Easier PAN norms for FIIs, foreign nationals

Breaking News:

NEW DELHI: In a move which could improve the fund flow and provide some stability to the choppy Indian bourses, the finance ministry has relaxed norms for foreign nationals and foreign institutional investors to obtain Permanent Account Numbers (PAN) that could also double up as KYC (know your customer) compliance for any investment they make in Indian stocks.

Till now, FIIs or foreign nationals had to obtain a PAN and separately meet KYC requirements prescribed by the market regulator before investing in stocks. The tax obligation on any transaction is twice the due amount if they fail to mention PAN.

In the revised rules that come into effect from October 1, a foreign national will have to only produce either h/his citizenship number or taxpayer identification number to obtain a PAN. The government is making amendments in Rule 114 and Form 49A of the Income Tax Rules and has proposed to introduce a new Form 49AA. While Form 49A will be used for Indian citizens, the other is for foreign nationals and FIIs.

Earlier rules stipulated that citizenship or taxpayer identification number would not be accepted as proof of identity in case of foreign nationals seeking PAN card. The applicant is required to take prescribed documents to an officer of Indian Embassy or High Commission where he is a resident to get them attested.

The revised guidelines ensure that a foreign national or an FII need not make rounds of Indian Embassies or High Commissions anymore. They can get copies of their documents attested by recognized authorities in their respective countries. Several countries and trade and industry organizations had represented the finance ministry seeking changes in the rules, in particular documents to be accepted as proof of identity and address and their attestation.

The department of economic affairs and the central board of direct taxes (CBDT) also worked on harmonizing the requirements of PAN and meeting KYC obligation. "Since most of the basic information for both are common, it was decided to harmonize them into one so that compliance burden for a foreign investor is substantially reduced," said a senior finance ministry official. The directorate of Income Tax has devised a single integrated form that incorporates the requirements of both PAN and KYC.

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ITR (Trib) HIGHLIGHTS ISSUE DATED 12-09-2011 Volume 11 Part 3

ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS

ISSUE DATED 12-09-2011

Volume 11 Part 3

APPELLATE TRIBUNAL ORDERS

>> Appeal to Appellate Tribunal : Assessee filing return for block period without any objection, additional ground rejected : Bhagwandas Punjabi (Decd.) v. Asst. CIT (Ahmedabad) p. 216

>> Search and seizure : Undisclosed income to be determined at amount mentioned in sale deed : Bhagwandas Punjabi (Decd.) v. Asst. CIT (Ahmedabad) p. 216

>> Charitable trust : CIT citing irrelevant reasons for refusing registration, assessee entitled to registration : Vidhya Sikshaa Educational and Charitable Trust v. CIT (Chennai) p. 236

>> Expenditure on keyman insurance for two working directors, maturity amount offered for taxation, deductible : ITO v. Radha Raj Ispat P. Ltd. (Delhi) p. 243

>> Where assessee not charging any interest notional interest cannot be added : ITO v. C.J. Rathod (Indl.) (Ahmedabad) p. 252

>> Where value of property not fully disclosed by assessee, AO justified in making reference u/s. 142A : Shagun Buildwell Ltd. v. Dy. CIT (Delhi) p. 273

>> Rectification of mistakes : Order charging interest u/s. 234D can be rectified u/s. 154 : Ashok Leyland Finance Ltd. v. Asst. CIT (Chennai) p. 287

>> Software services, amount paid for technical advisory services deductible as revenue expenditure : Dy. CIT v. Lifetree Cyberworks P. Ltd. (Delhi) p. 294

>> Computer software : Receipt of sale proceeds in India in convertible foreign exchange within prescribed period, assessee entitled to exemption u/s. 10B : ITO v. Techdrive (India) P. Ltd. (Delhi) p. 298

>> When sale consideration not less than stamp duty, AO not permitted to refer to DVO additions to be deleted : ITO v. Chandrakant R. Patel (Ahmedabad) p. 317
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At a Glance: Important Orders on S. 40(a)(ia) since Jan 2011 – August 2011

At a Glance: Important Orders on S. 40(a)(ia) since Jan 2011 – August 2011 reported by TaxCorp


1. S K SAIFUDDIN vs ITO
Dated : 17 February 2011
S. 40(a)(ia), 194C(2) - Whether when assessee makes payments to leader of workers working on jobwork basis, such payments are subject to tax deduction at source u/s 194C(2).
(2011) 005 TaxCorp (A.T.) 24638 (KOLKATA)



2. HCC L & T PURULIA JOINT VENTURE vs JCIT
Dated : 24 June 2011
S. 40(a)(ia), 194C – Whether the assessee, a sub contractor, is required to deduct tax at source for the payment made by it to its sub contractor though as per Explanation 1 for the purpose of sub-section (2) of Sec 194C the expression 'contractor' shall include a contractor.
Reported in (2011) 005 TaxCorp (A.T.) 25177



3. Addl. CIT vs M/s INDIA INDEX SERVICES AND PRODUCTS LTD
Dated : 16 March 2011
S. 40(a)(ia), 192, 194C, 194J - Whether payments made to the parent company on account of reimbursement of salaries in relation to services rendered by the personnel on deputation to the JV attract the liability of TDS.
(2011) 005 TaxCorp (A.T.) 24761 (MUMBAI)



4. CIT vs D RATHINAM
Date of decision - 01 February 2011
S. 40(a)(ia), 194C, 194I - Whether when Sec 194I came into being only from 2007, putting TDS liability on hiring of machinery, Revenue is right in insisting on tax deduction at source on miller and road roller charges for the prior period.
Reported in (2011) 005 TaxCorp (DT) 48347 (MADRAS)



5. SHRI J PRASHANTH HEGDE vs ADD. CIT
Dated : 21 January 2011
S. 40(a)(ia), 133(6), 194C – Whether when assessee randomly hires vehicles, and payments made are less than Rs 20,000 except one case, provisions of section 194C are applicable where there was no contract by the assessee with the vehicle owners.
(2011) 005 TaxCorp (A.T.) 24578 (BANGALORE)



6. ITO vs THE ANKLESHWAR TALUKA ONGC
Dated : 20 May 2011
S. 40(a)(ia), 43B, 143(3), 194C – Whether when the assessee-society acts as an intermediate between the company and the members of the society, and the fact that there is no relationship between the assessee and its members as contractor and contractee, section 194C.
(2011) 005 TaxCorp (A.T.) 25163 (AHMEDABAD)



