basis. Even when an expression is statutorily defined under section 2, it still has to meet the test of contextual relevance as section 2 itself starts with the words “In this Act ( i.e. Income Tax Act), unless context otherwise requires…”, and, therefore, contextual meaning assumes significance. Every definition in the Income Tax Act must depend on the context in which the expression in set out, and the context in which expression ‘commission’ appears in section 194 H, i.e. alongwith the expression ‘brokerage’, significantly restricts its connotations. The common parlance meaning of the expression ‘commission’ thus does not extend to a payment which is in the nature of fees for a product or service; it must remain restricted to , as has been elaborated above, a payment in the nature of reward for effecting sales or business transactions etc. The inclusive definition of the expression ‘commission or brokerage’ in Explanation to Section 194H is quite in harmony with this approach as it only provides that “any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities” is includible in the scope of meaning of ‘commission or brokerage’. Therefore, what the inclusive definition really contains is nothing but normal meaning of the expression ‘commission or brokerage’. In the case of South Gujarat Roofing Tiles Manufacturers Association Vs State of Gujarat [(1976) 4 SCC 601], Hon’ble Supreme Court were in seisin of a situation in which an expression, namely ‘processing’, was given an inclusive definition, but Their Lordships were of the view that “there could be no other meaning of ‘processing’ besides what is stated as included in that expression” and that “Though ‘include’ is generally used in interpretation clause as a word of enlargement, in some cases context might suggest a different intention’. Their Lordships then concluded that though the expression used in the definition clause is ‘includes’, “it seems to us that the word ‘includes’ has been used here in the same sense of ‘means’; this is the only construction that the word can bear in this context”. In other words, an inclusive definition, as Their Lordships noted, does not necessarily always extend the meaning of an expression. When inclusive definition contains ordinary normal connotations of an expression, in our considered view, even an inclusive definition has to be treated as exhaustive. That is the situation in the case before us as well. Even as definition of expression ‘commission or brokerage’, in Explanation to Section 194 H, is stated to be exclusive, it does not really mean anything other than what has been specifically stated in the said definition. Therefore, as held by the coordinate benches in a number of cases including SRL Ranbaxy Ltd vs ACIT (ITA No. 434/Del/11; order dated 16.12.2011), Fosters India Ltd Vs ITO (117 TTJ 346), and Ajmer Zila Dugdh Utpadak Sangh Ltd Vs ITO (34 SOT 216), principal agent relationship is a sine qua non for invoking the provisions of Section 194 H. In the case before us, there is no principal agent relationship between the bank issuing the bank guarantee and the assessee. When bank issues the bank guarantee, on behalf of the assessee, all it does is to accept the commitment of making payment of a specified amount to, on demand, the beneficiary, and it is in consideration of this commitment, the bank charges a fees which is customarily termed as ‘bank guarantee commission’ . While it is termed as ‘guarantee commission’, it is not in the nature of ‘commission’ as it is understood in common business parlance and in the context of the section 194H. This transaction, in our considered view, is not a transaction between principal and agent so as to attract the tax deduction requirements under section 194H. We are, therefore, of the considered view that the CIT(A) indeed erred in holding that the assessee was indeed under an obligation to deduct tax at source under section 194 H from payments made by the assessee to various banks. As we have held that the assessee was not required to deduct tax at source under section 194 H, the question of levy of interest under section 201(1A) cannot arise. In view of the above discussions, we quash the impugned demands under section 201(1) and 201(1A) r.w.s. 194 H .

Loss from windmill business can be set off against other heads of income

2012-02-10T13:34:00.002+05:30

DCIT Vs. M/s. Bellad & Co. (ITAT Bangalore) -

Facts:- The assessee is a partnership firm dealing in automobiles and Sony products and also into generation of electricity from windmills. The assessee filed its return of income for AY 2007-08 declaring income of Rs.11,52,410/- after setting off of depreciation loss pertaining to windmill installed during the financial year relevant to assessment year under appeal. The AO, in the assessment completed, disallowed loss of Rs. 1,22,30,626/-.

Held- Since the issue in the instant case is directly covered by the judgment of the Hon’ble jurisdictional High Court cited supra, we are of the view that the order of the first appellate authority directing the AO to set off loss from windmill business against other heads of income of the assessee is justified and no interference is called for.

Unclaimed Deposits/ Inoperative Accounts in Banks – Display list of Inoperative Accounts

2012-02-10T12:50:00.001+05:30

RBI/2011-12/389
DBOD.No.Leg.BC. 81/09.07.005/2011-12

February 7, 2012

All Scheduled Commercial Banks
(excluding RRBs)

Unclaimed Deposits/ Inoperative Accounts in Banks – Display list of Inoperative Accounts

Please refer to our Circular DBOD.No.Leg.BC.34/09.07.005/2008-09 dated August 22, 2008, wherein detailed instructions have been given to banks on dealing with unclaimed deposits / inoperative accounts. They have been advised to find the whereabouts of the customers and their legal heirs. These instructions, inter alia, include i) annual review of accounts in which there are no operations, ii) operations in such accounts to be allowed after due diligence and iii) no charge to be levied for activation of inoperative account, etc.

2. Keeping in view public interest, it has been decided that banks should, in addition to the instructions contained in the above mentioned circular, play a more pro-active role in finding the whereabouts of the accountholders of unclaimed deposits/ inoperative accounts. Banks are, therefore, advised that they should display the list of unclaimed deposits/inoperative accounts which are inactive / inoperative for ten years or more on their respective websites. The list so displayed on the websites must contain only the names of the account holder(s) and his/her address in respect of unclaimed deposits/inoperative accounts. In case such accounts are not in the name of individuals, the names of individuals authorized to operate the accounts should also be indicated. However, the account number, its type and the name of the branch shall not be disclosed on the bank’s website. The list so published by the banks should also provide a “Find” option to enable the public to search the list of accounts by name of the account holder.

3. Banks should also give on the same website, the information on the process of claiming the unclaimed deposit/activating the inoperative account and the necessary forms and documents for claiming the same. Banks are required to have adequate operational safeguards to ensure that the claimants are genuine.

4. Banks should complete action as above by June 30, 2012 and keep their websites updated at regular intervals.

No Penalty for wrong / non furnishing of PAN in TDS return if Asseee files later revised return with Correct PAN

2012-02-10T12:47:00.003+05:30

ITO (TDS) Panchkula v. Bharat Electronics Ltd. (ITAT Chandigarh) – ‘ Tax deductor’ is the holder of tax deduction and collection account Number RTKBO 1838 E. The TDS quarterly statement of deduction of Tax in Form No. 24Q for Financial year 2008-09 relevant to Assessment Year 2009-1 0. as required under sub-sec (3) of Sec 200 of the Act was filed on 22.7.2009. The ITO (TDS) while going through the quarterly return in Form NO. 24Q filed by the assessee noted that it has omitted to quote PAN/has quoted invalid PAN in 64 cases. The ITO(TDS) has afforded number of opportunities to the assessee to explain his position and file the correct details in this regard. However, the assessee did not file any reply due to which the AO concluded that the assessee has committed a default u/s 139A(5B) for which penalty u/s 272B(1) of the Act is leviable. The ITO (TDS) therefore, levied a penalty of Rs. 6,40,000/- @ of Rs. 10,000/- per default vide his order dated 26.7.2010.

On Appeal ITAT has held that it is apparent from the record that the assessee deducted TDS correctly and revised the PAN and filed revised statement in Form No. 26Q, hence there was sufficient compliance of the provisions of section 139A of the Act. Even otherwise the assessee did not derive any benefit whatsoever, by filing the wrong PANs and PAN was corrected after ascertaining the same from the respective deductees. In our view the assessee has proved that there was reasonable cause for alleged failure and hence no penalty is leviable. Even otherwise also no penalty is leviable when there is a technical or venial breach of the Act.

TDS credit to be allowed if difference between the TDS claim and matching TDS amount reported in AS-26 data does not exceed Rs. One lac

2012-02-04T12:07:00.004+05:30

Instruction No. 01/2012 [F.NO.225/34/2011-ITA.II], dated 2-2-2012
The issue of processing of returns for the Asst. Year 2011-12 and giving credit for TDS has been considered by the Board. In order to clear backlog of returns, the following decisions have been taken:
(i) In all returns (ITR-1 to ITR-6), where the difference between the TDS claim and matching TDS amount reported in AS-26 data does not exceed Rs. One lac, the TDS claim may be accepted without verification.
(ii) Where there is zero TDS matching, TDS credit shall be allowed only after due verification. However, in case of returns of ITR-1 and ITR-2, credit may be allowed in full, even if there is zero matching, if the total TDS claimed is Rs. Five thousand or lower.
(iii) Where there are TDS claims with invalid TAN, TDS credit for such claims are not to be allowed.
(iv) In all other cases, TDS credit shall be allowed after due verification.

Budget 2012 may include DTC norms to avoid Vodafone-like disputes

2012-02-02T20:55:00.001+05:30

To avoid disputes like the Vodafone tax case in future, government is contemplating incorporation of provisions on taxation of overseas deals from the stalled Direct Taxes Code (DTC) Bill in the Budget for 2012-13.
"The Direct Taxes Code Bill contains a proposal to tax similar transactions... We are planning to include that provision in the Finance Bill so that in future, such issues do not arise," a top Finance Ministry official said.
In a judgement that will have revenue implications of about Rs 11,000 crore, the Supreme Court last week set aside the Bombay High Court's decision in favour of the Income Tax Department on the Rs 11,000 crore tax demand on Vodafone International Holdings following its overseas acquisition of interest in Hutchinson-Essar Limited in 2007.
The apex court had also asked the I-T Department to return Rs 2,500 crore deposited by Vodafone International Holdings within two months, along with 4 per cent interest

Bonanza for salaried class in Budget 2012-13?

2012-02-02T20:51:00.002+05:30

Union Budget 2012-13 may bring cheer to the salaried class as the Centre is said to be mulling a restructuring of the income tax slab.
According to reports, Monday, Union Finance minister Pranab Mukherjee may announce a rejig in income tax slabs and also increase the income tax exemption limit from the existing Rs 1.8 lakh to at least Rs 2 lakh.
A newspaper report said that the new tax slabs could be in line with the Direct Taxes Code Bill, which was introduced in Parliament in 2010.

Assessee cannot be held to be a trader in shares with respect to delivery basis transaction

2012-02-02T11:37:00.001+05:30

ACIT Vs. Mrs. Rajpal Sethi (ITAT Mumbai) – AO in the case of assessee while making the assessment for the assessment year 2004-05 has accepted the short term capital gain and the long term capital gain on sale of shares vide order dated 22.12.2006 passed u/s 143(3) of the Act, therefore, we are of the view that the assessee’s case is squarely covered in favour of the assessee by the decision of the Tribunal in the case of Shri Satpal Singh Sethi (supra). This being so and in the absence of any distinguishing features or contrary material brought on record by the Revenue, we respectfully following the consistent view of the Tribunal and the ratio of the decision of the Hon’ble Jurisdictional High Court in the aforementioned cases, hold that the ld. CIT(A) was fully justified in directing the AO to accept the appellant’s claim of short term capital gain and long term capital gain on share transactions, where the delivery has been taken or given and Security Transaction Tax has been paid.

Private Sector Banks as Agency Banks of RBI can handle Govt. business

2012-02-02T11:31:00.004+05:30

Reserve Bank of India has said that all private sector banks will now be considered eligible to handle any Central or State Government at par with public sector banks.

