snk newsletter- march 2011

8/6/2019 SNK Newsletter- March 2011

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DIRECT TAXESJudicial pronouncements

SNK

Issue 03 March, 2011

NewsletterWebsite : www.snkca.com Email: [email protected]

St. Lawrence Educational Society vs. CIT (Delhi High

Court)(W.P.(C) 1254/2010)

S. 10(23C)(vi) exemption cannot be rejected merely be-

cause there is a surplus

The assessee, a society running a school, applied for ex-

emption u/s 10(23C)(vi) on the ground that it was existing

solely for the purpose of education and not for the purpose

of profit. The CCIT followed CIT vs. Queens Educational

Society 319 ITR 160 (Utt) and rejected the application on

the ground that as the assessee had made a surplus from

its activities, it did not exist solely for educational pur-

poses. On a Writ Petition to challenge the rejection, HELD

allowing the Petition:

(i) To decide whether the institution exists solely for educa-

tion and not to earn profit the test of predominant object

of the activity has to be seen to decide. The purpose

does not lose its character merely because some profit

arises from the activity. It is not possible to carry on

educational activity in such a way that the expenditure

exactly balances the income and there is no resultantprofit, for, to achieve this, would not only be difficult of

practical realization but would reflect unsound principles

of management. In order to ascertain whether the insti-

tute is carried on with the object of making profit or not it

is duty of the prescribed authority to ascertain whether

the balance of income is applied wholly and exclusively

to the objects for which the applicant is established

(Aditanars Educational Institution 224 ITR 310 (SC) &

American Hotel and Lodging Association 301 ITR 86

(SC) followed);

(ii) Accordingly, the opinion expressed by the CCIT that the

educational institution seeking exemption should not

generate any quantitative surplus is legally untenable

and incorrect. The assumption that for exemption there

should not be any surplus and if it is otherwise the insti-

tution society exists for profit and not charity is not justi-

fied (Vanita Vishram Trust 327 ITR 121(Bom), Maa

Saraswati Trust 194 TM 84 (HP) and Pinegrove Interna-

tional Charitable Trust 327 ITR 73 (P&H) followed).

Disha India Micro Credit vs. CIT (ITAT Delhi)(ITA

No.1374/Del/2010)

Activity of giving micro-finance & earning interest is

charitable purpose

The assessee, a micro-finance company, applied for regis-

tration u/s 12A for exemption u/s 11. The CIT rejected the

application on the ground that (a) the objects showed a

profit motive, (b) the assessee was charging an interest rate

which was higher than that charged by banks & (c) the ac-

tivity of giving loans was a business activity and not a

charitable purpose u/s 2(15). On appeal by the assessee,

HELD allowing the appeal:

(i) On the issue whether the assessee has a profit motive

in pursuing its objects, the fact that the assessee is reg-

istered u/s 25 of the Companies Act prima facie shows

that the assessee is set up to promote charity or any

other useful object and intends to apply its profits in

promoting those objects.

DIRECT TAXES ... 1 - 9

OTHER LAWS ... 9 - 12

IMPORTANT DUE DATES 12

INDIRECT TAXES . 9


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Judicial pronouncements

The assessee is prohibited from

making payment of any dividend to

its members. The Objects provide

that the assessee has to promote

micro finance services to poor per-sons and to help them rise out of

poverty without the motive of profit;

(ii) On the issue whether the activity of

promoting micro finance services is

a charitable purpose u/s 2(15), as

per CBDT Circular No.11 of 2008

dated 19.12.2008, a wide range of

objects for the welfare of economi-

cally and socially disadvantaged

people are covered and entities

which pursue these objects will be

eligible for exemption even if they

incidentally carry on a commercial

activity, subject, however, to the

conditions stipulated in s. 11(4A) or

the seventh proviso to s.10(23C)

(Bharatha Swamukhi Samsthe 28

DTR (Bang)(Trib) 113 followed);

(iii) The fact that there is a surplus fromthe activity of micro financing can-

not by itself be a ground to say that

the assessee does not exist for

charitable purpose particularly

when the MOA & AOA provide that

the profit shall not be distributed

amongst the members but shall be

utilized towards the objects

(Thanthi Trust 247 ITR 785 (SC) &

Agricultural Produce and MarketCommittee 291 ITR 419 (Bom) fol-

lowed).

CIT v. Oswal Agro Mills Ltd. [2011]

197 TAXMAN 25 (Delhi)

Depreciation is allowed on block of

assets and Revenue cannot segre-

gate a particular asset therefrom on

ground that it was not put to use

For relevant assessment year, as-

sessee claimed depreciation on its vari-

ous assets which included claim of de-

preciation in respect of a closed unit.

According to assessee, depreciation

was to be allowed as assets of that unit

remained part of block of assets and

were ready for passive use, which wasas good as real use. Assessing Officer

disallowed depreciation on closed unit.

