31 March 2012

CURRENT ACCOUNT DEFICIT DOUBLES TO $19.6 b in Q3

CURRENT ACCOUNT DEFICIT DOUBLES TO $19.6 b in Q3
Widening trade deficit and slowdown in capital inflows are weighing down India's key macroeconomic indicators.
The country's current account deficit (CAD) jumped to 4.3 per cent of GDP in the October-December 2011 period (Q3) against 2.3 per cent in the corresponding year-ago period.
Current account deficit occurs when a country's total imports of goods, services and transfers exceed exports, making it a net debtor to the rest of the world.
In absolute terms, the current account deficit has widened to $19.6 billion in the reporting Q3 against $10.1 billion in Q3 of 2010-11.
According to economists, a widening deficit will weaken the rupee which, in turn, will have an inflationary impact (India imports almost 80 per cent of its crude oil requirement).
The rupee has depreciated by about 13 per cent (or Rs 5.75) against the dollar between April 1, 2011 and March 30, 2012.
On Friday, the domestic currency closed at Rs 50.85 to the dollar.

BOP: Experiencing Stress

During Q3, India's balance of payments (the difference between the amount of exports and imports, including all financial exports and imports, by a country) was significantly stressed.
The Reserve Bank of India attributed the stress to widening trade deficit and capital inflows falling short of financing requirement, resulting in significant drawdown of foreign exchange reserves.
In the April-December 2011 period too current account deficit rose to 4 per cent of GDP (3.3 per cent in the April-December 2010 period) to $53.7 billion ($39.6 billion), RBI data on Balance of Payments showed.
The RBI said the rise in current account deficit in the first nine months of the current financial year reflects higher trade deficit on account of imports of petroleum, oil and lubricants, and gold and silver.
The Finance Minister, Mr Pranab Mukherjee, in his Budget speech had said that one of the primary drivers of current account deficit has been the growth of almost 50 per cent in imports of gold and other precious metals.
Dr Brinda Jagirdar, General Manager (Economic Research), State Bank of India, said: "Nothing much can be done to reverse the slowing exports as globally demand is falling. So, current account deficit can be tackled by making gold imports unattractive and by attracting foreign capital via external commercial borrowings and non-resident deposits."
Source: Business Line

30 March 2012

Clarification on POT


Circular No.154/5/ 2012 – ST

FNo 334/1/2012- TRU
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs
Tax Research Unit
Room No 146, North Block, New Delhi
Dated: 28th March 2012
To
Chief Commissioner of Customs and Central Excise (All)
Chief Commissioner of Central Excise & Service Tax (All)
Director General of Service Tax
Director General of Central Excise Intelligence
Director General of Audit
Commissioner of Customs and Central Excise (All)
Commissioner of Central Excise and Service Tax (All)
Commissioner of Service Tax (All)

Madam/Sir,

Subject: - Clarification on Point of Taxation Rules - regarding.
      
1.             Notification No.4/2012 - Service Tax dated the 17th March 2012 has amended the Point of Taxation Rules 2011 w.e.f. 1st April 2012, inter- alia, amending Rule 7 which applied to individuals or proprietary firms or partnership firms providing taxable services referred to in sub-clauses (g), (p), (q), (s), (t), (u), (za) and  (zzzzm) of clause (105) of section 65 of the Finance Act, 1994. Rule 7 determined the point of taxation in such cases as the date of receipt of payment. The provisions have been amended both in the Point of Taxation Rules 2011 and the Service Tax Rules 1994 such that from 1st April 2012 the payment of tax shall be allowed to be deferred till the receipt of payment upto a value of Rs 50 lakhs of taxable services. The facility has been granted to all individuals and partnership firms, irrespective of the description of service, whose turnover of taxable services is fifty lakh rupees or less in the previous financial year.

2.            Representations have been received, in respect of the specified eight services, requesting clarification on determination of point of taxation in respect of invoices issued on or before 31st March 2012 where the payment has not been received before 1st April 2012.

3.            The issue has been examined. For invoices issued on or before 31st March 2012, the point of taxation shall continue to be governed by the Rule 7 as it stands till the said date. Thus in respect of invoices issued on or before 31st March 2012 the point of taxation shall be the date of payment.

4.            Trade Notice/Public Notice may be issued to the field formations accordingly.

5.            Please acknowledge the receipt of this circular. Hindi version to follow.


(Shobhit Jain)
OSD, TRU
Fax: 011-23092037

IT RETURN FORMS-2012-13


Income-tax (third amendment) Rules, 2012 - amendment in rule 12 and substitution of forms sahaj (itr-1), ITR-2, ITR-3, SUGAM (itr-4s), ITR-4 and itr-v
Notification No.14/2012 [F.No.142/31/2011-TPL]/S.O. 626(E), DATED 28-3-2012
In exercise of the powers conferred by section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-
1. (1) These rules may be called the Income-tax (3rd Amendment) Rules, 2012.
(2) They shall come into force on the 1st day of April, 2012.
2. In the Income-tax Rules, 1962,-
(A) in rule 12,-
(i)  in sub-rule (1),-
(a)  for the figures "2011", the figures "2012" shall be substituted;
(b)  after clause (a), the following proviso shall be inserted, namely:-
"Provided that the provisions of this clause shall not apply to a person being an individual, who is a resident and has
(i)  assets (including financial interest in any entity) located outside India; or
(ii)  signing authority in any account located outside India.";
 (c)  after clause (ca), the following proviso shall be inserted, namely:-
"Provided that the provisions of this clause shall not apply to a person being an individual or Hindu undivided family, who is a resident and has
 (i)  assets (including financial interest in any entity) located outside India; or
 (ii)  signing authority in any account located outside India."
(ii)  in sub-rule (3), in the proviso, clause (a) shall be renumbered clause (aaa) and before clause (a), as so renumbered the following clauses shall be inserted, namely:-
" (a)  an individual or a Hindu undivided family, if his or its total income, or the total income in respect of which he is or it is assessable under the Act during the previous year, exceeds ten lakh rupees, shall furnish the return for the assessment year 2012-13 and subsequent assessment years in the manner specified in clause (ii) or clause (iii);
(aa)  an individual or a Hindu undivided family, being a resident, having assets (including financial interest in any entity) located outside India or signing authority in any account located outside India and required to furnish the return in Form ITR-2 or ITR-3 or ITR-4, as the case may be, shall furnish the return for assessment year 2012-13 and subsequent assessment years in the manner specified in clause (ii) or clause (iii);"
(iii)  in sub-rule (5), for the figures "2010", the figures "2011" shall be substituted;
(B) in Appendix-II, for "Forms SAHAJ (ITR-1), ITR-2, ITR-3, SUGAM (ITR-4S), ITR-4 and ITR-V", the "Forms SAHAJ (ITR-1), ITR-2, ITR-3, SUGAM (ITR-4S), ITR-4 and ITR-V" shall be substituted.

Liberalization of ODI Norms

Liberalization of ODI Norms

The RBI vide A.P. (DIR Series) Circular No. 96 & 97 dated 28th March, 2012 has liberalized the provisions related to Overseas Direct Investment.The objective is to provide operational flexibility to Indian Corporate having investment abroad or Indian resident individuals to acquire securities aboard. ;

Key terms of circular are outlined below:

Liberalized provision relating to Corporate having investment abroad :

Creation of charge on immovable / movable property and other financial assets.

As measure of liberalization, now RBI can also consider proposals for creation of hypothecation/pledge /mortgage on movable and immovable properties and financial assets of Indian Party and group companies under approval route within the overall limit of 400% for financial commitment subject to the condition that the Indian party and their group companies are submitting the No Objection Certificate in this respect.


Reckoning bank guarantee issued on behalf of JV / WOS for computation of Financial Commitment

Bank guarantee issued by a resident bank on behalf of an overseas JV / WOS of the Indian party, which is backed by a counter guarantee / collateral by the Indian party, shall be considered for computation of the financial commitment of the Indian Party and reported accordingly which was not used to be reckoned as per the extant guidelines.


