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NEWSLETTER

October 2014NEWSLETTER

October 2014

Diwali

Dear Readers,

October marks the start of various festivals and once again it’s time to lose yourself, for Navratri, Dusshera, Diwali & New Year. Wishing you a Happy Diwali and a Prosperous New Year from the entire Talati & Talati family. Diwali festival celebrates the victory of good over evil, light over darkness and knowledge over ignorance. It's the festival of lights that's marked by four days of celebration, which literally illumines the country with its brilliance, and dazzles all with its joy.

This October month newsletter includes ESOP Trust, an notification on CSR (Corporate Social Responsibility) Rules & applicability of provisions of Section 114(A),(B),(C) of the Finance (No.2) Act, 2014, a circular on Extension of due date for filing of Return of Income from 30th Sept, 2014 to 30th Nov, 2014 & Order under section 119 of the Income-tax Act, 1961, law update on Class of Companies for the purpose of second proviso to section 203(1) of the Companies Act, 2013 & Clarification with regard to applicability of provisions of section 139(5) and 139(7) of the Companies Act, 2013, case law on Valuation report u/s. 142(A) at the behest of the CIT (A) has no legal validity & Actis Advisers Pvt. Ltd. vs. CST. -Delhi-IV [(2014) 9 TMI 182 - CESTAT New Delhi]

We hope that this edition of newsletter, like previous ones will add to the success of the series and again, we are looking forward to your ideas, suggestions, or feedback.

Happy Reading!!!!!

Regards,Editorial Team

Talati & Talati

Preface

Private & Confidential2 | Oct. 2014

Private & Confidential3 |

Employee Stock Option Plans/ Schemes (ESOP/ ESOSs) & Employee Stock Purchase Schemes (ESPSs) are employee benefit plans which make employees the shareholders in their company. ESOPs are an alternative to cash incentives and build loyalty, thereby facilitating employee retention.

SEBI Guidelines define ESOPs as “a scheme under which a company grants an option to employees, i.e. the benefit or right to purchase or subscribe at a future date the securities offered by the company at a predetermined price.” Stock options are therefore instruments that are offered to employees, allowing them to buy a certain number of shares in the company at a specific price. If this price is lower than the current market price, gains are immediate. If the price is the same as market price, future rise in the share-price will accrue as profits to the employees. A company has the freedom to specify how many shares an employee gets, which employees get them, and when the ownership is actually transferred.

The following are the legal statutes relating to ESOPs

• The Companies Act, 2013: Issuance of sweat equity shares or formulation and implementation of Employee Stock Option Plan “ESOP” by Unlisted Companies (public or private) is primarily governed by the relevant provisions of Companies Act and “Issue of Sweat Equity Shares” Rules, 2003 issued under the same Act.

• Securities Exchange Board of India (SEBI) Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines, 1999 (applicable only in case of

ESOP Trust

Oct. 2014

Private & Confidential

listed companies, but open for unlisted companies to comply voluntarily)• The Companies Act, 1956• Income Tax Act, 1961• Foreign Exchange Management Act, 1999

Eligibility

ESOPs can be availed by “employees” specifically designated by the Compensation Committee of the Board, where employee would be defined as:

a) A permanent employee of the company working in India or abroad; or

b) A director of the company whether a whole time director or not

Some MFIs (Micro-Finance Institutions) provide ESOPs to all employees. If an MFI is looking to reward only a selective set of employees, it may use some of the following criterion to identify them appropriately:

• Performance - ESOPs can be used to reward excellence by linking performance with the allotment of stock options. In this way star performers become shareholders as well.

• Length of Service - Taking seniority as the criterion for ESOPs can be a reward to loyal employees. The length of service is important in client-relationship focused industries like the microfinance sector.

• Criticality of Employees- Criticality and the market value of both the position and the individual may be taken into account when picking whom to reward with ESOPs.

4 | Oct. 2014


SEBI Guidelines

Any company whose securities are listed on any stock exchange may offer equity to its employees under the Employee Stock Option Scheme subject to t h e conditions specified below:

1. Promoters and the part- time directors will not be entitled to receive the securities under the ESOPs even if the promoter(s) is/are employee(s) of the company. Provided a director who is an employee and not a promoter may

be entitled to receive the securities under the scheme.