Till now, only three private banks, namely ICICI Bank Ltd, HDFC Bank Ltd and Axis Bank Ltd were appointed by RBI as its agents to carry out limited general banking business.
In a notification issued from Mumbai on Tuesday, RBI said that this move would improve customer convenience by increasing the number of customer service outlets. It will also broadbase the revenue collection and payments mechanism of Central and State governments.
In this connection, all banks intending to handle Government business need to send a proposal to the Controller General of Accounts for examination.
For State Government business, the concerned Department of the State may work out the arrangement and approach the Finance Department of the State which will recommend the proposal to the Regional Director of RBI for the State. These revised guidelines have come into effect immediately.

Assessee not required to prove the source of source

2012-02-01T12:33:00.004+05:30

DCIT Vs. R. R.Builders (ITAT Mumbai) – There is no dispute that the partners of the assessee firm are also partners of the firm M/s Adarsh Octroi Services, Mumbai. We further find that the amount of Rs.5,25,000/- each was withdrawn by Shri Rafique Shakur Shekhani and Shri Sayed Rasul Shaikh partners of the firm on 15.4.2005 from their partnership firm M/s M/s Adarsh Octroi Services, Mumbai as per copy of cash book filed and the same amount was deposited by both the partners with the assessee firm on the same date. We further find that Rs.2,500/- each was deposited by Shri Rafique Shakur Shekhani and Shri Sayed Rasul Shaikh on 23.2.2006 out of their previous withdrawals from the same firm. Since the partners have proved the source of deposits and in the absence of any contrary material placed on record by the Revenue that there is no such corresponding withdrawals in the firm M/s M/s Adarsh Octroi Services or withdrawals made by the partners of the firm have been utilized for some other purpose and not for making deposits in the assessee’s firm and also keeping in view that it is settled law that the assessee is not required to prove the source of source, we hold that the ld. CIT(A) was fully justified in deleting the addition of Rs.10,55,000/- made by the AO. As regard the remaining amount of addition of Rs.5,000/-, we find that as per partners’ capital account there is no such deposit by the partners with the firm and in the absence of any basis for making such addition, we uphold the order of the CIT(A) in deleting the addition made by the AO. The ground taken by the Revenue is, therefore, rejected.

CBDT Extends last date for submission of ITR-V for A.Y. 2011-12

2012-02-01T12:31:00.003+05:30

Income tax department has informed by way of notice on its website that due date for submission of ITR-V for A.Y. 2011-12 has been extended upto 31.03.2012 or 120 days from the date of upload whichever is later.

Exemption u/s. 54 in respect of more than one residential flat acquired by the assessee under a joint development agreement with builder

2012-01-30T20:02:00.002+05:30

CIT v. Smt. K. G. Rukminiamma (2011) 331 ITR 211 (Kar.)

The assessee, being the owner of a property, entered into a joint development agreement with a builder to develop the property. Under the agreement, the builder constructed eight residential flats and handed over four residential flats to the assessee. The entire cost of construction and other expenses were borne by the builder.

The issue under consideration is whether capital gains exemption under section 54 can be claimed in respect of the four residential flats treating them as “a residential house”. In the present case, the Revenue contended that the benefit of deduction under section 54 could be availed only in respect of one residential flat and in respect of the remaining three residential flats, the assessee was not entitled to deduction under section 54.

The Karnataka High Court, applying the decision in Anand Basappa (2009) 309 ITR 329 (Kar.) to the present case, held that all the four flats are situated in the same residential building and hence, will constitute “a residential house” for the purpose of section 54. Therefore, the assessee would be entitled to deduction under section 54 in respect of all four flats.

If agreement was on principal-to-principal basis, payments made by the assessee to the distributor cannot be treated as commission liable for TDS U/s. 194H

2012-01-30T20:00:00.003+05:30

CIT v. Jai Drinks (P.) Ltd. (Delhi HC) -In the insantt case, it was held that sInce the agreement between the assessee and the distributor clearly stated that the agreement was on principal-to-principal basis, payments made by the assessee to the distributor were incentives and discounts and were not to be treated as commission liable for deduction of tax at source under section 194H of the Act.

Allowability of bad debts under section 36(1)(vii)

2012-01-28T12:23:00.004+05:30

ACIT vs Ashima Dyecot Pvt. Ltd. (ITAT Ahmedabad) – After the amendment of section 36(1)(vii) of the Income-tax Act, 1961, with effect from April 1, 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable: it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee.

Highlights of Revised Public Provident Fund (PPF) Scheme w.e.f 01.12.2011

2012-01-28T12:18:00.001+05:30

Interest 8.6% w.e.f 01.12.2011 (subject to change as per GOI/RBI directives) to be applied annually.

(1) This Scheme may be called the Public Provident Fund (Amendment) Scheme, 2011

(2) It shall come into force on the 1^st day of December 2011

(3) The Public Provident Fund scheme is a statutory scheme of the Central Government framed under the provisions of the Public Provident Fund Act, 1968.

(4) The account can be opened in any branch of the State Bank of India or its Associates (except offices managed by single officer/clerk) or in any Head Post Office or any selection grade sub post office or in any of the nationalised banks.
(5) An individual can open a Public Provident Fund Account in his own name. He can also open an additional account on behalf of a minor of whom he is guardian. He can subscribe any amount in multiples of Rs. 5/- of not less than Rs.500/- and not more than Rs.1,00,000/- in a year in each of his account. A year for the purpose of the Scheme means a financial year (1st April to 31st March). The deposits in excess of Rs. 1,00,000 made during a year will not carry any interest and will not be eligible for rebate.
(6) Those having General Provident Fund or Employees’ Provident Fund Account can also open a Public Provident Fund Account.
(7) An individual can open only one account in his/her name either in Post office or in Bank. If two accounts are opened by the subscriber in his/her name by mistake, the second account will be treated as irregular and will not carry interest.

(8) The subscriptions can be deposited in lumpsum or in convenient installment of not more than 12 installments.

(9) It is not necessary to deposit subscription in every month of the year. The amount of subscription can also be varied to suit the convenience of the subscriber.
(10) The account can be transferred at the request of the subscriber from one office of SBI or its Associates to Head Post Office or vice versa.
(11) The account can be closed after completion of 15 full financial years or the expiry of 15 years from the close of the financial year in which the initial subscription was made. This is, of course, optional and the subscriber can continue the account even after the period of 15 years for any number of further blocks of 5 years by exercising an option in form ‘H’.
(12) A subscriber can take a loan from the fund in case of need. The first loan can be taken in the third year of opening the account i.e., if the account is opened during the year 1997-98, the first loan can be taken during the year 1999-2000. The amount of loan will be restricted to 25% of the balance including interest for the year 1997-98 in the account as on 31.3.1998.
(13) A subscriber can make one withdrawal during any one year. The first withdrawal can be made at any time after the expiry of 5 full financial years from the end of the year in which the initial subscription was made (i.e. from the 7th year onwards). The amount of withdrawal will be limited to 50% of the balance at credit at the end of the 4th year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower. For example, if the account is opened in 1993-94 and first withdrawal is made during 1999-2000 the amount of withdrawal will be limited to 50% of the balance as on 31.03.1996 or 31.03.1999 whichever is lower, less the amount of loan if any drawn and which remains to be re-paid. The amount of withdrawal is not repayable. The balance as on 31.03.1996 or 31.03.1999 will include interest upto year 1995-1996 or 1998-1999 as case may be.
(14) A subscriber may nominate one or more persons to receive the amount standing to his credit in the event of his death. No nomination can, however, be made in respect of an account opened on behalf of the minor. In the event of death of the subscriber, the amount standing to his credit can be repaid to his nominee or legal heir, as the case may be, even before the expiry of 15 years.
(15) Subscriptions to Public Provident Fund qualify for deduction from the taxable income of the subscriber for Income Tax purpose like contributions to Provident Fund, Life Insurance, etc.
(16) The interest credited to the fund is totally exempt from Income Tax.
(17) The amount standing to the credit of the subscriber in the fund is totally exempt from Wealth Tax.
(18) The Account Office (including office of SBI and its Associates) can condone default in payment of subscriptions in the PPF account by charging the prescribed fee along with arrears of subscriptions.
(19) The PPF account is not transferable from one person to another. In the case of death of the subscriber the nominee cannot continue the account of deceased subscriber.
(20) The PPF account cannot be opened in the joint names. Further such account cannot be opened in the name of artificial / judicial persons.
(21) The balance in the PPF account is not subject to attachment under an order or decree of court in respect of any debt or other liability (other than Income Tax / Estate duty liability of the subscriber).

(22) If the subscriber dies and there is no nomination at the time of death, the balance in the account, if it is upto one lakh, will be paid by the Accounts Office to the legal heirs of the deceased on receipt of application in Form G supported with necessary documents without the production of succession certificate. If the balance is more than one lakh, the production of Succession certificate will be necessary.

(23) The account in which subscriptions are discontinued for any reason, will be treated as discontinued account and cannot be closed before maturity. The account will be closed only after maturity and it will continue to earn interest till it is closed after maturity. The facility of loan or withdrawal will not be allowed from such an account. The account can be regularized by remitting a penalty of Rs.50/- per Financial Year and Rs.500/- per Financial Year (minimum remittance for a Financial Year). The penalty amount should be credited to Government of India / Reserve Bank of India.

(24) When the account is sought to be withdrawn from the minor’s account, the guardian should give the following certificate on application for withdrawal.

” Certified that the amount sought to be withdrawn is required for the use of ………………………… Who is alive and is still a minor.”

(25) If the account is opened in the name of the minor and the minor attains majority before the maturity of the account, the ex-minor will himself continue the account thereafter. He will submit a revised application form for opening the account to the Accounts Office. His signature on the application form will be attested by the guardian who opened the account of the minor or by a respectable person known to the Branch.

(26) The ceiling on deposits as provided for by Central Government from time to time, which is Rs.1,00,000/- in a financial year at present, is per Individual.

(27) Income Tax Deduction U/s. 80C is available on investment in PPF .

No addition can be made U/s. 68 if Assessee furnished Acknoledgement of Income Tax Returns of persons who advanced money

2012-01-25T13:46:00.002+05:30

ACIT Vs. M/s Kiran Pal Singh (ITAT Delhi)- In this case also before the Assessing Officer, the assessee had stated that all the partners are assessed to income tax and they have also furnished the acknowledgement of the returns filed by all the partners. Therefore, if the Assessing Officer had any doubt about the credit worthiness of the partners, he could have verified either from their individual income tax files or could have asked those partners to explain the source of credit. In view of the above, respectfully following the above decision of the Hon’ble Apex Court in the case of Orissa Corporation P.Ltd., we uphold the order of the learned CIT(A) and dismiss the appeal filed by the Revenue

Valuation of Interest free/ concessional loan to employee – SBI Interest rate on 01.04.2011 for computing Perquisite Value

2012-01-25T13:44:00.004+05:30

Interest free or concessional loans- Rule 3(7)(i) – It is common practice, particularly in financial institutions, to provide interest free or concessional loans to employees or any member of his household. The value of perquisite arising from such loans would be the excess of interest payable at prescribed interest rate over interest, if any, actually paid by the employee or any member of his household. The prescribed interest rate would now be the rate charged per annum by the State Bank of India as on the 1st day of the relevant financial year in respect of loans of same type and for the same purpose advanced by it to the general public. Perquisite value would be calculated on the basis of the maximum outstanding monthly balance method. For valuing perquisites under this rule, any other method of calculation and adjustment otherwise adopted by the employer shall not be relevant.