Issuance of personal guarantee by the direct / indirect individual promoters of the Indian Party

Indirect resident individuals promoters of the Indian Party can also issue personal guarantee provided they are governed by the same stipulations as in the case of personal guarantee by the direct promoters.


Financial Commitment without equity contribution to JV / WOS


As per the existing norms, only Indian party which has equity contribution in JV/WOS abroad can give loan or guarantee to or on behalf of the joint Venture/ wholly Owned Subsidiary abroad.

As per the amended norms Indian party without equity contribution in JV/WOS abroad can also give loan or guarantee to or on behalf of the joint Venture/ wholly Owned Subsidiary abroad under the approval route subject to the condition that: The laws of the host country permit incorporation of a company without equity participation by the Indian party.

This is done for relaxing the business requirements of Indian Party and Legal requirements of host country.


Submission of Annual Performance Report

Indian Party is required to submit the Annual Performance Report in form ODI Part III in respect to each Joint Venture or Wholly Owned Subsidiary outside India, set up or acquired by the Indian party, based on audited accounts of the JV/WOS abroad within 3 months of the closing of annual accounts of the JV / WOS.

Where the law of host country does not mandatorily require auditing the accounts of JV/ WOS, the Annual Performance Report may be submitted by the Indian Party based on unaudited annual accounts of JV/WOS provided:


Un-audited annual accounts of the JV / WOS has been adopted and ratified by the Board of the Indian party and
Statutory Auditors of the Indian party certifies that 'The un-audited annual accounts of the JV / WOS reflect the true and fair picture of the affairs of the JV / WOS.


Compulsorily Convertible Preference Shares (CCPS)

As per the extant guidelines only contribution to equity share capital of JV/WOS abroad is considered as ODI and not by contribution to the preference share capital. Now preference share (whether convertible or not) will be considered as capital contribution under ODI and not as loan as used to be considered earlier. This is in contrast to the RBI's stand on foreign direct investment in India where only mandatory convertible preference shares are considered as part of capital.



Liberalized provision relating to Indian Resident Individual acquiring Securities outside India:

Acquiring shares of a foreign company as qualification shares for appointment as Director.

As per the existing provisions, resident individual for being appointed as director in the company abroad can acquire qualification shares which shall not exceed 1% of the paid-up capital of the company.

As per the liberalized norms, the existing cap of one percent has been done away and qualification shares to the extent as required by laws of the country where the company is incorporated and at the same time it has been prescribed that remittance for acquiring such qualification shares shall be within the overall ceiling prescribed for the resident individuals under the Liberalized Remittance Scheme (LRS) in force at the time of acquisition.


Acquiring shares of a foreign company in lieu of professional services rendered or Director's remuneration

General permission has also been granted to Resident Individual to acquire foreign securities of company incorporated outside India in consideration for professional services rendered to the foreign entity or in lieu of Director's Remuneration; earlier to the notification RBI approval was required for the same.

The limit for acquiring such shares shall be within the overall ceiling prescribed for the resident individuals under the Liberalized Remittance Scheme (LRS) in force at the time of acquisition.


Acquiring shares under ESOP Scheme

General permission has also been granted to Resident Employee or Directors to acquire foreign securities of company incorporated outside India pursuant to ESOP Scheme irrespective of the percentage of the direct or indirect equity stake in the Indian company subject to the following:


i. The shares under the ESOP Scheme are offered by the issuing company globally on a uniform basis, and

ii. An Annual Return is submitted by the Indian company to the Reserve Bank through the AD Category - I bank giving details of remittances / beneficiaries, etc.

Revised fees of Bank Audit 2011-2012 & increase in time line to complete the audit to 21 April at branch level

Revised fees of Bank Audit 2011-2012 & increase in time line to complete the audit to 21 April at branch level




Category of bank branch Rates of audit fees Revised Rates of audit 
(on the basis of quantum of advances) (Rs.) New Fees

Upto Rs.75 lakh 12,500/- 15,625

Above Rs.75 lakh and upto Rs.150 lakh 15,000/- 18,750

Above Rs.150 lakh and upto Rs.300 lakh 22,500/- 28,125

Above Rs.3 crore and upto Rs.5 crore 30,000/- 37,500

Above Rs.5 crore and upto Rs.10 crore 35,000/- 43,750

Above Rs.10 crore and upto Rs.20 crore 50,000/- 62,500

Above Rs.20 crore and upto Rs.30 crore 69,000/- 86,250

Above Rs.30 crore and upto Rs.50 crore 1,05,000/- 131,250

Above Rs.50 crore and upto Rs.75 crore 1,20,000/- 150,000

Above Rs.75 crore and upto Rs.125 cror 1,59,000/-198,750

Above Rs.125 crore and upto Rs.175 crore1,99,000/-248,750

Above Rs.175 crore and upto Rs.300 crore2,50,000/- 312,500

Above Rs.300 crore and upto Rs.500 crore2,82,000/- 352,500

Above Rs.500 crore 3,13,000 391,250

29 March 2012

CBDT sets up panel for tax anti-avoidance

CBDT sets up panel for tax anti-avoidance
The Central Board of Direct Taxes (CBDT), Indias apex body for administration of taxes, has formed a six-member committee to draft guidelines for enforcing the general anti-avoidance rules (GAAR) introduced in the Union budget to crack down on tax cheats.
The panel, headed by CBDT chairman Laxman Das, is expected to submit the draft norms to the finance ministry within two months. The proposed guidelines will be put up for public feedback before they are finalized by the committee, which held a meeting early this week in New Delhi.

GAAR will help the tax authority deal with commercial transactions that are structured essentially to circumvent tax laws and avoid paying taxes. If the revenue authority concludes that a transaction by any entity is aimed primarily at avoiding taxes, it will be able to deny tax benefits claimed by the entity.
The key challenge for the committee is to formulate the rules to determine whether the arrangement lacks commercial purpose or was made to obtain a tax benefit, said a revenue officer familiar with the development.
The new rules follow the Supreme Court ruling in January that the Vodafone Group Plcs $11.08 billion (around Rs. 56,400 crore today) transaction with Hutchison Whampoa Ltd that gained it entry into the Indian telecom market was outside the purview of the Indian tax law. The transaction was between Vodafones Netherlands subsidiary and Hutchisons Cayman Islands subsidiary.
In his ruling, Chief Justice S.H. Kapadia said: It is for the government of the day to have them (clear tax laws) incorporated in the treaties and laws so as to avoid conflicting views. Investors should know where they stand. It also helps the tax administration in enforcing the provisions of the taxing laws.

27 March 2012

CBEC on Service Tax on Tyre Retreading

Service Tax on Tyre Retreading – Board Clarification
In a letter to the Chairman, CBEC, the AP Tyre Retreaders Association, requested the Department not to charge Service Tax on retreading of tyres under 'Management Maintenance & Repair Service', on the ground that 'retreading of tyre' is specifically figuring in Central Excise Tariff under TI 4012 and therefore, they are excisable goods. Hence, Service Tax cannot be imposed, as Excise Duty is payable.
Board has examined the issue and observes,
"The matter has been examined. For the purpose of levy of Central Excise, Section 3 of the Central Excise Act 1994, being the charging Section provides that a duty of excise shall be levied on all Excisable Goods, which are produced or manufactured in India at the rates set forth in the first schedule of the Central Excise Tariff Act. Further, 'Excisable Goods' have been defined under Section 2(d) of the Central Excise Act (CEA) as the goods specified in the first and second schedule of the CETA as being subject to a duty of excise and include salt.
Thus, it is apparent that if any goods are barely mentioned in the Central Excise Tariff Act, then, though they would qualify as 'excisable goods', however, for the Central Excise Duty to come into operation, as per Section 3 of the CEA, the additional requirement of these goods to have been produced or manufactured in India would also have to be satisfied".
Board also referred to the Supreme Court judgement in the case of Ahmedabad Electricity Co. Ltd - 2003-TIOL-17-SC-CX, in which the Supreme Court observed,
"... Therefore, simply because goods find a mention in one of the entries of the First Schedule does not mean that they have become liable for payment of excise duty. Goods have to satisfy the test of being produced or manufactured in India. It is settled law that excise duty is a duty levied on manufacture of goods. Unless goods are manufactured in India, they cannot be subjected to payment of excise duty. There is no merit in the argument that simply because a particular item is mentioned in the First Schedule, it becomes eligible to excise duty."
So, the Board concludes and tells the Association, "retreading of tyres is covered under the ambit of the service 'Management Maintenance & Repair Service' and is liable to payment of service tax. You are accordingly requested to advise the Members of your Association to pay Service Tax"