2. The issue of shares/convertible instruments under an ESOP shall not exceed 5% of the paid-up capital of the company in any one year.

3. Clause 4 of the guidelines on preferential issues providing for pricing shall be also applicable to the ESOPs.

4. Shareholders' permission must be taken after providing them with complete details.

5. A company introducing ESOPs shall submit a certificate to the concerned stock exchange at the time of the listing of the securities issued through the scheme certifying as to whether the securities has been issued as per the scheme to the permanent employees.

6. The companies would be free to devise the ESOPs for the issue of shares/warrants or debt instruments/bonds with warrants including the terms of payment.

7. Companies are free to determine the exercise-price of the stock options they offer.

5 | Oct. 2014


8. If the exercise-price is at a discount to the market price, the discount will be treated as a cost.

9. A minimum lock-in period of 1 year from the date of grant will be applicable.

According to CBDT Guidelines on ESOPs, an Employees' Stock Option Plan or Scheme shall include:-

i. "Employee Stock Purchase Plan or Employee Stock Option Scheme" whereby the employee allows the employer to withhold a certain portion of his monthly salary, the accumulated amount of which is utilized to acquire shares at a discounted value or otherwise at a future date.

ii. "Employee Stock Ownership Plan" whereby an employee of the company is given option to acquire shares of the company at a pre-determined price after a certain period, directly or indirectly through a trust.

iii. "Employee Stock Purchase Scheme" under which the company offers shares to an employee, as part of a public issue or otherwise at a predetermined price.

iv. "Employees Stock Option Scheme" under which a company grants option to its employees to buy a specified number of shares at a specified price during a specified period.

v. "Stock Appreciation Rights or Plans" under which the employees are awarded stock equivalents at a certain pre-determined value, and after a certain minimum stipulated period, the employees are allowed to encash such rights.

Steps for the formation of ESOP Trust

Many small sized organizations prefer to have the Board approving the grant of Stock Options. In large organizations, they either have a Compensation Committee or set up a Trust. Many Indian companies, including Infosys Limited, have used trust route to implement ESOP scheme.

6 | Oct. 2014


A Trust for ESOP works as follows:

1. A Trust is formed under the Indian Trusts Act, and the Trust Deed is registered with the jurisdictional Sub-Registrar.

2. The ESOP Trust receives Stock either from company by way of fresh allotment or by purchasing from existing shareholders in open market or the owner of the company may sell shares of his holding to the ESOP Trust.

3.The ESOP Trust usually obtains its Funds through a loan either from a financial institution or from the seller or a combination of institutions and seller. A company can extend loan to the Trust for purchasing the Shares. There is a specific provision in the Companies Act, which permits such loan. (Sec. 77(2) (b) and (c)

4. The ESOP Trust then allots shares to employees on exercise of their right in exchange of cash and repays its loans.

Additional Information, if the company is a listed entity:

SEBI guidelines do not mention ESOP Trust and thus creation of trust to administer the ESOP scheme is optional. SEBI guidelines also do not specify any accounting principles to be followed in case of grant of options through a trust. A committee appointed by SEBI had recommended that since this is a consolidation issue rather than an ESOP issue, the ESOP trust should be consolidated with the company under AS 21 and the existing ESOP guidelines should be applied by the consolidated entity.

Trust set by the company for the benefit of employees:

ESOP Trust (a Private Trust formed as a separate entity, but not being a charitable Trust) can be formed under the Indian Trust Act, 1882.

7 | Oct. 2014


1. Shares of the company can be held by the Trustees is held as beneficial owners. Hence Form 22-B declaring beneficial ownership has to be filed with ROC. (Sec 153 of Companies Act).

2.Board of Trustees is controlled by the Company (indirectly by being nominated as trustees).

3. Company may give loan to the trust to buy shares (U/s 77 of Companies Act).

4. Trust uses the funds to buy shares of the Company.

5. Employees of the Company are granted Options by the company. Decision to grant Options is controlled by the Compensation Committee of the Company.

6. On exercise of the Options, the trust transfers shares (held by it) to the employee.

7. While transferring the shares to the employees by the trust, the Share Transfer Form (Form 7B) has to be executed by the Trust and the employee.

