CBDT Extends Advance Tax Due Date + Change In High Court Tax Benches Constitution

Dear Subscriber,

CBDT Extends Due Date For Paying Advance-tax To 18.03.2014

The final instalment of Advance tax for Financial Year 2013-14 is required to be paid on or before 15th March, 2014 by the tax payers who are liable to pay advance tax. These taxpayers can make payments in the designated branches of the authorized banks, electronically or physically, as per law. The banks are open for half day on 15th March, 2014, being a Saturday. Accordingly, to facilitate payment of this instalment of Advance tax for the Financial Year 2013-14, the Central Board of Direct taxes (CBDT) has issued an order to extend the time limit to make such payments of Advance Tax, from 15th March, 2014 to 18th March, 2014. Taxpayers, therefore, can now pay their advance tax instalment by 18th March, 2014 without entailing any consequential interest for deferment

Change In Constitution Of Bombay High Court’s Tax Bench w.e.f. 18.03.2014

The Hon'ble Bombay High Court has announced that there will be a change in the Constitution of the Tax Bench w.e.f. 18.03.2014.

Regards,

 

Editor,

 

itatonline.org

---------------------

Latest:

Maersk Global Centres (India) Pvt. Ltd vs. ACIT (ITAT Mumbai Special Bench)

CA. Chandrakant Pawar, Chartered Accountant, Nashik

Patil Daware Girase Pawar & Associates, Chartered Accountants, Nashik

Imp ITAT Special Bench Verdict On Transfer Pricing + CBDT Instruction On S. 195 TDS

Dear Subscriber,

Maersk Global Centres (India) Pvt. Ltd vs. ACIT (ITAT Mumbai Special Bench)

Transfer Pricing: Companies in ITES cannot be classified into low-end BPO services and high-end KPO services for comparability analysis but have to be classified based on the functions performed. Comparables with abnormal profit margins cannot be discarded per se but must be examined to determine whether the high margins are due to normal business conditions or not

The Special Bench had to consider two issues: Whether, for determining the ALP under TNMM, (i) a company performing (high-end) KPO functions is comparable with a company providing (low-end) back office support services, given that both are in the “ITES” sector? & (ii) companies earning abnormally high profit margin have to be discarded from the list of comparables? HELD by the Special Bench:

(iv) As suggested in the OECD Guidelines on Transfer Pricing, determining a reliable estimate of arm’s length outcome requires flexibility and the exercise of good judgment. It is to be kept in mind that the TNMM may afford a practical solution to otherwise insoluble transfer pricing problems if it is used sensibly and with appropriate adjustments to account for differences. When the comparable uncontrolled transactions being used are those of an independent enterprise, a high degree of similarity is required in a number of aspects of the AE and the independent enterprise involved in the transactions in order for the controlled transactions to be comparable. Given that often the only data available for the third parties are company-wide data, the functions performed by the third party in its total operations must be closely aligned to those functions performed by the tested party with respect to its controlled transactions in order to allow the former to be used to determine an arm’s length outcome for the latter. The overall objective should be to determine a level of segmentation that provides reliable comparables for the controlled transaction, based on the facts and circumstances of the particular case. The process followed to identify potential comparables is one of the most critical aspects of the comparability analysis and it should be transparent, systematic and verifiable. In particular, the choice of selection criteria has a significant influence on the outcome of the analysis and should reflect the most meaningful economic characteristics of the transactions compared. Complete elimination of subjective judgments from the selection of comparables would not be feasible but much can be done to increase objectivity and ensure transparency in the application of subjective judgments;

CBDT Instruction On TDS Obligation U/s 195 On Payment To Non-Residents

The CBDT has issued Instruction No. 02/2014 dated 26.02.2014 in which it has referred to the judgements of the Supreme Court in Transmission Corp of A. P. 299 ITR 587 and GE India Technology Pvt. Ltd 327 ITR 456 on the issue of deduction of tax at source u/s 195 while making payments to non-residents. The CBDT has directed AOs u/s 119 that in a case where the assessee fails to deduct TDS u/s 195, the AO cannot treat the whole sum remitted to the non-resident as being chargeable to tax but he has to determine the appropriate proportion of the sum chargeable to tax as mentioned in s. 195(1) for treating the assessee as being in default u/s 201

Regards,

 

Editor,

 

itatonline.org

---------------------

Latest:

Thermax Babcock & Wilcox Ltd vs. CIT (Bombay High Court)

High Court lays down zero-tolerance policy over adjournments. Threatens to dismiss appeals, hear them ex-parte or and/or impose costs if counsel are not prepared

__._,_.___

CA. Chandrakant Pawar, Chartered Accountant, Nashik

Patil Daware Girase Pawar & Associates, Chartered Accountants, Nashik

Bombay High Court Reads Riot Act To Counsels For Assessee And Dept

Dear Subscriber,

Thermax Babcock & Wilcox Ltd vs. CIT (Bombay High Court)

High Court lays down zero-tolerance policy over adjournments. Threatens to dismiss appeals, hear them ex-parte or and/or impose costs if counsel are not prepared

(i) We have noted that the Final Hearing Board consists of all Appeals of 2002. First two matters have been adjourned by us only because the Department or the Advocate for Appellant sought accommodation. They did not have either papers or were not ready with the case. Such state of affairs will not be tolerated hereafter. In the event, the Counsel engaged by the Department is absent without a justifiable or reasonable cause, we will invariably impose costs and to be paid by the Counsel personally. Equally, we would proceed in his absence. In the event, the Appellant or his Advocate is absent, we will proceed to dismiss the Appeal for non prosecution. Thereafter, no application for restoration of the Appeal will be considered unless the Appellant makes out a sufficient cause for absence

CBDT Extends Due Date For Filing TDS/TCS Statements By Govt. Deductors

The CBDT has issued Circular No. 07/2014 dated 04.03.2014 by which it has exercised powers u/s 119 and extended, ex-post facto, the due date of filing of the TDS/TCS statement to 31.03.2014 for a Government deductor

Regards,

 

Editor,

 

itatonline.org

---------------------

Latest:

ICAI Guidance Note on Audit of Banks 2014

__.

India to Converge With Global Financial Standards from April 2015 (by CA Kamal Garg)

India to Converge With Global Financial Standards from April 2015

Convergence with International Accounting Standards(IASs)/International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) is getting its due weightage over a period of time and in the present context the convergence to IFRS is in the process of shaping up all over the world such that more than 100 countries are currently requiring and permitting the use of or have a policy of convergence with IFRSs. Some countries have announced their intention to adopt IFRSs from a future date, e.g., Canada from the year 2011, and China from the year 2008. Even FASB, USA and IASB are also working towards the convergence of the US GAAPs and the IFRSs. The Securities & Exchange Commission recently proposed permitting filing of IFRS-compliant financial statements without requiring presentation of a reconciliation statement between US GAAPs and IFRSs in near future. India has also joined this bandwagon by the fact the Council of the Institute of Chartered Accountants of India (ICAI), at its 259th meeting, held on May 2-4, 2006, expressed the view that the IFRSs may be adopted in totality at least for listed and large entities, also keeping in view the expected advantages such as saving in cost of capital for Indian entities raising capital abroad, saving in cost for such entities for not preparing separate set of financial statements, expected improvement in the image of Indian industry and the accounting profession in the eyes of the world, and increasing opportunities for Indian professionals abroad.

ICAI has also issued a concept paper in this regard (available at www.icai.org) which is basically structured in the following manner:

“The Concept Paper comprises a chapter on Introduction and Background containing the need and effectiveness for convergence with IFRSs, the objective of convergence and the meaning of convergence with IFRSs for the purposes of the Concept Paper. The second chapter evaluates the present status of Indian Accounting Standards, vis-à-vis, the International Financial Reporting Standards and identifies the major reasons for departure from the IFRSs. The third chapter lays down the strategy for convergence with IFRSs including the approach to be followed in this regard and the road map for convergence.” (as per Preface to the Concept Paper).

