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Important Case Laws

Direct Taxes

Unabsorbed depreciation is allowed to be carried forward even if return isn't filed within due date

The ITAT Mumbai bench held that Section 80 requires that return be filed as per section 139(3) to carry forward losses within due date, as envisaged under section 139(1), but within ambit of section 80 for carry forward losses, section 32(2) is not included.

Assistant Commissioner of Income-tax, Circle- 6(1), Mumbai v. Anil Printers Ltd. [2016] 68 taxmann.com 365

To claim exemption section 54F completion of construction or occupation not relevant

The ITAT Mumbai bench held that where assessee invested sale consideration

of immovable properties in construction of new residential house, exemption under section 54F could not be denied merely because construction was not completed

Vishal Dutt v. Income-tax Officer, Ward- 22(3)(4), Mumbai. [2016] 68 taxmann.com 337

Compensation paid by firm to its retiring partner is treated as goodwill, eligible for depreciation

The High Court of Gujarat held that payment of compensation made by assessee-firm to its retiring partners was to be treated as goodwill and, since, goodwill is an asset under Explanation 3(b) to section 32(1), assessee's claim for depreciation on said payment was to be allowed.

Principal Commissioner of Income-tax-2v. Swastik Industries. [2016] 68 taxmann.com 329

Agriculture Income - Need Evidence

The ITAT Mumbai bench held that where assessee showed an amount as agricultural income in his return but could not render evidence to substantiate its claim, said income was chargeable as income from other sources and not as agricultural income

Vishal Dutt v. ITO, Ward- 22(3)(4), Mumbai. [2016] 68 taxmann.com 337

Sale won't be treated as slump sale if transferee acquired only assets of the transferor and not liabilities

The ITAT Kolkata Bench held that Where assessee, sold its manufacturing unit, since transferee had taken over all fixed assets and specified current assets but did not take over loan and liabilities, transaction in question could not be regarded as slump sale.

DISALLOWANCE UNDER SECTION 14A

Rationalization of the formula in Rule 8D governing quantification of disallowance of expenditure relatable to exempt income in terms of Section 14A of the Income tax Act. The said Rule is being amended to provide that disallowance will be limited to 1% of the average monthly value of investments yielding exempt income, but not exceeding the actual expenditure claimed.

Deputy Commissioner of Income-tax, Circle11, Kolkata v. Xpro India Ltd. [2016] 68 taxmann.com 249

Tips collected by hotel from customers and paid to employees couldn't be taxable as salary

The Supreme Court of India held that the amount of tip paid by the employer to the employees had no reference to the contract of employment at all. Tips were received by the employer in a fiduciary capacity as trustee for payments that were received from customers which it disburse to its employees for service rendered to the customer.

Hence, tips so disbursed to employees couldn't be chargeable to tax as salary and the employer has no TDS liability.

ITC Ltd. Gurgaon v. Commissioner of Income-tax (TDS) Delhi. [2016] 68 taxmann.com 323

Excess expenditure incurred by trust in one year can be set off in subsequent year

Excess of expenditure over income in one year can be set-off in subsequent year against income under section 11 as and by way of application of income.

Assistant Commissioner of Income-tax (Exemption) I-1, Mumbai v. K.J. Somaiya Trust. [2016] 68 taxmann.com 9

Transaction in shares couldn't be treated as speculative if it doesn't even fall in definition of 'business'

The High Court of Madras held that where assessee-company was not regularly dealing with shares, but indulged in purchase and sale of shares because of certain financial problems of sister concern, there being no systematic or organised course of activity and no regularity in transaction and purchase being one time activity it could not be construed as a speculative transaction.

Rajapalayam Mills Ltd. v. Deputy Commissioner of Incometax, Special Range-I, Madurai. [2016] 68 taxmann.com 3

Indirect Taxes

No CST on traders selling goods of exempted units located in Haryana: SC

The Supreme Court of India held that where after purchasing goods manufactured in Haryana State by an 'exempt unit', if trader sold same in inter-state sale without charging any sales tax, it too would be eligible for exemption as per Notification No. SO 89/ CA.74/56/S.8/95, dated 4-9-1995 issued by Haryana State Government.