8. The share transfer form has to be approved in the Board Meeting (BM) of the company and then the employee becomes a shareholder of the company. After which they are issued share certificates and the Register of Members is updated accordingly by the Company.

9. If the options lapse due to separation, the options remain with the Trust and Trust can issue fresh grant letters for the remaining options (based on the decision of the Compensation Committee).

10. The cash received on exercise (by the employee) is used to repay loan taken by the Trust.

Oct. 2014


11. Compensation cost to be recorded as if the Options were granted directly by the Company.

Conclusion

ESOPs are yet evolving in India; we are yet to see companies differentiating on the basis of the sector they belong to, the category of target employee, etc. The decision to amend the ESOP Guidelines, among other changes, was made with a view to ensure quality public offerings, instill discipline amongst issuers/market intermediaries, make the issue process more transparent, provide a level playing field for all market participants and enhance investor confidence. So far as the future of ESOPs in India is concerned, as more and more companies realize the need to retain their best talent in a world which would be dominated by companies with the best intellectual capital, this management technique would be the phenomenon of the new century.

9 | Oct. 2014


Notifications - Companies Act, 2013 The MCA has issued CSR rules the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2014 vide notification dated 12th September 2014. As per the amendment, administrative expenditure can also be included within the 5% limit of total CSR expenditure which a company may spend for building its own CSR capacity.

Ministry of Corporate Affairs

New Delhi, 12th September, 2014

G.S.R….. (E). – In exercise of the powers conferred under section 135 and sub-section (1) and (2) of section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules to amend the Companies (Corporate Social Responsibility Policy) Rules, 2014, namely:-

1. (1) These rules may be called the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2014.(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Companies (Corporate Social Responsibility Policy) Rules, 2014, in rule 4, in sub rule (6), after the words “but such expenditure” the words a n d comma “including expenditure on administrative overheads”, shall be inserted.

Fixation of date of applicability of Clauses (A), (B), (C) of Section 114 of the Finance (No.2) Act, 2014 :

The CBEC vide its Notification No. 18/2014-ST dated August 25, 2014 (“the

Oct. 2014

Notifications - Finance Act, 2014


Notification”) has fixed the date of applicability of provisions of Section 114(A),(B),(C) of the Finance (No.2) Act, 2014 as October 1, 2014 (“Effective

Date”) which are given as under:-

1. Meaning changed for some terms under the Finance Act, 1994 (“the Finance Act”) are as follows:

I. Clause (32) of Section 65B of the Finance Act which contains the meaning of “Metered Cab” will not include radio taxi in its purview from the Effective date.Therefore transport of passengers by radio taxi/radio cab will be considered as taxable service provided by radio-taxis. However, abatement of 60% would also be made available to radio taxi service, subject to non-availment of cenvat credit on capital goods, input and input services.

II. A new clause (39a) has been inserted under Section 65B of the Finance Act containing the meaning of “Print Media” which is as follows:

“Print media” means,—I. “book” as defined in sub-section (1) of section 1 of the Press and Registration

of Books Act, 1867 (25 of 1867), but does not include business directories, yellow pages and trade catalogues which are primarily meant for commercial purposes;

II. “newspaper” as defined in sub-section (1) of section 1 of the Press and Registration of Books Act, 1867 (25 of 1867)Therefore, sale of space or time slot for advertisement will nw have wider scope. Only selling of space for advertisements in print media only would remain in the Negative List. Advertisement in any other form will be considered as taxable. Print media has been defined as book (excluding business directory, yellow pages and trade catalogues) and newspaper.Changes made in the Negative List of Services are as follows:Section 66D (g) of the Finance Act has been substituted with the new clause, which is as follows:-

Private & ConfidentialOct. 2014


(g) “selling of space for advertisements in print media;”Earlier this clause reads as follows:

“(g) selling of space or time slots for advertisements other than advertisements broadcast by radio or television”Hence, to broaden the tax base in Service tax, Sale of space or time for advertisements in broadcast media, namely radio or television, extended to cover such sales on other segments like online and mobile advertising, etc. Sale of space for advertisements in print media however would remain excluded from Service tax.Sub-clause (vi) of Section 66D (o) of the Finance Act has been substituted and the new clause is as follows:-(vi) ”metered cabs or auto rickshaws;”

Changes made in Rate of Exchange for valuation of Export or Import of Services are as follows:

Explanation to Section 67A of the Finance Act has been substituted and the new Explanation inserted as under:-“Explanation — for the purposes of this section, “rate of exchange” means the rate of exchange determined in accordance with such rules as may be prescribed.”