India has decided to go for convergence route. Accounting Standard Board (ASB) of ICAI has already issued exposure drafts on all of the converged standards (Indian standards equivalent to IAS/IFRS). Once these Standards are approved by the Council of ICAI these will be sent to NACAS. On approval from NACAS, the same will need to be notified in the Gazette. Looking at the stringent timelines for roadmap of IFRS implementation in India, this process needs to be completed at the earliest. The existing set of Indian accounting standards will continue to be in force. Theseaccounting standards will be applicable to those entities which are not required to migrate to Indian equivalent of IFRS (Ind-AS).

The Economic Times, Dated 24.2.2014, reported that the corporate affairs ministry is likely to notify within a month all sections and rules of the new Companies Act and start immediately thereafter the process of converging Indian accounting standards with the International Financial Reporting Standards (IFRS), which have to be implemented from April 2015 for companies with a net worth of more than Rs 1,000 crore. 

“The ministry has said, ‘let the Companies Act get notified and then we will take up the convergence of IAS-IFRS’,” said K Raghu, president of the Institute of Chartered Accountants of India, the accounting regulator which had written to the corporate affairs ministry and given a revisedroad map for the implementation of IFRS from next April. 

In the first phase, it will be implemented at companies that have a net worth of over Rs 1,000 crore. The second phase will begin from April 1, 2016 and involve both listed and unlisted companies with a net worth of over Rs 500 crore but less than Rs 1,000 crore.

“We have decided that we will roll it out in a phased manner because we, along with our members, are completely ready. We believe that this is one big change in the way accounting is done,” said Raghu.

First Year Comparatives

Companies covered in Phase I will prepare their financial statements for 2015-16 in accordance with the first set of Accounting Standards (i.e. the converged Accounting Standards) but will show previous years’ figures as per the financial statements for 2014-15, i.e., as per non-convergedaccounting standards. However, the Companies will have an option to add an additional column to indicate what these figures could have been if the first set of Accounting Standards (i.e., convergedaccounting standards) had been applied in that previous year. Companies which make this additional disclosure will, for this purpose, convert their opening balance sheet as at the date on which this previous year commences and, in that case, a further conversion of the opening balancesheet for the year for which the financial statements are prepared will not be necessary

Cut off Date

For testing the applicability for phase I, the date for determination of the criteria is the BalanceSheet as at 31st March, 2013 or the first Balance Sheet prepared thereafter when the accounting year ends on another date. In other words, as per the roadmap, in phase I, the prescribed categories of companies will convert their opening balance sheet as at 1st April, 2011 in compliance with the first set of Accounting Standards (i.e., the converged Accounting Standards or Ind-AS)

Carve-outs provided in Ind As

The Ind As have been prepared by NACAS and with its recommendation submitted to SMCA.NACAS adopted due consultative proposed of hosting the draft Ind AS insisting comments/suggestions and therefore after deliberated with industries representative in NACAS. The finally recommended Ind. AS have the following carve outs. These carve outs have been made to fill up the gap/differences in application of Accounting Principles Practices and economic conditions prevailing in India.

1. Ind. AS 21-The Effects of Changes in Foreign Exchange Rates

It requires recognition of exchange differences arising on translation of monetary items from foreign currency to functional currency directly in profit or loss. Ind. AS 21 permits an option to recognise exchange differences arising on translation of certain long-term monetary items from foreign currency to functional currency directly in equity. In this situation, Ind. AS 21 requires the accumulated exchange differences to be amortised to profit or loss in an appropriate manner.

2. Ind. AS 28- Investment in Associates

Paragraph 25 require that difference between the reporting period of an associate and that of the investor should not be more than three months, in any case. The phrase ‘unless it is impracticable’ has been added in the relevant requirement i.e., paragraph 25 of Ind. AS 28.

3. IAS 28 requires that for the purpose of applying equity method of accounting in the preparation of investor’s financial statements, uniform accounting policies should be used. In other words, if the associate’s accounting policies are different from those of the investor, the investor should change the financial statements of the associate by using same accounting policies.The phrase, ‘unless impracticable to do so’ has been added in the relevant requirements i.e., paragraph 26 of Ind. AS 28.

4. Ind. AS 32- Financial Instruments in Presentation Part. A Carve out is an exception has been included to the definition of ‘financial liability’ in paragraph 11(b)(ii), Ind. AS 32 to consider the equity conversion option embedded in a convertible bond denominated in foreign currency to acquire a fixed number of entity’s own equity instruments as an equity instrument if the exercise price is fixed in any currency. This exception is not provided in IAS 32.

5. Ind. AS 39 – Financial Instruments: Recognition and Measurement. IAS 39 requires all changes in fair values in case of financial liabilities designated at fair value through Profit and Loss at initial recognition shall be recognised in profit or loss. IFRS 9 which will replace IAS 39 requires these to be recognised in ‘other comprehensive income. A proviso has been added to paragraph 48 of Ind. AS 39 that in determining the fair value of the financial liabilities which upon initial recognition are designated at fair value through profit or loss, any change in fair value consequent to changes in the entity’s own credit risk shall be ignored.

6. Ind. AS 103, Business Combinations. IFRS 3 requires bargain purchase gain arising on business combination to be recognised in profit or loss. Ind. AS 103 requires the same to be recognised in other comprehensive income and accumulated in equity as capital reserve, unless there is no clear evidence for the underlying reason for classification of the business combination as a bargain purchase, in which case, it shall be recognised directly in equity as capital reserve.

7. Ind. AS 101, First-time Adoption of Indian Accounting Standards.

(i) Presentation of comparatives in the First-time Adoption of Indian Accounting Standards (Ind. AS) 101 (corresponding to IFRS 1)

IFRS 1 defines transitional date as beginning of the earliest period for which an entity presents full comparative information under IFRS. It is this date which is the starting point for IFRS and it is on this date the cumulative impact of transition is recorded based on assessment of conditions at that date by applying the standards retrospectively except to the extent specifically provided in this standard as optional exemptions and mandatory exceptions. Accordingly, the comparatives, i.e., the previous year figures are also presented in the first financial statements prepared under IFRS on the basis of IFRS.

Ind. AS 101, requires an entity to provide comparatives as per the existing notified Accounting Standards. It is provided that, in addition to aforesaid comparatives, an entity may also provide comparatives as per Ind. AS on a memorandum basis.

(ii) Presentation of reconciliation

IFRS 1 requires reconciliations for opening equity, total comprehensive income, cash flow statement and closing equity for the comparative period to explain the transition to IFRS from previous GAAP.

Ind. AS 101 provides an option to provide a comparative period financial statements on memorandum basis. Where the entities do not exercise this option and, therefore, do not provide comparatives, they need not provide reconciliation for total comprehensive income, cash flow statement and closing equity in the first year of transition but are expected to disclose significant differences pertaining to total comprehensive income. Entities that provide comparatives would have to provide reconciliations which are similar to IFRS.

(iii) Cost of Non-current Assets Held for Sale and Discontinued Operations on the date of transition on First-time Adoption of Indian Accounting Standards (Ind. AS)

Ind. AS 101 provides transitional relief that while applying Ind. AS 105 – Non-current Assets Held for Sale and Discontinued Operations, an entity may use the transitional date circumstances to measure such assets or operations at the lower of carrying value and fair value less cost to sell.

(iv) Foreign currency gains/losses on translation of long-term monetary items.

Ind. AS 101 provides that on the date of transition, if there are long-term monetary assets or long-term monetary liabilities mentioned in paragraph 29A of Ind. AS 21, an entity may exercise the option mentioned in that paragraph regarding spreading over the unrealised Gains/Losses over the life of Assets/Liabilities either retrospectively or prospectively. If this option is exercised prospectively, the accumulated exchange differences in respect of those items are deemed to be zero on the date of transition.