Commissioner (Appeals) upheld disal-

lowance. On second appeal, Tribunal,

however, accepted assessees claim

and allowed depreciation on said unit. It

was held that when aforesaid unit re-

mained non-functional for a number of

years and there was no sign of that unit

becoming functional, principle ofpassive user could not be extended to

said unit, however, as it was a case of

depreciation on block of assets, assets

of aforesaid closed unit could not be

segregated for purpose of allowing de-

preciation and depreciation had to be

allowed on entire block of assets.

Sponge Iron India Ltd. v. DCIT (ITA

No. 410 & 411/Hyd/2007)

Assessee not entitled to deprecia-

tion on a plant which is not in opera-

tion since its capitalization

Even after introduction of concept of

block assets, identity of the individual

assets are not lost and the Assessing

Officer can restrict the depreciation

having regard to the usage of a plant.

Logitronics Pvt Ltd vs. CIT (DelhiHigh Court)(ITA No.1623 of 2010)

Question whether waiver of loan is

income or not depends on whether

loan was used for capital or revenue

purposes

The assessee, engaged in manufacture

of electronic products, took a loan from

SBI of which Rs. 4.76 crores was due

towards principal and Rs. 1.90 crores

was due towards interest. Owing to its

inability to repay the amounts, the as-

sessee entered into a settlement under

which an amount of Rs. 1.85 crores

was agreed to be paid towards the prin-

cipal and the balance was waived. The

whole of the interest was also waived.The assessee offered the amount of

interest waived to tax though it claimed

that the principal sum waived was a

capital receipt. On appeal, the Tribunal

held that the question whether the prin-

cipal sum waived was income or not

would depend on whether the loan was

utilized for capital or revenue purposes

and directed the AO to go into the mat-

ter. On appeal by the assessee, HELD:

The answer to the question whether the

waiver of a loan is taxable as income or

not depends on the purpose for which

the loan was taken. If the loan was

taken for acquiring a capital asset, the

waiver thereof would not amount to any

income exigible to tax u/s 28(iv) or 41

(1). On the other hand, if the loan was

taken for a trading purpose and was

treated as such from the very beginning

in the books of account, its waiver

would result in income more so when it

was transferred to the P&L A/c in view

of Sundaram Iyengar 222 ITR 344

(SC).

Dr. Aswath N. Rao v. ACIT (ITA No.

2900/2005)

Second hand machinery purchased

for use as spare parts for existing

old machineries has to be consid-

ered as an allowable expenditure on

revenue side

When an assessee purchases the

spare parts for the existing machiner-

ies, same cannot be treated as capital

expenditure and it has to be treated as

revenue expenditure since these spare

parts are purchased for the mainte-nance of the existing equipments.


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Teja Constructions v. ACIT (ITA NO.

308/HYD/2009)

Once estimation of income is made,

further disallowances u/s. 40(a)(ia)are not warranted

Where income of the assessee having

been determined by resorting to esti-

mation, there is no scope for any fur-

ther disallowance either in terms of sec-

tion 40(a)(ia)/40A(3) or otherwise.

CIT v. Surinder Pal Anand (ITA No.

156 of 2010)(P & H HC)

Where assessee files its return u/s44AD, it is not under obligation to

explain individual entry of cash de-

posit

Once under section 44AD exemption

from maintaining of books of account

has been provided and presumptive tax

@ 8% of the gross receipt itself is the

basis for determining the taxable in-

come, the assessee is not under obli-

gation to explain individual entry of

cash deposit in the bank unless such

entry has no nexus with the gross re-

ceipts.

ACIT vs. R.K.B.K Fiscal Services Ltd

(ITAT Kolkata)(ITA No. 770/

KOL/2010)

Share sale price cannot be appor-

tioned towards transfer of

controlling interest

The assessee sold (off-market) shares

of Gujarat Ambuja Cements Ltd to Hol-

cim Mauritius for a consideration of Rs.

105 per share. The assessee claimed

that the consideration for the share had

(as per a valuation report) to be taken

at Rs.74.20 and the balance of

Rs.30.80 had to be treated as consid-

eration for parting with managerialcontrol. It was claimed that the said

sum of Rs.30.80 was not assessable as

there was no cost of acquisition of the

controlling interest. The AO rejected

the contention on the ground that

managerial control is not a separate

asset and assessed the entire capital

gain as LTCG/STCG. On appeal, the

CIT (A) purportedly followed Vodafone

International vs. UOI 311 ITR 46 (Bom)

and held that the consideration had to

be apportioned towards the transfer of

the share and transfer of controlling

interest (as done by the assessee) and

the amount attributable to the latter was

not assessable to tax. On appeal by the

department, HELD reversing the CIT

(A):

(i) It is very unusual that the AO & CIT

(A) did not notice that under Article

5 of the agreement, the assessee

was to receive Rs. 15 per share

towards non-compete undertaking

which was included in the sale con-

sideration. This amount is assess-

able as business income u/s 28

(va);

(ii) The argument that controlling in-

terest was transferred with the

shares is not acceptable because

the assessee is not a signatory to

the share purchase agreement and

the POA claimed was being given

by the assessee to Mr. Narattom S.

