PFA
Incomes, which are deemed to accrue or arise in India - CBDT Clarification
AS per Section 9(1)(i) of the Income Tax Act, the following incomes shall be deemed to accrue or arise in India:-
all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India .
The Finance Act, 2012 inserted Explanation 5 to clause (i) of sub-section (1) of section 9.
This explanation reads as under:-
Explanation 5: For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.
It seems several doubts were raised about this new explanation.
Whether:
1. the purpose of introduction of Explanation 5 was to clarify the legislative intent regarding the taxation of income accruing or arising through transfer of a capital asset situate in India.
2. the Explanation applies to the transactions not resulting in any transfer, directly or indirectly of assets situated in India.
CBDT Clarifies:
1. the amendment of section 9(1)(i) was to reiterate the legislative intent in respect of taxability of gains having economic nexus with India irrespective of the mode of realisation of such gains.
2. Thus, the amendment sought to clarify the source rule of taxation in respect of income arising from indirect transfer of assets situated in India as explicitly mentioned in the Explanatory Memorandum.
3. Viewed in this context, Explanation 5 would be applicable in relation to deeming any income arising outside India from any transaction in respect of any share or interest in a foreign company or entity, which has the effect of transferring, directly or indirectly, the underlying assets located in India, as income accruing or arising in India.
4. Declaration of dividend by such a foreign company outside India does not have the effect of transfer of any underlying assets located in India.
Board emphatically states that the dividends declared and paid by a foreign company outside India in respect of shares which derive their value substantially from assets situated in India would not be deemed to be income accruing or arising in India by virtue of the provisions of Explanation 5 to section 9 (1) (i) of the Act.
Though the amendment was to retrospectively nullify the Supreme Court judgement in the Vodafone case, many feared that it may affect several others in a different way, where dividends will get taxed.
Board has now clarified the issue.
PFA
Loan to Directors – Section 185by CA Sandeep Kanoi |
New Company law puts a complete prohibition on grant of loans to Directors and persons in which such directors are interested except a few exceptions. Further the section is applicable on all types of companies, be private or public. Section 185 prohibits the granting of loan or giving of guarantee or providing any security in connection with any loan taken by the director or such other person in which such Director is interested.
PFA
A Ready Reckoner on Bank Branch Audit 2014-15by CA Sandeep Kanoi |
Break Even Date for NPA is 01.01.2015 for the year 2014-2015. Once an account has been classified as NPA, all the facilities granted to the borrower will be treated as NPA except in respect of Primary Agricultural Credit Societies (PACS)/Farmers Service Societies (FSS).
AMT(ALTERNATE MINIMUMTAX) IS APPLICABLE FOR THE FIRM AND INDIVIDUAL FROM A.Y 2013-14.
TO AVOID THIS , BUILDERS MAKE PREPONED THEIR PROFITS AND BOOK THEM IN A.Y 2012-13 THOUGH REGISTRATION OF SALE DEED TAKES PLACE IN SOMETIMES IN A.Y.2013-14, 2014-15 ALSO.
INCOME TAX REPORTS (ITR)--PRINT AND ONLINE EDITION
Appeal to High Court --Appeal by Department--Company--Book profits--Computation--Tribunal holding provision towards unidentified third party motor accident claims ascertained liability and not to be included--No appeal preferred by Department from orders of Tribunal for earlier years--Rule of consistency--Appeal cannot admitted on same question for subsequent year--Income-tax Act, 1961, ss. 115JB, 260A-- CIT v. National Insurance Co. Ltd. (Cal) . . . 261
Bad debt --Non-recovery of advance to associate company--Finding that advance was in the course of banking business of assessee and non-recovery of advance was due to unforeseen circumstances--Amount not recovered deductible as bad debt--Income-tax Act, 1961, s. 36(1)(vii)-- DIT (International Taxation) v. Deutche Bank A. G. (Bom) . . . 252
Export --Exemption--Computation--Duty draw back--Includible--Entitled to exemption--Income-tax Act, 1961, s. 10B-- CIT v. Hritnik Exports Pvt Ltd. (Delhi) . . . 267
Income --Computation of income--Disallowance of expenditure relating to non-taxable income--Condition precedent for application of section 14A--Expenditure must relate to non-taxable income--Income-tax Act, 1961, s. 14A-- CIT v. Lakhani Marketing Incl. (P&H) . . . 246