Earlier this explanation reads as under:

“Explanation.— For the purposes of this section, “rate of exchange” means the rate of exchange referred to in the Explanation to section 14 of the Customs Act, 1962.’; (52 of 1962.)]”2. Insertion of Rule 11 and Rule 12 in the Service Tax Rules, 1994 (“the Service Tax Rules”)

The CBEC vide its Notification No. 19/2014-ST dated August 25, 2014 has inserted two new rules i.e. Rule 11 & Rule 12, after Rule 10 of the Service Tax Rules, which are provided as under:-Determination of Rate of Exchange (Rule 11) – The rate of exchange for determination of value of taxable service shall be the applicable rate of


exchange as per the generally accepted accounting principles on the date when point of taxation arises in terms of the Point of Taxation Rules, 2011.This amendment has been made by the CBEC in view of requests from the trade and industry to delink the conversion from the notified Customs rates of exchange.Power to issue supplementary instructions (Rule 12) – The Board or the Chief Commissioners of Central Excise may issue instructions for any incidental or supplemental matters for the implementation of the provisions of the Act.

3. Amendment in Rule 12AAA of the Cenvat Credit Rules, 2004

The CBEC vide its Notification No. 25/2014-Central Excise (N.T.) dated August

25, 2014 has amended Rule 12AAA of the Cenvat Credit Rules, 2004 (“the

Credit Rules”) which prescribes power of Central Government to impose restrictions on certain types of cases to prevent misuse of provisions of the Credit Rules. Now the restrictions can also be imposed on “provider of taxable service”.The Cenvat credit (Seventh Amendment) Rules, 2014 shall come into force on the date of publication in the Official Gazette i.e. w.e.f 25th August, 2014Some Other Changes proposed during the Union Budget, 2014 and made applicable with effect from October 1, 2014

Variable Rates of Interest for Delayed Payment of Service Tax by Notification No. 12/2014-ST Dated 11-7-2014:-To encourage prompt payment of Service tax, new interest rates on delayed payments under Section 75 of the Finance Act, 1994, which would vary as per the extent of delay has been prescribed as under:


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Extent of delay Simple interest rate per annum

Up to six monthsMore than six months and up to one yearMore than one year

18%18%for first six months and 24% for the period of delay beyond six months.18% for first six months, 24% for second six months and 30% for the period of delay beyond one year

This new interest rate regime will become operational from October 1, 2014 up to which the rate of interest of 18%, as presently applicable, will continue to apply.Three per cent concession on the applicable rate of interest will continue to be available to the small service providers, whose value of taxable services provided in a financial year does not exceed Sixty lakh rupees during any of the financial years covered by the notice or during the last preceding financial year, as the case may be this is as per the proviso to section 75.Changes in the Service Tax Rules, 1994 Vide Notification No. 9/2014-ST Dated. 11-7-2014:-

E-payment of Service tax has been made mandatory with effect from October 1, 2014. Relaxation from e-payment may be allowed by the Deputy Commissioner/ Asst. Commissioner on case to case basis.Partial Reverse Charge Mechanism Vide Notification No. 10/2014-ST Dated 11-7-2014:-

In case of Renting of motor vehicle where the service provider does not take abatement, the portion of Service tax payable by the service provider and service receiver has been modified as 50% each effective from October 1, 2014.Changes in the Service Tax (Determination of Value) Rules, 2006 Vide Notification No. 11/2014-ST Dated 11-7-2014 to amend Service Portion in Works Contract (Effective From 1-10-2014):-

In Rule 2A (ii) of the Service Tax (Determination of Value) Rules, 2006, Category ‘B’


15 |

(70%) and ‘C’ (60%) of Works Contract has been merged into one single category, with percentage of service portion as 70%, for the chargeability of Service tax.Changes in the Point of Taxation Rules, 2011 (“The POT Rules”) Vide Notification No. 13/2014-ST Dated 11-7-2014, amending POT for Reverse Charge (Effective From 1-10-2014):-