Sekhsaria, who signed the said

agreement on its behalf, was not

produced and it is not known

whether the POA holder was au-

thorized to transfer the controlling

interest;

(iii) The share transfer agreement

merely refers to the sale of shares

and the non-compete covenant and

fixes the consideration at Rs. 90 &

Rs. 15 respectively but does not

refer to any transfer of controllinginterest. The other circumstances

(AoA etc) support the view that

there was no transfer of controlling

interest;

(iv) As the agreement fixes the consid-

eration for the share at Rs. 90, the

valuation report splitting the consid-eration has no relevance. While Rs.

90 is assessable as LTCG/STCG,

Rs. 15 is assessable as business

income.

ACIT vs. Naishadh V. Vachharajani

(ITAT Mumbai)(ITA No. 6429/

Mum/2009)

Despite high volume & short holding

period, shares gain is STCG

The assessee, a marine consultant,

offered income by way of LTCG,

STCG, speculative profit & profit from

futures trading. The AO held that as the

volume of transactions was high (222),

the period of holding of the STCG

shares was short (2 -5 Months) & there

was speculation & F&O profit, the

LTCG & STCG was assessable as

business profit. On appeal, the CIT (A)

reversed the AO. On appeal by the de-

partment, HELD dismissing the appeal:

(i) As regards the LTCG, the shares

were held for several years and so

the assessee has acted as investor

and not as a trader and so the

gains are assessable as LTCG;

(ii) As regards the STCG, the view of

the CIT(A) had to be upheld be-

cause

(a) there was no intra-day trading,


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(b) most of the shares were held

for a period of 2 to 5 months,

(c) In the preceding AY, the AO did

not assess the STCG as busi-

ness income and on the princi-

ples of consistency, a different

view cannot be taken on the

same facts,

(d) the assessee has no borrow-

ings and

(e) merely because there was a

speculative busin``ess does not

mean that even delivery based

transactions of shares should

be assessed under the head

business.

Gagan Trading Co. Ltd vs. DCIT

(ITAT Mumbai)(ITA NO.591/MUM/07)

B/fd Business Loss can be set-off

against dividends assessed as

income from other sources if

shares held for business

The assessee, engaged in the business

of purchase and sale of shares, earned

dividend income of Rs. 43.48 lakhs

which it offered to tax as income from

other sources. The assessee set-off

the dividend income against its brought

forward business loss. The AO & CIT

(A) rejected the set-off on the ground

that u/s 72 business losses can only be

set-off against business income and notincome from other sources. On ap-

peal by the assessee, HELD allowing

the appeal:

U/s 72(1)(i), the brought forward busi-

ness loss can be set-off against the

profits and gains of any business or

profession carried on by the assessee.

S. 72 (1)(i) does not use the word

assessable under the head profits &

gains of business. So, the question is

whether the securities formed part of

the trading assets of the business and

the income there from was income from

the business. The answer to this ques-

tion has to be decided on commercial

principles and not on the basis of the

classification of heads of income in s.

14. Though for the purpose of computa-tion of the income, dividends are as-

sessable under the head Other

Sources, it does not cease to be part

of the income from business if the se-

curities are part of the trading assets.

Accordingly, the assessee is eligible for

set-off as claimed (Cocanada Rad-

haswmi Bank 57 ITR 306 (SC) & New

India Investment 130 ITR 778 (Cal) fol-

lowed).

Paharpur Cooling Towers Ltd vs. CIT

(Calcutta High Court)(ITA 256 OF

2002)

Under Expl to s. 73 even delivery-

based loss on shares is

speculation loss

The assessee, a company, was en-

gaged in the business of purchase &

sale of shares. It suffered a loss of Rs.

1.41 crores and claimed that this could

not be treated as speculation loss un-

der the Explanation to s. 73 on the

ground that (i) the assessee had taken/

given delivery of the shares and they

were not speculative transactions as

defined in s. 43 (5), (ii) the object of the

Explanation to s. 73 (as per CBDT Cir-

cular dated 24.7.1976) was to curb

manipulation and artificial loss and it

had to be confined to only such cases

& (iii) the loss was only on account of

fall in value of shares held as closing

stock and not on account of purchase

and sale of shares. The AO, CIT (A) &

Tribunal {85 ITD 745 (Kol)} rejected the

assessees claim. On further appeal,HELD dismissing the appeal:

(i) The Explanation to s.73 creates a

fiction that the loss suffered by cer-

tain companies from the business

of purchase & sale of shares shall

be deemed to be speculation loss.