Search and seizure --Block assessment--Assessment of third person--Assessing Officer not recording satisfaction before passing block assessment order in case of person in respect of whom search conducted--Assessment of third person under section 158BD not invalid--Income-tax Act, 1961, ss. 158BC, 158BD-- CIT v. Raghubir Singh Garg (Delhi) . . . 256
Business expenditure --Capital or revenue expenditure--Expenditure on replacement of membrane in cell plant--No evidence that membrane could be treated as a separate machine--Expenditure held to be of revenue nature in earlier years--Principle of consistency in tax matters--Expenditure deductible in assessment years 1999-2000 and 2000-01--Income-tax Act, 1961, s. 37-- CIT v. Gujarat Alkalies and Chemicals Ltd. (Guj) . . . 237
----State financial corporation--Guarantee commission paid to State Government--Commission paid for business purposes--Deductible--Income-tax Act, 1961, s. 37-- Andhra Pradesh State Financial Corporation v. Deputy CIT (Assessments) (T & AP) . . . 315
Cash credit --Failure by creditors to participate in inquiry and furnish accounts--Does not mean that creditors lacked identity--No material to show that amounts advanced by creditors in reality represented money belonging to assessee--Sums cannot be treated as cash credits--Income-tax Act, 1961-- CIT v. Chandela Trading Co. P. Ltd. (Cal) . . . 232
Charitable trust --Charitable purpose--Registration--Long delay by Commissioner in deciding application--Failure to consider within statutory period--Registration deemed granted--Income-tax Act, 1961, s. 12AA(2)-- Society for the Promotion of Education, Adventure Sport and Conservation of Environment v. CIT [Appendix] (All) . . . 222
----Charitable purpose--Registration--Period of six months provided in sub-section (2) of section 12AA for disposal of application--Not mandatory--Non-disposal of application, by granting or refusing registration, before expiry of six months--Does not result in deemed grant of registration--Income-tax Act, 1961, s. 12AA(2)-- CIT v. Muzafar Nagar Development Authority [FB] (All) . . . 209
Exemption --Educational institution--Assessee carrying on its activities of imparting education--Assessee not existing for the sake of profit-making--Government financing assessee to extent of twenty-five per cent.--Substantial finance--Assessee entitled to exemption--Income-tax Act, 1961, s. 10(23C)(iiiab)-- DIT (Exemptions) v. Dhamapakasha Rajakarya Prasakta B. M. Sreenivasaiah Educational Trust (Karn) . . . 307
----Manufacture and export of computer software--Meaning of manufacture--Preparation of data for printing amounted to manufacture--Assessee entitled to exemption under section 10B--Income-tax Act, 1961, s. 10B-- CIT v. Ms. Kiran Kapoor (Delhi) . . . 321
Income --Computation--Expenditure not incurred in relation to total income--Loss in purchase and sale of shares--No proximate cause for disallowance--Allowable as business loss--Dividend stripping--Provision against not applicable for assessment years prior to 2002-03--Income-tax Act, 1961, ss. 14A, 94(7)-- Patco Investment and Consultancy Services P. Ltd. v. Asst. CIT (Mad) . . . 195
----General principles--Avoidance of tax--Business--Business income--Scope of section 28(ii)--Sale of entire business--Two agreements on same day, one for sale of shares and another a non-compete agreement with managing director--Huge price paid for non-compete agreement was in reality for control of vendee company--Amount not assessable under section 28--Amount assessable in hands of erstwhile managing director as capital gains on sale of shares--Income-tax Act, 1961, s. 28-- CIT v. Shiv Raj Gupta (Delhi) . . . 337
Income from house property --Business income--Construction business--Assessee earning money by selling property and letting it out--Rental income--Assessee enjoying property by giving use of it to another on rent rather than enjoying it by itself--To be treated as income from house property--Income-tax Act, 1961-- Azimganj Estates P. Ltd. v. CIT (Cal) . . . 243
Income from undisclosed sources --Assessee purchasing shares and paying amount by cheque to share broker and amount credited to share broker--Bank account showing payment made to share broker after expiry of accounting year--Payment made by assessee fully supported by bank statement--Addition not sustainable--Income-tax Act, 1961-- CIT v. Chandela Trading Co. P. Ltd. (Cal) . . . 232
Interpretation of statutes --Purposive interpretation-- Society for the Promotion of Education, Adventure Sport and Conservation of Environment v. CIT [Appendix] (All) . . . 222