However, small loans up to Rs. 20,000/- in the aggregate are exempt. Loans for medical treatment specified in Rule 3A are also exempt, provided the amount of loan for medical reimbursement is not reimbursed under any medical insurance scheme. Where any medical insurance reimbursement is received, the perquisite value at the prescribed rate shall be charged from the date of reimbursement on the amount reimbursed, but not repaid against the outstanding loan taken specifically for this purpose.

Calculation of Value of Interest Free Loan

Any loan given free of interest or concessional interest shall be a taxable perquisite and calculated as follows:

• Interest calculated at the rate charged by State Bank of India as on 1st day of previous year on loan for the same purpose. This is to be calculated on maximum outstanding monthly balance.

• Less actual interest paid by employee.

Exceptions

• Loan upto Rs. 20,000.

• Loan for medical purposes for prescribed diseases

Steps to calculate value of Perquisite

Step 1 : Calculate maximum outstanding monthly balance at the end of every month

Step 2 : Find out rate of interest charged by SBI as on 1st April of previous year in case of similar loan

Step 3 : Calculate interest on amount as per Step 1 @ Rate as per Step 2 for each month

Step 4 : Total of interest for the year as per Step 3

Step 5 : Less : Interest charged from employee

Step 6 : Balance amount is the value of perquisite in respect of interest free / concessional loan

State Bank of India: Interest Rates on 1^st April, 2011 For the purpose of computing perquisite valuation

Interest rates as on 1^st April, 2011 on various loans in Personal Segment advances are as under –

1. Home Loans
Loan amount	Upto Rs.30 lacs	Above Rs. 30 lacs to Rs. 75 lac		Above Rs.75 lac to Rs.5 Cr.	Above 5 cr.
Interest rate during 1^st year	8.75% .	8.75% .		10%	10.25%
Interest rate during 2^nd & 3 rd year	9.50%.	9.50%		10%	10.25%
Interest rate from 4^th year onwards	9.75%	10.00%		10%	10.25%
2. Car Loans
Loan amount	Below Rs.5 lacs		Rs.5 lacs and above
Interest rate during 1^st year	9.25% p.a.		9.25% p.a.
Interest rate during 2^nd & 3 rd year	10.25% p.a.		10.25% p.a.
Interest rate for 4^th & 5^th year	11.25%		11.00%
Interest rate for 6^th & 7^th year	11.25%		11.00%
Used Cars
Up to 3 years	15.50 %
Above 3 years and upto 7 years	15.75 %
3. Two wheeler
Upto 3 years	16.50%
4. Education loans
SBI Student Loans*	upto Rs.4 Lac – 12.00%Loans above Rs.4 Lac and upto 7.50 lacs – 13.50%Loans above Rs.7.5. Lac- 12.5%
5. Personal loans
Xpress credit (Demand Loan)	13.25% TO 15.25%
Xpress credit (Overdraft)	No Overdraft
SBI Saral	16.75%
6. Loans against NSCs/KVPs/RBI Relief Bonds/Surrender value of SBI Life/LIC/SBI Magnums etc.
Upto 3 years	12.75%
More than 3 years and upto 6 years	12.75%
7. Loans against Gold Oranaments	Upto Rs.1 lac:12.50%Above Rs.1 lac:13%

* 0.50% additional concession for girl students w.e.f. 02.03.2009

Retrospective amendment no basis to reopen beyond 4 years – HC Disapproves AO’s Practice to Delay Passing Objection Orders

2012-01-23T13:30:00.003+05:30

Doshion Ltd. Vs. ITo (Ahmedabad HC) – Having thus heard learned counsel for the parties and having perused the documents on record, it clearly emerges that the assessment previously framed after scrutiny is sought to be reopened beyond the period of 4 years from the end of relevant assessment year. In the reasons recorded, the Assessing Officer has not suggested that such income escaped assessment for the failure on the part of the assessee to disclose truly and fully all material facts. In fact the sole ground on which such scrutiny assessment is sought to be reopened beyond 4 years is that by virtue of Explanation to Section 80IA added with retrospective effect from 1.4.2000, income derived from the works contract would not qualify for deduction under Section 80IA of the Act. Firstly,we are of the opinion that by virtue of such retrospective amendment assessment previously framed after scrutiny could not have been reopened beyond the period of 4 years without any thing on record to suggest that the income chargeable to tax had escaped assessment for the failure on the part of the assessee to fully and truly disclose all material facts. We may notice that the Explanation in question, which was introduced in the year 2009 but with retrospective effect from 1.4.2000 reads as under:-

“ Explanation- For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1).”
It may be that in a given case on account of such Explanation, the assessee may be disentitled to claim deduction under Section 80IA of the Act. However, this is not the same thing to suggest that assessment previously framed that too after scrutiny could be reopened beyond the period of 4 years without any failure on the part of the assessee to disclose truly and fully all material facts.

Objections raised by the assessee against the notice for reopening remained pending with the Assessing Officer for nearly 6 months. Sometime in the middle of December, 2011 the Assessing Officer disposed of such objections and, thereafter proceeded to pass the final order of assessment in less than two weeks. Had this been an isolated case of such nature, we would have passed it off as one-off instance. However, such tendency to delay disposing of the objections and, thereafter at the fag end of final time limit, to frame the assessment, is noticed in more cases than one. We cannot approve of such tendency. This we are sure was not the intention of the Apex Court when the decision in the case of GKN Driveshafts (India) Ltd. vs. Income-Tax Officer and others reported in [2003]259 ITR 19 was rendered. We are sure this would be brought to the notice of the Assessing Officers by the Department so that such instances do not recur in future. Petition is disposed of accordingly.

Apply online for re-sending of CPC-Intimation u/s 143(1)/154 and income Tax Refund

2012-01-20T19:17:00.003+05:30

The process of request for re-sending of CC-Intimation u/s 143(1)/154 and refund is now available in ‘Services’ option. The Assessee who filed there income tax return online can now request online for resend of there intimation under section 143(1) and section 154 of the Income tax Act, 1961. Assessee can also place request for re-issue of income tax Refund.

New Guidelines for preferential allotment by unlisted public companies

2012-01-19T13:57:00.002+05:30

On 14 December 2011 the Ministry of Corporate Affairs (MCA) has issued Unlisted Public Companies (Preferential Allotment) Amendment Rules, 2011 (Amendment Rules) which is effective from the date of publication in Official Gazette. The Amendment Rules provide for amendment of Unlisted Public Companies (Preferential Allotment) Rules, 2003 (2003 Rules). The Amendment Rules does not replace the 2003 Rules but makes few significant additions.

Key Highlights of Preferential Allotment Amendment Rules 2011:

Definition of ‘Preferential Allotment’: It is amended to specifically include allotment of convertible instrument including hybrid instruments convertible into shares.2003 Rules definition included issue of shares to promoter and relatives in public issue, which will not be included post amendment.
Special Resolution: Requirement of special resolution is made specifically applicable to issue of convertible instrument including hybrid instruments convertible into shares.Under 2003 Rules such requirement was applicable only to issue of shares.
The offer for preferential allotment cannot be made to more than 49 persons.
Any offer or invitation not in compliance with provisions of Section 81 (1A) read with section 67(3) of the Companies Act, 1956 (the Act) would be treated as public offer and provisions of the SCRA, 1956 and SEBI Act, 1992 will need to be complied with.
The money payable on subscription should be paid only by way of cheque or DD or other banking channels but not by cash.
Allotment of securities should be completed within 60 days from the receipt of application money. If not so allotted, the company should repay application money within 15 days thereafter, failing which it should be repaid along with an interest @ 12percent p.a.
The application money should be kept in a separate bank account and should not be utilized prior to allotment.
Company offering securities can not release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about the offer.
Details of proposed allottees should be included in the Special Resolution.• Allotment of securities should be completed within 60 days from the receipt of application money. If not so allotted, the company should repay application money within 15 days thereafter, failing which it should be repaid along with an interest @ 12percent p.a.
The application money should be kept in a separate bank account and should not be utilized prior to allotment.
Company offering securities can not release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about the offer.
Details of proposed allottees should be included in the Special Resolution.

Sebi cut the timeline for completion of buy back of shares by listed companies to 34-44 days

2012-01-18T12:52:00.004+05:30

Sebi has reduced the timeline for completion of buy back of shares by companies to 34-44 days. Earlier, the buyback process could take anywhere between 63 and 114 days. These changes form a part of amendments made by the regulator in the Sebi (Buy back of Securities) Regulations, 1998. They have come into effect from January 3.

“The timeline for various activities involved in the buyback process have been revised, which shall result in substantial reduction of time taken for completion of buyback,” the market regulator said while announcing the changes. The regulator has also effected changes in buyback through tender offer. The decision could help the government in getting closer to its ambitious disinvestment target of Rs 40,000 crore for the current financial year.

The government has fixed a mammoth Rs 40,000 crore disinvestment target for the fiscal, but till date it has only managed to raise Rs 1,145 crore by selling its shares in the Power Finance Corporation. The state-owned companies had to put their public issues on hold in view of volatile stock markets.

But with time running out to meet the target, the government has been exploring other routes, including the buyback mode, to raise funds through disinvestment. Under the buyback mode, the government can raise money by selling its equity in the company to the PSU itself.

The Department of Disinvestment (DoD) has sought Cabinet approval to use the buyback mode for disinvestment. The government, however, could not take any decision due to inter-ministerial differences and the reluctance of PSUs to part with cash.

The DoD had also pointed out to the SEBI that the buyback norms are not in line with the principle of equitable treatment to shareholders in the acceptance of shares through tender offer. According to the earlier norms, in case of buyback the company is required to accept the shares tendered by the shareholders in proportion to the shares tendered by the shareholder and not in proportion to the shares held. However, this has been modified.

SEBI has also made changes in the record date and requirement of public notice and public announcement norms in the buyback regulations.