The Explanation is not inconsistent

with the object of introduction. The

CBDT Circular dated 24.7.1976

cannot be treated as guide for inter-

pretation of s. 73 when the provi-

sion is very clear and free from any

ambiguity;

(ii) The definition of speculative trans-

action in s. 43(5) is not applicable

to the Explanation to s. 73. The fact

that the assessee settled the trans-

actions by physical delivery is ir-

relevant. CIT vs. Arvind Invest-ments 192 ITR 365 followed);

(iii) The fact that the Explanation to s.

73 was introduced to curb manipu-

lation does not mean that it has to

be confined to only those cases in

view of the clear language of the

provision.

Hyderabad Chemicals Supplies Ltd

vs. ACIT (ITAT Hyderabad)(ITANo.352/Hyd/2005)

Despite absorption in earlier year, s.

80-IA unit loss to be set-off against

s. 80-IA profits

The assessee set up a windmill unit in

AY 1999-2000 which was eligible for

deduction u/s 80IA. The unit suffered

losses in AY 1999-2000 & 2000-01

which, together with the depreciationthereon, was absorbed by the other

income of the assessee. In AY 2001-

02, the assessee claimed s. 80IA


5/12


6/12


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SNKDIRECT TAXES

Judicial pronouncements (International Taxation)

Rajeev Sureshbhai Gajwani vs.

ACIT (ITAT Ahmedabad Special

Bench)(ITA Nos.1807 & 1978/

Ahd/2006)

Despite bar in s. 80HHE, Non-

Residents eligible for deduction in

view of non-discrimination clause

in DTAA

The assessee, a citizen of America

and a non-resident, exported software

from a PE in India and claimed deduc-

tion u/s 80HHE in respect of the profits

earned from export of computer soft-

ware by invoking the provisions of Arti-cle 26 (2) of the India-USA DTAA. He

claimed that in view of Article 26(2), he

could not be treated less favourably

than a resident assessee. The AO &

CIT (A) rejected the claim on the

ground that the benefit of s. 80HHE

was available only to Indian compa-

nies & residents. On appeal, the mat-

ter was referred to the Special Bench.

HELD by the Special Bench:

(i) Article 26(2) of the India-USA DTAA

provides that the taxation of a PE of

an enterprise of a Contracting State in

the other Contracting State shall not

be less favorably levied in that other

State than the tax levied on enter-

prises of that other Contracting State

carrying on the same activities. In sim-

ple language, Article 26(2) means that

taxation of a PE of a USA resident

shall not be less favorable than the

taxation of a resident enterprise carry-

ing on the same activities. The result

is that the exemptions and deductions

available to Indian enterprises would

also be granted to the US enterprises

if they are carrying on the same activi-

ties. As the assessee was carrying on

the same activities of export of soft-

ware as done by residents, it was enti-

tled to s. 80HHE deduction as admis-

sible to a resident assessee

(Automated Securities Clearance Inc

vs. ITO 118 TTJ (Pune) 619 reversed;

Metchem Canada Inc vs. DCIT 99 TTJ

(Mum) 702 referred to);

(ii) If the provisions contained in the

DTAA are capable of clear and unam-

biguous interpretation, it is not neces-

sary to refer to the commentary on the

OECD Model Convention, the US

Technical Explanation or decisions of

any foreign jurisdiction (CIT vs. PVAL

Kulandagan Chettiar 267 ITR 654

(SC) followed).

Tata Sons Limited vs. DCIT (ITATMumbai)(ITA No: 4978/Mum/04)

Despite DTAA restricting credit to

Federal taxes, Foreign State

taxes also eligible for credit u/s 91

In DCIT vs. Tata Sons Limited (43

SOT 27) it was held that the assessee

was not entitled to a deduction of for-

eign taxes such as Federal & State

taxes paid in the USA & Canada inview of s. 40(a)(ii) which prevented the

deduction of any taxes. While Fed-

eral taxes are eligible for credit under

the India-USA & India-Canada DTAA,

State taxes are not eligible. On the

question whether the State taxes can

be allowed as a credit u/s 91 despite

the DTAA, HELD:

(i) The view that State taxes cannot be

allowed as a deduction and also can-

not be taken into account for giving

credit is incongruous and results in a

contradiction. A tax payment which is

not treated as admissible expenditure

on the ground that it is payment of

income tax has to be treated as eligi-

ble for tax credit;

(ii) While s. 91 allows credit for Fed-

eral & State taxes, the DTAA allows

credit only for Federal taxes. The re-

sult is that the s. 91 is more beneficial

to the assessee & by virtue of s. 90(2)

it must prevail over the DTAA. Though

s. 91 applies only to a case where

there is no DTAA, a literal interpreta-

tion will result in a situation where an

assessee will be worse off as a result

of the provisions of the DTAA which is

not permissible under the Act. S. 91

must consequently be treated as gen-

eral in application and must prevail

where the DTAA is not more beneficial

to the assessee. Accordingly, even an

assessee covered by the scope of the

DTAA will be eligible for credit of State

taxes u/s 91 despite the DTAA not

providing for the same.

