Newsletter -October 2016

Vinodh & MuthuChartered Accountants

Dear Readers,

Welcome to our newsletter.

VMCA brings you the significant

developments in taxation &

regulatory during the month of

September and October 2016.

We hope this edition is useful and

provides some insight.

Volume 1.6

October 2016

Corporate Tax

International Tax

Personal Tax

Indirect Tax

FEMA

7

4

10

13

16

Corporate Tax

Corporate TaxCIT vs D. Chetan & Co. [HC Mum – 278 – 2014]

• Loss suffered in foreign exchange transactions entered into for

hedging business transactions cannot be disallowed as being

“notional” or “speculative” in nature. Applied CIT vs. Badridas

Gauridas (P) Ltd. [HC Mum – 261 ITR 256]

Group M. Media India Pvt. Ltd. vs The UOI & Ors. [WP2067-

HC Mum-2016]

• AO cannot rely on Instruction No.1/2015 dated 13.01.2015 to

withhold refunds as the same has been struck down by the

Delhi High Court in Tata Teleservices [W.P. (C) No. 12304/

2015 and CM 32604/2015] & the same is binding on all AOs

across the Country. Action of the AO in not giving reasons for

not processing the refund application is “most disturbing” and

stating that he will wait till the last date is “preposterous”.

Vatsala Shenoy vs JCIT [CA 1234-SC-2012]

• Sale in question could be treated as slump sale only if there

was no value assigned to the individual assets and liabilities

in such sale. This has obviously not happened.

• Amount received by the partners is the value of net asset of

the firm which would attract capital gain.

TDS Fee u/s 234E

• As the amendment to sec 200A has come into effect on 1st

June 2015 and has prospective effect, no computation of fee

for the demand or the intimation for the fee u/s 234E can be

made for TDS deducted prior to 1st June 2015. Hence, the

demand notices u/s 200A for payment of fee u/s 234E is

without authority of law.

• The same has recently been held in :

– Fatheraj Singhvi vs UOI [HC Kar - WA 2663-2674/2015(T-IT)]

– Little Servants of Divine Providence vs ITO (ITA

258/Coch/2016]

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Corporate TaxIncome Computation and Disclosure Standards (Notification No. 87/2016 dt. 29th September 2016)

• CBDT has deferred date of ICDS by one year i.e. applicable from FY 2016-17

• ICDS is applicable to all tax payers except individuals / HUF who are not liable for tax audit

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ICDS Key Amendments

II Valuation of inventories Permits use of standard cost as valuation methodology

III Construction contracts For contracts commenced on or after 1st Apr’16 - Revenue and cost to be recognised on

percentage of completion method

IV Revenue recognition Contract duration < 90 days – recognition based on substantial completion

Over a specific period of time – Recognise on straight line over the specific period

Interest on statutory refunds – Receipt basis

Other – Recognition based on percentage of completion method

VI Foreign exchange No more distinction of integral and non-integral

Valuation of non-monetary item is now based on exchange rate on value determination

date

VIII Securities To include share of a company in which public are not substantially interested.

Cost determination – Weighted average can also be used

IX Borrowing costs Qualifying assets include assets that require purchase time is more than 12 months

International Tax

Transfer PricingSara Lee TTK Ltd vs DCIT [ITAT – 376/Mum/2012]

• TPO relying on the press note 9(2000 series) dt 8th Sep 2000,

restricted the royalty payment to 1% of domestic sale towards

the use of trademark without transfer of technology.

• Automatic route under which FIPB approvals or RBI approvals

are granted have been devised for the "ease of doing business".

These approvals emanate from other legislation or policy and

are not in relation to determination of Arm's Length Price.

• Restored back to AO to adopt suitable methods.

Salcomp Manufacturing India Pvt Ltd vs ACIT [ITAT –

2201/Mds/2012]

• Appellant enjoyed larger credit period over and above the

credit period mentioned in the invoice and hence it is

appropriate to adjust import price on account of extra credit

period availed from AE.

• Based on judicial precedents and OECD TP Guidelines,

tribunal held that LIBOR plus 200 basis points is appropriate

and no adjustment is warranted.