Interpretation of taxing statutes --Introduction of legislative fiction by court--Impermissible-- CIT v. Muzafar Nagar Development Authority [FB] (All) . . . 209
Investment allowance --Special deduction--Computation of special deduction under section 80HHC--Special deduction to be computed after setting off unabsorbed investment allowance--Income-tax Act, 1961, ss. 32A, 80HHC-- CIT v. V. M. Salgaonkar and Bros. P. Ltd. (Bom) . . . 248
Precedent --Effect of decision of Supreme Court in Asst. CIT v. A. R. Enterprises [2013] 350 ITR 489 (SC)-- CIT v. Shailendra Mahto (Delhi) . . . 257
----Effect of Supreme Court decision in Vodafone International Holdings B. V. v. Union of India [2012] 341 ITR 1-- CIT v. Shiv Raj Gupta (Delhi) . . . 337
Recovery of tax --Garnishee order--Appeal pending for more than a year before Commissioner (Appeals)--Stay application pending for four months--Recovery of sum from bank by garnishee notice--Not a case of sudden coercive action with suddenness--Department not entitled to adjust refund due to assessee without notice to it--Commissioner (Appeals) directed to dispose of appeal and stay application within six weeks--Income-tax Act, 1961-- Indian Chamber of Commerce v. DIT (Exemption) (Cal) . . . 228
Revision --Commissioner--Assessing Officer during assessment proceedings seeking details in respect of expenditure incurred for building brand--After examining details holding part alone was of capital nature--Assessing Officer’s order not erroneous and prejudicial to interests of Revenue--Revision on ground entire expenses for building brand capital in nature--Not justified--Income-tax Act, 1961, s. 263-- CIT v. Fine Jewellery (India) Ltd. (Bom) . . . 303
----Commissioner--Scrutiny assessment--Assessing Officer raising certain queries and assessee responding--Failure to discuss or mention this in assessment order--Revision on ground Assessing Officer did not apply his mind or that he had not made inquiry on the subject--Not justified--Income-tax Act, 1961, s. 263-- CIT v. Krishna Capbox (P.) Ltd. (All) . . . 310
Search and seizure --Block assessment--Assessment of third person--Satisfaction note recorded five months after date of completion of searched person--Notice issued to assessee immediately after recording satisfaction note--Sufficient compliance--Matter remanded to Tribunal for consideration of merits of additions--Income-tax Act, 1961, s. 158BD-- CIT v. V. K. Narang HUF (Delhi) . . . 333
----Block assessment--Search could be premises-based--Scope of Chapter XIV-B--Search of bank and discovery of accounts in names of four individuals--All four individuals claiming that amounts belonged to political party to which they belonged--No returns filed for relevant period by individuals--Tribunal wrong in holding that amounts could not be considered “undisclosed†within meaning of Chapter XIV-B--Matter remanded to Tribunal--Income-tax Act, 1961, Chapter XIV-B-- CIT v. Shailendra Mahto (Delhi) . . . 257
Unexplained investment --Cost of construction--Reference to Departmental Valuation Officer--Books of account furnished by assessee not rejected--No explanation called for from assessee stating that there was concealment or understatement of amount in books of account--Burden on Department to prove that there was understatement or concealment of income not discharged--Assessing Officer not empowered to refer matter to Departmental Valuation Officer--Income-tax Act, 1961, s. 69B-- Family of SP. S. S. SP. Subramanian Chettiar v. ITO (Mad) . . . 203
S. 10(23C)(iiiab) --Exemption--Educational institution--Assessee carrying on its activities of imparting education--Assessee not existing for the sake of profit-making--Government financing assessee to extent of twenty-five per cent.--Substantial finance--Assessee entitled to exemption-- DIT (Exemptions) v. Dhamapakasha Rajakarya Prasakta B. M. Sreenivasaiah Educational Trust (Karn) . . . 307
S. 10B --Exemption--Manufacture and export of computer software--Meaning of manufacture--Preparation of data for printing amounted to manufacture--Assessee entitled to exemption under section 10B-- CIT v. Ms. Kiran Kapoor (Delhi) . . . 321
S. 12AA(2) --Charitable trust--Charitable purpose--Registration--Long delay by Commissioner in deciding application--Failure to consider within statutory period--Registration deemed granted-- Society for the Promotion of Education, Adventure Sport and Conservation of Environment v. CIT [Appendix] (All) . . . 222
----Charitable trust--Charitable purpose--Registration--Period of six months provided in sub-section (2) of section 12AA for disposal of application--Not mandatory--Non-disposal of application, by granting or refusing registration, before expiry of six months--Does not result in deemed grant of registration-- CIT v. Muzafar Nagar Development Authority [FB] (All) . . . 209