Birlasoft (India) Ltd. v. Dy. CIT ITA

NO. 3839/DEL/2010

Internal benchmarking analysis un-

der TNMM based on segmental re-

sults prepared by using allocation

keys is justified

The Tribunal held that where the Tax-

payer had determined the arms lengthprice of their international transactions

on the basis of internal benchmarking

analysis. The Tribunal upheld the

transfer pricing method followed by the

Taxpayer whereby the net cost plus

margin earned from rendering soft-

ware development and related ser-

vices (software services) to associ-

ated enterprises (AEs) were compared

with the operating profit margin earnedfrom rendering software services to

unrelated parties.


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Judicial pronouncements (International Taxation)/ Circulars / Notification

Clear Plus India Pvt Ltd vs. DCIT

(ITAT Delhi)(ITA No.3944/D/2010)

Transfer Pricing: CUP method is

preferable to TNMM

The assessee sold automobile wipers

to its associated enterprise and

claimed that as per the Comparable

Uncontrolled Price (CUP) method, the

transactions were at arms length ba-

sis. The TPO rejected the CUP method

on the basis that the comparability of

controlled and uncontrolled transac-

tions was not established with certain

degree of reasonableness and accu-

racy and that the conditions prevailing

in the market were not established to

be identical. The TPO adopted the

TNMM and directed that an adjustment

be made by adopting the mean profit

of comparables. This was confirmed by

the DRP. On appeal, HELD:

(i) U/s 92C read with Rule 10B, the

most appropriate method has to be

applied for determination of arms

length price. In principle, the CUP

method (the traditional transaction

method) is preferable to the other

methods because all other things be-

ing equal, the CUP and traditional

transactional methods lead to more

reliable results vis-a-vis the results

obtained by applying transaction profit

method (UCB India 121 ITD 131 and

Serdia Pharmaceuticals followed);

(ii) For the CUP method, the focus is

on the market in which the products

are sold by the assessee and any

unique feature of the market in which

assessee is situated is of no impor-

tance in relative terms. As the goods

were sold by the assessee as well as

the competitive Chinese manufacturers

in the USA market, the market condi-tions in the territory of sale were the

same. The buyer in the USA market

will be more concerned with quality

and price rather than economic condi-

tions prevailing in China and India

(SNF (Australia) Pty. Ltd. Vs. COT

(2010) FCA 635 referred to);

(iii) As regards the comparability of the

products the assessee has to provide

the sale data of the AE in terms of sale

price of Chinese and assessees

goods in the USA market and quantita-

tive data of purchase of Chinese and

Indian wipers by the AE and the terms

of payment and the AO shall compute

the arms length price using this data

on CUP method.

Circulars / Notifications

Notification No. 12/2011 [F.NO.

142/20/2010-SO (TPL)], dated 25-2-

2011

Govt notifies United Stock Ex-

change of India Limited as recog-

nized stock exchange u/s. 43(5) of

Income tax Act

In exercise of the powers conferred byclause (ii) in the Explanation to clause

(d) of the proviso to clause (5) of sec-

tion 43 of the Income-tax Act, 1961 (43

of 1961), read with rule 6DDB of the

Income-tax Rules, 1962, the Central

Government hereby notifies the United

Stock Exchange of India Limited as

a recognized stock exchange for the

purpose of the said clause with effect

from the date of publication of this noti-fication in the Official Gazette.

Press Release dated the 14th March

2011

No Routine Income Tax Scrutiny of

Senior Citizens and Small Tax pay-

ers Having Gross Income less then

10 Lakh - F.Y. 2011-12

Scrutiny of income tax returns is an

important mechanism for ensuring tax-

payer compliance and to counter tax-

evasion. However, it has evoked some

concern from small taxpayers and sen-

ior citizens about prolonged enquiries.

Concerns have also been raised about

selection of the same cases in scrutiny

year after year.

Appreciating the concern of these tax-

payers and with a view to mitigate their

hardships, Central Board of Direct

Taxes has reviewed its scrutiny selec-

tion procedure. In order to redress the

grievance, it has been decided that

during the financial year 2011-12,

cases of senior citizens and small tax-

payers, filing income-tax returns in

ITR-1 and ITR-2 will be subjected to

scrutiny only where the Income Tax

department is in possession of credible

information.

Senior citizens for this purpose would

be individual taxpayers who are 60

years of age or more. Small taxpayers

would be individual and HUF taxpayers

whose gross total income, before avail-

ing deductions under Chapter VIA,

does not exceed Rupees ten lakh.

Order [F.No. 225/25/2010/ITA-II], dt.