Finance bill, 2012 & Judicial Decisions

Finance bill, 2012 & Judicial Decisions
A Reckoner of Judicial decisions proposed to be overcome/incorporated in the Act-
SOURCE: TAXMANN
--
[2012] 19 taxmann.com 251 (Article)
Finance bill, 2012 & Judicial Decisions
A Reckoner of Judicial decisions proposed to be overcome/incorporated in the Act
The Finance Bill,2011 contains a large number of proposed amendments which are based on judicial decisions. Some of these proposed amendments are for overcoming judicial decisions unfavourable to the Revenue. Some of the proposed amendments are meant to resolve controversy due to conflicting rulings. Some proposed amendments are for incorporating in the statute principles set out in judicial decisions. These are all discussed below :
Sr. No. Subject-matter Court Rulings Proposed Amendments to overcome/ incorporate Court rulings or to resolve conflicting judicial opinion
(1) (2) (3) (4)
1 Definition of capital asset in section 2(14) Applying the test of enforceability, influence/ persuasion of parent company over its subsidiary cannot be construed as a right in the legal sense since capital asset covers 'property' of any description and a right has to be legally enforceable to be 'property' and 'capital asset'- Vodafone International Holdings B.V. v Union of India [2012] 17 taxmann.com 202/204 Taxman 408 (SC) Explanation is proposed to be inserted below section 2(14)(definition of 'capital asset') with retrospective  effect from the 1-4-1962 which clarifies that "property" includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever
2 Definition of transfer in section 2(47) On transfer of shares of a foreign company to a non-resident offshore, there is no transfer of shares of the Indian Company, though held by the foreign company, in such a case it cannot be contended that the transfer of shares of the foreign holding company, results in an extinguishment of the foreign company control of the Indian company and it also does not constitute an extinguishment and transfer of an asset situate in India. Transfer of the foreign holding company's share offshore, cannot result in an extinguishment of the holding company right of control of the Indian company nor can it be stated that the same constitutes extinguishment and transfer of an asset/ management and control of property situated in India- Vodafone International Holdings B.V. (supra) Further, Explanation below section 2(47) (definition of "transfer") proposed to be renumbered as Explanation 1 and new Explanation 2 proposed to be inserted with retrospective effect from the 1-4-1962 to clarify that ""transfer" includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India"
3 Section 9(1)(i)-Income deemed to accrue or arise in India from transfer of capital asset situated in India The legislature has not used the words "indirect transfer" in section 9(1)(i). If indirect transfer of a capital asset is read into section 9(1)(i) then the words capital asset situated in India would be rendered nugatory. Similarly, the words underlying asset do not find place in section 9(1)(i). Thus, the words directly or indirectly in Section 9(1)(i) go with the income and not with the transfer of a capital asset (property). The Direct Tax Code (DTC) Bill, 2010 proposes to tax income from transfer of shares of a foreign company by a non-resident, where the fair market value of the assets in India, owned directly or indirectly, by the company, represents at least 50% of the fair market value of all assets owned by the company. This proposal indicates in a way that indirect transfers are not covered by the existing section 9(1)(i) of the Act. [Per CJI S.H. Kapadia].
On a comparison of Section 64 and Section 9(1)(i) what is discernible is that the Legislature has not chosen to extend Section 9(1)(i) to "indirect transfers". - Vodafone International Holdings B.V. (supra)
New Explanation 4 seeks to clarify that the expression "through" shall mean and include and shall be deemed to have always meant and included "by means of", "in consequence of" or "by reason of".
New Explanation 5 proposed to be inserted below section 9(1)(i) w.r.e.f.1-4-1962 to provide that capital asset situated in India will also cover Share or interest in a foreign company/entity(company or entity registered or incorporated outside India if such share/interest derives, directly or indirectly, its value substantially from the assets located in India. Therefore, transfer of such share/interest will attract capital gains even if effected outside India
4 ------- In W.T. Ramsay Ltd. v. IRC [1981] 1 All E.R. 865 the "look at" test was enunciated.. According to that test, the task of the Revenue is to ascertain the legal nature of the transaction and, while doing so, it has to look at the entire transaction holistically and not to adopt a dissecting approach.. The Revenue cannot start with the question as to whether the impugned transaction is a tax Deferment/saving device but that it should apply the "look at" test to ascertain its true legal nature [See Craven v. White [1988] 3 All ER 495 which further observed that genuine strategic tax planning has not been abandoned by any decision of the English Courts till date]. Applying the above tests, we are of the view that every strategic foreign direct investment coming to India, as an investment destination, should be seen in a holistic manner. While doing so, the Revenue/Courts should keep in mind the following factors: (i) the concept of participation in investment, (ii) the duration of time during which the Holding Structure exists; (iii) the period of business operations in India; (iv) the generation of taxable revenues in India; (v) the timing of the exit; (vi) the continuity of business on such exit. - Vodafone International Holdings B.V. (supra) General Anti-Avoidance Rule
[Provisions in New Chapter X-A (sections 95 to 102)]

Consequences of treating an arrangement as an impermissible tax avoidance arrangement:
• Treating the place of residence of any party to the arrangement or the situs of an asset or of a transaction, at a place other than the place of residence, location of the asset or location of the transaction as provided under the arrangement.
• Considering or looking through any arrangement by disregarding any corporate structure.