7. ITO vs M/s VIJAY BHARAT ROADLINES PVT LTD
Dated : 23 June 2011
S. 40(a)(ia), 194C, Rule 46A – Whether the payments made to lorry/truck owners who merely placed the vehicles at the disposal of the assessee and never involved themselves in the work to be carried out by the assessee, would not attract provisions of section 194C.
Reported in (2011) 005 TaxCorp (A.T.) 25172 (DELHI)



8. M/s INDUSTRIAL PACKAGING PRODUCTS vs ADDL CIT
Dated : 20 April 2011
S. 37(1), 40(a)(ia), 80IB – Whether where due to the amendment brought into Act by the Finance Act, 2008 in section 40(a)(ia) with retrospective effect from 1/4/2005, the assessee would be entitled to claim deduction for the amount on which TDS was deducted late but before the due.
Reported in (2011) 005 TaxCorp (A.T.) 25038 (MUMBAI)



9. ITO vs M/s ELKA COSMETIC PVT LTD
Dated : 13 April 2011
S. 40(a)(ia), 35D – Whether, if assessee engaged in the business of cosmetics, incures certain expenses on 'Testers', generally used by customers before purchase, such product promotional expenses are to be treated as capital in nature merely because it also promotes goodwill.
Reported in (2011) 005 TaxCorp (A.T.) 25052 (DELHI)



10. HCC PATI JOINT VENTURE vs ACIT
Dated : 31 March 2011
S. 40(a)(ia), 194C, 195, CBDT Circular No 285 of 1980 – Whether, if assessee ends up making excess deposit of TDS in the previous year, it is entitled to make suo moto adjustment of the same against liability arising in next financial year - Whether such excess payment of tax.
Reported in (2011) 005 TaxCorp (A.T.) 24884 (MUMBAI)



11. Mr HEMANT MANGALDAS BHANUSHALI vs ITO
Dated : 15 June 2011
S. 40(a)(ia), 263 – Whether when the CIT observes that the AO has not applied his mind while passing the order and did not call for the required details for completing the assessment, initiation of proceedings u/s 263 in such circumstances is valid.
Reported in (2011) 005 TaxCorp (A.T.) 25407 (MUMBAI)



12. PENFORD ISRAEL LTD vs DCIT, MUMBAI
Dated : 30 March 2011
S. 32, 37, 40(a)(ia), 142(1), 143(1) & (2), Rule 27 – Whether, merely because non-resident assessee writes to RBI seeking permission to close down its branch office in India, AO is justified in making the presumption that the assessee had discontinued its trading activity in India.
Reported in (2011) 005 TaxCorp (A.T.) 24875 (MUMBAI)



13. NATIONAL PROJECTS CONSTRUCTION CORPORATION LTD vs DCIT
Dated : 11 March 2011
S. 40(a)(ia), 194(a), 197 - Whether no TDS is liable to be deducted when a payment is made to a corporation owned by the Govt.
Reported in (2011) 005 TaxCorp (A.T.) 24845 (DELHI)



14. M/s INDUSTRIAL THERMOPLASTICS vs ITO
Dated : 18 February 2011
S. 36(1)(iii), 40A(2)(b), 69C, 40(a)(ia) – Whether the disallowance is warranted u/s 40(a)(ia) for non-deduction of tax on interest payment by the assessee to a concern covered u/s 40A(2) though the assessee has explained that there is no taxable income of the corporation.
Reported in (2011) 005 TaxCorp (A.T.) 25150 (MUMBAI)



15. M/s DECCAN ROADWAYS vs ADD. CIT
Dated : 07 January 2011
Section 40(a)(ia), 194C – Whether section 40(a)(ia) applies for non-deduction of tax at source on payments made to various truck operators / drivers when there is no contract with them and they are randomly taken on hire as per the requirement.
Reported in (2011) 005 TaxCorp (A.T.) 24591 (BANGALORE)



16. M/s VODAFONE ESSAR LTD vs ADDL CIT
Dated : 07 April 2011
S. 14A, 40(a)(ia), 80IA, 115JB, 143(3), 144C(13), 194C, 195, 220(6), 226(3) - Whether when Sec 80IA benefits are debatable, the Tribunal is right in granting conditional stay of high-pitch demand raised - Whether, to do justice to the cause of Revenue.
Reported in (2011) 005 TaxCorp (A.T.) 25137 (CHANDIGARH)



17. ACIT vs SMT KEYA SETH
Dated : 11 March 2011
S. 194C, 40(a)(ia) – Whether provisions of section 194C as introduced by Finance Act 2007 are retrospective.
Reported in (2011) 005 TaxCorp (A.T.) 24847 (KOLKATA)



18. M/s MUKESH TRAVELS CO vs ITO
Dated : 25 February 2011
S. 40(a)(ia), 194C – Whether section 194C is applicable to payments made to various vehicle owners from whom the assessee hired the vehicles alongwith the drivers which were further given by the assessee on hire to its clients – Whether the tax is to be deducted u/s 194I.
Reported in (2011) 005 TaxCorp (A.T.) 24927 (AHMEDABAD)



19. ACIT vs M/s PRESCO MEC AUTOCOMP
Dated : 18 February 2011
S. 37, 40(a)(ia), 40A(2)(b), 133(6), 194C – Whether disallowance is warranted for the freight and cartage expenses incurred in cash without rejecting the books of account only on the basis of surmises and presumptions – Whether the assessee is required to deduct TDS u/s 194C.
Reported in (2011) 005 TaxCorp (A.T.) 25068 (DELHI)



20. M/s NAGESH CONSTRUCTION (P) LTD vs ITO
Dated : 29 April 2011
S. 40(a)(ia), 144 – Whether TDS provisions are applicable where the outside job work charges are incurred on account of wages and site expenses.
Reported in (2011) 005 TaxCorp (A.T.) 25054 (DELHI)



21. NAYAK AND CO vs ACIT
Dated : 28 January 2011
S. 40(a)(ia), 194C – Whether TDS liability arises even if there is no contract between the assessee and the transporters which were arranged by consignors - Whether TDS u/s 194I is to be deducted on cold storage rental charges or u/s 194C.
Reported in (2011) 005 TaxCorp (A.T.) 24879 (KOLKATA)