10-2-2011

Extension of time-limit for filing ITR-

V forms for A.Y. 2010-11 to 31-7-

2011

In exercise of its powers under section

119(2)(b) of the Income-tax Act, 1961,

the Central Board of Direct Taxes

(CBDT) hereby extends the time limit

for filing ITR-V forms relating to in-

come-tax returns for A.Y. 2010-11 filed

electronically (without digital signature)

on or after 1st April, 2010. These ITR-

V forms can now be filed upto 31st

July, 2011 or within a period of 120

days from the date of uploading of the

electronic return data, whichever is

later. This direction is issued to miti-

gate the hardship and grievances ofthe tax payers who have been pre-

vented by reasonable causes to file the

ITR-V in time.


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SNKINDIRECT TAXES / OTHER LAWS


Notification No. 14/2011 [F. NO.

142/25/2008-SO(TPL)] dated 9-3-

2011

In exercise of the powers conferred bysection 295 of the Income-tax Act,

1961 (43 of 1961), the Central Board

of Direct Taxes hereby makes the fol-

lowing rules further to amend the In-

come-tax Rules, 1962, namely:-

1. (1) These rules may be called the

Income-tax (First Amendment)

Rules, 2011.

(2) They shall come into force on

the 1st day of April, 2011.

2. In rule 6DDA of the Income-tax

Rules, 1962,

(a) for clause (iv), the following

clause shall be substituted,

namely:

(iv) the stock exchange shall

ensure that transactions

(in respect of cash andderivative market) once

registered in the system

are not erased;

(b) after clause (iv), the following

clause shall be inserted,

namely:

(v) the stock exchange shall

ensure that the transac-

tions (in respect of cashand derivative market)

once registered in the

system are modified only

in cases of genuine error

and maintain data regard-

ing all transactions (in

respect of cash and de-

rivative market) registered

in the system which have

been modified and submita monthly statement in

Form No. 3BB to the Di-

rector General of Income-

tax (Intelligence), New

Delhi within fifteen days

from the last day of each

month to which such

statement relates.

3. In rule 6DDB of the Income-tax

Rules, 1962, in clause (iii) of sub-

rule (2), for the word, brackets and

letters clause (iv), the word,

brackets and letter clause (v)

shall be substituted.

INDIRECT TAXES

Judicial Pronouncements

CCE v. M/s. Mehta & Co.

Permanently fixed furniture too sub-

ject to excise - SC

The SC held that central excise duty

can be levied on furniture permanently

fixed to the walls or ground. It set aside

the decision of the Customs, Excise

and Service Tax Appellate Tribunal,

Bangalore, which took a contrary view.

This Mumbai Company was engaged

in interior decoration of luxury hotels. It

entered into turn-key contracts with its

clients and furniture was part of the

work contract. When the revenue au-

thorities demanded excise duty, it pro-

tested the woodwork was carried out in

the premises of the hotels and they

were permanent fixtures. They cannot

be removed without causing damage

to the goods or cannibalisation. When

the contention was rejected, the firm

moved the tribunal, which accepted its

argument. The excise commissioner

appealed to the SC. It quashed the

tribunals order.

Textech International (P) Ltd. v.Commissioner of Service tax [2011-

21- STR- 289-Tri-Chennai]

Refund available to exporters prior

to registration

The issue under consideration was

eligibility of the exporters to claim re-

fund of tax paid on input services per-

taining to the period when they were

not registered with the service tax de-

partment.

The Tribunal, while referring to the pro-

visions of Section 69 of the Act and

Rule 4(1) of the Service tax Rules, ob-

served that only a person who is liable

to pay Service tax is required to apply

for registration. Since the appellant in

this case had exported the entire out-

put service, he was not required to pay

Service tax and hence, the law did not

mandate him to take registration. Ac-

cordingly, non-registration cannot be a

ground for denying refund and hence,

the taxpayer is entitled to claim refund

of tax paid on input services for the

period for which Service tax registra-

tion was not obtained.

OTHER LAWS

COMPANY LAW

General Circular No. 6/2011 F.No.

17/56/2011-CL-V dated 8 March,

2011

Process of incorporation of Compa-

nies ( Form-1) and establishment of

principal place of business in India

by Foreign Companies ( Form-44)

Procedure simplified.

The Ministry has received various rep-

resentations regarding time taken by

the Registrar of Companies for regis-

tration of Form-1 and Form-44.


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SNKOTHER LAWS

Circular / Notifications

The Ministry has got the issue exam-

ined by Business Process Re-

engineering Group under MCA-21 and

in order to speed up and simplify the

process of incorporation of Companiesand establishment of principal place of

business in India by Foreign Compa-

nies for reduction in time taken by

Registrar of Companies, the below

mentioned procedure have been rec-

ommended :

1. Only Form-1 shall be approved by

the RoC Office. Form 18 and 32

shall be processed by the system

online.

2. There shall be one more category,

i.e., Incorporation Forms ( Form

1A, Form 37, 39, 44 and 68) which

will have the highest priority for

approval.

3. Average time taken for incorpora-

tion of company should be re-

duced to one (1) day only.