Factors not to be taken into account while determining whether an agreement lacks commercial substance:
•   The period or time for which the arrangement (including operations therein) exists;
•   The fact of payment of taxes, directly or indirectly, under the arrangement
•   The fact that an exit route (including transfer of any activity or business or operations) is provided by the arrangement.
5 Section 195(1) - Withholding Tax Section 195 would apply only if payments made from a resident to another non-resident and not between two non-residents situated outside India- Vodafone International Holdings B.V. (supra) Section 195 proposed to be amended w.r.e.f. 1-4-1962 to provide that Obligation to deduct tax u/s 195(1) applicable to all persons, whether resident or non-resident, whether or not the non-resident has a residence, place of business or business connection in India; or any other presence in any manner whatsoever
6 Section 9(1)(vi)-Definition of "royalty"- Whether consideration for use of computer software is royalty or not-Section 9(1)(vi) provides that any income payable by way of royalty in respect of any right, property or information is deemed to be accruing or arising in India. The term "royalty" has been defined in Explanation 2 which means consideration received or receivable for transfer of all or any right in respect of certain rights, property or information. In DIT v. Ericsson AB[2011]16 taxmann.com 371/[2012] 204 Taxman 192 (Delhi), it was held that supply of software which was an inseparable part of GSM system and incapable of independent use is not taxable as royalty. In order to constitute 'royalty' as defined in Explanation 2 to section 9(1)(vi), what is contemplated is a payment that is dependent upon user of copyright and not a lump sum payment made for acquisition of a copyrighted article. Contrary view was given by Karnataka High Court in CIT v Samsung Electronics Co. Ltd. [2011] 16 taxmann.com 141/203 Taxman 477 Proposed Amendments to resolve controversy consideration for use of computer software is royalty or not -Explanation to section 9(1)(vi) amended with retrospective effect from 1-6-1976 to provide that consideration for use or right to use of computer software is royalty by clarifying that transfer of all or any rights in respect of any right, property or information as mentioned in Explanation 2, includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred. Thus, this amendment seeks to resolve controversy regarding whether consideration for use of computer software is royalty or not which has arisen due to contrary decisions of Delhi High Court and Karnataka High Court.
Whether satellite payments are royalty or not-An issue arises whether the right, property or information has to be used directly by the payer or is to be located in India or control or possession of it has to be with the payer. Also whether satellite payments are royalty or not was an issue.
•  Income received by foreign satellite companies not taxable in India since customers merely given access to broadband available in transponder and Control and constructive possession of transponders could not be handed over by satellite operator to its customers- Asia Satellite Telecommunications Co. Ltd. v. DIT [2011] 197 Taxman 263/9 taxmann.com 168 (Delhi)
•  Payments for lease of transponder capacity is not royalty nor fees for technical services –ISRO Satellite Centre, In re [2008] 175 Taxman 97 (AAR - New Delhi)
•  Payments made to service providers for use of bandwidth provided for downlinking signals in the US not taxable in India as 'royalty' or 'fees for technical services: –Infosys Technologies Ltd v Dy.CIT [2011] 45 SOT 157/10 taxmann.com 1 (Bang.)
Explanation to section 9(1)(vi) proposed to be amended with effect from 1-6-1976 to provide that
•  Royalty u/s 9(1)(vi) includes consideration in respect of any right, property or information, whether or not its possession or control is with the taxpayer, it is used directly by the taxpayer, or its location is in India
•  royalty includes and has always included consideration in respect of any right, property or information, whether or not
(a) the possession or control of such right, property or information is with the payer;
(b) such right, property or information is used directly by the payer;
(c) the location of such right, property or information is in India.
•  the term "process" includes and shall be deemed to have always included transmission by satellite (including uplinking, amplification, conversion for downlinking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret
7, New proposed section 50D - Capital gains Capital gains are calculated on transfer of a capital asset, as sale consideration minus cost of acquisition. In some recent rulings, it has been held that where the consideration in respect of transfer of an asset is not determinable or ascertainable, then, as the machinery provision fails, the gains arising from the transfer of such assets is not taxable and also that fair market value cannot be taken as deemed full value of consideration unless there is a specific provision in this respect. This particularly happens when shares in Indian companies are transferred 'without consideration' by companies as part of restructuring exercise. [See Dana Corporation, In Re [2010]186 Taxman 187(AAR-New Delhi), Goodyear Tire & Rubber Co., In Re [2011] 199 Taxman 121/11 taxmann.com 43 (AAR - New Delhi), Amiantit International Holding Ltd., In re [2010]189 Taxman 149(AAR - New Delhi)] Obviously, these transfers are not "gifts" but consideration for them is general improvement in business/synergies etc which is not "ascertainable" or "quantifiable" In Amiantit International Holding Ltd., In re (supra), the AAR observed "As stated in the Law and Practice of Income-tax (by Kanga, Palkhivala and Vyas) income, profits and gains maybe realized in the form of money's worth as well as money, in kind as well as in cash. Even then, the alleged consideration for which the shares are to be transferred should be capable of being evaluated on commercial and accounting principles. The possibility of applicant-transferor improving its overall business by virtue of re-organization and the mere possibility or chance of the applicant making better returns in the near or distant future as a consequence of reorganization can hardly be regarded as a consideration accruing or arising to the transferor when he has no right to receive a definite or an ascertainable amount or benefit from the transferee. A capital gain cannot arise on the basis of uncertain and indefinite future contingencies or hypothetical and imaginary estimations. There is really no effective answer from the Revenue's side to the question as to what is the valuable consideration that has accrued or arisen to the transferor and how it can be converted into money's worth for the purpose of computing the alleged capital gain. The only endeavour of revenue's counsel was to take a plea that the "benefits and advantages" mentioned by the applicant in para H of page 7 of the application represent the valuable consideration for transfer. ……. Thus, the full value of consideration for the transfer of shares is sought to be deduced from the overall objectives of reorganization and the resultant changes in investment. It is not explained how they can be evaluated in terms of money…" In order to overcome the judicial decisions, new section 50D is proposed to be inserted with effect from A.Y.2013-14 to provide that fair market value of asset shall be deemed to be the full value of consideration if actual consideration is not attributable or determinable. This proposed amendment takes a cue from the following observations of ITAT in Dy. CIT v. Summit Securities Ltd [2012] 19 taxmann.com 102 (Mum.)(SB)
"…….......the full value of consideration for the purposes of section 48 has to be considered as only the amount actually received or accruing as a result of the transfer of capital asset except where it has been substituted with fair market value or by any other mode. It is only in such specific cases that the actual amount received or accruing shall be replaced with the fair market value or such other mode as specified. In the absence of any specific provision, the general meaning of the amount actually received or accruing is to be considered as the full value of consideration received or accruing as a result of transfer of capital asset. …….."
8. Section 40A(2)-Disallowance of domestic related party transactions Section 40A of the Act empowers the Assessing Officer to disallow unreasonable expenditure incurred between related parties. Further, under Chapter VI-A and section 10AA, the Assessing Officer is empowered to recompute the income (based on fair market value) of the undertaking to which profit linked deduction is provided if there are transactions with the related parties or other undertakings of the same entity. However, no specific method to determine reasonableness of expenditure or fair market value to recompute the income in such related transactions is provided under these sections. The Supreme Court in the case of CIT v. Glaxo SmithKline Asia (P.) Ltd. [2010] 195 Taxman 35 in its order has, after examining the complications which arise in cases where fair market value is to be assigned to transactions between domestic related parties, suggested that Ministry of Finance should consider appropriate provisions in law to make transfer pricing regulations applicable to such related party domestic transactions. Taking a cue from the above decision,, the transfer pricing regulations are proposed to be extended to the transactions entered into by domestic related parties or by an undertaking with other undertakings of the same entity for the purposes of section 40A, Chapter VI-A and section 10AA. The concerns of administrative and compliance burden are addressed by restricting its applicability to the transactions, which exceed a monetary threshold of Rs. 5 crores in aggregate during the year. In view of the circumstances which were present in the case before the Supreme Court, there is a need to expand the definition of related parties for purpose of section 40A to cover cases of companies which have the same parent company. It is, therefore, proposed to amend the Act to provide applicability of transfer pricing regulations (including procedural and penalty provisions) to transactions between related resident parties for the purposes of computation of income, disallowance of expenses etc. as required under provisions of sections 40A, 80-IA, 10AA, 80A, sections where reference is made to section 80-IA, or to transactions as may be prescribed by the Board, if aggregate amount of all such domestic transactions exceeds Rupees 5 crore in a year. It is further proposed to amend the meaning of related persons as provided in section 40A to include companies having the same holding company. This amendment will take effect from 1st April, 2013 and will, accordingly, apply w.e.f. Assessment Year 2013-14 [Clauses 12, 23, 29, 33, 35, 37, 38, 92, 94, 97]
9. Section 56(2)(vii) - Gifts Under the existing provisions of clause (vii) of sub-section (2) of section 56 any sum or property received by an individual or HUF for inadequate consideration or without consideration is deemed as income and is taxed under the head "Income from other sources". However, in the case of an individual, receipts from relatives are excluded from the purview of this section and are therefore treated as not taxable. The definition of relative as given in this sub-clause is only in relation to an individual and not in relation to a HUF. Therefore, gifts received by HUF from its members are not exempt from donee-based taxation in the hands of HUF. in Vineetkumar Raghavjibhai Bhalodia v. ITO [2011] 11 taxmann.com 384/46 SOT 197 (Rajkot) wherein ITAT held that in the context of section 56(2)(vi) that an HUF is nothing but 'a group of relatives'. So if an individual receives gifts whether from an individual relative or a group of relatives, he should be exempt from taxation. The ITAT observed "…..Actually a 'Hindu Undivided Family" constitutes all persons lineally descended from a common ancestor and includes their mothers, wives or widows and unmarried daughters. All these persons fall in the definition of "relative" as provided in Explanation to clause ( vi) of section   56(2) of the Act. The observation of the CIT(A) that HUF is as good as 'a body of individuals' and cannot be termed as "relative" is not acceptable. Rather, an HUF is 'a group of relatives'..… It is not expressly defined in the Explanation that the word "relative" represents a single person. And it is not always necessary that singular remains singular. Sometimes a singular can mean more than one, as in the case before us……. The word "Hindu Undivided Family", though sounds singular unit in its form and assessed as such for income-tax purposes, finally at the end a "Hindu Undivided Family" is made up of "a group of relatives". Thus, in our opinion, a singular word/words could be read as plural also, according to the circumstance/ situation. ……." It is proposed to amend the provisions of section 56 so as to provide that any sum or property received without consideration or inadequate consideration by an HUF from its members would also be excluded from taxation. For this purpose, clause (e) of the Explanation below section 56(2)(vii) is proposed to be substituted to provide that in case of HUF, relative means members of the HUF. This amendment will take effect retrospectively from the 1st day of October, 2009 The proposed amendment as above is inspired by the decision of ITAT in Vineetkumar Raghavjibhai Bhalodia (supra)
10. Section 68-Cash credits Section 68 of the Act provides that if any sum is found credited in the books of an assessee and such assessee either
(i) does not offer any explanation about nature and source of money; or
(ii) the explanation offered by the assessee is found to be not satisfactory by the Assessing Officer, then, such amount can be taxed as income of the assessee.
The onus of satisfactorily explaining such credits remains on the person in whose books such sum is credited. If such person fails to offer an explanation or the explanation is not found to be satisfactory then the sum is added to the total income of the person. Certain judicial pronouncements have created doubts about the onus of proof and the requirements of this section, particularly, in cases where the sum which is credited as share capital, share premium etc which are sought to be overcome by proposed amendment to section 68 as under:
• The onus cast upon the assessee company was discharged upon disclosure of the names and particulars of the alleged bogus shareholders. It was for the Department to conduct its own enquiry thereafter and additions if any may be made in the hands of the shareholders –Lovely Exports(P.) Ltd. [Application No. 11993 of 2007, dated 11-1-2008]
• Even if subscribers to the capital are not genuine, the amount received by the company as share capital could not be assessed in the hands of the company itself. Such amounts should be considered for assessment in the hands of persons who are alleged to have really advanced the money. –Stellar Investment Ltd [2001] 115 Taxman 99 (SC)
• Delhi HC held that the amount of share application money received by a Company from alleged bogus shareholders could not be regarded as undisclosed income u/s 68 when the assessee furnished details regarding shareholders. If the names of the alleged bogus shareholders are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. The Supreme Court upheld this view.CIT v Divine Leasing & Finance Ltd [2007] 158 Taxman 440(SC)
• "It would be asking for a moon if such companies are asked to find out from each and every share applicant/subscribers to first satisfy the assessee companies about the source of their funds before investing." –CIT v Kamdhenu Steel & Alloys Ltd. [2012] 19 taxmann.com 26 (Delhi)
• Where assessee had duly discharged its onus by furnishing names, age, address, date of filing application of share, number of shares of each subscriber, the AO was not justified in making addition u/s 68. – CIT v SIT Extrusion (P.) Ltd. [2011] 333 ITR 269 (MP)
• It was not for the assessee to place material before the Assessing Officer about creditworthiness of the shareholders. Once the company had given the addresses of the shareholders and their identity was not in dispute, it was for the Assessing Officer to make further inquiry with the investors about their capacity to invest the amount in shares. CIT v Arunananda Textiles(P.)Ltd [2011] 203 Taxman 32 (Kar.) (Mag.)/15 taxmann.com 226 (Kar.)
• Once the assessee proves the identity of creditors/share applicants, by either furnishing their PAN numbers or income-tax assessment numbers, and shows genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, onus of proof would shift to revenue.- CIT v. Dwarkadhish Investment (P.) Ltd. [2010] 330 ITR 298/194 Taxman 43 (Delhi) Once documents like PAN Card, bank account details or details from the bankers were given by the assessee, onus shifts upon the Assessing Officer and it is on him to reach the shareholders. The Assessing Officer could not burden the assessee merely on the ground that summons issued to the investors were returned back with the endorsement not traceable – Creative World Telefilms Ltd. (supra)
It is, therefore, proposed to amend section 68 of the Act to provide that the nature and source of any sum credited, as share capital, share premium etc., in the books of a closely held company shall be treated as explained only if the source of funds is also explained by the assessee company in the hands of the resident shareholder. However, even in the case of closely held companies, it is proposed that this additional onus of satisfactorily explaining the source in the hands of the shareholder, would not apply if the shareholder is a well regulated entity, i.e. a Venture Capital Fund, Venture Capital Company registered with the Securities Exchange Board of India (SEBI).
 