The Point of Taxation in respect of Reverse Charge under the first Proviso to Rule 7 of the POT Rules has been amended to be the payment date or the first day that occurs immediately after a period of three months from the date of invoice, whichever is earlier. The said amendment will apply only to invoices issued after October 1, 2014. A transition rule for the same has also been prescribed under new Rule 10 of the POT Rules.Changes in Abatement Vide Notification No. 8/2014-ST Dated 11-7-2014:-

Taxable portion in respect of transport of goods by vessel has been reduced from 50% to 40% with effect from October 1, 2014.Service related to transportation of passenger by air-conditioned contract carriages has now become taxable. Therefore, a new entry is inserted at Sr. No. 9A providing taxable portion of such services to be 40% with the condition that Cenvat credit of inputs or capital goods or input services has not been availed.The condition in entry No. 9 is amended with effect from October 1, 2014 allowing credit of input service of renting of a motor cab if such services are received from a person engaged in the similar business i.e. a sub-contractor providing services of renting of motor cab to the main contractor. The whole of the Cenvat credit will be allowed with respect to input service of renting of any motor cab, received from a person who is paying Service tax on 40% of the value of services. The Cenvat credit eligibility will be restricted to 40% of the credit of the input service of renting of any motor cab if Service tax is paid or payable on full value of the services without availing abatement.Effective from October 1, 2014, the service of tour operator is also being allowed


16 |

to avail Cenvat credit on the input service of another tour operator, which are used for providing the taxable service.Changes in Place of Provision of Services Rules, 2012 (“The POP Rules”) Vide Notification No. 14/2014-ST Dated 11-7-2014 (Effective from 1-10-2014):-

Definition of ‘Intermediary’ has been amended to include intermediary of goods in its scope. Accordingly, an intermediary of goods, such as a commission agent or consignment agent shall be covered under Rule 9(c) of the POP Rules instead of Rule 3 of the POP Rules.



CircularsF.No.153/53/2014-TPL (Pt.I)

GOVERNMENT OF INDIAMINISTRY OF FINANCE

(DEPARTMENT OF REVENUE)(CENTRAL BOARD OF DIRECT TAXES)

North Block, TPL DivisionNew Delhi, the 26th September, 2014

Press Release

Subject: Extension of due date for filing of Return of Income from 30th Sept, 2014 to 30th Nov, 2014 in specified cases, regarding.

As per the provisions of the Income-tax Act, 1961 (‘the Act’), for an assessee, who is required to obtain Tax Audit Report (TAR) under section 44AB of the Act, the due date for furnishing his return of income is 30th September of the Assessment Year.2. The Central Board of Direct Taxes (‘the Board’) vide order dated 20th August,


2014 extended the due date for obtaining and furnishing of Tax Audit Report under section 44AB of the Act for Assessment Year 2014-15 from 30th September, 2014 to 30th November, 2014. Subsequently, a number of representations were received in the Board requesting for extension of the due date for furnishing of return of income also. Writ petitions were also filed in various High Courts for directing the Board to extend the due date for furnishing of return of income from 30th September, 2014 to 30th November, 2014 in conformity with the extension of the due date for filing of Tax Audit Report.3. The Gujarat High Court vide judgement dated 22.09.2014 directed the Board to extend the due date for furnishing the return of income to 30th November, 2014, except for the purposes of charging of interest under section 234A of the Act for late filing of return of income. Other High Courts also directed the Board to look into the practical difficulties of the petitioners and take a just and proper decision in this matter.4. In compliance to the judgments of various High Courts and after considering the representations received for extension of the due date, the Board, in exercise of its power conferred by section 119 of the Act, has extended the `due-date’ for furnishing return of income from 30th September, 2014 to 30th November, 2014 for the Assessment Year 2014-15 for all purposes of the Act in the case of an assessee, who is required to file his return of income by 30th September, 2014, and is also required to get his accounts audited under section 44AB of the Act or is a working partner of a firm whose accounts are required to be audited under section 44AB of the Act.5. There shall be no extension of the “due date” for the purposes of charging of interest under section 234A of the Act for late filing of return of income and the assessees shall remain liable for payment of interest as per the provisions of section 234A of the Act.6. For removal of doubt, it is clarified that for an assessee (other than working


partner of a firm which is required to obtain and furnish Tax Audit Report), who is required to file its return of income by 30th September, 2014 but not required to obtain and furnish Tax Audit Report under section 44AB, the due date for furnishing of return of income for assessment year 2014-15 remains as 30th September, 2014.