(v) Financial instruments existing on transition date

Ind. AS 101 provides that the financial instruments carried at amortised cost should be measured in accordance with Ind. AS 39 from the date of recognition of financial instruments unless it is impracticable (as defined in Ind. AS 8) for an entity to apply retrospectively the effective interest method or the impairment requirements of Ind. AS 39. If it is impracticable to do so then the fair value of the financial asset at the date of transition to Ind.-ASs shall be the new amortised cost of that financial asset at the date of transition to Ind. ASs. Ind. AS 101 provides another exemption that financial instruments measured at fair value shall be measured at fair value as on the date of transition to Ind. AS.

(vi) Definition of previous GAAP under Ind. AS 101 First-time Adoption of Indian Accounting Standards

IFRS 1 defines previous GAAP as the basis of accounting that a first-time adopter used immediately before adopting IFRS.

Ind. AS 101 defines previous GAAP as the basis of accounting that a first-time adopter used immediately before adopting Ind. ASs for its reporting requirements in India. For instance, for companies preparing their financial statements in accordance with the existing Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006 shall consider those financial statements as previous GAAP financial statements.

(vii) Cost of Property, Plant and Equipment (PPE), Intangible Assets, Investment Property, on the date of transition of First-time Adoption of Indian Accounting Standards.

Ind. AS 101 provides an entity an option to use carrying values of all assets as on the date of transition in accordance with previous GAAP as an acceptable starting point under Ind. AS.

8. Ind. AS 18-Revenue

On the basis of principles of the IAS 18, IFRIC 15 on Agreement for Construction of Real Estate, prescribes that construction of real estate should be treated as sale of goods and revenue should be recognised when the entity has transferred significant risks and rewards of ownership and has retained neither continuing managerial involvement nor effective control.

IFRIC 15 has not been included in Ind. AS 18, Revenue. Such agreements have been scoped out from Ind. AS 18 and have been included in Ind. AS 11, Construction Contracts.

A footnote has been added in paragraph 1 to Ind. AS 18, Revenue, that for rate regulated entities, this standard shall stand modified, where and to the extent the recognition and measurement of revenue of such entities is affected by recognition and measurement of regulatory assets/liabilities as per the Guidance Note on the subject being issued by the Institute of Chartered Accountants of India.

10. Indian Accounting Standard on Agriculture (Corresponding to IAS 41)

IAS 41, Agriculture, requires measurement of biological assets, viz. , living animals and plants at fair value and recognizing gains and losses arising on such measurement in profit or loss, unless ascertainment of fair value is unreliable.

It has been decided to revise the Standard and not to issue the standard as it is.

11. Ind. As – 19 Employee Benefits vis-a-vis IFRSs/IASs restricting options.

According to Ind. AS 19 the rate to be used to discount post-employment benefit obligation shall be determined by reference to the market yields on Government bonds, whereas under IAS 19, the Government bonds can be used only where there is no deep market of high quality corporate bonds. To illustrate treatment of gratuity subject to ceiling under Indian Gratuity Rules, an example has been added in Ind. AS 19 IAS 19 permits various options for treatment of actuarial gains and losses for post-employment defined benefit plans whereas Ind. AS 19 requires recognition of the same in other comprehensive income, both for post-employment defined benefit plans and other long-term employment benefit plans. The actuarial gains recognised in other comprehensive income should be recognised immediately in retained earnings and should not be reclassified to profit or loss in a subsequent period.

Compiled by CA Kamal Garg, a fellow member of ICAI. For any queries or suggestions, he can be approached at cakamalgarg@gmail.com, 9811054015

http://taxguru.in/chartered-accountant/india-converge-global-financial-standards-april-2015.html

On Line Articles Placement Portal for selection of Articled Assistants by CA Firms

• Mar
• 16
• 2014

On Line Articles Placement Portal for selection of Articled Assistants by CA Firms

The Board of Studies of the ICAI has been providing Optional Articles Placement Scheme for selection of Articled Assistants by CA Firms through its Articles Placement Portal. It provides a platform to the firms of Chartered Accountants having vacancies for Articled Assistants to shortlist eligible students for selection of articled assistants, and call them for Interview at their offices, as per date and timeconvenient to them. The eligible candidates who have Passed Group-I or both Groups of the Intermediate(Integrated Professional Competence) Course or have been admitted under the Direct Entry Scheme, and are willing to join articled training can register themselves on the portal. The candidates shortlisted by CA Firms would beautomatically informed by e-mail through the Portal, to appear for interview at their respective Offices, at the designated date and time.

The services of Online Placement Portal are active for facilitating the placement of Articles in CA Firms on pan India basis. Both eligible CA firms and candidates who are willing to avail of this facility shall have to register themselves online through the Articles Placement Portal at http://bosapp.icai.org. The services on the Portal would be available for two months, twice a year from the date of registration by the firms. Similarly the bio data of a student will also be available onthe portal for a maximum period of 2 months from student’s registration. The services of the Online Articles Placement Portal are available free of charge for both CA Firms and students.

Norms for Firms of Chartered Accountants participating in the Articles Placement Programme:

• All CA firms registered with the Institute and having vacancies for articled assistants are eligible to register through Portal.

• After Registration, the participating firms would short list the candidates from the data available onthe portal as per their requirement on the basis of number of vacancies available with them and call the candidates for interviews/interaction at their offices as per the suitable time and date convenient to them.

• Participating CA Firms should ensure that they have the number of vacancies available with them for articled assistants and shall have to mandatorily give offer letter to the selected candidates in writing on the date of the interview itself.

• The CA firms are also requested to please see the list of candidates already selected by other CA firms on the Portal before giving offer letters to the candidates.

• The services on the Portal would be available for two months, twice a year from the date of registration by the firms. Similarly the bio data of a student will also be available on the portal for a maximum period of 2 months from student’s registration.

Guidelines for CA Students:

• CA students who have qualified Intermediate (Integrated Professional Competence) Course Group-I or both Groups or have been admitted under the Direct Entry Scheme, and are eligible for undergoing articled training can apply for registration through Portal.

• The participating firms would short list the candidates registered on the Portal as per theirrequirement and call the candidates for interviews/interactions as per date and time convenient to them at their offices.

• If the date and/or time given by the CA firm is clashing with date and/or time of other CA firm(s), the candidate concerned is required to intimate the other firm(s) about the clash of date and timeand request the firm(s) to change the same as per mutual convenience.

• Candidates appearing for the interviews are required to carry proof of their identity along with a copy of the mark-sheet(s) relating to Intermediate (Integrated Professional Competence) Course Group-I or both Groups or Graduation/Post Graduation, duly attested by a Chartered Accountant or a Gazetted Officer.

• Each student who would be given letter by the CA firm for pursuing articled training is required to give acceptance to the firm within 7 days’ time.

• In case the consent as per consent form is given by the Article to the firm this will be irrevocable from both sides and student will not be registered by ICAI under any other CA firm without the consent of the firm who were originally given the consent.

• After giving consent to the CA firm, he shall be required to indicate about his selection at the appropriate place on the Portal so that he should not be invited for further interviews by the CA firms.

• Students are advised to follow the proper Dress Code as prescribed by the Institute while appearing for interviews/interactions

Disclaimer

Please note that The Institute of Chartered Accountants of India will be acting as a facilitator only and shall not be responsible in case of non-placement / non-selection of candidates.

In case of any clarification, please contact the Board of Studies, ICAI Bhawan, A-29, Sector-62, Noida-201309, Tel. No. 0120-3045930/931/988; eMail: bosapp@icai.org.