CASIO India Co. (P.) Ltd. v. State of Haryana [2016] 68 taxmann.com 304

Ship manufacturer can avail cenvat credit of goods or services used for construction of dry dock

The CESTAT, Ahmedabad Bench held that where assessee was engaged in manufacturing of ship and it was also rendering output service insofar as repair and refit of ship, denial of cenvat credit to assessee on input, input service and capital goods used in construction of dry dock was wrong.

Pipavav Defence & Offshore Engineering Co. Ltd. v. Commissioner of Central Excise, Bhavnagar [2016] 68 taxmann.com 242

No service tax on rent recovered from employees for providing accommodation at concessional rate

The CESTAT, Mumbai Bench held that contractual privileges of an employeremployee relationship are outside purview of service tax; hence, concessional rent recovered from employees for perquisite by way of 'concessional accommodation' is not liable to service tax.

Gondwana Club v. Commissioner of Customs & Central Excise, Nagpur. [2016] 68 taxmann.com 240

Credit on capital goods can't be denied if depreciation under Income-tax Act is reversed by filing revised return

The High Court of Madras held that where assessee has wrongly claimed both Cenvat Credit as well as income-tax depreciation on same duty amount, but, has filed revised returns under income-tax deleting depreciation claim, benefit of Cenvat Credit cannot be denied.

S.L. Lumax Ltd. v. Commissioner of Central Excise, ChennaiIV Commissionerate. [2016] 68 taxmann.com 156

Club entrance fees / Subscription - Non taxable since no service

The CESTAT, Mumbai Bench held that if services of a club are contingent upon payments to be made separately for each transaction, then:

(a) contribution to corpus by way of 'entrance fee', and

(b) contribution to common expenditure by way of 'subscription'

cannot be regarded as consideration for any service and cannot be charged to service tax

Gondwana Club v. Commissioner of Customs & Central Excise, Nagpur. [2016] 68 taxmann.com 240

Excise dues couldn't be recovered from successor if it purchased only property and not business of defaulter

The High Court of Gujarat held as follows:

  • As per section 11, for recovery of demand, only properties owned by defaulter can be attached; therefore, properties not owned by defaulter at any point of time, cannot be attached
  • Recovery from successor can be made only if successor had purchased business of defaulter; hence, where assessee had merely purchased plot and not running business, no recovery could be made of dues pertaining to defaulter

Prakhar Estates (P.) Ltd. v. Union of India. [2016] 68 taxmann.com 215

No interest on short payment of excise duty if excess amount was available with department in PLA account

The High Court of Madras held that when there is a huge excess amount available with department in Cenvat/PLA account of assessee, then, for any shortpayment by assessee, department cannot demand interest.

CCE, Puducherry Commissionerate v. Customs, Excise & Service Tax Appellate Tribunal. [2016] 68 taxmann.com 193

SECTION 80GG:

Increase in the Limit of deduction of rent paid under section 80GG from INR 24,000 per annum to INR 60,000 to provide relief to those who live in rented houses.

SECTION 80JJA: DEDUCTION IN RESPECT OF EMPLOYMENT OF NEW WORKMEN

It has been extended to all sectors and deduction will be available in respect of cost incurred on any employee whose total emoluments are less than or equal to Rs. 25,000 per month. Relaxation also provided for minimum number of days from 300 days to 240 days.

SECTION 87A:

Rebate from Income tax under Section 87A increased to Rs. 5,000 from Rs. 2,000 for individuals having income upto Rs. 500,000 p.a.

Cenvat credit and refund thereof can't be denied merely on ground of non-registration

The High Court of Karnataka held that Registration is not a pre-condition to claim credit; hence, Cenvat credit and refund thereof cannot be denied on ground of non-registration.