The above proposed amendment while seeking to overcome judicial precedents in Col (3) takes into account judicial pronouncements such as CIT v. Value Capital Services (P.) Ltd. [2008] 307 ITR 334 (Delhi) and CIT v. Oasis Hospitalities (P.) Ltd. [2011] 333 ITR 119/198 Taxman 247/9 taxmann.com 179 (Delhi) and Creative World Telefilms Ltd. [2011] 203 Taxman 36 (Bom.) (Mag.)/15 taxmann.com 183 (Bom.) which while recognizing that the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company needs to be prevented, have advised a balance to be maintained regarding onus of proof to be placed on the company. The Courts have drawn a distinction and emphasized that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large.
In the case of closely held companies, investments are made by known persons. Therefore, a higher onus is required to be placed on such companies besides the general onus to establish identity and creditworthiness of creditor and genuineness of transaction. This additional onus, needs to be placed on such companies to also prove the source of money in the hands of such shareholder or persons making payment towards issue of shares before such sum is accepted as genuine credit. If the company fails to discharge the additional onus, the sum shall be treated as income of the company and added to its income."
Bombay HC recently in Major Metals Ltd noted that "Significantly, the judgment of the Delhi High Court makes a distinction between a case where shares are allotted in the course of a large scale subscription to the shares of a public company on the one hand and a case of private placement on the other." Relying on subsequent rulings in Value Capital Services (P.) Ltd. (supra) and Oasis Hospitality (P.) Ltd. (supra) and Creative World Telefilms Ltd. (supra), HC held that "However, the initial burden on the assessee would be some-what heavy in case the assessee is a private limited company where the shareholders are closely related because in such a case the assessee cannot feign ignorance about the status of the parties". Thus, the proposed amendment incorporates the law laid down in above cases.
11. Section 115JB-MAT Judicial decisions which exempt non-Schedule VI companies (insurance, banking or electricity company) from MAT-Proviso to section 211(2) of the Companies Act,1956 permits certain companies, e.g. insurance, banking or electricity company to prepare their profit and loss account in accordance with the provisions specified in their regulatory Acts. Also, Courts and ITAT have held in a catena of decisions that since profit and loss account for MAT purposes is required by section 115JB(2) to be prepared as per Schedule VI, banks, electricity companies etc. which are exempt from Schedule VI are not liable to MAT as under:
•    In Krung Thai Bank PCL v. Jt. DIT(International Taxation) [2011] 16 taxmann.com 239/[2012] 49 SOT 70 (Mum.)(URO), the Tribunal held that the provisions of section 115JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act. The starting point of computation of MAT under section 115JB is the result shown by such a profit and loss account. In the case of banking companies, however, the provisions of Schedule VI are not applicable in view of exemption set out under proviso to section 211(2) of the Companies Act. The final accounts of the banking companies are required to be prepared in accordance with the provisions of the Banking Regulation Act. The provisions of section 115JB cannot thus be applied to the case of a banking company.
•    In Kerala State Electricity Board v. Dy. CIT [2011] 196 Taxman 1/[2010] 8 taxmann.com 118, the Kerala High Court held that section 115JB stipulates that the accounting policies, accounting standards, etc., shall be uniform, both for the purpose of income-tax as well as for the information statutorily required to be placed before the annual general meeting conducted, in accordance with section 210 of the Companies Act, 1956. However, the assessee though was by definition a company under the Income-tax Act and deemed to be a company for the purpose of the Income-tax Act, by virtue of the declaration under section 80 of the Electricity Supply Act, it was not a company for the purpose of the Companies Act. Therefore, it was not obliged either to convene an annual general meeting or place its profit and loss account in such general meeting. As a matter of fact, a general meeting contemplated under section 166 of the Companies Act, 1956 was not possible in the case of the assessee, as there were no shareholders for the assessee-board. On the other hand, under section 69 of the Electricity Supply Act, the assessee was obliged to keep proper accounts, including the profit and loss account, and to prepare an annual statement of accounts, balance sheet, etc., in such form as had been prescribed by the Central Government and notified in the Official Gazette. Thus, it could be seen that coming to the maintenance of the accounts, the assessee, though was deemed to be a 'company' - both by virtue of operation of section 80 of the Electricity Supply Act for the purpose of Income-tax Act and by virtue of the definition of the expression 'company' under the Income-tax Act, yet it was required to keep and maintain its accounts in a manner specified by the Central Government, but not in the manner specified in the Companies Act. Therefore, MAT would not apply to electricity companies.
In Union Bank of India v. Asstt. CIT [2011] 16 taxmann.com 304/[2012] 49 SOT 32 (Mum.), the ITAT upheld the contention of the assessee-bank that it was not a company under Companies Act but is only deemed to be a company as per the provisions of section 11 of the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970. Therefore as held by the Jurisdictional ITAT in the case of Maharashtra State Electricity Board v. Jt. CIT [2002] 82 ITD 422 (Mum.) the provisions of section 115JB cannot be made applicable to it.
Proposed amendments to section 115JB to overcome judicial decisions which exempt non-Schedule VI companies (insurance, banking or electricity company) from MAT- The Finance Bill, 2012 proposes to substitute section 115JB(2) with effect from A.Y.2013-14 to provide that companies which are not required under the proviso to section 211(2) of the Companies Act to prepare their profit and loss account in accordance with the Schedule VI of the Companies Act, 1956, profit and loss account prepared in accordance with the provisions of their regulatory Acts shall be taken as a basis for computing the book profit under section 115JB.
12. Explanation 1 to section 115JB(2)-Book Profit definition Judicial decision on revaluation reserve balance pertaining to revalued asset disposed off- The above amendment has been made to overcome the decision in ITO v. Galaxy Saws (P.) Ltd. [2011] 13 taxmann.com 179/132 ITD 236 (Mum.) wherein it was held that no addition could be made to the net profit on account of revaluation reserve directly taken to the balance sheet while computing the book profit. In that case, the assessee, company had sold its premises for Rs. 96 lakhs. Book value of property was Rs. 3,29,143 and, therefore, there was a gain of Rs. 92,72,858. Assessee got property revalued and as per report of registered valuer, value of property was Rs. 97.44 lakhs. Gain in book value of property was taken by assessee to balance sheet as revaluation reserve. However, loss arising on sale, i.e., Rs. 1.44 lakhs (Rs. 97.44 lakhs minus Rs. 96 lakhs) was debited by assessee to profit and loss account. Assessing Officer rejected computation of book profit made by assessee based on revalued cost and added gain of Rs. 92.70 lakhs computed on basis of book value of asset originally shown. The ITAT held that since revaluation reserve had been directly taken to balance sheet and not debited to profit and loss account, it could not be added under clause (b) of Explanation 1 to section 115JB(2). The provisions of Explanation 1 to section 115JB(2) that amount carried to any reserve by whatever name called has to be added to the net profit if the amount had been debited to the profit and loss account. In this case the revaluation reserve had been directly taken to the balance sheet and not debited to the profit and loss account and, therefore, the amount could not be added under clause (b) of Explanation 1 to section 115JB(2). Explanation 1 to section 115JB has been amended with effect from A.Y.2013-14 to substitute the words ""if any amount referred to in clauses (a) to (i) is debited to the profit and loss account, and as reduced by,—"with the words ""(j) the amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset, if any amount referred to in clauses (a) to (i) is debited to the profit and loss account or if any amount referred to in clause (j) is not credited to the profit and loss account, and as reduced by,—".
The above proposed amendment intends to overcome the judicial decision in Col(3). Further, Since (AS)10 permits companies to transfer "revaluation reserve relating to revalued asset on the retirement or disposal of such asset", to general reserve, companies follow this treatment. The Explanatory Memorandum to the Finance Bill, 2012 explains that as a result of this treatment permitted by (AS)10 "the gains attributable to revaluation of the asset is not subject to MAT liability. It is, therefore, proposed to amend section 115JB to provide that the book profit for the purpose of section 115JB shall be increased by the amount standing in the revaluation reserve relating to the revalued asset which has been retired or disposed, if the same is not credited to the profit and loss account."
13. Section 234D- Application to AO to determine appropriate proportion of sum chargeable even when payment not chargeable under the Act In GE India Technology Cen. (P.) Ltd. v CIT [2010] 193 Taxman 234 (SC), it was held that the application of section 195(2) pre-supposes that the person responsible for making the payment to the non-resident is in no doubt that tax is payable in respect of some part of the amount to be remitted to a non-resident but is not sure as to what should be the portion so taxable or is not sure as to the amount of tax to be deducted. In such a situation, he is required to make an application to the ITO(TDS) for determining the amount The Supreme Court ruling in Col. (3) sought to be overcome by amending section 195 to provide that class of persons or cases (to be notified by CBDT) responsible for making payment to a non-resident, whether or not such payment is chargeable under the Act, shall make an application to the AO to determine the appropriate proportion of sum chargeable.
14. Section 209-Computation of Advance Tax In Dy.CIT v. Pride Foramer SAS [2008] 24 SOT 59 (Delhi), it was held by ITAT that tax deductible at source has to be excluded while computing the advance tax liability as provided in section 209(1)(d), even if the tax had not actually been deducted. If entire income of assessee is income on which tax deductible at source, no advance tax could be payable by assessee and, therefore, no interest under section 234B could be charged - To overcome the ITAT ruling in Col (3), section 209 is proposed to be amended w.r.e.f.1-4-2012 to provide that that where a person has received any income without deduction or collection of tax, he shall be liable to pay advance tax in respect of such income. The rationale is to make an assessee liable for payment of advance tax in respect of income which has been received or paid without deduction or collection of tax.
15. Section 234D-Interest on excess refund In ITO v. Ekta Promoters (P) Ltd. [2008] 113 ITD 719 (Delhi) (SB) a Special Bench of Delhi ITAT held that the provision for levy of interest on excess refund u/s 234D was prospective and applicable from AY 2004-05 since the provisions of section 234D were substantive and hence could not be held as retrospective in nature, unless specifically provided in the statute To overcome the ITAT ruling in Col.(3), section 234D is proposed to be amended to provide that the provisions of section 234D would be applicable to any proceeding, which is completed on or after 1st June, 2003, irrespective of the assessment year to which it pertains. Section 234D provides for levy of interest on excess refund granted to the assessee.
■■