Director , Board of Studies

Source- ICAI

http://taxguru.in/chartered-accountant/line-articles-placement-portal-selection-articled-assistants-ca-firms.html

ITR Volume 361 : Part 4 (Issue dated : 10-3-2014)

 

INCOME TAX REPORTS (ITR)--PRINT AND ONLINE EDITION

PRINT EDITION

ITR Volume 361 : Part 4 (Issue dated : 10-3-2014)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

Appeal to High Court --Powers of High Court--Power to set aside finding of Tribunal which is perverse--Income-tax Act, 1961, s. 260A-- CIT v. Smt. Sanghamitra Bharali (Gauhati) . . . 481

Business expenditure --Expenditure on cars--Disallowance of one-fifth for personal use--Vehicle used for earning money by way of hiring--Disallowing one-fifth depreciation on account of personal use of directors not justified--Income-tax Act, 1961, s. 38(2)-- Sri Saytasai Properties and Investment P. Ltd. v. CIT (Cal) . . . 641

Capital or revenue receipt --Subsidy--Sum received by assessee by way of grant-in-aid out of sugar development fund to meet expenses of maintaining buffer stock--Revenue receipt liable for taxation--Income-tax Act, 1961-- K. M. Sugar Mills Ltd. v. CIT (All) . . . 637

Cash credit --Burden of proof--Assessee must prove identity of creditor, genuineness of transaction and creditworthiness of creditor--Assessee need not prove source of funds of creditor--Income-tax Act, 1961, s. 68-- CIT v. Smt. Sanghamitra Bharali (Gauhati) . . . 481

Company --Book profits--Computation of profits--Effect of proviso to clause (i) of Explanation to section 115JA--Amount withdrawn from provision made or reserve created after 1-4-1988--Adjustment only if book profit had been increased by such amount at time reserve or provision was made--Income-tax Act, 1961, s. 115JA-- CIT v. Goetze (India) Ltd. (Delhi) . . . 505

Depreciation --Higher rate of depreciation--Vibro bed dryer entitled to hundred per cent. depreciation--Income-tax Rules, 1962, Appendix 1 III.(3)(iii)A-- CIT v. McLeod Russel (India) Ltd. (Cal) . . . 663

Export business --Special deduction--Commission paid outside India deducted from price of goods and balance amount received in country in foreign exchange--Excludible from export turnover--Income-tax Act, 1961, s. 80HHC-- CIT v. McLeod Russel (India) Ltd. (Cal) . . . 663

Income --Accrual--Excise credit--Tribunal finding credit of such pro forma rebate taken into account illusory and did not represent any real income--Not assessable as part of income--Income-tax Act, 1961-- CIT v. Kusum Products Ltd. (Cal) . . . 632

----Burden of proof--Burden on Revenue to prove that receipt was income--Burden on assessee to prove receipt was not taxable--Income-tax Act, 1961-- CIT v. Smt. Sanghamitra Bharali (Gauhati) . . . 481

Income from other sources --Money borrowed for investing in shares--Interest not disallowable on ground investment not made for purpose of earning dividend--Income-tax Act, 1961, s. 57(iii)-- Sri Saytasai Properties and Investment P. Ltd. v. CIT (Cal) . . . 641

Income from undisclosed sources --Amount claimed to be capital gains--Finding that transaction of purchase and sale of shares was not genuine--Amount assessable--Income-tax Act, 1961-- CIT v. Smt. Sanghamitra Bharali (Gauhati) . . . 481

International transactions --Arm’s length price--Determination--Reference to Transfer Pricing Officer--Condition precedent--Satisfaction of Assessing Officer that income will arise from transaction--Objection that no income would arise--Objection must be considered by Assessing Officer--Personal hearing should be given--Power of Dispute Resolution Panel--Dispute Resolution Panel can direct Assessing Officer to make enquiry--Income-tax Act, 1961, Chap. X-- Vodafone India Services P. Ltd. v. Union of India (Bom) . . . 531

Non-resident --Royalty--Definition--Change of law--Amendment of definition to include payment for use of equipment--Assessee engaged in providing international connectivity services (bandwidth services or telecom services) for transmission of data and voice--Payment received by assessee for providing international private leased circuit--Amounts to use of equipment or use of process--Taxable as royalty--Income-tax Act, 1961, s. 9(1)(vi), Expln. 2 --Double Taxation Avoidance Agreement between India and Singapore, art. 12(3)(b), (4)-- Verizon Communications Singapore Pte Ltd. v. ITO (International Taxation) (Mad) . . . 575

Precedent --Effect of decision of Supreme Court in H. E. G. Ltd.’s case-- India Trade Promotion Organisation v. CIT (Delhi) . . . 646

Refund --Interest on refund--Effect of section 244A--Part payment of refund--Interest on balance to be calculated on such balance together with interest on such balance--Income-tax Act, 1961, s. 244A-- India Trade Promotion Organisation v. CIT (Delhi) . . . 646

Revision --Powers of Commissioner--Scope of powers--Assessing Officer taking one of two possible views--Commissioner has power to show that view was erroneous and prejudicial to Revenue--Error in computing income under section 115JA and failure to apply section 14A--Revision of order--Justified--Income-tax Act, 1961, ss. 14A, 115JA, 263-- CIT v. Goetze (India) Ltd. (Delhi) . . . 505

Valuation of closing stock --Amount of cess paid by assessee--Excludible in valuation of closing stock--Income-tax Act, 1961-- CIT v. McLeod Russel (India) Ltd. (Cal) . . . 663

Wealth-tax --Reference--Order of High Court directing reference--Effect--Observations of High Court at that stage--Not conclusive--Finding of fact not challenged--Finding conclusive--Wealth-tax Act, 1957, s. 27-- CWT v. Trustees of H. E. H. the Nizam’s Jewellery Trust (AP) . . . 668

----Valuation of asset--Question of fact--Valuation accepted by Revenue in earlier years--No change in circumstances--Tribunal correct in accepting valuation in relevant assessment year--Wealth-tax Act, 1957-- CWT v. Trustees of H. E. H. the Nizam’s Jewellery Trust (AP) . . . 668

Writ --Existence of alternative remedy--Not an absolute bar for issue of writ--Constitution of India, art. 226-- Vodafone India Services P. Ltd. v. Union of India (Bom) . . . 531

AUTHORITY FOR ADVANCE RULINGS

Non-resident --Advance ruling--Definition--Application--Maintainability--Questions on which ruling sought must be in relation to transaction “undertaken or proposed to be undertaken†by applicant--Non-resident applicant intending to invest in 100 per cent. subsidiary company in India--Indian subsidiary intending to set up consortium by way of partnership with another Indian company--Firm proposing to acquire undertaking of Indian company operating and maintaining road bridges in Mumbai--Rulings sought on questions relating to allowability of deduction under section 80-IA to undertaking--100 per cent. subsidiary company must exist in reality and firm set up in order to make transaction or proposed transaction of applicant with Indian subsidiary--Questions posed not under purview of Authority--Income-tax Act, 1961, ss. 80-IA(4), 245N, 245R-- Trade Circle Enterprises LLC, In re . . . 673

----Production and distribution of television programmes--Shooting of film outside India--Line production services rendered by non-resident--Services specifically characterised as work for purpose of section 194C--Payments therefor not taxable without permanent establishment in India--Payments not to suffer withholding of tax--Income-tax Act, 1961, ss. 9(1), 194C, Expln. -- Endemol India P. Ltd., In re (No. 4 ) . . . 658

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Constitution of India :

Art. 226 --Writ--Existence of alternative remedy--Not an absolute bar for issue of writ-- Vodafone India Services P. Ltd. v. Union of India (Bom) . . . 531

Double Taxation Avoidance Agreement between India and Singapore :

Art. 12(3)(b), (4) --Non-resident--Royalty--Definition--Change of law--Amendment of definition to include payment for use of equipment--Assessee engaged in providing international connectivity services (bandwidth services or telecom services) for transmission of data and voice--Payment received by assessee for providing international private leased circuit--Amounts to use of equipment or use of process--Taxable as royalty-- Verizon Communications Singapore Pte Ltd. v. ITO (International Taxation) (Mad) . . . 575