S. 14A --Income--Computation--Expenditure not incurred in relation to total income--Loss in purchase and sale of shares--No proximate cause for disallowance--Allowable as business loss--Dividend stripping--Provision against not applicable for assessment years prior to 2002-03-- Patco Investment and Consultancy Services P. Ltd. v. Asst. CIT (Mad) . . . 195
S. 28 --Income--General principles--Avoidance of tax--Business--Business income--Scope of section 28(ii)--Sale of entire business--Two agreements on same day, one for sale of shares and another a non-compete agreement with managing director--Huge price paid for non-compete agreement was in reality for control of vendee company--Amount not assessable under section 28--Amount assessable in hands of erstwhile managing director as capital gains on sale of shares-- CIT v. Shiv Raj Gupta (Delhi) . . . 337
S. 32A --Investment allowance--Special deduction--Computation of special deduction under section 80HHC--Special deduction to be computed after setting off unabsorbed investment allowance-- CIT v. V. M. Salgaonkar and Bros. P. Ltd. (Bom) . . . 248
S. 37 --Business expenditure--Capital or revenue expenditure--Expenditure on replacement of membrane in cell plant--No evidence that membrane could be treated as a separate machine--Expenditure held to be of revenue nature in earlier years--Principle of consistency in tax matters--Expenditure deductible in assessment years 1999-2000 and 2000-01-- CIT v. Gujarat Alkalies and Chemicals Ltd. (Guj) . . . 237
----Business expenditure--State financial corporation--Guarantee commission paid to State Government--Commission paid for business purposes--Deductible-- Andhra Pradesh State Financial Corporation v. Deputy CIT (Assessments) (T & AP) . . . 315
S. 69B --Unexplained investment--Cost of construction--Reference to Departmental Valuation Officer--Books of account furnished by assessee not rejected--No explanation called for from assessee stating that there was concealment or understatement of amount in books of account--Burden on Department to prove that there was understatement or concealment of income not discharged--Assessing Officer not empowered to refer matter to Departmental Valuation Officer-- Family of SP. S. S. SP. Subramanian Chettiar v. ITO (Mad) . . . 203
S. 80HHC --Investment allowance--Special deduction--Computation of special deduction under section 80HHC--Special deduction to be computed after setting off unabsorbed investment allowance-- CIT v. V. M. Salgaonkar and Bros. P. Ltd. (Bom) . . . 248
S. 94(7) --Income--Computation--Expenditure not incurred in relation to total income--Loss in purchase and sale of shares--No proximate cause for disallowance--Allowable as business loss--Dividend stripping--Provision against not applicable for assessment years prior to 2002-03-- Patco Investment and Consultancy Services P. Ltd. v. Asst. CIT (Mad) . . . 195
Chapter XIV-B --Search and seizure--Block assessment--Search could be premises-based--Scope of Chapter XIV-B--Search of bank and discovery of accounts in names of four individuals--All four individuals claiming that amounts belonged to political party to which they belonged--No returns filed for relevant period by individuals--Tribunal wrong in holding that amounts could not be considered “undisclosed†within meaning of Chapter XIV-B--Matter remanded to Tribunal-- CIT v. Shailendra Mahto (Delhi) . . . 257
S. 158BD --Search and seizure--Block assessment--Assessment of third person--Satisfaction note recorded five months after date of completion of searched person--Notice issued to assessee immediately after recording satisfaction note--Sufficient compliance--Matter remanded to Tribunal for consideration of merits of additions-- CIT v. V. K. Narang HUF (Delhi) . . . 333
S. 263 --Revision--Commissioner--Assessing Officer during assessment proceedings seeking details in respect of expenditure incurred for building brand--After examining details holding part alone was of capital nature--Assessing Officer’s order not erroneous and prejudicial to interests of Revenue--Revision on ground entire expenses for building brand capital in nature--Not justified-- CIT v. Fine Jewellery (India) Ltd. (Bom) . . . 303
----Revision--Commissioner--Scrutiny assessment--Assessing Officer raising certain queries and assessee responding--Failure to discuss or mention this in assessment order--Revision on ground Assessing Officer did not apply his mind or that he had not made inquiry on the subject--Not justified-- CIT v. Krishna Capbox (P.) Ltd. (All) . . . 310
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