Tega Industries Ltd vs DCIT [ITAT 1912/Kol/2012]

• Loan was considered to be quasi equity and guarantee a

shareholder activity on following grounds:

– Expectation are not that of lendor or guarantor

– Expectation was to protect its investment and help achieving

the objective of SPV

– Considering the financial position of SPV, no third party

would have agreed to grant loans on an independent basis

Lotus Footwear Enterprises Ltd (India Branch) vs DCIT [ITAT

779/Mds/2014, 801/2015 & 810/2016]

• APA signed in 2016 was allowed as an additional evidence

• Recharacterization by TPO dismissed based on the

characterisation in APA

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International TaxAithent Technologies Pvt Ltd vs DCIT [ITAT –

6446/Del/2012]

• Tribunal followed ‘Principle of Mutuality’ held in Sir

Kikabhai Prem Chand vs CIT [SC – 1953 – 24 ITR 506]

• No profit from trade with self and there cannot be a valid

transaction of sale between Indian HO and Overseas

Branch Office.

• However, an Indian Branch Office will be treated as an AE

u/s 92F(iii) of the Act

• This is because, a resident is taxed on its global income

[Sec. 5(1)] whereas Non-resident is taxed only to the

extent income is received / accrued or deemed to be

received / accrued in India [Sec. 5(2)].

Shinsei Investment Ltd [TS-473-AAR-2016]

• On the following grounds, capital gains arising to a

resident of Mauritius having a valid TRC, are taxable only

in Mauritius under the DTAA:

– Investment in Indian shares are held in its own account.

– Shares in Indian company are subscribed, paid and held

under the name of Mauritian company.

– Parent Company is the sponsor and settler of the mutual fund

in India and hence was a party to the agreement.

– Clauses such as place of arbitration, obtaining tax

withholding order are not relevant when ownership is in the

name Mauritian company.

• Distinguished Aditya Birla Nuvo Ltd vs DDIT [2011 – HC

Bom – 12 taxmann.com 141]

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Personal Tax

Personal Tax – Case LawsSharan Hospitality Pvt Ltd vs DCIT [ITAT – 6717/Mum/2012]

• Vacancy allowance was not considered citing that the concept

of vacancy is intrinsically linked with the actual letting of the

property. Followed Vivek Jain vs ACIT [2011 – HC AP – 337

ITR 74]. Distinguished Premsudha Exports Pvt Ltd vs ACIT

[2007 – ITAT Mum – 295 ITR(AT) 341]

• The purpose of vacancy allowance was to provide relief to the

taxpayer to the extent of rent which could not be earned owing

to its vacancy despite being let.

Quality Industries vs JCIT [ITAT – 2000/PN/2014]

• Interest paid on partners capital shall not be liable for

disallowance u/s 14A of the Act

• Interest payment to partners is a deduction eligible u/s 40(b)

and not an expenditure u/s 36 or 37.

Jitendra Kumar Soneja vs ITO [ITAT – 291/Mum/2015]

• Corpus fund received towards hardship caused to assessee on

redevelopment is capital in nature and hence not taxable.

ACIT vs Shri Jawaharlal L. Agicha [ITAT – 1844/Mum/2012]

• Nothing has been bought on record to show that physical

possession was given by the assessee to developer.

• No transfer of the impugned land had taken place during the

year under consideration, even under the provisions of Sec.

2(47)(v).

• Registration of the document becomes one of the essential

ingredients to invoke provisions of Sec. 2(47)(v)

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Personal Tax – Circulars / Notification194I on Lumpsum lease premium paid [Circular No.

35/2016 dt. 13th October 2016]

• TDS u/s 194I is not applicable on lump sum lease

premium or one-time upfront lease charges (which are not

adjustable against periodic rent) paid or payable for the

acquisition of long-term leasehold rights over land or any

other property.

• Directions were based on the following decisions:

– The Indian Newspaper Society [HC Delhi – ITA No. 918

&920/2015]

– Foxconn India Developer Ltd [HC Chennai – TA No.

801/2013]

– Tril Infopark Ltd [HC Chennai – TA No. 882/2015]

Provident Fund – New Form 11

• Form 11 is a declaration form which is required to be

obtained by the employer from the employees at the time

of joining.

• In the new form, the employee has to confirm

international worker status.

• Form 11 will also replace Form 13 to make a request to

transfer funds.

• Employers / employees can access fillable Form 11 on the

member portal which will be pre-filled with all the

relevant information in their database.