Income-tax Act, 1961 :

S. 9(1) --Non-resident--Production and distribution of television programmes--Shooting of film outside India--Line production services rendered by non-resident--Services specifically characterised as work for purpose of section 194C--Payments therefor not taxable without permanent establishment in India--Payments not to suffer withholding of tax-- Endemol India P. Ltd., In re (No. 4 ) (AAR). . . 658

S. 9(1)(vi), Expln. 2 --Non-resident--Royalty--Definition--Change of law--Amendment of definition to include payment for use of equipment--Assessee engaged in providing international connectivity services (bandwidth services or telecom services) for transmission of data and voice--Payment received by assessee for providing international private leased circuit--Amounts to use of equipment or use of process--Taxable as royalty-- Verizon Communications Singapore Pte Ltd. v. ITO (International Taxation) (Mad) . . . 575

S. 14A --Revision--Powers of Commissioner--Scope of powers--Assessing Officer taking one of two possible views--Commissioner has power to show that view was erroneous and prejudicial to Revenue--Error in computing income under section 115JA and failure to apply section 14A--Revision of order--Justified-- CIT v. Goetze (India) Ltd. (Delhi) . . . 505

S. 38(2) --Business expenditure--Expenditure on cars--Disallowance of one-fifth for personal use--Vehicle used for earning money by way of hiring--Disallowing one-fifth depreciation on account of personal use of directors not justified-- Sri Saytasai Properties and Investment P. Ltd. v. CIT (Cal) . . . 641

S. 57(iii) --Income from other sources--Money borrowed for investing in shares--Interest not disallowable on ground investment not made for purpose of earning dividend-- Sri Saytasai Properties and Investment P. Ltd. v. CIT (Cal) . . . 641

S. 68 --Cash credit--Burden of proof--Assessee must prove identity of creditor, genuineness of transaction and creditworthiness of creditor--Assessee need not prove source of funds of creditor-- CIT v. Smt. Sanghamitra Bharali (Gauhati) . . . 481

S. 80HHC --Export business--Special deduction--Commission paid outside India deducted from price of goods and balance amount received in country in foreign exchange--Excludible from export turnover-- CIT v. McLeod Russel (India) Ltd. (Cal) . . . 663

S. 80-IA(4) --Non-resident--Advance ruling--Definition--Application--Maintainability--Questions on which ruling sought must be in relation to transaction “undertaken or proposed to be undertaken†by applicant--Non-resident applicant intending to invest in 100 per cent. subsidiary company in India--Indian subsidiary intending to set up consortium by way of partnership with another Indian company--Firm proposing to acquire undertaking of Indian company operating and maintaining road bridges in Mumbai--Rulings sought on questions relating to allowability of deduction under section 80-IA to undertaking--100 per cent. subsidiary company must exist in reality and firm set up in order to make transaction or proposed transaction of applicant with Indian subsidiary--Questions posed not under purview of Authority-- Trade Circle Enterprises LLC, In re (AAR). . . 673

Chap. X --International transactions--Arm’s length price--Determination--Reference to Transfer Pricing Officer--Condition precedent--Satisfaction of Assessing Officer that income will arise from transaction--Objection that no income would arise--Objection must be considered by Assessing Officer--Personal hearing should be given--Power of Dispute Resolution Panel--Dispute Resolution Panel can direct Assessing Officer to make enquiry-- Vodafone India Services P. Ltd. v. Union of India (Bom) . . . 531

S. 115JA --Company--Book profits--Computation of profits--Effect of proviso to clause (i) of Explanation to section 115JA--Amount withdrawn from provision made or reserve created after 1-4-1988--Adjustment only if book profit had been increased by such amount at time reserve or provision was made-- CIT v. Goetze (India) Ltd. (Delhi) . . . 505

----Revision--Powers of Commissioner--Scope of powers--Assessing Officer taking one of two possible views--Commissioner has power to show that view was erroneous and prejudicial to Revenue--Error in computing income under section 115JA and failure to apply section 14A--Revision of order--Justified-- CIT v. Goetze (India) Ltd. (Delhi) . . . 505

S. 194C, Expln. --Non-resident--Production and distribution of television programmes--Shooting of film outside India--Line production services rendered by non-resident--Services specifically characterised as work for purpose of section 194C--Payments therefor not taxable without permanent establishment in India--Payments not to suffer withholding of tax-- Endemol India P. Ltd., In re (No. 4 ) (AAR). . . 658

S. 244A --Refund--Interest on refund--Effect of section 244A--Part payment of refund--Interest on balance to be calculated on such balance together with interest on such balance-- India Trade Promotion Organisation v. CIT (Delhi) . . . 646

S. 245N --Non-resident--Advance ruling--Definition--Application--Maintainability--Questions on which ruling sought must be in relation to transaction “undertaken or proposed to be undertaken†by applicant--Non-resident applicant intending to invest in 100 per cent. subsidiary company in India--Indian subsidiary intending to set up consortium by way of partnership with another Indian company--Firm proposing to acquire undertaking of Indian company operating and maintaining road bridges in Mumbai--Rulings sought on questions relating to allowability of deduction under section 80-IA to undertaking--100 per cent. subsidiary company must exist in reality and firm set up in order to make transaction or proposed transaction of applicant with Indian subsidiary--Questions posed not under purview of Authority-- Trade Circle Enterprises LLC, In re (AAR). . . 673

S. 245R --Non-resident--Advance ruling--Definition--Application--Maintainability--Questions on which ruling sought must be in relation to transaction “undertaken or proposed to be undertaken†by applicant--Non-resident applicant intending to invest in 100 per cent. subsidiary company in India--Indian subsidiary intending to set up consortium by way of partnership with another Indian company--Firm proposing to acquire undertaking of Indian company operating and maintaining road bridges in Mumbai--Rulings sought on questions relating to allowability of deduction under section 80-IA to undertaking--100 per cent. subsidiary company must exist in reality and firm set up in order to make transaction or proposed transaction of applicant with Indian subsidiary--Questions posed not under purview of Authority-- Trade Circle Enterprises LLC, In re (AAR). . . 673

S. 260A --Appeal to High Court--Powers of High Court--Power to set aside finding of Tribunal which is perverse-- CIT v. Smt. Sanghamitra Bharali (Gauhati) . . . 481

S. 263 --Revision--Powers of Commissioner--Scope of powers--Assessing Officer taking one of two possible views--Commissioner has power to show that view was erroneous and prejudicial to Revenue--Error in computing income under section 115JA and failure to apply section 14A--Revision of order--Justified-- CIT v. Goetze (India) Ltd. (Delhi) . . . 505

Wealth-tax Act, 1957 :

S. 27 --Wealth-tax--Reference--Order of High Court directing reference--Effect--Observations of High Court at that stage--Not conclusive--Finding of fact not challenged--Finding conclusive-- CWT v. Trustees of H. E. H. the Nizam’s Jewellery Trust (AP) . . . 668

Income-tax Rules, 1962 :

Appendix 1 III.(3)(iii)A --Depreciation--Higher rate of depreciation--Vibro bed dryer entitled to hundred per cent. depreciation-- CIT v. McLeod Russel (India) Ltd. (Cal) . . . 663

 

ITR (TRIB) Volume 30 : Part 3 (Issue dated : 10-3-2014)

 

ITR’S TRIBUNAL TAX REPORTS (ITR (TRIB)) -- PRINT AND ONLINE EDITION

 

ONLINE EDITION

SUBJECT INDEX TO CASES REPORTED

Accounting --Valuation of opening and closing stock--Adjustment to be made on account of excise duty to value of opening stock and closing stock--Matter remanded--Income-tax Act, 1961, s. 145A-- Deputy CIT v. Petro Araldite P. Ltd. (Mumbai) . . . 198