22. CIT vs D RATHINAM
Dated : 01 February 2011
S. 40(a)(ia), 194C, 194I - Whether when Sec 194I came into being only from 2007, putting TDS liability on hiring of machinery, Revenue is right in insisting on tax deduction at source on miller and road roller charges for the prior period.
Reported in (2011) 005 TaxCorp (DT) 48347 (MADRAS)



23. M/s MATRIX GLASS AND STRUCTURES PVT LIMITED vs ITO
Dated : 28 January 2011
Section 40(a)(ia), 40A(3), 43A, 194C - Whether provisions of section 194C apply in cases where payments have been made to the truck owners for carrying goods - Whether provisions of section 40(a)(ia) are applicable only when amounts of expenses stand paid and not payable.
Reported in (2011) 005 TaxCorp (A.T.) 24629 (KOLKATA)


24. DCIT vs M/s INDRAPRASTHA POWER GENERATION CO LTD
Dated : 18 April 2011
S. 40(a)(ia), 139(1), 143(3), 271(1)(c) – Whether tax deducted at source from payments in March, but not deposited within the specified date would attract penalty or fall within the ambit of the retrospective amendment of 40(a)(ia)
Reported in (2011) 005 TaxCorp (A.T.) 25040 (DELHI)


25. Raja & Co. v. Commissioner of Income-tax (Central)
S. 40(a)(ia), r.w.s 263 - Interest, commission, etc., paid without deduction of tax at source - Assessment years 2005-06 and 2006-07. Whether since assessee had not deducted any tax at source while making payments to transport contractors, impugned order of Commissioner issued under section 263 for considering disallowance under section 40(a)(ia)
Reported in (2011) 005 TaxCorp (DT) 48858 (KERALA)

Merely because shares transferred by a NR (transferor-company)other NR

 

IT/ILT : [2011] 13 taxmann.com 26 (DELHI)
IT/ILT : Merely because shares transferred by a non-resident (transferor-company) to another non-resident company relate to an Indian company, that would not make that Indian company as agent under section 163 qua deemed capital gain purportedly earned by transferor-company -resident company relate to an Indian company, that would not make that Indian company as agent under section 163 qua deemed capital gain purportedly earned by transferor-company 

NO PENALTY IN CASE OF CONTENTIOUS ISSUES.

NO PENALTY IN CASE OF CONTENTIOUS ISSUES.


Complexity in legal provisions and tax laws:

Unfortunately laws are generally complex and require lot of studies to understand them .Even after proper understanding there can be mistake in understanding. Legal provisions are manmade and are dependent on who made them, who read them and who is ultimately interpreting them. Legal provisions are not like mathematics or natural science in which one can get a perfect answer. Understanding of law can be influenced even according to the person for whom a law is being read. For example, a petitioner will try to interpret law in his favor and the respondent in the same case will try to read it in his favor. We find difference of opinion between two judges so the matter is referred to larger bench. We find difference of opinion amongst Tribunal and Courts and due to such differences matter s are dragged in litigation. Even at the level of the Supreme Court we find many times different opinions amongst judges. In such cases majority prevails.

In case of tax Laws we find that they are much more complex than general laws. This is for the following reasons:

There are many amendments in tax laws. As a routine we find one occasion of amendment through the Annual Finance Act and then there are many other amendments through other amending enactments. Then we find changes in legal provisions due to changes in Rules, clarifications and decisions of authorities and Courts.

Even after judgment of the Supreme Court, many times doubts are expressed about correctness of judgment by other benches, and it may be reviewed by a larger bench of the Supreme Court. Amendment of law after pronouncement of judgment by the Supreme Court or High Courts to nullify the judgments is also a regular feature and unfortunately Courts are also allowing such amendments even with retrospective effect. Therefore, it can be said that the laws are not only complex but are also uncertain. This is very unfortunate aspect of our legislation system.

Recent case in relation to Central Excise Duty:

In the case of Uniflex Cables Ltd. vs. C.C.E. matter came before the Supreme Court about penalty on a demand which arose on a contentious issue. The Supreme court held that undoubtadely the issue is contentious or of interpretational nature. In such case penalty cannot be levied. The supreme Court found that in this case the Commissioner himself has found and recorded in his order-inoriginal that the issue involved in the case is of interpretational nature. Keeping in mind the same the Commissioner thought it fit not to impose harsh penalty and a penalty of an amount of Rs. 5 lakhs was imposed on the appellant while confirming the demand of the duty.

An appeal under Section 35-L (b) of the Central Excise Act, 1944 (the Act'), was preferred against the Judgment and Order no A/1326/WZB/2005/C-iii dated 7.7.05 in Appeal No. E/1893/01, passed by the Customs, Excise and Service Tax Appellate Tribunal, West Zonal Branch, Mumbai.

Analysis of facts:

The appellant is engaged in the manufacture of insulated wires and cables falling under Central Excise Tariff Sub‑Heading No.8544.00.
The appellant had received orders from various wind mill manufacturers for specially designed electrical cables, which were to be used in the manufacture of wind mills.
Notification no. 205/88 – C.E. dated 25.05.88 as amended by Notification no. 57/95 grants exemption from payment of central excise duty in respect of manufacture of wind mills, parts of wind mills and any specially designed devices which run on wind mills.
The appellant claimed benefit under said Notification and claimed exemption from payment of central excise duty in respect of specially designed cables manufactured and supplied to wind mills manufacturers by considering the cable as , parts of wind mills
The appellant filed a declaration under Rule 173-B of the Central Excise Rules, 1944 claiming nil rate of duty so as to avail benefit under the aforestated notification for the insulated cables manufactured by it and supplied to the manufacturers of wind mills for using the same as part of wind mills for the period commencing from May, 1995 to February, 2006.
The appellant also reversed the modvat credit taken on inputs for Rs. 16,14,088.32 for availing the exemption benefit under notification no. 205/88. The appellant did not pay excise duty in accordance with the declaration filed by it.
For nonpayment of duty as stated above, three show cause notices had been issued to the appellant by the Revenue -Authorities for recovery of total excise duty amounting to Rs. 66,92,604/-. The revenue took view that the electric cables were neither parts nor specially designed devices, which were necessary for manufacturing or running wind mills. Therefore, according to the authorities, benefit under the said notification could not have been availed by the appellant.
Ultimately, the Commissioner, Central Excise, Surat – II by an order dated 20.2.1998, confirmed the demand of excise duty amounting to Rs. 66,92,604 and imposed penalty under Rule 173Q(1) of the Rules. The said order was challenged before the Tribunal and the Tribunal allowed the appeal by remanding the matter to the Commissioner. After hearing the appellant, the Commissioner again took the same view by his order dated 22.3.2001.
Again the appellant preferred an appeal before the Tribunal which was dismissed. The Tribunal relied on its earlier order passed in NICCO CORPORATION LIMITED v. COMMISSIONER OF CENTRAL EXCISE, CALCUTTA, whereby an analogous issue was adjudicated and decided against the concerned assessee. Aggrieved by the said order dated 7.7.2005, the appellant has preferred the appeal before the Supreme Court.
In case of NICCO CORPORATION LIMITED (supra) ultimately the Supreme Court has vide its order dated 22.3.06 dismissed the appeal and held that insulated electrical cables designed for use in wind mills would not be eligible for exemption under notification no 205/8 8 as amended vide Nicco Corporation Ltd. v. Commissioner of Central Excise, Calcutta 2006 -TMI - 722 – (SUPREME COURT OF INDIA)
During the pendency of the proceedings, the Authorities had issued a notice of demand directing the appellant to pay central excise duty and penalty amounting to Rs. 1, 33, 85,208.
The amount of penalty was not paid as stay has been granted against the said demand.
The Supreme Court heard the learned counsel appearing for the concerned parties. It was mainly submitted on behalf of the appellant that the electrical cables supplied to the manufacturers of wind mills were specifically designed for use in wind mills. They were special type of cables, without which the wind mills could not have been operated and, therefore, the revenue authorities ought to have granted exemption as stated in the notification referred to hereinabove. The learned counsel appearing for the appellant gave details as to how the electric cables were specially used for running the wind mills. He further stated that without use of the electric cables supplied by the appellant, functioning of the wind mills would not have been possible. He, therefore, submitted that the appellant ought to have been given the benefit of the notification referred to hereinabove.
Shri H.P. Raval, learned Additional Solicitor General appearing for the respondent-authorities relied upon the judgment delivered in Nicco Corporation Ltd. v. Commissioner of Central Excise, Calcutta (supra) and submitted that the electric cables manufactured and supplied by the appellant were not so indispensable that without which the wind mills could not have been operated. He further submitted that for the reasons recorded in the order passed by the Tribunal, the appellant is not entitled to exemption. He further submitted that the order imposing penalty is also just and proper as the appellant deliberately did not pay excise duty payable by it. Thus, he submitted that the impugned order is just and proper and, therefore, the appeal deserves to be dismissed.
Issues considered by the Supreme Court:

Suprem Court considered that two issues arise for adjudication:

1. Whether the insulated electrical cables manufactured by the appellant would be eligible for exemption under the above mentioned exemption notification.

2. Whether imposition of penalty is justified in view of the facts and circumstances of the case.

The first issue is no more res integra in view of the judgment delivered by this Court in the case of Nicco Corporation Ltd. v. Commissioner of Central Excise, Calcutta (supra). The facts in the said case as well as in the present case are similar and, therefore, we need not consider the said issue again. In the circumstances, the first issue is decided in favour of the Revenue.

As regards the imposition of penalty, The supreme Court opined that the said order cannot be justified in the facts of the case because the Commissioner, himself in his order-in­original has stated that the issue involved in the case is of interpretational nature. Keeping in mind the said factor, the Commissioner thought it fit not to impose harsh penalty and a penalty of an amount of Rs. 5 lakhs was imposed on the appellant while confirming the demand of the duty.

About facts it is also evident from the said order that the Commissioner also found that except for the statement of the Excise Executive Director and Excise Clerk of the assessee company there was no other evidence pointing out any accusing finger at them in dealing with offending goods knowingly.

A clear finding has been recorded by the Commissioner that it was difficult to hold that the appellant knowingly dealt with excisable goods which were cleared without payment of duty. Nor the department itself took it as a formal case of offence.

On consideration of the aforesaid facts and also the fact that the Commissioner himself found that it is only a case of interpretational nature, The Supreme Court held that

"in our considered opinion, no penalty could be and is liable to be imposed on the appellant herein".
"therefore, in the facts and circumstances of the present case we are of the view that penalty should not have been imposed upon the appellant".
Consequently, we quash the order of the Commissioner imposing penalty as also the order of the Tribunal so far as it confirms imposition of penalty upon the appellant.
Learning from the judgment:

Author will try to write another article on the issue of specially designed cables. Prima facie it appears that the case of specially designed cable was not properly prepared. This is because cables as such , even if specially designed or prepared cannot be considered as a component or part of component of any machine. However, a set of cables and fittings to serve circuiting and controlled electrical movement can definitely be considered as components or accessories of any machine. Therefore, apparently the case was considered by manufacturers of cable in a very simple manner to treat cables as component of wind mills.

Whenever, there is a contentious issue, it is always desirable that the basis of treatment given should be disclosed, and for the adopted basis, there should be technical reports about facts and circumstances , technical and legal opinion should also be obtained from experts, if any order passed in any case, even by lower ranking authorities is available, that can also be relied on. These will make that one has taken proper care and found his basis of claim on certain contentions which are possible contentions. This situation will definitely help in waiver of penalty.

When assessee transfers brand, trademark and other interests in a

Whether when assessee transfers brand, trademark and other interests in a health periodical, held as intangible assets, profits arising out of such transactions are to be treated as capital gains or business income - capital gains, says HC

THE issue before the HC is - Whether when assessee transfers brands, trademark and interests in a health periodical, held as intangible assets, the profit arising out of such transaction is to be treated as capital gains or business income. The HC's answer is capital gains.