Commissioner of Service Tax v. Kyocera Wireless (India) (P.) Ltd. [2016] 68 taxmann.com 164

NEWS BULLETIN

LATEST BUSINESS DEVELOPMENTS

Interest Rate Swaps -CCIL to be Counterparty

At present regulated entities, other than scheduled banks, are unable to conduct transactions on electronic platforms for Interest Rate Swaps (IRS) as one party to such transactions has to be either the Reserve Bank of India (RBI) or a scheduled bank or such other agency falling under the regulatory purview of the RBI which may be specified by the RBI in this regard. In this context, the Reserve Bank of India, in exercise of its powers conferred by Section 45V of the Reserve Bank of India Act, 1934 and of all the powers enabling it in this behalf, hereby specifies the Clearing Corporation of India Ltd (CCIL) as an approved counterparty for IRS transactions undertaken on electronic trading platforms where CCIL is the central counterparty.

RBI/2015-16/392

Guidelines on Investment Advisory Services offered by Banks

The Reserve Bank of India has advised that banks cannot undertake IAS departmentally. Accordingly, banks desirous of offering these services may do so either through a separate subsidiary set up for the purpose or one of the existing subsidiaries after ensuring that there is an arm's length relationship between the bank and the subsidiary.

RBI/2015-16/379Z

RBI to prescribe norms for electronic dealing platforms

The Reserve Bank of India is planning to prescribe a framework for authorisation of electronic dealing platforms for financial instruments regulated by it such as corporate bonds, commercial papers, certificate of deposits and derivative products.

NDS-OM is an anonymous electronic platform for trading in government securities. It was created a decade ago. Most trades in G-Secs now get executed on the NDS-OM. Similarly, CROMS is a straightthrough processing-enabled electronic anonymous order-matching platform to facilitate dealing in market repos in G-Secs.

Commercial papers allowed for infra debt funds

The Reserve Bank of India allowed infrastructure debt funds, registered as NBFCs to raise funds through shorter tenure bonds and commercial papers from the domestic market to the extent of upto 10 per cent of their total borrowings.

Panel on cards to find out banks for mergers

A 10-member committee is being set up by the government to identify suitable candidates as it seeks to push consolidation among state-run banks, which number 27 including five subsidiaries of State Bank of India.

The proposed committee will have senior executives along with representatives from the Reserve Bank of India. The idea is to identify candidates for both mergers and acquisitions.

Reverse e-auction now mandatory for shortterm power procurement

The government has amended the guidelines for short-term procurement of power by discoms, making it mandatory for such transactions to be processed online under the reverse auction route to bring more transparency into the system. A power procurement period ranging from a day to a year is considered as short-term.

The transaction for short-term energy requisition from power exchanges has been exempted from these guidelines.

Under the guidelines, the bidders, during the auction, will have the option of reducing the tariff quoted by them in decrements of one paise or multiples thereof, and to increase the quantum quoted by them by 1 MW or its multiple. During the reverse auction, the prevailing lowest tariff would be visible to all the bidders.

RBI okays FPI investment in REITS, AIF

RBI allowed Foreign Portfolio Investors in investment vehicles, including Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts, and Alternative Investment Funds.

Government hikes minimum wage for contract workers to Rs 10,000

Government has increased minimum wage to Rs 10,000 at the national level, taking into consideration the Consumer Price Index and Dearness Allowance. This was based on the verdict of the Supreme Court. This increase of minimum wage has been linked to pension and bonus. and Minerals (Development and Regulation) Amendment Act, 2015 permitted transfer of mining leases only for auctioned mines.

Now, as the amendment has been cleared by Parliament, the government expects the transfer of even non-auctioned mines to happen smoothly.

Online sales to foreign buyers get exports tag

All sales by Indian sellers to foreign buyers through digital platforms would be classified as export. All domestic sellers who supply goods and services to foreign buyers would be classified as exporters. It will allow them to claim benefits under the Merchandise Exports from India Scheme (MEIS), which provides financial incentives.

Under the MEIS, the government provides duty benefits at two, three and five per cent, respectively, depending on the products and the destination country.

The payment for goods purchased on e-commerce platform will be done through international credit or debit cards.

