Thursday, January 7, 2010



ISSUE DATED 11-1-2010

Volume 1 : Part 2




>>  Expenses incurred for keeping business alive after suspension order by SEBI : Allowable : KNP Securities P. Ltd. v. Asst. CIT (Mumbai) . . . p. 130


>> A. O.'s observation "loss to be carried forward" on late return erroneous and prejudicial to interests of Revenue justified : Lodhi Property Co. Ltd. v. CIT (Delhi) . . . p. 140


>> Interest on deep discount bonds accrues from year to year : Gujarat Toll Road Investment Co. Ltd. v. Asst. CIT (Ahd.) . . . p. 146



>> Interest accrued on deep discount bonds issued to financial institutions not interest on loan or borrowing for purpose of s. 43B : Gujarat Toll Road Investment Co.Ltd. v. Asst. CIT (Ahd.) . . . p. 146


>> Where funds advanced to subsidiary on grounds of commercial expediency, disallowance of interest not valid : Industrial Cables (India) Ltd. v. Addl. CIT (Chandigarh) . . . p.156


>> Income representing waiver of interest by bank and on debentures taxable : Industrial Cables (India) Ltd. v. Addl. CIT (Chandigarh) . . . p. 156


>> Where assessee acting as conduit between group concern and contractors, no violation of section 269T on making payment in cash to contractors for and on behalf of group concern : Canara Housing Development Co. v. Addl. CIT (Bangalore) . . . p. 165



>>  Where assessee not having permanent establishment in India but having its source of income from resident of India, amount received is business profits under art. 7 of DTAA (Australia), not taxable in India : Asst. CIT v. Paradigm Geophysical P. Ltd. (Delhi) . . . p. 178


>> Where resident company collecting data in area proposed to prospect for mineral oil, data area specific and not development and transfer of technical plan or design, art.12(3)(g) of DTAA (Australia) not applicable : Asst.CIT v. Paradigm Geophysical P. Ltd. (Delhi) . . . p. 178


>> Where no proof of attempt to serve notice on assessee, service of notice by affixture invalid : Deputy CIT v. K.G. Singhania (Amritsar) . . . p. 205


Budget 2010 to put in place anti-avoidance rules for tax

The forthcoming Union Budget may have an anti-avoidance provision, which can effectively check convoluted transactions devised exclusively for the purpose of evading payment of taxes in India.


Incorporation of such a law into the country's Income-tax Act has been a long standing demand of the tax authorities who often find themselves handicapped whenever they come across a transaction of this nature.


The Income-tax Act, 1961, which is the existing tax code, does not have provisions that can effectively check such an exercise. Common examples of transactions that are convoluted are when there is a shell company registered in Mauritius or another country with low tax rates, which ensures the taxpayer can avoid paying tax in India.


The Direct Tax Code (DTC), the new tax code proposed to be replacing the existing Income-tax Act, also contains provisions for anti-avoidance. The DTC empowers the Commissioners to declare a transaction as an impermissible arrangement to avoid paying taxes in India. A part or even the complete transaction can be declared impermissible or lacking in business substance. The Government, it is gathered, may incorporate some of the proposals made in the DTC to the existing Income-tax Act in the budget proposal. [Source : dated December 30, 2009]


Oil explorers to pay tax at lower rate : AAR


Foreign firms helping domestic oil explorers need to pay tax at lower rate of 10 per cent. only as their business is technical services, the Authority for Advance Ruling has ruled.


The income earned by foreign firms by providing survey and technical services to an Indian oil exploration company will be taxable at 10 per cent. as fee for technical services (under section 44BB of Income-tax Act), rather than as royalty fee (section 44DA of the Income-tax Act) which is double at 20 per cent., AAR has ruled.


The AAR set aside the contention of the Revenue Department that the services provided by Dubai-based exploration company do not fulfil the requirement for being taxed under section 44BB (technical services) and therefore the income from its activities has to be taxed under section 44DA of the Income-tax Act (royalty fee). [Source : dated December 30, 2009]


Income-tax Department claims Rs. 30k cr. for MAT violations


The Income-tax Department has claimed Rs. 30,000 crores from companies that have violated provisions under the minimum alternate tax (MAT).


Sources said the claim is not only for the current assessment year of 2009-10, wherein assessments are still going on, but also for previous four-five assessment years, which are under litigation either in courts or at appellate levels. Also, for each year, cases have been re-opened for block assessment of the last four years preceding the assessment year in consideration.


According to section 115JB, a company is required to pay tax under special provisions of "minimum alternate tax" even if it does not make profit and its total income for the specific assessment year is less than 10 per cent. of its book profit. Enacted in 2000-01 as section 115JA, it was later amended to section 115JB.


Registrar of Companies (RoC) said inspections were done to check violations of Companies Act, and not revenue generation. Under MAT, accounts have to be prepared as per Companies Act.


In order to tackle such violations in future and get revenue without any legal hassles, the Central Board of Direct Taxes has suggested that I-T authorities should have the power to qualify accounts for violation of Companies Act in cases pertaining to income-tax. These powers will help the I-T authorities to recover the amount even if balance sheets are not qualified by the RoC. [Source : dated December 31, 2009]

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