Order under section 119 of the Income-tax Act, 1961

Section 44AB of the Income-tax Act, 1961 („the Act?) read with rule 6G of the Income-tax Rules, 1962 („the Rules?) requires certain persons to file tax audit report in Form No.3CA/Form No.3CB along with prescribed particulars in Form No.3CD. Vide Notification No. 33/2014 dated 25th July, 2014; the forms for filing tax audit report have been revised. As per section 44AB of the Act, the tax audit report has to be obtained and furnished electronically by 30th November of the Assessment year in case of an assessee who is required to furnish report under section 92E of the Act and 30th September of the Assessment year in case of other assessees. 2. In view of the representations received by the Central Board of Direct Taxes („the Board?), the due date for obtaining and furnishing of tax audit report under section 44AB of the Act for assessment year 2014-15 in respect of assessees who are not required to furnish report under section 92E of the Act has been extended from 30th September, 2014 to 30th November, 2014 vide Order No.133/24/2014-TPL dated 20th August, 2014 in exercise of power of the Board under section 119 of the Act. It has been further clarified that the tax audit report filed during the period from 01.04.2014 to 24.07.2014 in the pre-revised forms shall be treated as valid tax audit report under section 44AB. 3. After the extension of the due date for obtaining and furnishing of tax audit report under section 44AB of the Act, a number of representations have been received in the Board requesting for extension of due date for furnishing of return of income for the assessees who are required to obtain and furnish tax audit


report under section 44AB of the Act and for whom the due date for furnishing return of income under section 139(1) of the Act is 30th September, 2014. Writ petitions have also been filed in various High Courts for directing the Board to extend the due date for furnishing of return of income from 30th September, 2014 to 30th November, 2014 in conformity with the extension of the due date for filing of tax audit report.4. In the High Court of Delhi, a writ petition No.5990/2014 has been filed on this issue. However, before the pronouncement of judgement, the petitioner withdrew the writ petition on 23rd September, 2014. The High Court of Madras passed interim order on 24.09.2014 in writ petitions No.25443 and 26306 to 26310 of 2014 and directed the Board to consider the request of the assessees in general and consider the extension of time for furnishing the return of income, in tune with the order passed by the Board in F. No.133/24/2014-TPL dated 20.08.2014. It has been reported that the High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh disposed the writ petition No.28159 and 28627 of 2014 with a direction to the Board to dispose of the representation of the petitioners. The High Court of Bombay disposed of writ petition No.2492 of 2014 vide order dated 25.09.2014 and directed the Board to look into the practical difficulties of the petitioners and take a just and proper decision in this matter. 5. The Gujarat High Court allowed Special Civil Application No.12656 of 2014 with Special Civil Application No.12571 of 2014 and vide judgement dated 22.09.2014 directed the Board to modify the order under section 119 of the Act dated 20.08.2014 by extending the due date for furnishing the return of income to 30th November, 2014. It has also been further stated in the said order that it would be open for the Board to qualify such relaxation by extending the due date for all purposes, except for the purpose of Explanation 1 to section 234A of the Act. 6. In compliance to the judgement of High Court of Gujarat and after considering


the representations made for extension of due date for furnishing of return of income in compliance with the directions of the other High Courts, the Board, in exercise of power conferred by section 119 of the Act, hereby extends, subject to para 7 below, the `due-date? for furnishing return of income from 30th September, 2014 to 30th November, 2014 for the assessment year 2014-15 for all purposes of the Act, in case of an assessee, who, i. is required to file his return of income by 30th September, 2014 as per clause (a) of Explanation 2 to sub-section (1) of section 139 of the Income-tax Act, 1961; and ii. is also required to get his accounts audited under section 44AB of the Act or is a working partner of a firm whose accounts are required to be audited under section 44AB of the Act. 7. There shall be no extension of the “due date” for the purposes of Explanation 1 to section 234A (Interest for defaults in furnishing return) of the Act and the assessees shall remain liable for payment of interest as per the provisions of section 234A of the Act. 8. For removal of doubt, it is clarified that for an assessee (other than working partner of a firm which is required to obtain and furnish tax audit report), who is required to file its return of income by 30th September, 2014 but not required to obtain and furnish tax audit report under section 44AB, the due date for furnishing of return of income for assessment year 2014-15 remains as 30th September, 2014.