Income Tax Settlement Commission – Frequently Asked Questions

2012-01-18T12:47:00.002+05:30

1. What is meant by Settlement in respect of tax disputes? How is it different from the appellate process?

Settlement of disputes relating to Income Tax and Wealth Tax is based on the objective of dispute resolution Alternate. It is in the nature of mediation or arbitration. The Settlement orders passed by the Income Tax Settlement Commission are final and conclusive in nature.
The application for settlement can be made only during the pendency of the assessment proceedings, whereas an appeal can be filed only after conclusion of assessment proceedings, against an order of assessment. For approaching the settlement commission, an applicant is required to disclose income which he has not disclosed before the Income Tax Department and also to pay applicable tax and interest on it before filing the application. No such conditions are needed for filing an appeal.
An application for settlement is statutorily required to be disposed of within 18 months failing which the same is abated to the concern Income Tax Authority. There is no statutory time limit for disposal of an appeal.
2. What is the Scope of Settlement made by Income Tax Settlement Commission?
The Income Tax Settlement Commission conclusively decides the amount of tax and interest to be paid by the applicant in respect of tax disputes relating to the assessment years for which an applicant has approach the Commission. It also has powers to grant immunity from levy of penalty or institution of proceeding for prosecution under the Income Tax Act, 1961. However, no such immunity is available where the proceedings for prosecution were initiated before filing of settlement application. An immunity granted by the Commission is liable to be withdrawn where the Commission subsequently finds that the application had concealed material facts or given false evidence during the settlement proceedings.
The order of settlement passed by the Settlement Commission provides for the terms of settlement including any demand by way of tax, penalty or interest and also provides for the manner in which such demand is to be paid. Such an order shall also address other matters to make the settlement effective. The final settlement order of the Settlement Commission is applicable for the case of the particular applicant only and its ratio is not applicable for other cases and for proceedings before other authorities.
3. Is the Income Tax Settlement Commission part of the Income Tax Department?
No. the Income Tax Settlement Commission is an independent quasi-judicial authority. It is an attached office of the Department of Revenue, only for its administrative matters.
4. At what Stage of tax disputes can I approach Settlement Commission?
An applicant can approach the Income Tax Settlement Commission in respect of a particular assessment year only if no assessment order is passed by the concerned income tax authority and the statutory time-limit for passing of assessment order for that year has not lapsed. The proceedings are considered to be pending from the first day of the assessment year and it is not needed that a return of income is filed or a notice for scrutiny is issued before failing of application.
5. How do I become eligible for approaching Settlement Commission? Am I supposed to pay any tax beforehand?
The First condition that you need to satisfy for approaching the settlement Commission is that you have to disclose an additional amount of income tax before the Commission which is at least Rupees ten lakhs. This does not include the amount of interest chargeable on such tax. For cases involving Search and seizure assessment proceedings, the additional amount of income tax to be disclosed is at least Rupees fifty lakhs. You are also required to pay the entire amount of additional tax and interest before filling the Settlement application and attach the evidence of payment.
The Second essential condition is that you should not have made another settlement application, after 1st June 2007, which has been allowed to be proceeded with.
The Third essential condition is that no assessment order should have been passed by the concerned income tax authority for the assessment year for which you are approaching the Commission and the statutory time-limit for passing of assessment order for that year has not lapsed. An assessment order is considered to be passed on the date it is served on the Tax Payer.
There are other procedural requirements such as payment of prescribed fees and informing the concerned Assessing officer on the same date till the prescribed Form no.34 BA.
6. How do I file application for Settlement?
Settlement application is to be filed only in the prescribed Form No.34-B notified under the Income Tax Rules, 1962, which is to be signed by the applicant himself. The application can be made personally or by post. The applicant or his authorized representative can make application in person. Application can also be sent by registered post addressed to the Secretary of the concerned Bench of the income tax Settlement Commission.
The application should be accompanied by the proof of payment of additional Tax and interest under section 234B and 234C on it. The interest on the additional tax is chargeable till the date of admission of the application.
The application has to be accompanied by a copy of Challans of payment of tax which have to be attested by the applicant.
The application is also to be accompanied by the evidence of payment of the prescribed fee.At present the Amountof the fee is Fixed at Rs. 500/-.
7. When can a Settlement application be rejected? What are the Consequences of rejection?
An application can be rejected by the Commission during the course of proceedings under section 245D (1) within 14 days of filling of the Settlement application. If the application is not rejected by the Commission within 14 days, it is deemed to have been admitted by it.
The Commission can reject the application, if the applicant does not satisfy the 3 essential condition mentioned in answer no. 5 above. Further, an application not accompanied by the proof of payment of full amount of additional tax and interest and the prescribed fee of Rs. 500/- is also liable to be rejected. A copy of the application is to be sent to the concerned income tax Authority on the date of application, failing which it may be rejected.
An applicant whose application has been rejected under section 245D (1) can still file another application for settlement.
8. Can I withdraw Settlement application after filing it?
No, an applicant cannot withdraw the application after filling before the Settlement Commission.
9. Who can file Settlement application on my behalf?
(i) You can make application by registered post addressed to the Secretary of the concerned bench of the settlement commission. However in case of a postal application, the date of receipt in the Commission shall be treated as date of application.
(ii) On your behalf, an authorized representative can also make application in person. An “authorised representative” means a person authorised by you in writing to appear on your behalf, being:

A person related to you in any manner, or a person regularly employed by you; or
Any officer of a Scheduled Bank with which you maintain a current account or have other regular dealings; or
any legal practitioner who is entitled to practice in any civil court in India; or
an accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949), and includes, in relation to any State, any person who by virtue of the provisions of sub-section (2) of section 226 of the Companies Act, 1956 (1 of 1956), is entitled to be appointed to act as an auditor of companies registered in that State.
Any person who has passed any accountancy examination recognised in this behalf by the Board, or
any person who has acquired such educational qualifications as prescribed by the Board.

10. How long does the admission process take?

The application filed by you is considered admitted and allowed to be proceeded with if it is not rejected by the Commission within 14 days under section 245D (1). After this, the Commission calls for the report of the Commissioner of Income Tax under section 245D (2B). The Commission may treat an application as valid by passing an order under Section 245D(2C), If the report of the Commissioner is not received within the period of 30 days from the day the letter from the Commission is received by him, or on the basis of its satisfaction on the basis of the report of the Commissioner. The order of the Commission is to be passed within 15 days of the expiry of the period of 30 days given to the Commissioner for submitting the report.
The Commission is required to give an opportunity before rejecting the application under section 245D (1) or before treating the application as invalid under Section 245D (2C).
11. How does the Settlement process operate? How long does it take?
Once a Settlement application has been held as valid, the Commission shares the confidential part of the application with the Commissioner of Income Tax and calls for his reports within 45 days under rule 9. A copy of this report is shared with the applicant to allow him to give rejoinder. The Commission takes into account both and provides opportunity to both sides, i.e. the Income Tax Department and the applicant by fixing hearings on different dates. The Commission is required to pass the final Settlement order under section 245 D (4) within 18 months on the application.
12. What happens if the Settlement Commission is not able to pass Settlement application within 18 months?
If the Settlement Commission is not able to pass Settlement application within 18 months, the case gets abated to the concerned income tax Authority.
13. How do I calculate additional Tax for filling the Settlement application?
This will depend upon whether the settlement application relates to only one previous year or more and whether any return of income for the relevant previous year(s) has been filed or not.

Where the income disclosed in the application relates to only one previous year and if the applicant has not furnished a return in respect of the total income of that year, then, tax shall be calculated on the income disclosed in the application as if such income were the total income;
Where the income disclosed in the application relates to only one previous year and if the applicant has furnished a return in respect of the total income of that year, tax shall be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income. This shall be reduced by the amount of tax calculated on the total income returned for that year. The balance shall be the additional amount of tax.
Where the income disclosed in the application relates to more than one previous year, the additional amount of income-tax payable in respect of the income disclosed for each of the years shall first be calculated in the manner given in (i) and (ii) above.

14. How do I calculate the interest amount on the additional tax?

For calculating interest under section 234B & 234C of the Income Tax Act, 1961, calculate additional tax as explained in answer no. 13 above. Check up whether you were liable to pay advance tax under section 208 or not. If you were liable, calculate interest for default in payment of advance tax under section 234B and for deferment of advance tax under section 234C, for each assessment year included in the settlement application, separately.

(1) The interest for default in payment of advance tax under section 234B is to be calculated at the rate of 1% of the amount of additional tax for every month or part of a month included in a period starting from the 1st day of the April of the assessment year and ending with the date of filing settlement application.

(2) For calculating the interest for deferment in payment of advance tax under section 234C, you have to work out the shortage in payment of advance tax as per the prescribed schedule.

(i) In case of a company, during a financial year, advance tax is to be paid in the following manner:

On or before 15th June	:	15% of advance tax for the year.
Between 15th June and 15th September	:	45% of advance tax for the year.
Between 15th September and 15th December	:	75% of advance tax for the year.
Between 15th December and 15th March	:	100% of advance tax for the year.

(ii) In case of all tax payers other than a company, during a financial year, advance tax is to be paid in the following manner:

On or before 15th September	:	30% of advance tax for the year.
Between 15th September and 15th December	:	60% of advance tax for the year.
Between 15th December and 15th March	:	100% of advance tax for the year.

For calculating the interest under section 234C for each year included in the settlement application, calculate the shortfall in payment of advance tax against the additional tax calculated as explained in answer 13 above for each scheduled date above. Calculate 1% of the shortfall, wherever occurring, for a period of 3 months.
For the exact manner of calculation of interest, please refer sections 234B & 234C.
15. Once I file a settlement application, do I need to comply with the directions of the Income Tax Department for the relevant assessment years? Does the jurisdiction of Income Tax Department continue over me or not?
Once you file an application before the settlement Commission, your jurisdiction for the purpose of Income Tax Act and the Wealth Tax Act, gets shifted to the Income Tax Settlement Commission for the assessment proceedings for which you have filed settlement application. However, sometimes Income Tax Settlement Commission authorises the Commissioner of Income Tax to carry out specific investigation to assist the Income Tax Settlement Commission in the matter. You may however like to verify whether the Commissioner has been authorised by the Income Tax Settlement Commission or not.

Procedure to Reset Password of efiling of Income Tax Return

2012-01-18T12:46:00.000+05:30

If you have forgotten your password for the Login ID that you had created for efiling of Income tax return and to view Tds Credited ( 26AS) in your account. There is a control that you can create only single account with one PAN No. So if you want to activate your account, the only option is to reset the password

First of all if you remember the answer of security question that you had provided during the registration, then you can easily reset password by just clicking the link Forgot password, answering the security question along with the new password that you want to create and your password will be reseted within 24 hours.

The real problem arises when you don’t even remember the answer of the security question that you had given during registration of your account.So, to reset your password what you have to do is to write a mail to ask@incometaxindia.gov.in with all your details that are mentioned below:-

Name of the Assessee:-

Father’s name of the Assessee:-

Date of birth:-

Address:-

Contact Number:-

PAN No:-

As per the norms of Income tax department your password will be resetted within 24-48 hours.

But if you dont receive any mail that your password has been reseted or about some more details of yours within 48 hours, then you will have to call to 0124 2438000, and speak to the customer care executive and brief him about the mail that you had done, and that the 48 hours have already elapsed but there was no any respnse for reseting the password from their side, after this you will be provided with the default password by the executive that will be activated in 2-3 working days. After you login with the default password, you must create a new password.

If you already Filed E-Return- If you have already e-filed your Return, then you can use the e-filing ack number to reset the password after clicking ‘forgot password. ‘The system itself will ask you to give e-filing acknowledgement number.

This article might be helpful in my view, Please give your Comment if it is helpful to you in any way

Know Your Income Tax Refund Status online

2012-01-13T12:28:00.003+05:30

The Centralised Processing Centre of the Income Tax Department here has processed over 26 lakh e-filed returns in Forms 1-4 for the assessment year 2009-10. It has determined refunds in over five lakh cases. A release said refunds are being sent through State Bank of India. The status of these refunds can be checked at CPC’s call centre (080-43456700) or at www.tin-nsdl.com.

The department has been informed by the bank that a large number of refund cheques in respect of paper returns for 2008-09 have been returned by the postal authorities owing to change in address or for other similar reasons. Many refunds in ECS mode have not been successfully credited to taxpayers accounts because of incomplete/incorrect MICR and bank account details. Details of these returned intimations are available at www.incometax bangalore-.org. In respect of paper returns of salary ranges of Bangalore for 2008-09 processed at the CPC, taxpayers may contact the PRO, Income-tax Department at Ground Floor, Central Revenue Buildings, Queen’s Road, Bangalore.

They may collect the returned intimation and update their details of address/bank accounts/MICR code by writing to CPC, Bangalore at CPC, Post Bag No. 1, Bangalore–560100. In case of updated bank account/MICR code, taxpayers should enclose a copy of a cancelled cheque while giving the details, the release added.