17 March 2012

BUDGET 2012: Highlights by Talati & Talati

FAVOURABLE POINTS OF BUDGET 2012 – 13 ON DIRECT TAXATION
1.      The Basic Exemption Limit for Individual (Male) have been increased from Rs. 1,80,000/- to Rs. 2,00,000/- giving tax relief of Rs. 2000/-.
2.      The Basic Exemption Limit for Individual (Female) have been increased from Rs. 1,90,000/- to Rs. 2,00,000/- giving tax relief of Rs.1000/-.
3.      The upper limit of 20 percent slab proposed to be raised from 8 lakhs to 10 lakhs. Therefore the new slab rates for General category is-
Upto Rs. 2,00,000                              NIL
Rs. 2,00,001 to Rs. 5,00,000             10%
Rs. 5,00,001 to Rs.10,00,000           20%
Rs. 10,00,001 and above                  30%

4.      An Individual tax payers or an HUF are allowed a deduction upto Rs.10,000 for interest on deposit from savings Bank accounts ( other than time deposits) with Banking Co., Co-operative soc. Engage in business of banking or Post office,  u/s 80TTA.
5.     Under section 115A the taxable rate have been reduced from 20% to 5 % (plus surcharge and cess) if interest is paid by a specified company to a non resident in respect of borrowing made in foreign currency from sources outside India between 1st July, 2012 and 1st July, 2015, under an agreement and accordingly TDS will be deducted @ 5% under new sec 194LC.