Class of Companies for the purpose of second proviso to section 203(1) of the Companies Act, 2013

The MCA has notified that the public companies having paid-up share capital of Rs. 100 crore or more and annual turnover of Rs. 1,000 crore or more, which are engaged in multiple businesses and have appointed Chief Executive Officer for each such business shall be the class of companies for the purposes of the second proviso to sub-section (1) of Section 203 of the said Act.For the purposes of this notification, the paid up share capital and the annual turnover shall be decided on the basis of the latest audited balance sheet.[F. No. 1/5/2013-CL-V dated 25th July, 2014]

Clarification with regard to applicability of provisions of section 139(5) and 139(7) of the Companies Act, 2013

The MCA has clarified that the Deemed Government Companies, (where ownership or control lies with two or more Government Companies or Corporations etc.) are covered under Section 139(5) and 97) of the Companies Act, 2013 and the responsibility rests with both, the Government concerned and the relevant company, for sending the information about the incorporation of a Company subject to audit by an auditor to be appointed by the C&AG for the purpose of appointing the first auditors under section 139(7).The MCA has further clarified that it will primarily be the responsibility of the company concerned to intimate to the C&AG about its incorporation along with name, location of registered office, capital structure of such a company immediately on its incorporation. Such company shall share such intimation to the


Corporate Law Update

relevant Government so that such Government may also send a suitable request to the C&AG.[General Circular No. 33/2014 dated 31st July, 2014]


Case law 1Valuation report u/s. 142(A) at the behest of the CIT (A) has no legal validity

Case Name:

Dr. G. Premalatha versus the Deputy CIT Circle-8(1), Hyderabad

Ratio:

(i) The basic pre-requisite of sec.142A is satisfaction of the AO.(ii) When the AO makes a reference at the behest of the CIT (A), the valuation report so obtained has no legal validity and has to be ignored.

Held:

In the instant case the CIT (A) erred in directing the Assessing Officer to refer the matter to the valuation cell. On the other hand, the CIT (A) himself could have referred the valuation of the building to the valuation cell. The subtle difference between Prasad Productions Pvt. Ld. (supra) and the present case is to be noted.

In the case of the assessee, the AO made the assessment U/S 143(3) after elaborate discussion of the cost of construction. She consulted experts. She referred to comparable cases and finally made addition of 15 lakhs. After this, it was not permissible for even the administrative CIT to invoke his jurisdiction U/S 263 on the issue because of a valuation report obtained subsequently. If the administrative CIT could not exercise jurisdiction U/S 263, as held in the case of Girdhar Gopal Gulati vs Union Of India And Anr., 269 ITR 45 (All), the CIT(A) had no jurisdiction in appeal proceedings to call for a valuation report, which is the exclusive prerogative of the AO.



Reference u/s 142A is not allowed after assessment or re-assessment. The AO has no jurisdiction to invoke section 142A after assessment or re- assessment. Likewise the CIT (A) also ceases to have any jurisdiction to press sec. 142A into service either himself directly or indirectly through the AO. In any case, the basic pre-requisite of sec. 142A is satisfaction of the AO. When the AO makes a reference at the behest of the CIT (A), the valuation report so obtained has no legal validity and has to be ignored.

Hence it is of the opinion that in the present case, as the assessment is already completed, the Assessing Officer has no jurisdiction to make the reference u/s. 142A of the Act. In view of the specific language of section 142A, the CIT (A) has clearly overstepped his jurisdiction and hence the order of enhancement by the CIT (A) has no legal sanction and is, therefore, deleted. This issue is decided in favour of the assessee.