Capital or revenue expenditure --Expenditure towards payment to group entities towards e-mail infrastructure, usage of virtual private network and network access debited as “software expenses†--Expenditure incurred for smooth and efficient running of business and for facilitating day-to-day business operations of assessee--No enduring benefit or creation of new asset to assessee--Expenditure not capital--Allowable--Income-tax Act, 1961, s. 37-- Evonik Degussa India P. Ltd. v. Asst. CIT-OSD (Mumbai) . . . 179

Company --Book profit--Computation--Lower of solitary figures of unabsorbed depreciation or loss brought forward for all earlier years taken together to be reduced for purposes of computing book profit under section 115JB--Income-tax Act, 1961, s. 115JB-- Deputy CIT v. Petro Araldite P. Ltd. (Mumbai) . . . 198

International transactions --Arm’s length price--Determination--Transactional net margin method--Selection of comparables--Functional profile of company and attributes of products and services provided to be seen--If products and services different comparison of profit level indicator with tested party difficult--Difference between risk profile of comparables and of assessee to be considered--Matter remanded--Assessee having no interest liability and no external borrowings--No interest cost to assessee--No agreement to charge associated enterprise interest on delayed payment--Transfer pricing adjustment not to be made on hypothetical and notional basis in absence of material to show under charging of real income--Addition of notional interest for delayed payment in collection of receivables from associated enterprises not permissible-- Evonik Degussa India P. Ltd. v. Asst. CIT-OSD (Mumbai) . . . 179

----Transfer pricing--Arm’s length price--Determination--Selection of comparables--Company having significant related party transactions--Functionally different companies--Not comparables--Income-tax Act, 1961-- Deputy CIT v. Petro Araldite P. Ltd. (Mumbai) . . . 198

----Transfer pricing--Computation of arm’s length price--Benefit of plus or minus 5 per cent. adjustment not available where only one comparable finally considered--Income-tax Act, 1961, s. 92C(2)-- Deputy CIT v. Petro Araldite P. Ltd. (Mumbai) . . . 198

----Transfer pricing--Computation of arm’s length price--Depreciation--Profit level indicator--Computation of operating profit--Adjustment on account of difference in capacity utilisation of assessee and comparable companies--Depreciation cannot be excluded--If depreciation of comparable company is allowed at rate of its operating cost instead of actual depreciation, if it is lower, adjustment will meet difference in capacity utilisation--Income-tax Act, 1961-- Deputy CIT v. Petro Araldite P. Ltd. (Mumbai) . . . 198

----Transfer pricing--Computation of arm’s length price--Profit margin of comparables to be applied only to value of international transactions of assessee with its associated enterprises--Adjustment to be worked out on basis of arm’s length price determined--Income-tax Act, 1961, s. 92C(2)-- Deputy CIT v. Petro Araldite P. Ltd. (Mumbai) . . . 198

 

PRINT EDITION

Volume 30 : Part 3 (Issue dated : 10-3-2014)

SUBJECT INDEX TO CASES REPORTED

Appeal to Appellate Tribunal --Scope of powers--Recitification of mistakes--Return--Revised return--Delay in filing return--Decision relying on in application not placed before Tribunal--Tribunal cannot traverse beyond ground raised before it--Income-tax Act, 1961, ss. 139(5), 254(2)-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 2) (Hyderabad) . . . 434

Bad debt --Guarantee furnished in connection with borrowing by subsidiary--Sale by assessee of its stake in subsidiary and settlement of guarantee with bank--Sum settled written off as not recoverable from subsidiary--If bank guarantee given at time of investment loss capital in nature and to be considered under capital gains--If guarantee extended later as part of business undertaken by subsidiary commercial expediency to be considered--Matter remanded-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

Book profits --Computation--Export--Special deduction under section 80HHC--Not to be disallowed for purpose of computing book profits--Income-tax Act, 1961, ss. 80HHC, 115JB-- Deputy CIT v. Sumi Motherson Innovative Engineering Ltd. (Delhi) . . . 367

Business expenditure --Disallowance--Payments liable to deduction of tax at source--Payments to non-residents towards sales commission and legal and professional charges--Payments for services rendered abroad--Business income of foreign entity not having permanent establishment in India--Amounts not established to be taxable in India--Not to be disallowed--Income-tax Act, 1961, ss. 40(a)(i), 195(2)-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

----Expenditure for purpose of business--Pharmaceutical company--Expenditure incurred on doctors’ meeting and services--Matter set aside to examine whether for purposes of business--Observations on Code of Ethics Regulations issued by Medical Council of India not binding--Income-tax Act, 1961, s. 37(1)-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 2) (Hyderabad) . . . 434

----Expenditure incurred on entertainment software expenses--Details not furnished before Assessing Officer--Matter remanded--Income-tax Act, 1961-- Asst. CIT v. Nimbus Communications Ltd. (Mumbai) . . . 349

----Expenditure on conducting market feasibility study for extension of existing business for same products in Mauritius--Expenses deductible--No disallowance merely because expenses incurred outside India--Income-tax Act, 1961, s. 37-- Deputy CIT v. Sumi Motherson Innovative Engineering Ltd. (Delhi) . . . 367

----Expenditure on loose tools--Training expenses--Royalty expenses--Allowable-- Deputy CIT v. Sumi Motherson Innovative Engineering Ltd. (Delhi) . . . 367

----Expenditure towards sales promotion comprised of business promotion expenditure, gifts and compliments--Disallowance proper--Expenses on local doctors meet--Assessing Officer to examine whether incurred for purpose of business and impact of Board circular and Code of Ethics Regulations 2002, issued by Medical Council of India-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

----Issue of shares under employees’ stock option plan--Excess of market price of shares at date of grant of option over exercise price treated as employee compensation and amortised over vesting period--Deduction allowable-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

----Payment to research institution--Claim to deduction under section 35AC disallowed for failure to produce certificate--Alternative claim under section 37 to be considered--Income-tax Act, 1961, ss. 35AC, 37(1)-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

----Pharmaceutical company--Prices fixed by pricing authority--Interest on excess price charged by assessee paid to Government in pursuance of orders of Pricing Authority--Not penal in nature--Transactions contractual and principal allowed as deduction--Interest allowable--Income-tax Act, 1961, s. 37, Expln. -- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

Capital gains --Short-term or long-term capital gains--Date of acquisition of asset--Business--When set up--Application to Industrial Development Corporation for allotment of plot for setting up manufacturing unit--Not setting up of business--Date of allotment and taking possession of land--Is date of setting up of business--Sale of plot within three years--Gains to be taxed as short-term capital gains--Income-tax Act, 1961, s. 50B-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

Capital or revenue expenditure --Assessee acquiring 100 per cent. of share capital of company paying further sum over purchase consideration to get existing customer contracts assigned in its favour--Capital expenditure-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

Capital or revenue loss --Loss on sale of shareholding in company--Capital loss--To be considered under head “Capital gains†and set off or carried forward to be set off later in accordance with provisions of Act-- Dr. Reddy’s Laboratories Ltd. v. Addl. Addl. CIT (No. 1) (Hyderabad) . . . 393

Charitable purpose --Exemption--Principles governing computation of income of business will not apply to computation of income of charitable institution--Depreciation debited to account of charitable institution allowable to arrive at income available for application to charitable purpose--Income-tax Act, 1961, ss. 11, 12AA, 13-- A. P. Olympic Association v. Asst. Director of Income-tax (Exemption) (Hyderabad) . . . 314

Company --Book profits--Accumulated book losses--Reduction in capital resulting in cancellation of paid-up capital--Losses to be allowed--Income-tax Act, 1961, s. 115JB, Expln. (iii) -- Deputy CIT v. Sumi Motherson Innovative Engineering Ltd. (Delhi) . . . 367