REFUND STATUS

The ‘Refund Banker Scheme,’ which commenced from 24th Jan 2007, is now operational for Non-corporate taxpayers assessed in Delhi, Mumbai, Kolkata, Chennai, Bangalore, Bhubaneswar, Ahmedabad, Hyderabad, Pune, Patna, Cochin, Trivandrum, Chandigarh, Allahabad, and Kanpur.

In the ‘Refund Banker Scheme’ the refunds generated on processing of Income tax Returns by the Assessing officers/ CPC-Bangalore are transmitted to State Bank of India, CMP branch, Mumbai (Refund Banker) on the next day of processing for further distribution to taxpayers.

Refunds are being sent in following two modes:

RTGS / NECS: To enable credit of refund directly to the bank account, Taxpayer’s Bank A/c (at least 10 digits), MICR code of bank branch and correct communication address is mandatory.
Paper Cheque: Bank Account No, Correct address is mandatory.

Taxpayers can view status of refund 10 days after their refund has been sent by the Assessing Officer to the Refund Banker – by entering ‘PAN’ and ‘Assessment Year’ below.

Other Refunds

Status of ‘paid’ refund, being paid other than through ‘Refund Banker,’ can also be viewed at www.tin-nsdl.com by entering the ‘PAN’ and ‘Assessment Year’ .

‘Refund paid’ status is also being reflected in the ‘Tax Credit Statements’ in Form 26AS.

14A applicable even for the period when Rule 8 was applicable

2012-01-12T12:27:00.003+05:30

Remi Sales And Engineering Ltd. Vs. Addl. CIT (ITAT Mumbai) - Even prior to Assessment Year 2008-09, when Rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub section (1) of section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with al l the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record

Tax and other benefits from taking Home loan in Joint Names

2012-01-12T12:21:00.000+05:30

One of the most attractive benefits of taking a home loan is that they help you save tax, while you prepare to invest in a fixed asset. Acquiring a home loan makes you eligible for tax rebates under Section 80C and Section 24 of the incone tax regulations.
Highlights

Tax benefits get divided among co-applicants in case of a joint loan
The division takes place in the same proportion in which the asset is owned by each co-applicant
Each co-applicant can claim a maximum tax rebateof up to Rs. 1 lakh for principal repayment and Rs. 1.5 lakh for interest payment

The very first condition is the house property has to be bought by the individuals jointly, and this should be in their joint names.
The share of each holder should be clearly mentioned so that there is absolute clarity on the percentage ownership of each co-owner.

Tax benefits of Home Loan- Overall there are two types of tax benefits that are available on the repayment of a housing loan.

Interest paid on the loan is eligible for a deduction up to Rs. 1.5 lakh per annum from the taxable income of the individual under Sec 24 when the property is self-occupied or it is one ownership property lying vacant.
The return of the capital of the loan along with the interest up to Rs. 1 lakh is included in the benefit under Sec 80C.

The planning in the entire issue has to be done in such a manner that all the joint holders are able to take the tax benefit and no part of the total repayment goes waste.
Advantage for joint home loan takers-
Tax benefit
Joint holders can claim the maximum tax benefits individually. This means each holder can get a tax rebate of Rs. 1 lakh for principal repayment under Sec 80C and Rs. 1.5 lakh for interest payment under Sec 24.
The tax benefits are applied according to the proportion of the loan taken by everyone involved in the joint loan. For e.g. if the ratio of ownership is 70%:30% then the loan amount of 50 L will be split as 35 L and 15 L respectively and interest/principal applicable to the respective amounts will be taken into account for each individual taking the loan. For claiming your tax, it is best to procure a home sharing agreement, detailing the ownership proportion in a stamp paper, as legal proof for ownership.
To get the best out of the tax savings, it is good to let the partner with the higher pay make a higher contribution towards the home loan resulting in a better tax benefit collectively. In the case of an earning couple, this would make most sense as other expenses can be manged with the income of the person making a lesser share towards the loan. This would help you optimize the benefits from the tax exemption on principal and interest repaid.

Increased Loan Amount Eligibility

If more than one person takes a home loan then income of all the co-owners will be considered by the lenders. This can help increase the size of the loan. In this case, the bank combines the incomes of both the applicants, and thus, can sanction a proportionately higher loan amount. Buying a house jointly facilitates a larger loan as income of all the co-owners would be considered by the lenders.
Additional benefits:

In many states, a lower property registration fee is levied in case the property is owned by women either individually or jointly.
If husband and wife jointly own a property reduces the succession issues.

So taking a joint home loan has the significant twin benefit of increasing your loan eligibility and maximizing your tax rebate. There is one rule banks insist on when you apply for a joint home loan, which is that all co-owners of the property should also be co-applicants but the reverse need not be true.
Under Construction house- Another aspect that needs to be remembered is if you are buying a house under construction that you can claim tax benefits only after the construction of the house is completed.
Joint structure- The term ‘joint benefit’ in a housing loan refers to a situation where more than one person takes and repays a home loan. Here, the co-applicants are family members, which include husband and wife or father and son or father and daughter or mother and son or mother and daughter as the case may be. In such a situation, tax benefits have to be divided between all co-applicants and hence known as joint benefits.
Joint account – The repayment of a joint loan has to be made from a joint account owned by the co-applicants. Each of them needs to contribute his/her share to the account. But there are times when this is not possible and in case the payment is being made from just one person’s account then there has to be a method whereby the other individual is contributing his/her share. This will ensure that the benefits are also available in an adequate manner and that there are conditions that are being fulfilled in the process.
Considering New Direct Tax Code- New borrowers need to keep an eye out for developments in the housing loan sector. While planning any housing loan benefit, they have to keep in mind the conditions mentioned in the New Direct Tax Code. This code, coming into effect from April 2011, eliminates the benefit of a housing loan. This means that if the code is passed in its present format, both the benefits on interest payment as well as capital repayment will not be available to co-applicants.
Disadvantage of a home loan in joint names
1. If you buy another house in future then as per Income Tax Act if a person has more than one house in his name, one of them will be treated as self-occupied, and another will be treated as let-out – even if it is not actually let out on rent. You would need to pay income tax on the rent received if this second house is actually rented out. But if it is not rented out, it is deemed as rented out, and you would have to pay income tax on an amount that you would have received as rent as per prevailing market rates.
2. You have to pay wealth tax on one of your house. As per Wealth tax Act only one house is exempt from Wealth Tax. You have to pay tax on one of the house of your choice but you can deduct loan amount against the house for which you taken loan while calculating taxable wealth.
When one should take Home Loan in Joint names:- Take the home loan in joint names

If You need a higher loan amount then your eligibility in Individual capacity
The income tax savings by opting for a joint loan is significantly higher than a single-name loan

When one should not take Home Loan in Joint names -

You have enough loan eligibility as single applicant
The income tax savings by opting for a joint loan is not significantly higher than a single-name loan
You plan to purchase another house in near future

Deduction under section 80E for Interest on education Loan taken for self and relatives

2012-01-10T13:15:00.002+05:30

Have you taken an education loan to support higher studies of yourself or of your spouse, Children or for the student of whom you are legal guardian and you are not aware of the tax benefits that you are entitled to. Then here is a guide that will assist you to know tax benefits on education loans. These benefits help you to reduce the overall cost of your education loan.

The deduction under section 80E is available to an individual if following conditions are satisfied:

1. Deduction available only to Individual not to HUF or other type of Assessee.

2. Deduction amount: – The amount of interest paid is eligible for deduction and moreover there is no cap on the amount to be deducted. You can deduct the entire interest amount from your taxable income. However there is no benefit available on the repayment of principal amount of the loan.

3. Deduction available if Interest is been paid during the previous year and was paid out of income chargeable to tax which means if repayment is made from income not chargeable to tax than deduction will not available.

Note: – Earlier to previous year 2006-07 the above deduction was available only for Interest on loan taken and repaid by the assessee for his own studies.

4. Interest should have been paid on loan taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education. Interest on Loan taken from relatives or friends will not be eligible for deduction under section 80E.

a. approved charitable institution means an institution specified in, or, as the case may be, an institution established for charitable purposes and [approved by the prescribed authority] under clause (23C) of section 10 or an institution referred to in clause (a) of sub-section (2) of section 80G;

b. financial institution means a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf;

5. Loan should have been taken for the purpose of pursuing higher studies of Individual , Spouse, Children of Individual or of the student of whom individual is legal Guardian.

Higher studies means full-time studies for any graduate or post-graduate course in engineering, medicine, management or for post-graduate course in applied sciences or pure sciences including mathematics and statistics;

Income tax department has added (W.e.f. A.Y. 2010-11) additional fields of studies (including vocational studies) pursued after passing the Senior Secondary Examination or its equivalent from any school, Board or University recognised by the Central or State Government will also be covered under deduction in respect of interest paid on loan taken for higher education.

6. Interest should have been paid for the loan taken for the purpose of pursuing his higher education or of the spouse and children. From A.Y. 2010-11 Relative also includes student for whom the individual is the legal guardian.

7. Deduction period: - Deduction shall be allowed in computing the total income in respect of the initial assessment year* and seven assessment years immediately succeeding the initial assessment year or until the interest is paid by the assessee in full, whichever is earlier.

The tax benefits on education loan are only valid once you start the repayment and moreover they are only available up to eight years. For instance if your loan tenure exceeds eight years, you cannot claim for deductions beyond eight years.

Hence it is better that the education loan is repaid within eight years. Unless if the loan amount is very high and it is difficult to afford a high amount of equated monthly installment (EMI), one should not opt for education loan with longer tenure.

*Initial assessment year means the assessment year relevant to the previous year, in which the assessee starts paying the interest on the loan.

8. Loan should be in the name of Individual: - Deductions on education loan can only be claimed if the loan has been taken in your own name. If your parents, spouse or sibling has taken the loan for your studies, then you are not entitled to get tax benefit.

9. The loan includes not only tuition or college fees but also other incidental expenses for pursuing such studies like hostel charges, transport charges etc.

10. Repayments of education loan NOT covered under Section 80C.

11. There is no condition that the course should be in India.

Share application money and repayment thereof do not violate Sections 269SS & 269T

2012-01-10T13:14:00.001+05:30

Addl. CIT Vs. J.A. Land & Housing Development India Limited (ITAT Kolkata) - Assessing Officer levied penalty under section 271D for the assessment year 2004-05 in respect of M/s. J.A. Land & Housing Dev. India Limited and also in assessment years 2005-06 & 2006-07, as well as under section 271E of the Income Tax Act for the assessment year 2007-08 in the case of M/s. J.A.M. Chemical Works Limited. Assessing Officer was of the view that violation of Section 269SS which defines ‘loan or deposit’ & Section 269T defines ‘loan or deposit’ and the common word “loan” means lending a sum of money by one party to another upon agreement to repay. Hence, Assessing Officer was of the view that though in the Companies Act “deposit” does not include share application money which is given to a Company by an applicant for allotment of shares. The fact that under the given set of facts, according to Assessing Officer, the amount so deposited with the assessee-company in the name of share application money attracts Sections 269SS & 269T. In other words, these financial transactions should be through banking channels by abiding cash transactions. Therefore, Assessing Officer was of the view that assessee has violated Section 269SS in ITA Nos. 1116 to 1118/Kol/2011 and there is violation of Section 269T in respect of ITA No.1140/Kol/2011. He, therefore, levied penalty. On appeal to the Ld. CIT(A), Ld. CIT(A) found that I.T.A.T., Kolkata Benches, “C” Bench in ITA Nos. 141 & 142/Kol/2011 have decided the issue vide order dated 19.04.2011 by following the decision of Hon’ble Madras High Court in the case of CIT vs. Rugmini Ram Raghav Spinners (P) Ltd. [2008] 304 ITR 417 (Mad.) that the share application money and repayment thereof will not violate Sections 269SS & 269T of the Act which attracts levy of penalty under section 271D & 271E of the Act.