4. A Notification to notify minor

changes in e-forms 18 and 32 to

enable them to be taken on record

through STP mode for aforesaid

procedure is being issued sepa-

rately.

OTHERS

Press Release : 2010-2011/1276

dated March 7, 2011

RBI sets up Working Group to ex-

amine Issues relating to NBFC Sec-

tor

The Reserve Bank of India has consti-

tuted a Working Group under the

Chairmanship of Smt. Usha Thorat,

Director, Centre for Advanced Finan-

cial Research and Learning (CAFRAL)

to examine a range of emerging is-

sues pertaining to regulation of the

NBFC (non-banking financial compa-

nies) sector.

While examining a range of emerging

issues pertaining to the regulation of

the sector, the Working Group will fo-

cus on the definition and classification

of NBFCs, addressing regulatory gapsand regulatory arbitrage, maintaining

standards of governance in the sector

and appropriate approach to NBFC

supervision. The scope of examination

will, however, be within the current

legislative framework.

India and Isle of Man Sign Tax Infor-

mation Exchange Agreement dated

February 8, 2011

India and Isle of Man have signed a

Tax Information Exchange Agreement

(TIEA) on 4th February, 2011 in Lon-

don. The agreement has been signed

by Shri Nalin Surie, High Commis-

sioner of India to the United Kingdom

from Indian side and Hon. Anne

Craine, MHK, Minister of the Treasury

from Isle of Man side. This is the sec-

ond TIEA being signed by India. FirstTIEA was signed by India with Ber-

muda in Delhi on 7th October, 2010.

Salient features of the agreement with

Isle of Man are:

- It is based on international standard

of transparency and exchange of

information.

- Information must be foreseeably

relevant to the administration andenforcement of the domestic laws

of the Contracting Parties concern-

ing taxes covered by the agree-

ment.

- The requesting State has to provide

some minimum details about the

information requested in order to

justify the foreseeably relevance

criteria.

- Information is to be treated as se-

cret and can be disclosed to only

specified person or authorities,

which are tax authorities or the au-

thorities concerned with the deter-

mination of tax appeal.

- It also provides for disclosure of

information to any other person or

entity or authority or any other juris-

diction with the written consent of

the competent authority of the re-

quested Party.

- There is a specific provision that

the requested Party shall provide

upon request the information even

though that Party may not need

such information for its own tax pur-

poses.

- There is a specific provision for pro-

viding banking and ownership infor-

mation.

- The Agreement also allows ex-

change of past information in crimi-

nal tax matters.

India-Norway Tax Treaty renegoti-

ated dated 7 February 2011

The India-Norway tax treaty has been

renegotiated and signed on 2 Febru-

ary 2011, to replace the existing tax

treaty between the two countries upon

entering into force. The key highlights

of the renegotiated tax treaty are as

follows:

- The place of effective management

of an entity can now be determinedthrough Mutual Agreement Proce-

dure, in case it cannot be deter-

mined otherwise

- Provision for insurance Permanent

Establishment (PE) inserted

- Lower rate of taxation of dividend

and interest in the source country

i.e. 10 percent;

- Removal of limited tax sparring

contained in the Article on Method

for Elimination of Double Taxation


11/1211

OTHER LAWS

Circular / NotificationsSNK

- The scope of Article on Associated

Enterprise is wider to enable reso-

lution of Transfer Pricing matter

through Mutual Agreement Proce-

dure

- Article on Exchange of Information

which, inter alia, provides for ex-

change of banking information and

- Article on Limitation of Benefit has

been incorporated.

Press Release No. 402/92/2006-MC

(04 of 2011), dated 12-2-2011

India has signed its fourth TIEA with

Bahamas

India has entered into a Tax Informa-tion Exchange Agreement (TIEA) with

the Bahamas. The Agreement was

signed on 11th February 2011 by the

High Commissioner of India to Ja-

maica (concurrently accredited to the

Commonwealth of The Bahamas) on

behalf of India and the Minister of

State for Finance on behalf of the Gov-

ernment of the Commonwealth of The

Bahamas.

The agreement provides for sharing

information, including exchange of

banking and ownership information.

Although the information shared will be

covered under the secrecy clause, it

can be shared with specified tax au-

thorities or authorities concerned with

determination of tax appeals. Informa-

tion can also be shared for other pur-

poses with the prior consent of the giv-

ing party.

This is the fourth TIEA entered into by

India in recent months. Earlier, India

had signed similar TIEAs with Ber-

muda, Isle of Man and British Virgin

Islands.

Individuals cannot trade in forexmarket: RBI

The Reserve Bank said resident Indi-

ans cannot trade in forex market as

per the existing regulation.

The existing regulations under Foreign

Exchange Management Act (FEMA),

1999, do not permit residents to trade

in foreign exchange in domestic or

overseas markets, RBI said in a state-ment.

The clarification of the RBI assumes

significance in the light of several peo-

ple losing heavily in forge trade

through internet portals in the recent

past.