Facts of the case

Assessee is a private limited company engaged in the business of Healthcare, print media & electronic media communications – it entered into an 'Specified Assets Transfer Agreement' with one `CMPIPL' for the sale of all its rights, titles and interest in specified assets of its Healthcare Journals & Communications business for a consideration of Rs. 3.80 crores – these assets were (a) the periodicals (b) the products (c) the business intellectual property rights along with the goodwill and all rights (d) the customer database (e) the records (f) the editorial materials & (g) the contracts – pursuant to the agreement, two separate deeds namely 'Deed of Assignment of Copyrights' & 'Deed of Assignment of Trademarks' were executed on the same date and the assessee also assigned the copyrights and trademarks pertaining to its Healthcare Journals & Communication business – it also relinquished its right to carry on any business involving, relating to or competing with the transferred specified assets – however, it retained a limited & non exclusive right to use the pharmaceuticals companies solely for the purpose of its clinical trials business and for no other purpose – assessee offered the said amount as long term capital gain – In assessment proceedings, the assessee submitted that all the journals were initiated by the company itself and were not in existence earlier, these journals were registered with the Registrar of Newspapers of India - thus, the assessee was the owner of brand name of these journals which were also registered/indexed with Indian National Scientific Documentation Centre, Govt. of India and was the exclusive holder of copyrights and trademarks of all the journals – these were intangible assets u/s 55(2)(a), the cost of acquisition of which was `Nil' and the consideration received should be considered as long term capital gain.

AO observed as per the terms of the agreement that the assessee had not sold whole of its business but only surrendered it right regarding publications of journals and the `CMPIPL' granted the assessee a royalty free, non-exclusive license to use the data comprised of the advertisers and pharmaceutical companies which the assessee would use in respect of its clinical trials business. The agreement also contained a non compete clause. Thus, the AO considered that the income received would be treated as business income as per the provisions of Section 28 (va).

CIT (A) as well as ITAT allowed the appeal of the assessee and treated it as capital gain. ITAT held that the assessee company had wholly given up its right to carry on Healthcare Journals and Communications business for a specified period and there was no connection between the two businesses i.e. Business of Healthcare Journals & Communications was clearly a distinct and separate business as before sale of intangible like trademarks, brands, copyrights and goodwill. The assessee had lost the source of income and section 28(va) did not apply.

After hearing both the parties, the ITAT held that,

++ it is to be borne in mind that vide agreement entered into by the assessee in favour of M/s CMP Medica Pvt. Ltd, the assessee had sold/transferred the rights of trade mark, brands, copyrights etc. in the journals and publications which the assessee had. All the journals were registered with RNI. These publications were indexed by the INSDC and were also published as property of the assessee. The assessee also had copyrights therein. It cannot be disputed that trademarks/brands, copyright and good will constitute assets of the business and are profit earning apparatus. The 'right to carry on any business' has been recognized by the legislature as capital asset for the purposes of assessing and computing the capital gains as per Section 55 (2) (a). Once it is accepted that the brand names, trademark, copyright and goodwill in the aforesaid journals was sold/transfered by the assessee to the transferee, it would be a case of sale of capital asset and the gain therefrom would be computed as capital gain;

++ the assessee had sold and transferred permanently and forever all its existing assets and contracts of the Healthcare journals and Communication business in terms of the agreement. The consideration was not received only for giving up the right to carry on the Healthcare Journals & Communications business but was mainly for the transfer of all intangible assets being trademarks, brands, copyrights and the associated goodwill of the Healthcare journals & communications business. In respect of journals etc. published, the assessee had Statutory Title Clearance from the office of the Registrar of Newspapers for India, all the publications were registered with RNI, appellant had also filed "from B' declaration before the DCP (Licensing), Delhi, the publications were indexed by INSDOC and all these publications had a copyright declaration which proves the authenticity of the appellant's claim of the assets being in the nature of intangible capital assets of business;

++ the clinical trial business which the assessee continues to carry on was distinct and separate from the business of Healthcare Journals and Communication. As far as Healthcare Journal and Communication business is concerned, it had been given up in entirety in favour of the transferee. Therefore, it could not be said that the assessee had given up only one of the activities in relation to its business. Thus, the proviso to Section 28(va) becomes applicable which stipulates that Section 28 (va) was not applied to any sum received on account of transfer of right to carry on any business which is chargeable under the head "capital gains";

++ further the agreement was captioned as "Specified Asset Transfer Agreement" which defines "Business" to mean the business of publishing, distributing and selling the periodical and products as carried on by the seller. All these publications were termed as "Business Intellectual Property Rights" which were treated as "Specified assets". So much so, the "Customer Data Base" held by the assessee was also shared with the transferee. Thus, there was a clear transfer of the exclusive assets and on transfer it is the transferee who had become the sole and undisputed owner of these assets which were the business assets of the assessee.

SC issues notice to Citibank on petition filed by I-T deptThe Supreme Court has

 

SC issues notice to Citibank on petition filed by I-T dept
The Supreme Court has issued notice to US-based Citibank on a petition filed by the income tax department alleging that the bank was liable to pay more than R59.19 crore as tax during 1991-92 for violating the RBI guidelines on Portfolio Management Scheme (PMS). A bench headed by Chief Justice SH Kapadia has sought reply from the bank on the issue. Under the PMS, the bank received money from customers and invested the same in shares, debentures, public sector bonds, securities, and so on. The investment was made for and on behalf of the customers. The role of the bank was purely custodial and managerial. The bank earned commission, fees and service charges for managing PMS on behalf of its customers. The RBI had issued guidelines for the proper management of the scheme and for acceptance of funds by the bank from time to time. Under the scheme, money has to be placed by the customer for a certain period of time. Challenging the Bombay HC judgment that dismissed its plea for delay, the revenue department said that the high court failed to consider that the income on account of the so-called portfolio account holders (PAH) was nothing but a deposit taken. "As per the RBI guidelines, certain maximum amount of interest was only permitted on the deposits. Any excess payment has not legally been permitted and, therefore, all the income of the company from portfolio management has to be treated as the income of the company against which payment of interest to the various so-called PAH was to be allowed subject to the maximum of the right permitted by RBI," the petition stated. According to the revenue department, the bank had collected substantial amounts from corporate under PMS in violation of the RBI guidelines. In view of such alleged violations , an addition of R54.77 crore was made by the assessing officer in respect of such PMS transcations. However, Income Tax Appellate Tribunal, in appeal by the bank, had allowed the assessee's appeal related to the addition on the PMS account by holding that the question of disallowance would arise only were either such loss or expenditure was claimed in profit and loss account or in computation in income and not otherwise. Besides, the tribunal also allowed the assessee's claim in respect of bad debts on the grounds that such debts were written off in its books of accounts.