Income Tax Arrear Letter from CPC Bangalore just a communication of demand not a demand notice, No need to respond to tax notices for below Rs 100

2012-01-09T19:36:00.001+05:30

It has been reported in some sections of the press that the Central Processing Centre , Bangalore is sending notices for payment of taxes which are as small as Rs. 1/- , 4/- , 6/-, causing unnecessary hardship to assesses . It has been stated that when the refunds for amounts less than Rs. 100/- are not issued by the Income Tax Department, then the demand for less than Rs. 100/- should also not be collected .

Clarification in this regard is as follows:

Arrear Demand Communication

The Income Tax Department has created a central repository of all demands for better demand management as required by Standing Committee of Parliament and C&AG. To achieve this, all officers were asked to collate demand lying at various places viz. IRLA, TMS and manual registers and upload onto CPC portal. This was also part of the annual action plan. Consequently AOs have uploaded the same. During a meeting with Bangalore Chartered Accountants association, it was suggested that taxpayers should also be informed about the same so as to enable them to take necessary action if the outstanding demands were incorrect. This measure was aimed at providing greater transparency. Therefore, a communication has been sent to taxpayers informing them about existing arrears. It may be clarified that this communication is not a demand notice. This measure is, in fact, an assessee -friendly exercise. The Department has also written to all chief commissioners to amend such entries, if found incorrect, when approached by taxpayers. This would correct the database if a taxpayer has proof of payment etc. As per extant procedure, demand of less than Rs. 100 is not enforced but is liable for adjustment against future refunds

It is not necessary for the assessee to produce its products so as to become eligible for claiming exemption under section 10B of the Income-tax Act, 1961

2012-01-09T11:49:00.003+05:30

Taurus Merchandising Pvt. Ltd. v. ITO (ITAT Delhi)- It was held that the new export-oriented unit of the assessee cannot be said to be formed by the reconstruction or splitting of a business already in existence. The Tribunal has also held that it is not necessary for the assessee to produce its products so as to become eligible for claiming exemption under section 10B of the Income-tax Act, 1961 (the Act). While pronouncing the ruling, the Tribunal has observed that the provisions of section 10B of the Act do not place any bar on the assessee having a separate new undertaking for the manufacture and production of the same or similar goods, as done earlier. For the purposes of section 10B of the Act, what is important is a new undertaking. The Tribunal has also observed that ‘there is no legal bar against outsourcing of activities involved in manufacture or processing of goods. What is required is that the undertaking must mainly engage itself in the manufacture or processing of goods, either itself, or through some agency under its supervisory control or direction.

Non-prospecting related expenditure incurred prior to commencement of mining is deductible u/s. 37 of the Income-tax Act

2012-01-09T11:47:00.003+05:30

De Beers India Prospecting Pvt.Ltd Vs. Income Tax Officer (ITAT Mumbai) – it was held that prospecting and examining are important activities to undertake mining. Accordingly, it can be concluded that the taxpayer had commenced its business from the time it started the prospecting activity and therefore, non-prospecting related expenditure is deductible under Section 37 of the Income-tax Act, 1961 (the Act) even though it was incurred prior to commencement of mining.

All about Centralised Processing of Returns Scheme, 2011

2012-01-07T12:04:00.000+05:30

Centralised Processing of Returns Scheme, 2011

Notification No.2/2012[F.No.142/27/2011-SO(TPL)], dated 4-1-2012

In exercise of the powers conferred by sub-section (1A) of section 143 of Income Tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby specifies the following scheme for processing of returns of income, namely:-

1. Short title and commencement.—

(1). This Scheme may be called the Centralised Processing of Returns Scheme, 2011.

(2). It shall come into force on the date of its publication in the Official Gazette.

2. Definition. – In this scheme, unless the context otherwise requires -

(a) ‘Act’ means the Income Tax Act, 1961 (43 of 1961).

(b) ‘Board’ means Central Board of Direct Taxes constituted under the Central Board of Revenues Act, 1963 (54 of 1963).

(c) ‘Centre’ means the Centralised Processing Centre having jurisdiction over such return of income as may be specified by the Board.

(d) ‘Commissioner’ means the Commissioner of Income-tax, Centralised Processing Centre.

(e) ‘Director General’ means the Director General of Income-tax (Systems).

(f) words and expressions used herein but not defined and defined in the Act shall have the meaning respectively assigned to them in the Act.

3. Scope of the Scheme.—This scheme shall be applicable in cases where return of income has been furnished in,-

(i) electronic form; or

(ii) paper form, in case of a class or classes of persons, as notified by the Board in this behalf.

4. Receipt and Acknowledgment of Return of Income.—

(1) Where a return of income is filed electronically with digital signature, on successful transmission of the data, an acknowledgment as generated by the server of the Central Government shall be available to the person in printable format.

(2) The acknowledgment shall contain the acknowledgment number of the electronic transmission and the date of transmission as an evidence of filing of the return.

(3) A copy of the electronic transmission of filing the return of income shall be downloaded and kept by the person.

(4) Where a return of income is filed electronically without digital signature, on successful transmission of the data, an acknowledgment in Form ITR-V as provided in rule 12 of the Income Tax Rules, 1962 shall be generated by the server of the Central Government and available to the person.

(5) The Form ITR-V shall also contain the acknowledgment number of the electronic transmission and the date of transmission as an evidence of filing of the return.

(6) A copy of ITR-V shall be downloaded and after taking a printout of such a form, it shall be physically verified under the signature of the person and forwarded to the Centre.

(7) The Form ITR-V duly verified shall be sent to the Centre, either through ordinary or speed post, within such period of uploading the electronically filed return as may be specified by the Director General in this behalf.

(8) The date of transmitting the data electronically shall be the date of furnishing the return if the Form ITR-V is furnished in the prescribed manner and within the period specified.

(9) In case Form ITR-V furnished after the prescribed time is rejected on account of it being unsigned, illegible, mutilated, bad quality or not as per specification, it shall be deemed that the return in respect of which the Form ITR-V has been filed was never furnished and it shall be incumbent on the person to electronically file the return of income again followed by submission of the new Form ITR-V.

(10) The Form ITR-V shall be submitted at the address, in the mode and within the period or extended period specified by the Commissioner in this behalf.

(11) The Commissioner may, in order to avoid hardship in a case or class of cases, condone the delay in receipt of Form ITR-V.

(12) The Commissioner may call for fresh Form ITR-V in special circumstances, where the Form ITR-V earlier submitted cannot be considered for technical reasons.

5. Revised return of income.—

(1) If the original return of income is an electronically filed return, the revised return shall be filed through electronic mode only.

(2) The Centre will process only the revised return and no further action will be taken on the original return if it has not already been processed.

6. Invalid or defective return.

(i) The Commissioner may declare-

(a) a return invalid for non-compliance of procedure for using any software not validated and approved by the Director General.

(b) a return defective under sub-section (9) of section 139 of the Act on account of incomplete or inconsistent information in the return or in the schedules or for any other reason.

(ii) In case of a defective return, the Centre shall intimate this to the person through e-mail or by placing a suitable communication on the e-filing website.

(iii) A person may comply with the notice regarding defective return by uploading the rectified return within the period of time mentioned in the notice.

(iv) The Commissioner may, in order to avoid hardship to the person, condone the delay in uploading of rectified return.

(v) In case no response is received from the person in reply to the notice of defective return, the Commissioner may declare a return as not having been uploaded at all or process the return on the basis of information available.

7. Centralised Processing Centres.—

(1) The Board may set up as many Centralised Processing Centres as it may deem necessary and specify their respective jurisdictions.

(2) The processing of the returns shall be undertaken at the Centralised Processing Centre.

8. Processing of Returns.—

(i) The Centre shall process a valid return of income in the following manner, namely:-

(a) the sum payable to, or the amount of refund due to, the person shall be determined after credit of such Tax collected at Source (TCS), Tax Deducted at Source (TDS) and tax payment claims which can be automatically validated with reference to data uploaded through TDS and TCS statements by the deductors or the collectors, as the case may be, and tax payment challans reported through authorised banks in accordance with the procedures adopted by the Centre in this regard.

(b) an intimation shall be generated electronically and sent to the person by e-mail specifying the sum determined to be payable by, or the amount of the refund due to, the person; and

(c) any intimation to the person to pay any sum determined to be payable shall be deemed to be a notice of demand as per the provisions of section 156 of the Act and all other provisions of the Act shall be applicable accordingly.

(ii) The Commissioner may, -

(a) adopt appropriate procedure for processing of returns; or

(b) decide the order of priority for processing of returns of income based on administrative requirements.

(iii) Wherever a return cannot be processed in the Centre for any reasons, the Commissioner shall arrange to transmit such return to the Assessing Officer having jurisdiction for processing.

9. Rectification of mistake.—

(i) With a view to rectifying any mistake apparent from the record under section 154 of the Act, the Centre, on its own or on receiving an application from the person, may amend any order or intimation passed or sent by it under the provisions of the Act.

(ii) An application for rectification shall be filed electronically to the Centre in the format prescribed and will be processed in the same manner as a return of income-tax.

(iii) Where the rectification order results in a demand of tax, the order under section 154 of the Act passed by the Centre shall be deemed to be a notice of demand under section 156 of the Income-tax Act.

(iv) In case of error in processing due to an error in data entry or a software error or otherwise, resulting in excess refund being computed or reduction in demand of tax, the same will be corrected on its own by the Centre by passing a rectification order and the excess amount shall be recovered as per the provisions of the Act.

(v) Where a rectification has the effect of enhancing an assessment or reducing the refund or otherwise increasing the liability of the person, an intimation to this effect shall be sent to the person electronically by the Centre and the reply of the person has to be furnished through electronic mode only.

10. Adjustment against outstanding tax demand.—The set-off of refund, if any, arising from the processing of a return, against tax remaining payable will be done by using the details of outstanding tax demand lying against the person as uploaded onto the system of the Centre by the Assessing Officer.

11. Appellate Proceedings.—

(i) Where a return is processed at the Centre, the appeal proceedings relating to the processing of the return shall lie with Commissioner of Income-tax (Appeals) [CIT(A)] having jurisdiction over the jurisdictional Assessing Officer and any reference to Commissioner (Appeals) in any communication from the Centre shall mean such jurisdictional CIT (Appeals).

(ii) Remand reports, giving effect to appellate order and any other reports to be furnished before the CIT (Appeals) shall be submitted by the Assessing Officer having jurisdiction as regards the person.

12. No personal appearance in the Centre.—

(i) A person shall not be required to appear either personally or through authorised representative before the authorities at the Centre in connection with any proceedings.

(ii) Written or electronic communication from such person or authorized representative in the format specified by the Centre in this respect shall be sufficient compliance of the query or clarification received from the Centre.

(iii) The Centre may call for such clarification, evidence or document as may be required for the purpose of facilitating the processing of return and all such clarification, evidence or document shall be furnished electronically.

13. Service of notice or communication.—

(i) The service of a notice or order or any other communication by the Centre may be made by-

a. sending it by post;

b. delivering or transmitting its copy thereof, electronically to the person sent by the Centre’s e-mail;

c. placing its copy in the registered electronic account of the person on the official website ; or

d. any of the modes mentioned in sub-section (1) of section 282 of the Act.

