DTRTI NEWSLETTER Issue No.68/Chennai September 20, 2019

TRAINING NETWORK RELATED NEWS

A match of table tennis during the DTRTI Sports Meet (DSM) conducted for the

participants of the 60 days Induction course for DR Inspectors

Online chess tournament was conducted during the DTRTI Sports Meet (DSM) and the

final game being projected live on screen for the other participants to watch

CONTENTS Training network related news

Officer for the week – Shri D.C. Patwari, IRS, DGIT

Topic for the week – Aggressive Tax Planning Schemes

Learn the subject through a puzzle-PGBP-Expenses not deductible

2

OFFICER FOR THE WEEK

Shri D.C. Patwari is an

IRS officer of 1986

Batch. His educational

qualifications are

M.Com. (Accounts) &

M.Com. (Financial

Mgmt.).

Later, he also did MBA in Public

Policy from IIM, Ahmedabad. He worked in

different capacities in Mumbai, Rajkot,

Ahmedabad, Baroda and Jaipur. Presently,

he is posted as DGIT (Inv.), Chennai with

additional charge of Kerala.

While working in Mumbai as

ACIT/DCIT, he handled Securities Scam

cases of Harshad Mehta group. He also

worked in Corporate charges in Mumbai in

different capacities and also Central charges

in Mumbai and Ahmedabad for 7 years.

His last posting in Mumbai was as

PCIT-2, Mumbai where he created the

history by doubling the budget collection

from Rs.25,500 crores to Rs.52,300 crores in

just 2 years. This was the highest ever

collection of any PCIT charge in the country.

Here, he personally found out many new

issues in bank cases and recovered the

demands created.

He has also authored a book on

“Options and Futures in an Indian

Perspective” which was first published by

JAICO in 2000 even before these

instruments were introduced in India.

Three editions and several reprints of this

book have been published so far. He has

been a regular speaker at NADT, DTRTI-

Mumbai and Ahmedabad on various topics

like Capital Market, Analysis of Financial

Statements, Framing quality assessments,

detecting corporate frauds & Examination of

witness etc.

Five posers for the officer

1. What are the 3 important leadership

principles you followed which

contributed to your success?

Ans. The three important leadership

principles that I followed are:

i) Delegation of non-core activities and

trusting subordinates which has

reduced undue work pressure and

also helped developing Team.

ii) Trying to create win-win situation in

anything I do, so that everyone

supported.

iii) Sharing the credit of success with

Team and accepting the failure as my

own. This has helped in building

credibility and wider acceptability.

2. What would you say has been your

greatest accomplishment & failure &

what did you learn from them?

Ans. My greatest accomplishment in the

department was increasing the budget

collection of PCIT-2, Mumbai charge

from Rs.25,500 crores to Rs.52,300

crores (Highest in the country) in just

two years by taking innovative steps,

finding new issues and firmly dealing

with large tax payers. This has given

me confidence that I can handle any

situation in the department at ease.

As regards failure, I can recount my

efforts during IDS 2016 in Mumbai

that I conducted many meetings and

seminars to convince assessees to

come forward and avail IDS 2016 but

till 20th August 2016, there were

hardly few who came forward. The

Scheme was staring at a big failure.

3

..

Then, we realized that unless survey and

other actions are not taken, assessees will

not avail this Scheme. After, we started

effective surveys, large number of

declarations came and Scheme became a

big success.

3. What are your suggestions for

developing next generation of

leadership in the department?

Ans. Suggestions for developing next

generation of leadership:

i) We should be firm but humble in our

approach.

ii) Core competence and specialisation

should be encouraged.

iii) Various targets should be set based on

participation of field so that they will

develop responsibility.

iv) Should develop the feeling of tax

compliance among citizens.

v) We should always focus on our core

agenda – “To collect the due taxes for

the Govt. without any fear or favour”

4. What should be the vision for the

department for the next 5 years?

Ans. Vision of Department for next 5

years:

“A highly professional and sensitive

department committed to collect due

taxes with complete transparency. We

are fully digital and follow “ease of

doing business” principle of Govt. Tax

Payer will feel proud to be associated

with our department and each of their

interaction will be pleasant”

5. What qualities do you think will

make an officer successful in the

Department?

Ans. Qualities for a successful officer:-

i) Committed to work

ii) Unbiased in approach

iii) Desire to uplift image of the

Department

iv) Perseverance and hard working

v) Self motivated

vi) Specialised knowledge in related

activity

vii) Keep work-life balance

viii) Ready to take up any challenge and

assignment

ix) Decision maker

x) Integrity and responsibility

A match of Carroms during the DSM for the of DR ITI course

4

TOPIC FOR THE WEEK Aggressive Tax Planning Schemes

Compiled and provided by Shri M.S. Nethrapal, IRS, Addl.CIT (continued from the last week)

e. Further, the Tribunal did consider

that ‘Trustee-2’ would not have acted in an

unlawful manner or exposed its liability in

respect of actions to be taken for the

Transaction. However, noting that there

was no risk of either, the Tribunal was of

the view that the key decisions relating to

the sale were taken in UK, and not by the

Mauritius directors of ‘Trustee-2’. The

Trusts had shifted residencies over three

jurisdictions in a single financial year. The

Tribunal also stressed on the fact that

‘Trustee-2’ was well aware that it had a

limited role in the management of the

Trusts and was engaged merely to claim

residency in Mauritius. Therefore,

‘Trustee-2’ was only appointed to take

benefit of the Treaty and was not involved

in the independent effective management

of the trusts.