ITR (Trib) HIGHLIGHTS ISSUE DATED 05-09-2011 Volume 11 Part 2

ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS

ISSUE DATED 05-09-2011

Volume 11 Part 2

APPELLATE TRIBUNAL ORDERS

- >>Non-availability of creditor and lack of any correspondence with them will not obliterate debt, debts subsisting, ss. 41(1) and 28(iv) not applicable : Kaps Advertising v. ITO (Delhi) p. 113

- >>Capital gains : Cost of acquisition would be market value of lease rights for sixty years as on date of lease : Atul G. Puranik v. ITO (Mumbai) p. 120

- >>Valuation of land based on past payments to prospective sellers before purchases fructified, penalty cannot be levied u/s. 271(1)(c) : S and S Foundations P. Ltd. v. Asst. CIT (Chennai) p. 136

- >>Rectification of mistake : Power to rectify only to determine sum payable by or refund due to assessee on basis of returned income : Anshul Singal v. Asst. CIT (Delhi) p. 143

- >>Loss on account of transaction in derivatives in accounting year relevant to AY 2005-06, speculative loss : ITO v. TCFC Finance Ltd. (Mumbai) p. 153

- >>Splitting of expenditure on basis of turnover justified : ITO v. TCFC Finance Ltd. (Mumbai) p. 153

- >>Provision for diminution in value of asset to be added to book profit : ITO v. TCFC Finance Ltd. (Mumbai) p. 153

- >>Assessee not guilty of furnishing inaccurate particulars of income in respect of debatable claim, penalty cannot be leviable : Asst. CIT v. Perfect Forgings (Chandigarh) p. 166

- >>Where no material to show assessee received capitation fees, donations not taxable : Asst. CIT v. Balaji Educational and Charitable Public Trust (Madras) p. 179

- >>Trust running educational institutions and fulfilled all requisite conditions entitled to registration u/s. 12AA : St. Mary's Christian Charitable Trust v. ITO (Chennai) p. 205

MNCs Finding it Hard to Avoid Taxmans GlareThe leading trio of foreign IT firms

 

MNCs Finding it Hard to Avoid Taxmans GlareThe leading trio of foreign IT firms with a presence in India IBM, Accenture and Capgemini have 30% of their global workforce in the country, but record just 5% of their revenues from here. In 2009-10, the Indian subsidiary of France-registered Capgemini recorded a profit per employee of.Rs.1. 5 lakh about a third of TCS, the largest homegrown IT firm. Gaps like these which arise because of the discretion available to the foreign parent to price its transactions with its subsidiary, leading to under-reporting of revenues in India and thus tax avoidance are being examined with greater vigour by the Income-Tax Department. In 2010-11, the department forced the Indian arms of foreign companies to increase their revenues by.Rs.22, 800 crore. This amounts to a 130% year-on-year increase in transfer pricing adjustments, and almost equals the sum of all such adjustments since 2000-01, when India introduced transfer pricing rules. The spike reflects government posturing on transfer pricing, an active tax-avoidance channel for foreign companies. At a tax seminar nine days before Budget 2010, Finance Minister Pranab Mukherjee had said: The tendency to shift profit from India would be prominent as it is among the few countries exhibiting higher growth, leading to a greater opportunity for profitability than other countries. He added the department was going to crack down on such practices. Transfer pricing provisions are triggered when, say, IBM India provides services to its parent in the US. The basic premise of rules governing such transactions is that the price at which IBM India provides the service to its parent should be similar to what it would have charged an unrelated party. When companies undervalue related-party transactions, it is called mis-pricing. According to the department,Rs.22, 800 crore was the quantum of mis-pricing reported by multinationals in 2010-11. IT multinationals are reported to be the worst offenders. There is no firm estimate, says Rohan Phatarphekar, head of transfer pricing at KPMG. But IT and ITES (IT-enabled services) companies accounted for between one-third and half of these adjustments last year. - www.economictimes.indiatimes.com

Whether when assessee stands convicted for two AYs and complaint filed for 3rd u/s 276

 

Whether when assessee stands convicted for two AYs and complaint filed for third u/s 276B, any revision of compounding guidelines and intimation to assessee in this regard would mean that assessee is entitled to compounding even after complaint being filed - NO: Delhi HC

NEW DELHI, : THE issue before the Bench is - Whether when assessee has already been convicted for two AYs and the complaint filed for the third year u/s 276B, any revision of the compounding guidelines and an intimation to the assessee in this regard would mean that compounding is allowable even afer the compalint is filed. NO is the HC's answer.

Facts of the case

The Petitioner is the MD of M/s Anil Batra and Associates Private Limited. During the AY 1982-83, TDS by the company was deposited beyond the period prescribed by law. Similarly, during AY 1983-84 and 1984-85 also, the company deposited the tax beyond the period prescribed by law. That being so, the I.T Department filed complaints against the Company & Directors u/s 276B before the Court of CMM for all the three A.Y. The complaint for the A.Y 1982-83 was still at trial stage. As regards the complaints for the years 1983-84 and 1984-85, the ACMM convicted the two Directors of the company. Against this order, the Department filed a revision petition for enhancement of sentence, and the petitioner has filed appeal against the conviction, both of which were pending before the Addl. Session's Judge, Delhi. Two months after the complaint was filed by the I.T Department the petitioner moved an application before the department for compounding of offence u/s 276B, which was rejected by the CBDT. On 29.07.2003, the CBDT issued a Circular whereby Guidelines for Compounding were reviewed in the light of past experiences and future needs. The petitioner received a letter dated 25.09.2003 and copy of guidelines. The petitioner replied the same vide letter dated 29.09.2003, expressing his willingness to compound the offence and requesting the Department to communicate the amount of compounding fees so that the same could be deposited at the earliest. The petitioner, however, received no reply from the department in this regard. The petitioner thereafter filed two petitions before this court. This court disposed of the same with observation regarding compounding of offence. However, the competent authority vide its detailed order rejected the compounding petition of the petitioner.