6.      In case any company receives, during the year, any dividend from any subsidiary and such subsidiary has paid DDT as payable on such dividend, then, dividend distributed by the holding company in the same year, to that extent, shall not be subject to Dividend Distribution Tax under section 115-O of the Act, thereby removing the cascading effect of DDT

7.      New clause (48) in section 10 of the Income-tax Act to provide for exemption in respect of any income of a foreign company received in India in Indian currency on account of sale of crude oil to any person in India subject to the following conditions:
(i) The receipt of money is under an agreement or an arrangement which is either entered into by the Central Government or approved by it.
(ii) The foreign company, and the arrangement or agreement has been notified by the Central Government having regard to the national interest in this behalf.
(iii) The receipt of the money is the only activity carried out by the foreign company in India.
8.      The benefit u/s 32(1)(iia) i.e. initial depreciation @20% has been extended to the assessee engaged in the business of generation of distribution of power in case of new machinery or plan (other than ship and aircraft) acquired and installed in previous year.
9.      New provision has been inserted wherein weighted deduction of 150% of the expenditure incurred on the agricultural extension project has been allowed.
10.  U/s 35(2AB) the benefit of weighted deduction have been extended for the further period of 5 years i.e. upto 31st March,2017.
11.  New provision has been inserted wherein weighted deduction of 150% of the expenditure (not been expenditure in the nature of cost of any land or building) incurred on the skill development project .
12.  The Tax Audit limit u/s 44AB have been increased from 60 lakhs to 1 crore in case of person carrying on business and from 15 lakhs to Rs. 25 Lakhs in case of person carrying on profession( w.e.f 1/4/2013).
13.  U/s 44AD, for the purpose of presumptive taxation the threshold limit of the total turnover of the gross receipt has been exceed from 60 Lakhs to 1 crore (w.e.f 1/4/2013).
14.  Senior Citizen are not required to pay Advance tax if there total income does not include any income from Business & profession ( w.e.f. 1/4/2012).
15.  Under Section 2 of Wealth Tax Act the threshold limit of gross salary has been increased  from five lakh rupees to ten lakh rupees for the purpose of levying wealth-tax on residential house allotted by a company to an employee or an officer or a whole time director.
16.  A new section 546B has been inserted to provide relief from Lon long term capital gains tax to an individual or an HUF on sale of a residential property (house or plot of land) in case of re-investment of sale consideration in the equity of a new start-up SME (Small & Medium Enterprise) company in the manufacturing sector which is utilized by the company for the purchase of new plant and machinery subject to the conditions.

17.  STT has been reduced from 0.125% to 0.1%(w.e.f 1/7/2012).
18.  (a) U/s 35AD deduction have been increased from 100% to 150% in respect of specified business commencing the operation on or after 1/4/2012.
(b) Three new business are been included as a specified business namely-
(i) setting up and operating an inland container depot or a container freight station notified or approved under the Customs Act, 1962 (52 of 1962);
(ii) bee-keeping and production of honey and beeswax; and
(iii) setting up and operating a warehousing facility for storage of sugar.
(c ) If the owner of the Hotel transfers the operation of the hotel to another person he will be eligible for such benefit as deemed to be carrying of the specified business as business of building and operating hotel.

19.  Under Sec 80-IA(4)(iv) the terminal date have been extended to a further period of 1 year i.e. upto 31/03/2013.

20.  U/s 80D, 80DDB & 197A the age for availing the benefit of senior citizen have been reduced from 65 years to 60 years.

21.  U/s 80D any payment (does not exceed Rs. 5000/-) made by an assessee on account of preventive health check-up of self, spouse, dependent children or parents is eligible for deduction within the overall limit prescribed in the section.

22.  (a) Non payment/ Short Payment of the TDS by the resident payer u/s 201(1) would not be treated as assessee in default in respect of such tax if resident payee-
(i)                has furnished his return of income under section 139;
(ii)              has taken into account such sum for computing income in such return   
of income; and
(iii)            has paid the tax due on the income declared by him in such return of
income,
and the payer furnishes a certificate to this effect from an accountant in such form as may be prescribed.
(b) the interest u/s 201(1A)(i) shall be payable by the resident payer defaulter from the date on which such tax was deductible to the date of furnishing of return on income by such resident payee (w.e.f 1/7/2012).
23.  As stated above in sec 201(1) similar changes have been made in sec  206C.(w.e.f 1/7/2012).
24.   Under section 40(a)(ia)  where an assessee makes payment to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, then, for the purpose of allowing deduction of such sum, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee.
25. Under section 200A intimation generated after processing of TDS statement shall be
(i) subject to rectification under section 154;
(ii) appealable under section 246A; and
(iii) deemed as notice of demand under section 156.
These amendments will take effect from 1st July, 2012.
26. Under sec 194LA the threshold limit for Non deduction of TDS has been increased from 1 lakh to 2 lakh.
 27. U/s 193 threshold limit for Non deduction of TDS has been increased from Rs.2500     to Rs.5000 in case of payment of interest of any debentures ( whether listed or not).
28. Under section 234D would be applicable to any proceeding which is completed on or after 1st June, 2003, irrespective of the assessment year to which it pertains. (w.e.f. retrospectively from the 1st day of June, 2003).

29. Section 153A & 153C has been amended whereby a Central Government will notify the cases or class of cases in which case the compulsory re-opening of past six years is not required .

30. Under section 56 so as to provide that any sum or property received without consideration or inadequate consideration by an HUF from its members would also be excluded from taxation.( w.e.f retrospectively from the 1st day of October, 2009).

31. Section 47(vii) now excludes the requirement of issue of shares to the shareholder where such shareholder itself is the amalgamated company (eg: holding- subsidiary co.) However, the amalgamated company will continue to be required to issue shares to the other shareholders of the amalgamating company.(w.e.f. 1st day of April, 2013).

32. Similar amended is made in case of demerger.

33. HUF has been included u/s 54B for the purpose of capital gain relief on the sale of agricultural land (w.e.f. 1/4/2013 apply for A.Y 2013-14).

34. Under sec 49 (1) in case of conversion of sole proprietorship or firm into a company which is not regarded as a transfer, the cost of acquisition of asset in the hands of the company would be the same as that in the hand of the sole proprietary concern or the firm, as the case may be.

35. RBI is not liable to pay Wealth Tax on his net Wealth as per sec 45.

36. Proposal to introduce General Anti Avoidance Rule to counter aggressive tax avoidance scheme.
37. (a) DRP shall have a power to consider any matter arising out of the assessment   proceedings relating to the draft assessment order. This power to consider any issue would be irrespective of the fact whether such matter was raised by the eligible assessee or not. 
(b)  If an assessee files an objection against the Assessment Order to DRP than the time limit would be as per sec 144C and not as per sec 153 or 153B and also the assessee can file an appeal directly before the ITAT against the A.O order.
38.  Sec 139 has been amended to provide that in case of all assesses who are required to obtain and file Transfer Pricing report as per Section 92E of the Act, the due date would be 30th November of the assessment year.

39.  Section 92B of the Act, is been amended  to provide for the explanation to clarify meaning of international transaction- ‘international transaction’ shall include a transaction of business restructuring or reorganization, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has bearing on the profit, income, losses or assets or such enterprises at the time of the transaction or at any future date.
40.Under Section 92C provides and 3% upper ceiling limit that variation between the ALP so determined and the transaction price is within the upper ceiling limit (of transaction price), no adjustment shall be made to the transaction price.
41. The time limit for completion of assessment or reassessment where information is sought under a DTAA is been extended from six months to one year.
42. A new sections 92CC and 92CD in the Act to provide a framework for advance pricing agreement under the Act.

UNFAVOURABLE POINTS OF BUDGET 2012 – 13 ON DIRECT TAXATION

1.      There is no increment in the basic exemption limit for Senior Citizen.
2.      There is no change in the corporate rate taxes.
3.      Alternate Minimum tax (AMT) has made applicable to all the persons (other than individual, HUF, AOP, BOI, Artificial juridical person whose adjusted total income does not exceeds 20 Lakhs) other than company who has claimed the deduction under any section (other than sec 80P) included in chapter VIA under the heading ‘C’ i.e. ‘Deduction in respect of certain income” eg: 10A, 10AA, 10B, 10BA .
4.      (a) TDS is required to be deducted at the rate of 1% in case of transfer of  immovable property other than Agricultural land if the consideration paid or payable for the transfer of property exceeds Rs.50lakhs in case of property situated in Urban area and Rs.20 lakhs in case of property situated in other areas (w.e.f 1st October, 2012).