It also said, remittance in any form to-

wards overseas foreign exchange trad-

ing through electronic/internet tradingportals is not permitted under the

FEMA.

RBI cautioned investors against adver-

tisements issued by certain electronic

and internet portals offering trading or

investing in foreign exchange with

guaranteed high returns.

Many companies even engage agents

who personally contact gullible people

to undertake forex trading and invest-

ment schemes and entice them with

promises of disproportionate or exorbi-

tant returns.

Notification No. S.O. 479(E), dated 4-

3-2011

Merger Combination provisions un-

der Competition Act notified

The Competition Act, 2002 asamended (the Act) was partly made

operative on different dates starting

from 31 March 2003. However, Sec-

tions 5 and 6 which deals with

Regulation of Combinations were not

yet notified to be operative.

On 4 March 2011, the Ministry of Cor-

porate Affairs has issued notification tothe effect that Sections 5, 6, 20, 29, 30

and 31 of the Act will come into force

from 1 June 2011. The Ministry has

also issued notifications providing re-

vised threshold limits of turnover and

value of assets for determining trans-

actions which will be covered under

Section 5 of the Act and laying down

certain exemptions from applicability of

Section 5 of the Act.

It should be noted that the combina-

tions covered under Section 5 of the

Act will need to be pre-notified to the

Competition Commission of India (CCI)

for approval prior to closing.

Electronics Corporation of India Ltd

vs. UOI (Supreme Court 5 Judge

Bench)(Civil Appeal No. 1883 of

2011)

Supreme Court recalls law requiring

PSUs to obtain COD approval

In ONGC vs. CCE 104 CTR (SC) 31,

the Supreme Court directed the Cen-

tral Government to set up a

Committee on Disputes to monitor

disputes between the Government and

Public Sector Enterprises and give

clearance for litigation. It was held theno litigation could be proceeded with in

the absence of COD approval. This

was followed in ONGC vs. CIDCO

(2007) 7 SCC 39 and it was held that

even disputes between PSUs and

State Governments would require

COD approval.

In CCE vs. Bharat Petroleum Corpora-

tion, a 2 Judge Bench of the Supreme

Court held that the working of the COD

had failed and that the time has come

to revisit the law.


12/12

SNKOTHER LAWS

Circulars / Notification

The information contained in this newsletter is of a general nature and it is not intended to address specific facts, merits and circumstances of any individ-ual or entity. We have tried to provide accurate and timely information in a condensed form however, no one should act upon the information presentedherein, before seeking detailed professional advice and thorough examination of specific facts and merits of the case while formulating business deci-sions. This newsletter is prepared exclusively for the information of clients, staff, professional colleagues and friends of SNK.

The matter was referred to a Larger

Bench for reconsideration.

HELD by the Larger Bench recalling its

orders in ONGC vs. CCE 104 CTR

(SC) 31, (2004) 6 SCC 437 and ONGCvs. CIDCO (2007) 7 SCC 39:

The idea behind setting up of the

Committee on Disputes (CoD) was to

ensure that resources of the State are

not frittered away in inter se litigations

between entities of the State, which

could be best resolved, by an empow-

ered CoD Whilst the principle and

the object behind the aforestated Or-

ders is unexceptionable and laudatory,

experience has shown that despite

best efforts of the CoD, the mechanism

has not achieved the results for which

it was constituted and has in fact led to

delays in litigation . on same set of

facts, clearance is given in one case

and refused in the other.

This has led a PSU to institute a SLP

in this Court on the ground of discrimi-

nation. We need not multiply such illus-

trations. The mechanism was set up

with a laudatory object. However, the

mechanism has led to delay in filing of

civil appeals causing loss of revenue.

For example, in many cases of exemp-

tions, the Industry Department givesexemption, while the same is denied

by the Revenue Department. Similarly,

with the enactment of regulatory laws

in several cases there could be over-

lapping of jurisdictions between, let us

say, SEBI and insurance regulators.

Civil appeals lie to this Court. Stakes in

such cases are huge. One cannot pos-

sibly expect timely clearance by CoD.

In such cases, grant of clearance to

one and not to the other may result in

generation of more and more litigation.

The mechanism has outlived its utility.

In the changed scenario indicated

above, we are of the view that time has

come under the above circumstances

to recall the directions of this Court.

Due Dates of key compliances pertaining to the month of March 2011:

5th Mar. Payment of Service Tax & Excise duty for February6th Mar. Payment of Excise duty paid electronically through internet banking7

thMar. TDS/TCS Payment for February

10th Mar. Excise Return ER1 / ER2 /ER615th Mar, PF Contribution for February

21stMar. ESIC Payment for February31stMar. Service Tax payment for Individual/HUF for the period Jan to March

Excise/Service Tax payment for March

Filing of belated pending returns

15th Mar, Payment of last installment of Advance Tax

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snk newsletter- march 2011

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