Depreciation --Rate of depreciation--Moulds used in plastic business--Reduction from 40 per cent. to 25 per cent.--Not proper-- Deputy CIT v. Sumi Motherson Innovative Engineering Ltd. (Delhi) . . . 367

----Vehicles pending for registration in name of assessee--Depreciation allowable-- Deputy CIT v. Sumi Motherson Innovative Engineering Ltd. (Delhi) . . . 367

Exemption --Capital gains--Set off--Income not forming part of total income--Long-term capital gains on transfer of specified asset on which securities transaction tax paid--Gains includes loss--Profit or loss arising from transfer irrelevant for computing total income--Loss on transfer of specified asset on which securities transaction tax paid cannot be set off against gains from transactions on which securities transaction tax not paid assessable under capital gains--Income-tax Act, 1961, s. 10(38)-- Deputy Director of Income-tax (International Taxation) v. Asia Pacific Performance SICAV (Mumbai) . . . 333

----Export--Computation of exemption under section 10B--Foreign exchange gain to be considered part of export turnover not foreign exchange loss--Income-tax Act, 1961, s. 10B-- MPS Ltd. v. Asst. CIT (Chennai) . . . 324

----Export--Deduction allowable on profits and gains of undertaking and not on profit according to profit and loss account--Matter remanded--Income-tax Act, 1961, s. 10B-- MPS Ltd. v. Asst. CIT (Chennai) . . . 324

Export --Exemption--Computation of exemption--International transactions--Arm’s length price--Not permissible for Assessing Officer to work out exemption on basis of arm’s length price profit generated out of order of Transfer Pricing Officer--Income-tax Act, 1961, ss. 10B, 92CA(3)-- MPS Ltd. v. Asst. CIT (Chennai) . . . 324

----Exemption--Special deduction--Computation--Allocation of expenditure--Overhead cost of corporate unit--To be allocated on basis of turnover--Income-tax Act, 1961, ss. 10B, 80-IB, 80-IC-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

Income --Disallowance of expenditure in earning tax-free income--Dividend--Rule 8D applicable only prospectively--Disallowance for years prior to assessment year 2008-09 to be made on reasonable basis--Dividend income from substantial investment in foreign company not exempted from tax--Disallowance to be made on reasonable basis--Matter remanded--Income-tax Act, 1961, s. 14A--Income-tax Rules 1962, r. 8D-- Asst. CIT v. Nimbus Communications Ltd. (Mumbai) . . . 349

Industrial undertaking --Special deduction--Allocation on basis of turnover--Tribunal decision based on assessee’s own case in earlier assessment year--No reason to differ from order of Tribunal--Income-tax Act, 1961, ss. 10B, 80-IB-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 2) (Hyderabad) . . . 434

International transactions --Arm’s length price--Determination--Assessee granting loan to associated enterprises--Interest on loan amount calculated at 3.26 per cent.--Calculation mistake in working out interest--No dispute as to rate--Mistake accepted by assessee--Difference to be added to total income--Income-tax Act, 1961-- Asst. CIT v. Nimbus Communications Ltd. (Mumbai) . . . 349

----Arm’s length price--Determination--Interest on advances to subsidiaries--Rate to be applied--Assessing Officer to modify adjustment on basis of rate of interest received on deposits made with banks and public companies--Income-tax Act, 1961, s. 92CA-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

----Arm’s length price--Determination--Receivables outstanding from associated enterprises--Computation of arm’s length price in respect of excessive credit period--Outstanding balances cannot be added to total income of assessee--Income-tax Act, 1961, s. 92B-- Asst. CIT v. Nimbus Communications Ltd. (Mumbai) . . . 349

----Arm’s length price--Determination--Transactional net margin method--Net operating profit margin--Computation--Varying denominator but numerator constant--No warrant for substituting “net operating profit†with “cash profits†thereby excluding depreciation from total operating costs--Depreciation a vital integral part of total operating costs--Comparison of composite figure of operating profit which envelop overall effect of all items of operating expenses and revenues--Income-tax Rules, 1962, r. 10B(1)(e)-- Deputy CIT v. Sumi Motherson Innovative Engineering Ltd. (Delhi) . . . 367

----Arm’s length price--Interest on loans to associated enterprises--Assessee accepting interest rate at 7 per cent. in earlier assessment years--No reason to modify direction of Tribunal to adopt 7 per cent. rate--Income-tax Act, 1961-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 2) (Hyderabad) . . . 434

----Transfer pricing--Arm’s length price--Grant of corporate guarantee to associate enterprises for financial facility without charging commission--No indication of business strategy in not charging commission--Clear benefit accruing to associated enterprises--Guarantee commission should have been charged at arm’s length price--Rate of guarantee fee to be recomputed--Income-tax Act, 1961-- Asst. CIT v. Nimbus Communications Ltd. (Mumbai) . . . 349

----Transfer pricing--Computation of arm’s length price--Profit split method--Transfer pricing report not in accordance with prescribed rules--Method of application of profit split method not correct--Matter remanded--Income-tax Act, 1961, s. 92CA(1)--Income-tax Rules, 1962, r. 10B(1)(d)-- ITO v. Net Freight (India) P. Ltd. (Delhi) . . . 441

Penalty --Concealment of income--Furnishing inaccurate particulars--Failure to furnish reasons and disclosures in support of claim--Explanation inconsistent and assessee not able to substantiate claim--Failure to prove bona fides--Penalty imposed proper--Income-tax Act, 1961, s. 271(1)(c)-- Deputy Director of Income-tax (International Taxation) v. Asia Pacific Performance SICAV (Mumbai) . . . 333

Return --Revised return--Time limit for filing--Return filed on November 29, 2006 and revised return on October 29, 2007--Second revised return on December 24, 2009--Beyond time limit and cannot be treated as valid return--Income-tax Act, 1961, s. 139(5)-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

S. 10(38) --Exemption--Capital gains--Set off--Income not forming part of total income--Long-term capital gains on transfer of specified asset on which securities transaction tax paid--Gains includes loss--Profit or loss arising from transfer irrelevant for computing total income--Loss on transfer of specified asset on which securities transaction tax paid cannot be set off against gains from transactions on which securities transaction tax not paid assessable under capital gains-- Deputy Director of Income-tax (International Taxation) v. Asia Pacific Performance SICAV (Mumbai) . . . 333

S. 10B --Exemption--Export--Computation of exemption under section 10B--Foreign exchange gain to be considered part of export turnover not foreign exchange loss-- MPS Ltd. v. Asst. CIT (Chennai) . . . 324

----Exemption--Export--Deduction allowable on profits and gains of undertaking and not on profit according to profit and loss account--Matter remanded-- MPS Ltd. v. Asst. CIT (Chennai) . . . 324

----Export--Exemption--Computation of exemption--International transactions--Arm’s length price--Not permissible for Assessing Officer to work out exemption on basis of arm’s length price profit generated out of order of Transfer Pricing Officer-- MPS Ltd. v. Asst. CIT (Chennai) . . . 324

----Export--Exemption--Special deduction--Computation--Allocation of expenditure--Overhead cost of corporate unit--To be allocated on basis of turnover-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

----Industrial undertaking--Special deduction--Allocation on basis of turnover--Tribunal decision based on assessee’s own case in earlier assessment year--No reason to differ from order of Tribunal-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 2) (Hyderabad) . . . 434

S. 11 --Charitable purpose--Exemption--Principles governing computation of income of business will not apply to computation of income of charitable institution--Depreciation debited to account of charitable institution allowable to arrive at income available for application to charitable purpose-- A. P. Olympic Association v. Asst. Director of Income-tax (Exemption) (Hyderabad) . . . 314