f. ‘Different persons’ issue: The

Tribunal dismissed the hypothetical

‘snapshot’ argument dealing with

residency of a trust across multiple

jurisdictions in a single tax year. However,

the Tribunal briefly touched upon the

argument of taxation of trust versus the

trustee, as the former is taxed as per

Mauritius law and the latter as per UK law.

The issue revolved around whether the

Treaty can be used in a circumstance

where different entities are being taxed in

Mauritius and UK albeit in respect of the

same income. The Tribunal was of the

view that the focus of the Treaty was to tax

streams of income, and did not

differentiate based on the identity of the

person liable to tax.

There are innumerable cases on similar

lines and the same clearly shows that the

place of effective management is where

the actual decision making is done.

36. Apart from the above Judicial

precedents some of the other factors to

consider while looking into the Place of

Effective Management are given below:

a. Actual conduct is of relevance and

implicit in the evaluation of POEM, i.e. to

say, what analysis of POEM has always

emphasized is the ‘reality’, ‘actual state of

affairs’. The ‘puppet directors / dummy

directors’ have always been disregarded.

Not only the OECD and UN MCs, but also

the supreme court has emphasized that it

is not the power or the capacity to manage

and control, but the actual control and

management that is relevant, or, in other

words, not the de jure C&M but the de facto

C&M which is relevant. Refer also the

following extracts from SC ruling in the

case of Vodafone:

“Where the subsidiary’s executive directors’

competencies are transferred to other

persons/ bodies or where the subsidiary’s

executive directors’ decision making has

become fully subordinate to the Holding

Company with the consequence that the

subsidiary’s executive directors are no more

than puppets then the turning point in

respect of the subsidiary’s place of residence

comes about.”

b. Proper documentation to be

maintained for agenda, discussion,

records, appraisal- It is important to

examine the trail of documents in the form

of agenda papers or in the form of

proposals leading to preparation of agenda ..

5

papers for the Board meetings. It is

possible that, the preparation may not be

in the same jurisdiction in which the

directors normally meet. It is also possible

that professional advice may have been

sought in the preparation of proposals or

agenda papers. What is of greater

relevance is the record of debate by the

Board of Directors (BOD) before

arriving at a positive or negative

conclusion on a matter involving policy

decision. The better the quality of the

debate, the better are the chances to

establish that the decision making was

at the place of BOD meeting.

c. When a company has a BOD

comprised of persons who have strong

knowledge and understanding of the

subject which is being debated or

evaluated, it is a strong prima facie

evidence that the de facto management is

by the BOD – particularly in a case where

the agenda papers and minutes offer a

support that there was in-depth discussion

on the views and proposals which were

put forth before the BOD.

d. Independence of Directors Apart

from being competent, the BOD may need

to be independent too. Independence of

directors is a free state of mind. In absence

of any evidence to the contrary, a BOD

acting in a fiduciary capacity would be

regarded as acting independent and not

under parental/ shareholders’ influence.

So long as the BOD is competent and

independent, it is not relevant that the

BOD seeks opinion or views of the

professionals or the advisors or the

employees of the company. Seeking

advice for decision making is different

compared to surrendering oneself to

the decisions which are ‘dictated’.

e. Video Conferencing and Circular

Resolutions- In case of Board or

Committee Meetings held through video

conferencing, it may become imperative to

identify the place where the Board

Meeting held depending on the relevant

corporate laws of the jurisdiction to which

the entity is subject to.

All the above factors are necessary to

consider to actually evaluating the

place of effective management of the

company. The above guidance would

act as a good starting point for handling

dual residency arrangements pre 2017.

Post 2017, CBDT has provided a

detailed guidance on Place of Effective

Management through a detailed

circular and the above factors are also

in line with the above circular and the

same may be followed in those.

(to be continued)

..

சீபம்ந சி்பொடு ீங்குந் னி

ீபம்ந யுமைனொப ்ப ொலி் – கு் 195

இின குணதத்வப ்ன் ப ொ்கம ்

ப ொ்ொ், அவப ்பருமநயுந், புகழுந்

அ்பொழுதத ீங்கிவிடுந்.

Reputation and respect will be lost

when an affable person speaks

worthless words.

6

LEARN THE SUBJECT THROUGH A PUZZLE

CROSSWORD ON PGBP – EXPENSES NOT DEDUCTIBLE

1 2

3 4

5

6

7 8 9

10

11

12

13

14

15

16 17

..