Online trading platform for farm goods launched

Prime Minister Narendra Modi sowed the seeds for a farming revolution, with the launch of e-NAM, an online portal for trading in agriculture produce, which promises to liberate farmers from the clutches of middle-men and realise fair market value for their yields.

The e-NAM marketplace will initially enable farmers in eight States - Uttar Pradesh, Madhya Pradesh, Jharkhand, Himachal Pradesh, Gujarat, Telangana, Rajasthan and Haryana - to sell 25 commodities in 21 wholesale mandis.

The commodities that will initially be sold online include chana (black gram), castor seed, paddy, wheat, maize, turmeric, onion, mustard, mahua flower, tamarind and shelling pea.

CAPITAL MARKET

Small firms' delisting relaxed

Promoters of small companies who get written consent from at least 90 per cent of the public shareholders to delist shares will be considered to have complied with the delisting norms as per SEBI

Sebi nod to make e-book mandatory for private placement issues

Capital markets regulator SEBI approved new norms to make electronic book mandatory for all private placement issues on debt basis, having a threshold of more than Rs 500 crore inclusive of green shoe option, if any.

CORPORATE LAWS

Companies will have unique ID no. to carry out business

Companies will soon have one unique identification number to carry out all business transactions. The Central Board of Direct Taxes (CBDT) and the Ministry of Corporate Affairs are integrating their back-end operations to provide one simple identity to companies, doing away with the multiplicity of numbers currently being used by them.

PF Members can take out entire corpus before retirement

Rescinding its earlier decision after employee protests, the Employees' Provident Fund Organisation (EPFO) has decided to allow members to withdraw their entire corpus before retirement for purposes such as housing, professional education, medical treatment and the marriage of their children.

INDIRECT TAXATION

DVAT - Composition Scheme

A new composition scheme has been recently notified by the Government vide notification dated 18/03/ 2016 in exercise of powers conferred in section 16(12), wherein the registered dealers whose annual turnover is upto Rs. 50 Lakhs and who makes sales of cooked food, snacks, sweets, savouries, juices, aerated drinks, tea and coffee etc. have an option to pay composition tax @ 5%.

In the above context, it is clarified that the condition requiring payment of tax on opening stock is not applicable to those dealers.

Relaxation of Know Your Customer (KYC) norms

The CBEC has decided that in cases where the proof of present address is not available with the individual, the proof of identity collected at the time of delivery along with the address recorded for the delivery purpose by the courier companies would suffice for KYC verification.

Circular No. 13/2016-Customs

CENVAT Credit (Fifth Amendment) Rules, 2016

CENVAT Credit of Service Tax paid in a financial year, on the onetime charges payable in full upfront or in instalments, for the service of assignment of the right to use any natural resource by the Government, local authority or any other person, shall be spread evenly over a period of three years. Where the manufacturer of goods or provider of output service, as the case may be, further assigns such right assigned to him by the Government or any other person, in any financial year, to another person against consideration, such amount of balance CENVAT credit as does not exceed the service tax payable on the consideration charged by him for such further assignment, shall be allowed in the same financial year.

Notification No. 24/2016- Central Excise

DIRECT TAXATION

Income from sale of unlisted equities to be treated as capital gains

CBDT has said income from sale of unlisted equities would be treated as capital gains in a move that gives significant relief to private equity, offshore and alternative investment funds.

The directive puts to rest the debate over treatment of income from sale of unlisted shares as capital gains or business income. This also gives certainty to foreign investors taking advantage of favourable tax treaties such as India- Mauritius.

Furnishing of evidence of claims by employee for deduction of tax under section 192

CBDT has introduced new Rule 26C and Form 12BB that require employees to furnish to the employer, evidence/particulars in relation to the expenditure incurred.

Nature of claims Evidence or particulars
House Rent Allowance Name, address and permanent account number of the landlord/landlords where the aggregate rent paid during the previous year exceeds rupees one lakh.
Leave travel concession or assistance. Evidence of expenditure.
Deduction of from house property Name, address and interest under the permanent account head "Income number of the lender.
Deduction under Chapter VI-A Evidence of investment or expenditure

I-T dept to pay interest on TDS refund

The I-T department will now add interest amount to a delayed refund made on excess TDS cuts and will also not litigate with the deductor on this issue in the future, a latest directive has said.