Before the HC the petitioner contended that the CCIT was under an obligation to compound the offence in view of the order dated 28.07.2005 passed by this Court directing the CIT to adjudicate as to what amount was payable by the petitioner. He also contended that in view of the amended guidelines, the offences being technical in nature were eligible for compounding. He also contended that the proceedings for compounding of offence were proposed by the respondent itself vide its letter dated 25.09.2003. On the other hand, respondent counsel submitted that the offences were not compoundable since the complaints had already been filed against the petitioner and in two of those the petitioner stood convicted by the competent court.

On appeal, the HC held that,

++ with regard to the contention of the Petitioner's counsel that the CCIT has violated the order dated 28.07.2005 in failing to comply the terms and adjudicate as to the amount of compounding fee, it is seen that this order came to be passed by this Court on the submissions made by Petitioner counsel for the petitioner that the TDS amount has already been deposited and that the petitioner was ready and willing to deposit any additional cost and compounding fee that may be imposed. That order cannot be construed to mean that the terms were to be effected and compounding fee charged, even if the offence was not compoundable. The order also states that the Commissioner is to pass appropriate orders regarding compounding of the offence. This cannot be interpreted to mean that the Commissioner was directed to compound the offence without considering if the same was compoundable or not;

++ letter dated 25.09.2003 was nothing more than intimation to the petitioner regarding revision of guidelines for compounding of offences. The interpretation of the Clause as presented by Petitioner counsel is erroneous and misplaced. The plain and literal interpretation of the Clause would only mean that the amendments made in the existing guidelines on 29.07.2003 would be applicable to the future as well as to the cases pending at any stage and that the offences already compounded shall not be reconsidered. In other words it would mean that it was the applicability of the amendments to the future as also to the cases pending and not that the compounding would be allowed even after the filing of the complaint or where the person has already been convicted by a competent court. The conditions stipulated for compounding of a technical offence being very clear and unambiguous, compounding of such an offence was not permissible after filing of the complaint. Undisputedly, three complaints have already been filed against the petitioner and in two of those, the petitioner stands convicted by the competent court. The revisions for enhancement of punishment have been filed by the Department and the appeals against the conviction have also been filed by the petitioner. Those revisions and the appeals are pending before the Appellate Court. One of the complaints is also still pending trial before the ACMM. That being the factual matrix, offence could not be said to be compoundable at this stage. In that fact situation, the competent authority was not bound to effect compounding in violation of the mandatory prohibitions prescribed therefor. In view of all this, no directions can be given by this Court to the competent authority to affect compromise or adjudicate compounding fee. 

Where assessee invested its own funds in shares which were held by it for a

 

IT : Where assessee invested its own funds in shares which were held by it for an average period of 300 days and, moreover, those shares were shown as investment in books of account, it was to be held that transactions in shares were made by assessee as an investor and, thus, profit earned from sale of shares was to be treated as capital gain

[2011] 12 taxmann.com 321 (Mum. - ITAT)

IN THE ITAT MUMBAI BENCH 'E'

Deputy Commissioner of Income-tax, 8(3), Mumbai

v.

Securities Capital Investment India Ltd.*

P.M. JAGTAP, ACCOUNTANT MEMBER
AND VIJAY PAL RAO, JUDICIAL MEMBER
IT APPEAL NO. 211 (MUM.) OF 2010
[ASSESSMENT YEAR 2006-07]

Whether when donor has capacity to borrow funds, not based only on annual

Whether when donor has capacity to borrow funds, not based only on annual income but also total assets owned, genuineness of gift cannot be doubted - Delhi HC grants major relief to Mayawati

NEW DELHI: THE questions before the Bench are - Whether when donor has the capacity to borrow funds, not based only on annual income but also the total assets owned, the genuineness of gift cannot be suspected and whether a gift is to be treated as genuine when the assessee discharges the onus cast on it for proving the identity, creditworthiness and relationship of the donor and the donee. And the verdict goes in favour of the assessee.

Facts of the case

The Income Tax return for the Assessment Year 2003-04 was filed by the assessee on 06.08.2003 declaring total income of Rs.13,29,090/-. The Assessee earned income from salary, house property and other sources. The AO, on perusal of the return, found that during the year under consideration, the assessee had received gifts from the certain persons vide cheques and also received immovable assets from Ashok Jain and Veena who were the husband and wife. Pankaj Jain, from whom the assessee received the cheque of Rs. 200000/- was nephew of Ashok Jain. Ashok Jain was an Advocate by profession and Pankaj was a practicing Chartered Accountant and a partner of M/s P.Jain & Co.

The AO wanted to examine the genuineness of the aforesaid gifts. For this purpose he summoned the donors. He recorded the statement of Veena Jain on 26.12.2004. The AO recorded his observation on the creditworthiness, it was seen that she herself had taken loan for purchase of property as she was not having sufficient funds for this purpose. She had sold her jewellery for purchase of the house. Therefore, he opined that the creditworthiness of the donor was not proved.

Summons u/s 131 of the Act was issued to Ashok Jain. In compliance, Ashok Jain, Advocate appeared before the AO and his statement was recorded by him. The AO observed that there was no relation between the donor and the donee and the genuineness and creditworthiness was not proved.

The AO also recorded the statement of Pankaj Jain. After going through the facts, he found that during the Assessment Year 2003-04 he had gifted a sum of Rs.17 lacs to her and the family members of the assessee. He had also made gift of Rs.2 lacs in the Assessment Year 2000-01 and in the Assessment Year 2004-05 made a gift of Rs.5 lacs to the assessee. As observed by the Assessment Officer that the entire case made by him was out of amount received from M/s Blue Bell Finance Co.

The AO recorded in his assessment order that it was surprising that the assessee had gifted the amount out of loan taken from this concern M/s Blue Bell Finance Co. Since there was no occasion for making the gift; the gifted amount was more than the income of the assessee; that there was no relation between the donor and the donee, and the AO held that it was only an arranged gift and an accommodation entry.

In nutshell the AO did not accept the claim of the assessee in respect of the two immovable properties namely C-57, Inderpuri, New Delhi and C-58, Inderpuri, New Delhi and added the same to the income of the assessee u/s 69 of the Act. He also did not accept the gift of Rs.2.00 lac of Pankaj Jain and made addition of this amount also to the income of the assessee u/s 69 of the Act. In the final assessment order dated 30.03.2006, total income of the assessee was assessed at Rs.79,03,390/-.