ACROSS:

3. Expenditure incurred on

advertisement in any souvenir, brochure,

tract, pamphlet or the like published by a

_______________ not allowed as deduction

(Section 37(2B)) (9, 5)

6. Any sum paid on account of _________

tax shall not be allowed as deduction

(Section 40(a)(ii)) (6)

7. Any payment to a provident or

other fund established for the __________ of

employees of the assessee, unless the

assessee has made effective arrangements

for TDS from any payments made from the

fund which are chargeable to tax under the

head "Salaries" (Section 40(a)(iv)) (7)

8. 30% of any sum payable to a

______________ on which tax is deductible at

source under Chapter XVII-B is disallowed,

where such tax has not been deducted or

after deduction, not paid on or before the

due date of filing of return specified u/s

139(1). (Section 40(a)(ia)) (8)

10. Any amount paid by way of royalty,

_____________, service fee, privilege fee,

service charge or any other fee or charge,

7

..

by whatever name called, which is levied

exclusively on; or which is appropriated,

directly or indirectly, from, a State

Government undertaking by the State

Government. (Section 40(a)(iib)) (7, 3)

12. In the case of any firm assessable

as such, deduction shall not be allowed in

respect of any payment of salary, bonus,

_______________ or remuneration to any

partner who is not a working partner

(Section 40(b)(i)) (10)

13. ___________ payable outside India or

in India to a Non-Resident without TDS

shall not allowed as a deduction (Section

40(a)(iii)) (6)

15. Any sum paid on account of

__________ tax shall not be allowed as

deduction (Section 40(a)(iia)) (6)

16. Deduction shall not be allowed in

respect of any payment of __________ to any

working partner, if it exceeds the amount

calculated at the rate of twelve per cent

simple interest per annum (Section

40(b)(iv)) (8)

17. ____________________ means an

individual who is actively engaged in

conducting the affairs of the business or

profession of the firm of which he is a

partner (7, 7)

DOWN:

1. Interest, Royalty, fees for technical

services or other sum chargeable to tax

which is payable outside India or in India

to a ______________ or Foreign Company on

which tax is deductible at source under

chapter VII-B and such tax has not been

deducted or after deduction, not paid on or

before the due date of filing of return

specified u/s 139(1) are not deductible

(Section 40(a)(i) – 100% disallowance)

(3, 8)

2. Any consideration paid or payable

to a non-resident for a _______________ on

which equalisation levy is deductible

under the provisions of Chapter VIII of the

Finance Act, 2016, and such levy has not

been deducted or after deduction, has not

been paid on or before the due date

specified in sub-section (1) of section 139

(Section 40(a)(ib)) (9, 7)

4. Any sum paid on account of

__________________ tax under Chapter XIIH

shall not be allowed as deduction (Section

40(a)(ic)) (6, 7)

5. Where an individual is a partner in

a firm on behalf, or for the benefit, of any

other person in a __________________ capacity

and interest paid by the firm to the person

shall be taken into account for deduction

(14)

8. Deduction shall not be allowed in

respect of any payment of ________________ or

interest to any working partner, which is

not authorised by, or is not in accordance

with, the terms of the partnership deed

(Section 40(b)(ii)) and the payment

should relate after the date of such

partnership deed (Section 40(b)(iii))

(12)

9. Tax of the employee paid by the

Employer on ______________ not provided by

way of monetary payment shall not be

allowed as deduction (Section 40(a)(v))

(11)

11. Deduction shall not be allowed in

respect of any payment of remuneration to

8

..

any working partner, provided the

payment to all the partners during the

previous year exceeds the aggregate

amount on the first Rs.3,00,000 of

________________ or in the case of loss,

Rs.1,50,000 or 90% of ___________________

whichever is more and on the balance of

___________________ @ 60% (Section

40(b)(v)) (4, 6)

14. Where an individual is a _____________

of an association of persons of body of

individuals other than a company or a co-

operative society, any payment of interest,

salary, bonus, commission or

remuneration, made by such association

or body to him shall not be allowed as

deduction (Section 40(ba)) (6)

Please e-mail your answers to dtrtichennai@gmail.com

And the first correct entry will be rewarded. Answers will follow in the next issue.

Enclosed संलग्न

Further information अधधक जानकारी

Concerned official संबंधधत कममचारी

Office Note कायामलय धिप्पणी

Annexure अनुलग् नक

–

Copy of the letter referred to the above is

enclosed herewith. उपयुमक्त संदधभमत पत्र की प्रधतधलधप इसके साथ संलग्न है l

Please contact the DDO for further

information regarding the bill. धबल के संबंध में अधधक जानकारी के धलए कृपया आहरण

एवं संधवतरण अधधकारी से संपकम करें l

The concerned official may please be

informed accordingly. कृपया संबंधधत कममचारी को तदनुसार सूधचत धकया जाए l

I fully agree with the office note. मैं कायामलय धिप्पणी से पूणमतः सहमत हूँl

Please put up the letter alongwith its

Annexures. कृपया पत्र को इसके अनुलग् नको ंके साथ प्रसु्तत करें l

Final match of the badminton tournament held as part of DTRTI Sports Meet (DSM)

during the Induction Course for DR Inspectors

Published by: Team DTRTI, Chennai