(ii) The date of posting of any such communication on official website, e-mail or other electronic medium shall be deemed to be the date of service.

(iii) The intimation, orders and notices shall be computer generated and need not carry physical signature of the person signing it.

14. Power to specify procedure and processes.—The Director General may specify procedures and processes from time to time for effective functioning of the Centre in an automated and mechanised environment, including specifying the procedure and processes in respect of the following :-

(i) receipt and processing of electronic rectification applications in the Centre.

(ii) the address or place, the mode and the period or the extended period within which the acknowledgment in Form ITR-V shall be accepted.

(iii) validating any software used for e-filing the return.

(iv) call centres to answer queries and provide taxpayer services which may include outbound calls to persons requesting for clarification to assist in the processing of their returns of income.

(v) managing tax administration functions such as receipt, scanning, data entry, processing, issue of refunds, storage and retrieval of income-tax returns and documents in a centralised manner or receipt of paper documents through authorized intermediaries.

Frequently Asked Questions Companies (Cost Accounting Records) Rules, 2011 and Companies (Cost Audit Report) Rules 2011

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5.1 Whether a cost auditor can be appointed as Internal Auditor ofthe company. Whether there is any restriction on the cost auditor to acceptassignments from a company where he is the cost auditor.

Refer to MCAGeneral Circular No. 68/2011 dated 30th November 2011. A cost auditor cannotrender any services to the company whether acting individually, or through thesame firm or through other group firms where he or any partner has any commoninterest, relating to: (i) design and implementation of cost accounting system;or (ii) the maintenance of cost accounting records, or (iii) act as internalauditor, However, a cost auditor can certify the compliance report or provideany other services as may be assigned by the company, excluding the servicesmentioned above.

5.2 How total number of companies for whicha cost auditor can accept appointment is to be computed keeping in mindrestrictions imposed under Section 224(1B) of the Companies Act 1956.

Referto MCA Master Circular No. 2/2011 dated 11th November 2011. The specifiednumber of companies for the purpose of section 233B (2) read with section 224(1B) of the Companies Act, 1956 for a given financial year would be the totalof: (a) Companies wherein he has been appointed as the cost auditor, (b)Companies wherein he is proposed to be appointed for which he has given hisconsent. (c) Companies in respect of which cost audit reports have not beensubmitted and have become overdue. A cost auditor would be deemed to haveconcluded his appointment as cost auditor and eligible to accept appointment ofanother company within the limits of Section 224 (1B) as soon as he renders hisreport to the Central Government in accordance with the Cost Audit Report Rules,as applicable, with a copy to the Company. His obligation to answer queriesfrom the Ministry of Corporate Affairs arising out of review of cost auditreports would not debar him from accepting another appointment as cost auditorof a company provided the specified number of companies contemplated in section224 (1B) is not exceeded.

5.3 What is the period for which a cost auditor holds office ascost auditor of a company?

Refer to MCA Master Circular No. 2/2011 dated 11thNovember 2011. A cost auditor shall be deemed to be holding office as costauditor from the time he accepts the appointment and files Form 23D with theCentral Government and shall be deemed to have concluded his appointment forthe relevant financial year as soon as he renders a report to the CentralGovernment in accordance with the Cost Audit Report Rules, as applicable, witha copy to the Company.

5.4 How and in what manner a cost auditoris required to sign a cost audit report? Refer to MCA

Master Circular No.2/2011 dated 11th November 2011. In case where a firm of cost accountants isappointed as cost auditors, the Cost Audit Report shall be signed by any one ofthe partners of the firm responsible for the conduct of cost audit in his ownhand alongwith his membership number, for and on behalf of the firm. In casewhere an individual is appointed as cost auditor, the Cost Audit Report shallbe signed by the individual cost auditor in his own hand alongwith hismembership number.

5.5 What is the role of Audit Committee, where applicable, indealing with the Cost Audit Report. Can the Annexure to a Cost Audit Report beapproved by the Audit Committee and/or the Board of Directors by circularresolution.

Refer to MCA Master Circular No. 2/2011 dated 11th November 2011.

Sub-section(6) of section 292A of the Companies Act, 1956 states that the Audit Committeeshould have discussions with the auditors periodically about internal controlsystems, the scope of audit including the observations of the auditors andreview the half yearly and annual financial statements before submission to theBoard and also ensure compliance on internal control systems. DepartmentalCircular No. 6/2001 dated 20.08.2001 has already clarified that the term“auditors” includes cost auditor and hence “scope of audit includingobservations of the auditors” occurring in the above sub-section includes thescope of cost audit including observations of the cost auditors as well. Thepresence of the cost auditor in such committees will ensure overall costmanagement, efficiency in resource utilization, business vertical-wiseperformance evaluation, proper pricing of inter-unit/inter-company transfersand valuation of inventories. Hence, the company must place the cost auditreport before the Audit Committee first, which in its duty to ensure complianceof internal control system shall also discuss the suggestions made in the costaudit report for implementation, wherever cost audit has been directed undersection 233B of the Companies Act, 1956. The Audit Committee, after dueconsideration of the Cost Audit Report is required to submit the same forapproval of the Board. Since the Board of Directors is required to approve theAnnexure to the Cost Audit Report and authorize one of the Directors and theCompany Secretary (two Directors in the absence of a Company Secretary) to signthe same, the Board should also consider the Cost Audit Report in a dulyconvened meeting and it would not be advisable to approve the same by circularresolution.

5.6 As per MCA General Circular No. 67/2011 dated 30th November2011, Companies engaged in the production, processing, manufacturing or miningactivities are not covered under Companies (Cost Accounting Records) Rules 2011till such time they commences their commercial operations. Does it meanPetroleum Blocks where there is no commercial production of oil or gas areexcluded?

The Cost Accounting Records (Petroleum Industry) Rules 2011 isapplicable for companies engaged in Petroleum activity. Survey, Exploration,Exploratory/ Developmental Drilling activities are an integral operation of thePetroleum Industry which may or may not lead to establishment of a producingproperty resulting in commercial production of oil or gas from the well/block.Hence, companies engaged in Survey, Exploration etc and blocks where suchactivities are being carried out are covered under Cost Accounting Records(Petroleum Industry) Rules 2011.

5.7 What is the applicability of Cost AuditOrder no. 52/26/CAB-2010 dated 2nd May 2011 oncost audit of Captive Power Generating Plants.

It has beenclarified, vide MCA General Circular No. 67/2011 dated 30th November 2011, thatGeneration of electricity for captive consumption is not covered under theabove order. For this purpose, the term “Captive Generating Plant” has beendefined to have the same meaning as assigned in Rule 3 of the ElectricityRules, 2005 which is reproduced below. It may, however, be noted that costrecords as required under Cost Accounting Records (Electricity Industry) Rules 2011are required to be maintained and Compliance Report would be applicable for theCaptive Generating Plant, if the final products of the company are not coveredunder cost audit Requirements of Captive Generating Plant.-

(1) No power plant shall qualify as a ‘captive generating plant’under section 9 read with clause (8) of section 2 of the Act unless- (a) incase of a power plant - (i) not less than twenty six percent of the ownershipis held by the captive user(s), and (ii) not less than fifty one percent of theaggregate electricity generated in such plant, determined on an annual basis,is consumed for the captive use: Provided that in case of power plant set up byregistered cooperative society, the conditions mentioned under paragraphs at(i) and (ii) above shall be satisfied collectively by the members of theco-operative society; Provided further that in case of association of persons,the captive user(s) shall hold not less than twenty six percent of theownership of the plant in aggregate and such captive user(s) shall consume notless than fifty one percent of the electricity generated, determined on an annualbasis, in proportion to their shares in ownership of the power plant within avariation not exceeding ten percent; (b) in case of a generating station ownedby a company formed as special purpose vehicle for such generating station, aunit or units of such generating station identified for captive use and not theentire generating station satisfy (s) the conditions contained in paragraphs(i) and (ii) of sub-clause (a) above including - Explanation :- (1) Theelectricity required to be consumed by captive users shall be determined withreference to such generating unit or units in aggregate identified for captiveuse and not with reference to generating station as a whole; and
(2) the equityshares to be held by the captive user(s) in the generating station shall not beless than twenty six per cent of the proportionate of the equity of the companyrelated to the generating unit or units identified as the captive generatingplant.

5.8 Companiescovered under any of the 6 Industry/Product Specific Cost Accounting RecordsRules 2011 are also subject to cost audit. Will they be required to fileCompliance Report also under these Rules?

(a) (a) If one or moreproduct(s)/activity(s) of a company is covered under cost audit and there areother products that are not covered under Cost Audit as per company-wise costaudit orders issued in the past or industry specific cost audit orders dated 2nd May, 2011 and30thJune,2011, the Company will be required to file a Compliance Report (Company as awhole) covering products under cost audit and products not under cost audit. (b)If one or more product(s)/activity(s) of a company is covered under Cost Auditand the other product(s)/activity(s) belong to the exempted category, then thecompany will not be required to file a Compliance Report.
                                                                                                                                                                                        5.9Are there any sectors exempted under Companies (Cost Accounting Records) Rules2011?

Please refer MCA General Circular No. 67/2011 dated 30thNovember 2011, which states that the Companies (Cost Accounting Records) Rules,2011 are not applicable to wholesale & retail trading, banking, financial,leasing, investment, insurance, education, healthcare, tourism, travel,hospitality, recreation, transport services, business/ professionalconsultancy, IT & IT enabled services, research & development,postal/courier services, etc. unless any of these have been specificallycovered under any other Cost Accounting Records Rules.

5.10The manufacturing process of a company generates Steel Scrap during productionof its main products which may or may not be covered under cost audit. Suchscrap is cleared under Chapter 72 of the Central Excise Tariff and sold in themarket. Will the company be covered under cost audit for generation of scrap?

Thecompany is engaged in manufacture of products and coverage of its main productsunder cost audit would depend on whether or not such products are covered undercompany specific cost audit orders issued in the past or industry specific costaudit orders dated 2nd May 2011 or 30th June 2011. The generation of steelscrap is not a production or processing or manufacturing but is incidental tomanufacture of its main products. Even though steel scrap, when sold, is liablefor payment of excise duty under Chapter 72, still, generation of scrap willnot be covered under cost audit.

5.11A Cost Accountant is in full time employment in a company. He is also holdingpart time certificate of practice. Whether he can certify the Compliance Reportof group companies and/or any other company.

A Cost Accountant and a memberof the Institute can certify the Compliance Report of the company where he is apermanent employee. Inhis capacity as a part-time COP holder, he is neither authorized to certify theCompliance Report of other group companies nor any other company.

5.12 WhetherLaminates made from Kraft paper covered under Chapter 48 of Central ExciseTariff Act is covered under Cost Audit?

Since Laminates made from Kraft Paperare paper based products covered under Chapter 48 of Central Excise Tariff Act,the same is covered under Cost Audit as per cost audit order dated 30th June2011 read with MCA General Circular No. 67/2011 dated 30th November 2011.

5.13"Paints and Varnishes" under Chapter 32 of Central Excise Tariff arecovered under Cost Audit vide order no. F.No.52/26/CAB-2010 dated 30th June,2011. Paints, Coatings and Printing Ink etc. sold under various trade names areproduced by using Varnish as primary raw material to which different Pigmentsare added in different qualities. These products also belong to Chapter 32 ofCentral Excise Tariff. Whether such products would be considered as"Allied Products" of Varnish and be covered under cost audit?