The assessee preferred an appeal against the above order passed by the AO. As regards applicability of Section 69, the CIT (A) was of the opinion that it was not the assessee who had made the investment. The donor had paid the stamp duty twice, the assessment of the donor had not been disturbed, and the donor and donee both accepted the factum of gift. Further the gift was also evidenced by documentary evidences like gift deeds, sworn affidavits, declaration before AO etc. The donor also gave an explanation for immediate source of gift. Therefore, keeping the aforesaid discussion into view the CIT (Appeal) was of the opinion that the donee had discharged not only the burden but also the onus cast on her. Accordingly, the addition of Rs. 40,68,450/- was deleted.

As regards the gift of property No. C-58, Inderpuri, the CIT(A) did not agree with the assessment order passed by the AO and addition made by the AO of Rs.22,03,850/- was deleted. The basis of this conclusion were almost as in the case of gift made by her husband Ashok Jain regarding the property No. C-57, by Ashok Jain.

As regards the gift of Rs. 2 lacs received by the assessee from Pankaj Jain by provision he was a Chartered Accountant and assessed to tax since last so many years. The CIT (A) found that he had placed details of his income tax assessment and bank account and also filed affidavit certifying the above gift. He appeared before the AO for statement on oath where he confirmed giving the gift. He also established that he had been meeting the assessee, and his family members on family functions since so many years. The CIT (A) also found that the gift vide A-C payee cheque no. 17186 dated 17.12.2002 drawn on Andhra Bank for Rs. 2 lacs.

The CIT (Appeal), thus, accepted the genuineness of gift inasmuch as the identity and capacity of the donors were proved and came to the conclusion that factum of gift stood established. He thus, partly allowed the appeal of the assessee. The ITAT confirmed the order of the CIT(A).

On further appeal, the High Court held that,

++ there is substance in the contention of the counsel for assessee that there are pure findings of facts recorded by the two authorities below on the basis of evidence adduced which was sufficient to discharge the onus as well as burden caused upon her by proving the identity of donors, their creditworthiness as well as genuineness of the gifts. It has been established that the assets of Ashok Jain as on 31.03.2003 including movable/ immovable assets were of Rs.1.25 crores, whereas the liability owned by Ashok Jain was only Rs.11.88 lacs less Rs.10.78 lacs. Keeping the assets owned by Ashok Jain, the court was of the considered view that he had the capacity to make gifts in question. Therefore, there is no force in the arguments of the ASG that Ashok Jain had no capacity to do the same;

++ further in the case of Veena Jain, details of assets proved on record show that the total assets of Veena Jain were of Rs.1.34 crores & the liabilities were only of Rs.2.11 lacs. We have perused the assets owned by Mrs.Veena Jain and found that she had capacity to borrow first, and then to gift as per her desire. The capacity does not mean what you are earning monthly or annually. The capacity includes how much total assets a person owns. So is the case of Veena Jain here, she had an asset of Rs.1.34 crores, definitely could borrow Rs.20 or 25 lacs easily. Second plea regarding Veena Jain is that if a person buys any property for her personal use, she will definitely not make the gift for the same. Here on perusal of the record it is revealed that she has stated before the Department that the assessee is a Rakhi sister of her husband and she is great admirer of the assessee because she is working for the upliftment of the down trodden and poor persons of the society. Sometimes a person does not have to be related to a particular trust or a charitable institution, but in their view that trust or institution is doing a great service to the particular section of the society. Therefore, there is no force in the arguments advanced by the counsel for the Revenue. Further, it is also not necessary that a person should be a habitual donor. It depends from person to person, thinking to thinking and situation to situation. Sometimes a person keeps donating throughout their life and sometimes he donates once and sometimes during the last stage of his life. Therefore, the arguments advanced by the counsel for the Revenue cannot be agreed with;

++ counsel for the Assessee has vehemently argued that the Revenue has relied upon the judgments not relevant in the facts and circumstances of the instant case. In the case of Sajan Dass and Sons vs. Commissioner of Income-Tax, the donor was not found related to the assessee, however, in the present case the donors have 15 years old relationship with the assessee as has been proved by the evidence, affidavits on oath and photographs. Therefore, the aforesaid case does not hold for the Revenue Department;

++ another case of Anil Kumar (2007-TIOL-210-HC-DEL-IT) has also no relevance because in the said case the assessee was asked to explain the capacity and genuineness of the donor, however, the assessee did not appear before the Department. But, in the present case the assessee herself submitted all the relevant documents before the Revenue. That apart, all the donors appeared, confirmed and filed affidavits on oath. Therefore, this case of Anil Kumar is not relevant in the present situation;

++ so is the case of Rajeev Tandon (2007-TIOL-413-HC-DEL-IT) wherein, the donor was complete stranger, but in the present case all the donors have 15 years old relationship with the assessee as has been proved by evidence, documents and their statements;

++ all the donors appeared before the Department, submitted material including affidavits on oath, confirms the gifts made, established their old relations with the assessee and proved their capacity to make the gifts. We have noted that in earlier years also they had made gifts to the assessee and her family members, which were accepted by the Revenue. We have also noted that two gifts made by Ajay Aggarwal and O.P.Khadaria, Advocate were of Rs.10 lacs and Rs.1 lac respectively have been accepted by the Department. The donors are persons of sufficient means. The assessee has fully discharged her legal obligations by disclosing the identity of all the donors. Further, donors have proved their genuineness and capacity to make a gift. All assessee as well as the donors had appeared before the Registrar and the gifts are duly registered. All gifts are absolute and without any lien of anyone. There is no evidence on record to prove that the assessee has favoured the donor in any manner whatsoever by acquiring the gifts in question. The capacity of any person does not mean how much they earn monthly or annually, but the term capacity has vided term and that can be perceived by how wealthy he is. All the formalities, as per law are met by the assessee and donors as well. All the donors have admitted that they are great admirer of the assessee as she is working for the upliftment of poor people;

++ the issue raised by the Revenue in the instant appeal cannot be said to involve any question of law, much less a substantial question of law. A question of fact becomes a question of law, if the finding is either without any evidence or material, or if the finding is contrary to the evidence, or is perverse, as was held in the case of Mahavir Woolen Mills;

++ in the light of above facts and circumstances, no substantial question of law arises from the instant appeal. Therefore, the judgment passed by the ITAT was confirmed and the instant appeal of the Revenue was dismissed.