(b) Consideration to be considered for the purpose of deduction of TDS is the Stamp Duty value or the Actual consideration of the property whichever is higher.
(c ) The transfer of property would be registered only after furnishing of the TDS proof to the registering Officer appointed under Indian Registration Act.

5.      Under section 194J TDS is required to be deducted @10% on the remuneration paid to the director, which is not in a nature of salary (w.e.f 1st July,2012).

6.      Every buyer of the jewellery or bullion is required to pay @1% of the consideration as a TCS (irrespective of its nature of consumption) if the consideration is paid in cash and if it exceeds Rs. 2 lakh ( w.e.f 1st July,2012).

7.       The rate u/s 115VG for the daily tonnage income of the shipping company have been increased.

8.      Under section 68,69,69A,69B,69C & 69D all the assessee shall be taxed at the rate of flat 30% without giving any basic exemption limit, expenditure or any allowances (w.e.f. 1st April 2013).

9.      Under section 139 every resident assessee having any asset, ( including financial interest in any entity) located outside India or signing Authority in any account outside India is required to file the return compulsory even if he has a taxable income or not (retrospective effect from 1/04/2012).

10.  Under section 149, the time limit for issuing the notice for re-opening the case have been increased from 6 to 16 years ,where the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment.

11.   Instead of section 271AAA a new section 271AAB has been inserted and applicable from 1/7/2012 wherein –
a.       Penalty @10% will be levied if the undisclosed income is admitted in the course of search.
b.      Penalty @20% is levied if undisclosed income is not admitted in the course of search but disclosed in return of income filed after search.
c.       Penalty ranging from 30% to 90% is leived if the case is not covered under (a) & (b).
12.    New section 56(2) has been inserted in case of a company not been a company in which public are substantially interested wherein the Share premium received by the company on issue of shares in excess of the fair market value to be treated as income under the head ‘income from other sources’(w.e.f 1/04/2013).

13.  (a) Fees for delay in filing the TDS statement after the due date have been increased to Rs.100 per day to Rs. 200 per day.
(b) Penalty ranging from Rs. 10000 to Rs.1,00,000 shall also be levied for not furnishing TDS statement within the prescribed time i.e. within 1 year from the due date of furnishing the statement ( no penalty w.e.f 1/7/2012 if a reasonable cause for failure is proved).
(c ) If incorrect information is furnished in TDS statement penalty shall be levied  ranging from Rs.10,000 to Rs.1,00,000.

14.  Under section 201 the time limits to pass the order for the assessee in default of non deduction or short deduction of Tax have been increased from 4 years to 6 years.

15.  u/s 80G & 80GGA any payment exceeding Rs.10000 in cash is made, no deduction for the same is allowed as Donation made.

16.  The Due date of furnishing audit report in case of international transactions is now 30the September of the assessment year only (w.e.f 1/4/2012).

17.  Under Sec 80C(3) the deduction for life insurance premium as regards insurance policies issued on or after 1st April, 2012 shall be allowed for only so much of the premium payable as does not exceed 10% of the actual capital sum assured instead of 20% as given before.

18.  Under sec 10(10D) the threshold of premium payable to 10% of the actual capital sum assured from 20% of the actual capital sum assured. Accordingly, it is proposed to amend section 10(10D) so as to provide that the exemption for insurance policies issued on or after 1st April, 2012 would only be available for policies where the premium payable for any of the years during the term of the policy does not exceed 10% of the actual capital sum assured.

19.  A new section 292CC wherein authorization under sec 132 or requisition u/s 132A can be made in name of more than 1 person and the assessment or reassessement shall be made separately in name of each of the person mentioned in such authorization or requisition.

20.  Under Sce 245Q filing fees for an application for Advance ruling has been increased from 2500 to Rs. 10000 or such fees as may be prescribed whichever is higher.

21.  Under sce 245C the definition of related person have changed wherein a person shall be deemed to have a substantial interest in a business or profession if such person is a beneficial owner of not less than 20% of shares or of 20% share in profits on the date of search.

22.  Once notice u/s 143(2) is issued i.e. scrutiny of the return, processing of the return will not be necessary by the assessing officer.

23.  New sec 50D has been introduced wherein if the actual consideration on the transfer of the asset is not determinable than the fair market value of asset shall be considered as the full value of the asset.

24.  Section 55A has been amended to enable the Assessing Officer to make a reference to the Valuation Officer where in his opinion the value declared by the assessee is at variance from the fair market value. Therefore, in case where the Assessing Officer is of the opinion that the value taken by the assessee as on 1.4.1981 is higher than the fair market value of the asset as on that date, the Assessing Officer would be enabled to make a reference to the Valuation Officer for determining the fair market value of the property.(w.e.f. 1st day of July, 2012).

25.  Presumptive Taxation is not applicable to Professional person carrying on the business-
 (i) a person carrying on profession as referred to in sub-section (1) of section 44AA;
(ii) persons earning income in the nature of commission or brokerage income; or
(iii) a or a person carrying on any agency business.

26.  Section 115JB is amended  that the book profit for the purpose of section 115JB shall be increased by the amount standing in the revaluation reserve relating to the revalued asset which has been retired or disposed, if the same is not credited to the profit and loss account.

27.  It is proposed to amend the aforesaid sections, i.e., 153 and 153B so as to provide that the time limits for completion of assessments and reassessments shall respectively be increased by three months.

28.  Under Sec 10(23C) any Charitable organization will not get the benefit of tax exemption in the year in which the receipt from commercial activities exceeds the threshold limit i.e. Rs.25 lakhs, whether or not the registration or approval granted or notification issued is cancelled, withdrawn or rescinded.

29.  Under sec 253 & 254 A.O can also file an appeal  directly before the ITAT against the order passed in pursuance of direction given by the DRP.

30.  Section 271AA is ammended to provide levy of a penalty at the rate of 2% of the value of the international transaction, if the taxpayer.-
(i) fails to maintain prescribed documents or information or;
(ii) fails to report any international transaction which is required to be reported, or;
(iii) maintains or furnishes any incorrect information or documents.
This penalty would be in addition to penalties in section 271BA and 271G.
31.   Section 147 of the Act, to provide that in all cases where it is found that an international transaction has not been reported either by non-filing of report or otherwise by not including such transaction in the report mentioned in section 92E then such non-reporting would be considered as a case of deemed escapement of income and such a case can be reopened under section 147 of the Act.

32.  Under sec 92CA transfer pricing office have a power to determine arm length price of an international transaction noticed by him in the course of proceedings before him, even if the said transaction was not referred to him by the Assessing Officer, provided that such international transaction was not reported by the taxpayer as per the requirement cast upon him under section 92E of the Act.

33.  Section 115BBA has been amended to provide that income arising to a non-citizen, non-resident entertainer (such as theatre, radio or television artists and musicians) from performance in India shall be taxable at the Flat rate of 20% of gross receipts instead of rate ranges from 10 to 30%.Further in case of non –citizen, non resident sportsmen and non residence sports association the tax rate has been increased from 10 to 20% of gross receipts.

34.  Section 149, has been amended to extend time limit for issue of notice in case of a person who is treated as agent of a non-resident, the time limit presently prescribed of two years be extended to six years.

35.   Amend section 195(1) to clarify that obligation to comply with sub-section (1) and to make deduction there under applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident has:-
(a) a residence or place of business or business connection in India; or
(b) any other presence in any manner whatsoever in India.
These amendments will take effect retrospectively from 1st April, 1962 and will accordingly apply in relation to the assessment year 1962-63 and subsequent assessment years.

Empanel as Concurrent Auditors

BANK OF MAHARASHTRA invites online applications from practicing firms of Chartered Accountants, in the prescribed format, who are willing to...