Asper cost audit order dated 30th June, 2011, Paints & Varnish along withtheir "Intermediate" and "Articles and Allied Products"thereof are covered under cost audit. In the MCA General Circular No. 67/2011dated 30th November 2011, the terms "Intermediate" and "Articlesand Allied Products" have been defined. In view of this clarification, theitems produced from Varnish are covered under cost audit irrespective of tradename under which it is sold, provided they meet the criteria laid down in thesaid circular.

5.14 Para 9 of the Companies(Cost Audit Report) Rules 2011 requires disclosure of “Cost of Production” and“Cost of Sales” at a company level. How the same would be available when allthe products/ activities are not covered under cost audit?

The Companies(Cost Accounting Records) Rules 2011 [CARR] is now applicable to all companiesengaged in production, processing, manufacturing & mining. Hence,product-wise/ activity-wise cost of production and cost of sales would beavailable from the Cost Accounting Records of all the products/ activities,irrespective of whether these are covered under cost audit or not. It mayfurther be noted that in such a situation, the company would also be requiredto file a compliance report and for this purpose, product-wise/ activity-wisecost of production and cost of sales would be determined to prepare thereconciliation statement as required in the compliance report.                                                                                                                                                                                                                                                                                             5.15Whether there is any sequence of filing compliance report and cost audit reportfor a company which is required to file both?

Compliance report and CostAudit Report are mutually exclusive to each other and it does not make anydifference as to which report is submitted first.

5.16 Whether separate Form 23C isrequired to be filed by a company having two or more different types ofproducts covered under cost audit?

The company would be required to fileindividual Form 23C for each product under reference even if the same auditoris appointed for all the products.

5.17A Company having turnover above Rs. 100 crore undertakes works contracts forpipe line execution for Drinking, Sewerage and Irrigation purpose. The requiredpipes for the projects, falling under Chapter 68 of CETA, are manufactured bythe Company itself. A part of the production is also sold outside. Whether CostAudit is applicable for Pipe manufacture.

Applicability of cost audit isbased on turnover of the total company. Any activity of a company, irrespectiveof the turnover of the particular activity, would be covered under cost auditif that particular activity is one of the activities listed in the cost auditorder Nos. 52/26/CAB-2010 dated 2nd May 2011 or 30th June 2011. Whether thecompany under reference will attract cost audit for its pipe manufacturingactivity will now depend on whether the captive consumption is made for aproduct which is under cost audit. In this case it is not so and the pipemanufacturing will attract cost audit under this test. However, if theproduction of pipes is an ancillary activity as defined in MCA General CircularNo. 67/2011 dated 30th November 2011, then pipe manufacturing would be outsidepurview of cost audit.

5.18 A company is engaged inconstruction of Roads, Bridges, Marine facilities etc. having sites in Indiaand abroad. The company also has Joint venture projects in India and abroad.Whether Companies (Cost Accounting Records) Rules 2011 would be applicable tothe company?

As per MCA General Circular No. 67/2011dated 30th November 2011, if a company is engaged in construction business as acontractor or a sub-contractor, then the company will not be covered underCompanies (Cost Accounting Records) Rules 2011. However, constructionundertaken by a company on its own, say development of a commercial complex,office blocks, residential flats, roads, bridges and other infra-structuralfacilities etc. with the ultimate object of either selling the same tocustomers or permitting their use on chargeable basis (say, Toll Charges forroads/bridges, renting of office complex) would be covered under Companies(Cost Accounting Records) Rules 2011. This would also include above activitiesunder BOT/BOOT mode

Savings a/c number portability – Change your bank without changing your Saving account Number

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The Finance Ministry is working on savings banks account number portability, which will allow a customer to retain his account number while changing his bank.

"We want to do it [savings a/c number portability]. Right now there are some technical problems…We have identified them. We will overcome them soon," Financial Services Secretary DK Mittal said.

He was speaking after a meeting in the ministry, which among others was attended by Economic Affairs Secretary R Gopalan, Finance Secretary RS Gujral and Chief Economic Adviser Kaushik Basu.

He said banks would have to work on identification code, know your customers (KYC) norms and core banking solution (CBS) for implementing the savings bank account number portability.

The move would help customers change banks, without the need of going through the KYC norms again.

Last year, the government had allowed portability of mobile numbers and health insurance policies.

In October last year, the Reserve Bank had deregulated interest rates on savings account deposits, following which few private sector lenders have hiked rates to as much as 7%.

Simplified scheme for the refund of service tax

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An announcement was made by Hon’ble Finance Minister in the Budget Speech 2011 for introducing a simplified scheme for the refund of service tax paid on services used for export of goods on the lines of drawback of duties.

To implement the simplified scheme, the Government has issued notification No. 52/2011 – Service Tax effective 3rd January 2012 that will provide average rates of service tax refund, ranging from 0.03% to 0.20% of the F.O.B. value of export, for a wide range of goods exported from India. The average rate of refund is in respect of 18 identified services used beyond the factory gate.
As in the case of payment of duty drawback, the service tax refund will be enabled by the Indian Customs EDI System resulting in the amounts getting directly credited into the exporters’ bank accounts within a few days of confirmation of export without additional export documentation. Customs Officers have separately been vested with powers of Central Excise/Service Tax Officers for this purpose.
The scheme adds to the e-enabled service delivery to exporting community, limits public interface as well as reduces transaction costs in obtaining refunds.

Mere passage of 3 years will not mean that liabilities are no longer payable – Section 41(1) can not be ivoked for non trading Liabilities

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ACIT Vs. Afghan Crane Crusher (ITAT Delhi)- Upon assessee’s appeal Ld. Commissioner of Income Tax (Appeals) noted that the aforesaid loans were duly recorded in the books of accounts and confirmations of loans were also filed before the Assessing Officer wherein the depositors accepted to have made interest free loans to the assessee. Ld. Commissioner of Income Tax (Appeals) further observed that the unsecured loans have been raised by the assessee from relatives and friends in the financial year 2004- 05 for obtaining credit limit from banks and the impugned sums do not represent trading liability for invoking provisions of section 41(1) of the Act. In view of the above facts Ld. Commissioner of Income Tax (Appeals) held that the Assessing Officer was legally and factually incorrect in invoking provisions of section 41(1) of the Act and made disallowance of Rs. 13,80,000/-.

We have heard the Ld. Departmental Representative. None appeared on behalf of the assessee. Upon careful consideration, we find that the matter can be disposed of by perusing the records and hearing the Ld. Departmental Representative. We find that the addition in this case has been made by the Assessing Officer on the ground that the unsecured loans are more than 3 years old. Mere passage of 3 years will not mean that these liabilities are no longer payable. Moreover, the assessee has not written off these sums. Moreover these loans do not represent trading liability. Hence, section 41(1) cannot be invoked. The parties have also confirmed the same. Under the circumstances, there is no infirmity in the order of the Ld. Commissioner of Income Tax (Appeals). Hence, we affirm the same in this regard.

Expenditure incurred for running the business or working it, with a view to produce profits is in the nature of revenue expenditure

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Airport Authority of India vs. CIT (Delhi High Court) – The Supreme Court has held in the case of Assam Bengal Cement Co. Ltd. Vs. CIT (1995) 25 ITR 34 that‘”If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business s is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure.”

Applying the text to the crux of the case before it, the Court was influenced by the fact that the assessee had already been granted a mining lease and under that lease it had acquired full rights to carry on mining operations in the entire area including the railway area. The payment of Rs. 3 lacs was not made for grant of permission to carry on mining operation within the railway area, instead it was made towards the cost of removing the construction which obstructed the mining operation. In this premise, the expenditure was treated to have been made in relation to carrying on business in a profitable manner and was, therefore held to be on revenue account.

Soon companies may be allowed to sell shares through electronic Initial Public Offers (e-IPOs)

2012-01-03T12:22:00.001+05:30

A committee set up by market regulator Sebi to examine IPO-related issues is looking into a proposal to allow companies to sell shares through electronic Initial Public Offers (e-IPOs). The proposed move would enable companies to sell shares electronically. Under such a system, investors would bid for shares online and would not be required to sign any papers physically.

“The committee set up by Sebi to undertake various issues relating to IPOs is looking into it (the e-IPO proposal). We are awaiting formal clearance from the ministry of corporate affairs for the e-IPO process,” Sebi chairman U K Sinha told Media.

Asked about Sebi’s proposal for reducing the number of days in the IPO process, he said, “The current period of 12-plus days and how to reduce it is part of the committee’s mandate.”

TDS U/s. 194C not deductible on Packing or Printed material supplied to us as per our specification

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DCIT Vs. Elgie Engineering Works (ITAT Calcutta)- On perusal of the bills of parties, it is seen that the payments are for manufacture and supply of items such as Buckstay Slings, Economiser coils, Lifting beams etc. The bills show that the price is inclusive of the material which indicates that the transactions were in the nature of sales contracts. I have perused the CBDT’s Guidelines in this regard as given in Circular No.681 dated 08.03.1994. Herein, it has been stated that where contractor undertakes to supply any article or thing fabricated according to specifications given by the Govt. or any other specified persons and the property in such article or thing passes to the Govt. or such person only after such article or thing is delivered, the contract will be a contract for sale and shall be outside the purview of section 194C. Further, reference is invited to the Punjab and Haryana High Court’s decision in the case of CIT vs. Deputy Chief Accounts Officer, Markfed, Khanna 304 1TR 17. In this case, the assessee had purchased printed packing material made according to its specifications but did not deduct tax at source. The Court held that the factum of such material carrying some printed work could only be regarded as the work executed by the supplier incidental to the sale made to the assessee. The raw material for the manufacturing of such packing material was not supplied by the assessee. It was, therefore, held that, the purchase of particular printed material by the assessee was a contract for sale and outside the purview of section 194C. In the present case under appeal, the bills clearly show that material has not been supplied by the assessee in respect of the purchase of equipment/machinery. I, therefore, in view of these facts and the CBDT’s Circular referred to above, hold that payment amounting to Rs.36,57,034/- made to 7 parties was for purchase of equipment/machinery and the assessee was not required to deduct tax u/s. 194C. The disallowance u/s.40(a)(ia) to the extent of Rs.36,57,034/- is, therefore, deleted.

Rule 8D applicable from A.Y. 2008-2009, however direct and indirect expenses to earn exempt Income has to be disallowed under Section 14A

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CIT Vs. Galileo India Pvt Ltd (Delhi HC) - Rule 8D has been held to be prospective in nature and applicable from assessment year 2008-09 by this Court in Maxopp Investment Ltd. v. CIT, New Delhi in ITA No.687/2009 dated 18.11.2011. However, in the said decision it has been observed that direct and indirect expenses have to be disallowed under Section 14A, when an assessee earns exempt income. In the present case no disallowance was made under Section 14A. In these circumstances, the CIT was justified in invoking supervisory jurisdiction under Section 263 of the Act. The said jurisdiction can be invoked when two conditions are satisfied. If the order by the Assessing Officer is erroneous and prejudicial to the interests of the revenue. An order is erroneous, when the Assessing Officer does not correctly apply a provision or does not make enquiries which are required. When the order passed is contrary to law and not in conformity with the Act, it is erroneous and can be revised by the Commissioner. In the present case Section 14A was not applied and no disallowance was made by the Assessing Officer, though the assessee is a company and has admittedly earned exempt income of Rs.28,20,145/-.