Deductions allowed for tax paid in foreign nations

The rules will allow for foreign tax credit with all countries with which India has a double tax avoidance agreement as well as tax paid by Indian residents in other specified countries.

The draft rules have also proposed that the credit will be available to the resident assessee in the year in which the income has been taxed or assessed in India.

Further, the credit will be calculated separately for each source of income and from each country. The amount of credit available will be lower of the tax payable under the Income Tax Act on such income and the foreign tax already paid and will be calculated based on the conversion rate on the day the foreign tax was paid.

Taxpayers will also have to furnish documentary evidence for availing the credit including a certificate for the tax department of the foreign company, acknowledgement of online tax payment or bank counter foil and a declaration that the amount is not under any dispute.

Cess and surcharges in addition to tax will also be creditable and it will be available against MAT liability too.

Tips collected by hotel from customers and paid to employees couldn't be taxable as salary

The Supreme Court of India held that the amount of tip paid by the employer to the employees had no reference to the contract of employment at all. Tips were received by the employer in a fiduciary capacity as trustee for payments that were received from customers which it disburse to its employees for service rendered to the customer.

Hence, tips so disbursed to employees couldn't be chargeable to tax as salary and the employer has no TDS liability.

ITC Ltd. Gurgaon v. Commissioner of Income-tax (TDS) Delhi. [2016] 68 taxmann.com 323

BANKING

RBI issues trading norms for PSLCs

Banks can buy Priority Sector Lending Certificates (PSLCs) - on the lines of carbon credit trading with a minimum lot size of Rs 25 lakh to meet the shortfall in priority sector lending targets.

There will be four kinds of PSLCs - Agriculture, Small Farmers (SF)/Marginal Farmers (MF), Micro Enterprises and General.

RBI spells out margin requirement for noncentrally cleared derivatives

As part of its move to implement margin requirements for non-centrally cleared derivatives, the Reserve Bank of India brought out a discussion paper wherein it has been proposed that both initial margin and variation margin will generally apply to all such derivatives.

In such derivatives, at least one of the parties to the transaction should be a scheduled bank, or other agency falling under the regulatory purview of the central bank.

FEMA

SEBI regulations governing foreign investment in units issued by REITs, InvITs and AIFs

It has been decided, in consultation with the Government of India, to allow foreign investment in the units of Investment Vehicles registered and regulated by SEBI or any other competent authority. At present, Investment Vehicle will include the following:

Real Estate Investment Trusts (REITs) o Infrastructure Investment Trusts (InvITs) o Alternative Investment Funds (AIFs

Further, unit shall mean beneficial interest of an investor in the Investment Vehicle and shall include shares or partnership interests.

Downstream investment by an Investment Vehicle shall be regarded as foreign investment if either the Sponsor or the Manager or the Investment Manager is not Indian 'owned and controlled' as defined in Regulation 14 of the Principal Regulations.

In case the sponsors or managers or investment managers are organized in a form other than companies or LLPs, SEBI shall determine whether the sponsor or manager or investment manager is foreign owned and controlled.

The extent of foreign investment in the corpus of the Investment Vehicle will not be a factor to determine as to whether downstream investment of the Investment Vehicle concerned is foreign investment or not.

Downstream investment by an Investment Vehicle that is reckoned as foreign investment shall have to conform to the sectoral caps.

Govt eases norms for foreign firms to set up branch offices in India

The government relaxed the approval process for foreign firms to set up their branch, liaison and project offices in the country.

As a measure towards improving the ease of doing business, it has now been decided that except for a few sectors such as defence, telecom, private security, .information and broadcasting and nongovernment organisation and except a few countries, the power to grant approvals for establishment of branch, liaison, project offices by foreign entities, would be delegated to the Authorised Dealers Category-I Banks. sector.

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