S. 12AA --Charitable purpose--Exemption--Principles governing computation of income of business will not apply to computation of income of charitable institution--Depreciation debited to account of charitable institution allowable to arrive at income available for application to charitable purpose-- A. P. Olympic Association v. Asst. Director of Income-tax (Exemption) (Hyderabad) . . . 314

S. 13 --Charitable purpose--Exemption--Principles governing computation of income of business will not apply to computation of income of charitable institution--Depreciation debited to account of charitable institution allowable to arrive at income available for application to charitable purpose-- A. P. Olympic Association v. Asst. Director of Income-tax (Exemption) (Hyderabad) . . . 314

S. 14A --Income--Disallowance of expenditure in earning tax-free income--Dividend--Rule 8D applicable only prospectively--Disallowance for years prior to assessment year 2008-09 to be made on reasonable basis--Dividend income from substantial investment in foreign company not exempted from tax--Disallowance to be made on reasonable basis--Matter remanded-- Asst. CIT v. Nimbus Communications Ltd. (Mumbai) . . . 349

S. 35AC --Business expenditure--Payment to research institution--Claim to deduction under section 35AC disallowed for failure to produce certificate--Alternative claim under section 37 to be considered-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

S. 37 --Business expenditure--Expenditure on conducting market feasibility study for extension of existing business for same products in Mauritius--Expenses deductible--No disallowance merely because expenses incurred outside India-- Deputy CIT v. Sumi Motherson Innovative Engineering Ltd. (Delhi) . . . 367

S. 37, Expln. --Business expenditure--Pharmaceutical company--Prices fixed by pricing authority--Interest on excess price charged by assessee paid to Government in pursuance of orders of Pricing Authority--Not penal in nature--Transactions contractual and principal allowed as deduction--Interest allowable-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

S. 37(1) --Business expenditure--Expenditure for purpose of business--Pharmaceutical company--Expenditure incurred on doctors’ meeting and services--Matter set aside to examine whether for purposes of business--Observations on Code of Ethics Regulations issued by Medical Council of India not binding-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 2) (Hyderabad) . . . 434

----Business expenditure--Payment to research institution--Claim to deduction under section 35AC disallowed for failure to produce certificate--Alternative claim under section 37 to be considered-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

S. 40(a)(i) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments to non-residents towards sales commission and legal and professional charges--Payments for services rendered abroad--Business income of foreign entity not having permanent establishment in India--Amounts not established to be taxable in India--Not to be disallowed-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

S. 50B --Capital gains--Short-term or long-term capital gains--Date of acquisition of asset--Business--When set up--Application to Industrial Development Corporation for allotment of plot for setting up manufacturing unit--Not setting up of business--Date of allotment and taking possession of land--Is date of setting up of business--Sale of plot within three years--Gains to be taxed as short-term capital gains-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

S. 80HHC --Book profits--Computation--Export--Special deduction under section 80HHC--Not to be disallowed for purpose of computing book profits-- Deputy CIT v. Sumi Motherson Innovative Engineering Ltd. (Delhi) . . . 367

S. 80-IB --Export--Exemption--Special deduction--Computation--Allocation of expenditure--Overhead cost of corporate unit--To be allocated on basis of turnover-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

----Industrial undertaking--Special deduction--Allocation on basis of turnover--Tribunal decision based on assessee’s own case in earlier assessment year--No reason to differ from order of Tribunal-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 2) (Hyderabad) . . . 434

S. 80-IC --Export--Exemption--Special deduction--Computation--Allocation of expenditure--Overhead cost of corporate unit--To be allocated on basis of turnover-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

S. 92B --International transactions--Arm’s length price--Determination--Receivables outstanding from associated enterprises--Computation of arm’s length price in respect of excessive credit period--Outstanding balances cannot be added to total income of assessee-- Asst. CIT v. Nimbus Communications Ltd. (Mumbai) . . . 349

S. 92CA --International transactions--Arm’s length price--Determination--Interest on advances to subsidiaries--Rate to be applied--Assessing Officer to modify adjustment on basis of rate of interest received on deposits made with banks and public companies-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

S. 92CA(1) --International transactions--Transfer pricing--Computation of arm’s length price--Profit split method--Transfer pricing report not in accordance with prescribed rules--Method of application of profit split method not correct--Matter remanded-- ITO v. Net Freight (India) P. Ltd. (Delhi) . . . 441

S. 92CA(3) --Export--Exemption--Computation of exemption--International transactions--Arm’s length price--Not permissible for Assessing Officer to work out exemption on basis of arm’s length price profit generated out of order of Transfer Pricing Officer-- MPS Ltd. v. Asst. CIT (Chennai) . . . 324

S. 115JB --Book profits--Computation--Export--Special deduction under section 80HHC--Not to be disallowed for purpose of computing book profits-- Deputy CIT v. Sumi Motherson Innovative Engineering Ltd. (Delhi) . . . 367

S. 115JB, Expln. (iii) --Company--Book profits--Accumulated book losses--Reduction in capital resulting in cancellation of paid-up capital--Losses to be allowed-- Deputy CIT v. Sumi Motherson Innovative Engineering Ltd. (Delhi) . . . 367

S. 139(5) --Appeal to Appellate Tribunal--Scope of powers--Recitification of mistakes--Return--Revised return--Delay in filing return--Decision relying on in application not placed before Tribunal--Tribunal cannot traverse beyond ground raised before it-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 2) (Hyderabad) . . . 434

----Return--Revised return--Time limit for filing--Return filed on November 29, 2006 and revised return on October 29, 2007--Second revised return on December 24, 2009--Beyond time limit and cannot be treated as valid return-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

S. 195(2) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments to non-residents towards sales commission and legal and professional charges--Payments for services rendered abroad--Business income of foreign entity not having permanent establishment in India--Amounts not established to be taxable in India--Not to be disallowed-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 1) (Hyderabad) . . . 393

S. 254(2) --Appeal to Appellate Tribunal--Scope of powers--Recitification of mistakes--Return--Revised return--Delay in filing return--Decision relying on in application not placed before Tribunal--Tribunal cannot traverse beyond ground raised before it-- Dr. Reddy’s Laboratories Ltd. v. Addl. CIT (No. 2) (Hyderabad) . . . 434

S. 271(1)(c) --Penalty--Concealment of income--Furnishing inaccurate particulars--Failure to furnish reasons and disclosures in support of claim--Explanation inconsistent and assessee not able to substantiate claim--Failure to prove bona fides--Penalty imposed proper-- Deputy Director of Income-tax (International Taxation) v. Asia Pacific Performance SICAV (Mumbai) . . . 333

 

Income-tax Rules 1962 :

R. 8D --Income--Disallowance of expenditure in earning tax-free income--Dividend--Rule 8D applicable only prospectively--Disallowance for years prior to assessment year 2008-09 to be made on reasonable basis--Dividend income from substantial investment in foreign company not exempted from tax--Disallowance to be made on reasonable basis--Matter remanded-- Asst. CIT v. Nimbus Communications Ltd. (Mumbai) . . . 349

R. 10B(1)(d) --International transactions--Transfer pricing--Computation of arm’s length price--Profit split method--Transfer pricing report not in accordance with prescribed rules--Method of application of profit split method not correct--Matter remanded-- ITO v. Net Freight (India) P. Ltd. (Delhi) . . . 441

R. 10B(1)(e) --International transactions--Arm’s length price--Determination--Transactional net margin method--Net operating profit margin--Computation--Varying denominator but numerator constant--No warrant for substituting “net operating profit†with “cash profits†thereby excluding depreciation from total operating costs--Depreciation a vital integral part of total operating costs--Comparison of composite figure of operating profit which envelop overall effect of all items of operating expenses and revenues-- Deputy CIT v. Sumi Motherson Innovative Engineering Ltd. (Delhi) . . . 367

 

CA. Chandrakant Pawar, Chartered Accountant, Nashik

Patil Daware Girase Pawar & Associates, Chartered Accountants, Nashik