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Indirect Tax

Excise and CustomsSupply of goods from EOUs without payment of duty

[Circular No. 1046/34/2016-CX dt. 16th September 2016]

• Manufactured goods supplied by EOU to an ‘Advance

Licence’/’Authorisation Holder’ would be exempt from

Excise Duty.

Security bond permitted [Notification No. 46/2016-CE(NT)

dt. 26th September 2016]

• Applicant manufacturer is now required to execute a

general bond with surety or security.

Rationalisation of procedures in handling exporters

obligations under EPCG authorisations

• Central Government has now provided that Customs

authorities need not replicate the verification of export

obligation of the first block that is being conducted by

Regional Authorities and that the EODCs received under

EPCG scheme in terms of FTP/HBP 2004-09, 2009-14 &

2015-20 be normally accepted without further

verification, except in 5% cases where they will be verified

in detail before acceptance.

• Central Government has directed authorities to ensure

transparent random selection criteria and selection for

5% check being made at least at Joint/Additional

Commissioner level and the relevant exporter being

invariable informed, on the date of selection itself.

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Service Tax Exemption to taxable services provided by state govt.

[Notification No. 41/2016-ST dt. 22nd September 2016]

• Government has extended exemption from service tax

payable u/s 66B to taxable services provided by state

government industrial development corporation /

undertakings to industrial units by way of granting long

term lease of industrial plots.

• Restricted only to one-time upfront amount payable on

such lease.

Exemption to certain services from levy of service tax

[Notification No. 42/2016-ST dt. 26th Sep’16 & 45/2016-ST

dt. 30th Sep’16]

Pr. Commissioner of Service Tax, Delhi vs T.T. Ltd.

[Delhi HC – 9 TMI 492]

• For the purpose of export incentives, when new services

are added to parent notification by subsequent

notifications issued on different dates, refund/exemption

in respect of such new services has prospective effect.

• The subsequent notifications were merely clarificatory

and must apply from the date of parent notification

cannot be accepted.

Federation of Hotels & Restaurants Association of India

vs UOI [Delhi HC – W.P.(C) 6482/2011]

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No Services Period

42 Advancement of yoga by entities registered

u/s 12AA of the Income-tax Act, 1961

01-Jul-12 to

20-Oct-15

45 Transportation, by educational institutions

to students, faculty and staff of such

institutions

01-Apr-13 to

10-Jul-14

Services Constitution

Validity

65(105)(zzzzv) - Restaurant, by having the facility of air-

conditioning in any part of its establishment serving

food or beverage, including alcoholic beverages or both

Yes

65(105)(zzzzw) - Hotel, inn, guest house, club or camp-

site by whatever name called to any provision,

accommodation for a continuous period < 3 months

No

FEMA

FEMAImport Data Processing and Monitoring System [A.P. (DIR

Series) Circular No. 5 dt. 6th October 2016]

• In order to enhance ease of doing business and facilitate

efficient data processing for payment of import

transactions and effective monitoring thereof, Import Data

Processing and Monitoring System (IDPMS) has been

developed in consultation with the Customs authorities

and other stakeholders.

• Starting October 10, 2016 all transactions will flow

to IDPMS on daily basis for AD banks, to log all

subsequent activities and monitor the import

transactions.

ECB – Extension and Conversion [A.P. (DIR Series) Circular

No. 10 dt. 20th October 2016]

• AD Category-I banks can now approve requests from

borrowers for extension of matured but unpaid ECB,

subject to certain conditions.

• Further, powers are also designated to AD Category-I

bank to approve cases of conversion of matured but

unpaid ECB into equity subject certain conditions while

ensuring that conversion is within the terms mentioned

in paragraph C.14 of Annex to Circular dated November

30, 2015.

ECB by Startups [A.P. (DIR Series) Circular No. 13 dt. 27th

October 2016]

• RBI in the Fourth Bi-monthly Monetary Policy

Statement for the year 2016-17 released on October

04, 2016 has permitted Startup enterprises to access

loans under ECB framework.

• AD Category-I banks to allow Startups to raise ECB

under the framework provided in the circular.

• Click here to access the circular from RBI.

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Its good to receive feedback from our readers, so please do get in

touch if you have any feedback or useful information to share.

Vinodh & MuthuChartered Accountants

New No. 23 I Floor, 92nd Street, 18th Avenue,

Ashok Nagar, Chennai - 600 083.

+91 44 6555 6505 admin@vmca.co

www.vmca.co