Actis Advisers Pvt. Ltd. vs. CST. -Delhi-IV [(2014) 9 TMI 182 - CESTAT New Delhi]

Actis Advisers Pvt. Ltd. (“the Appellant”) is engaged in providing ‘Management Consultancy Services’ (“output service”) mainly to their overseas clients. Earlier, the Appellant’s Bombay branch had Service tax registration and subsequently when the Delhi branch started operating, they obtained Centralized registration. For some period, there was no separate registration till the Centralized registration was obtained in respect of Delhi branch.The Appellant availed Cenvat credit in respect of various input services used for providing their output service. Since they could not utilize the accumulated Cenvat Credit in respect of input services for payment of Service tax on their domestic transactions, in accordance with the Provisions of Rule 5 of the Cenvat Credit Rules, 2004 read with Notification No. 5/2006-CE (NT) dated March 14, 2006, they filed claims for cash refund of Rs. 32,54,141/- of the accumulated Cenvat Credit for October, 2009 to December, 2009 quarter and another refund


Case law 2

claim for an amount of Rs. 12,20,506/- for January, 2010 to March, 2010 quarter.T h e J u r i s d i c t i o n a l A s s i s t a n t C o m m i s s i o n e r b y t w o s e p a r a t e orders sanctioned refund of Rs. 11,89,402/- out of claimed amount of Rs. 12,20,506/- and sanctioned refund of Rs. 32,54,077/- out of the claimed amount of Rs. 32,54,141/-. However, in both the cases the Assistant Commissioner ordered adjustment of interest on wrongly availed Cenvat credit which was to be adjusted against the refund claims. The interest was charged on the ground that certain amount of Cenvat credit has been taken on the basis of the service provider’s invoices, while during that period the Appellant did not have Service tax registration and that they became eligible for Cenvat credit on the basis of those invoice only on the date the Delhi office of the Appellant obtained Centralized registration. The Department alleged that unless an assessee has Service tax or Central Excise registration, he would not be eligible for Cenvat credit in respect of input services or inputs received during the relevant period.On appeals being filed to Commissioner (Appeals), the same were dismissed. Against the orders of Commissioner (Appeals), the Appellant preferred an appeal to the Hon’ble CESTAT, Delhi. The Appellant relied upon the decision in the case of C. Metric Solution Pvt. Ltd. Vs. CCE, Ahmadabad [2012(28) STR-460 (Tri.Ahmd.)] (“The Metric Solution case”) and Well Known Polyesters Ltd. vs. CCE [2012(25) STR-411 (Tri. Ahmd.) ] and pleaded that when there is no dispute about receipt of the input services in respect of which Cenvat credit has been taken, then Cenvat Credit cannot be denied merely because the Appellant had not taken Centralized Registration at Delhi for the period when the service were received.The Hon’ble CESTAT, Delhi also relied upon the decision in the Metric Solution case and held that Cenvat credit in respect of inputs and input services received by an output service provider during the period prior to his obtaining Service tax registration is admissible and denial of Cenvat Credit on this ground is not correct.


27 |

OCTOBER

20th

25th

5th Service TaxService tax Payment by Companies for SeptemberService tax Payment by other than Companies for July to September

6th Central ExciseDue Date for payment of Excise Duty for all Asssessee (including SSI Units)

Central Excise

MVAT

Service Tax

Due Date for filing Quarterly Returns (Annexure 75) bu units availing area-based exemption

Income TaxIssue of TDS Certificate (Form16A) by Non-Government Deductor for Q2

TDS Payment of September

Service Tax Return for April to September-all Assessees

Income tax

P.F. Payment for September

Filling Quarterly Returns (ANN.13B) by the registered dealers.

10th Central ExciseFilling ER-1 Return(Other than SSI Units)Filling Quarterly ER-3 Return by SSI Units availing small scale exemptionFilling Quarterly Return ER-8 by the units paying 2% dutyFilling Quarterly Return ER-2 by 100% EOUs.Filling monthly ER-6 Returns by specified class of Assessees regarding principal inputs

15th

P.F.

Central Excise

TDS/TCS Quarterly Statement (other than Government Deductor) July to September

31th Prof.TaxPayment for September

*If payment of MVAT made as per time prescribed, additional 10 days are given for uploading e-return

7th Income taxTDS Payment of September

30th

Important Dates


Private & ConfidentialOct. 201428 |

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