RNM ALERT ISSUE NO.81 OCT, 2015 Thinking of the Bottom Line – Think of Us
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RNM ALERT ISSUE NO.81 OCT, 2015 Thinking of the Bottom Line – Think of Us www.rnm.in Dear Readers, We want to begin by wishing everyone a very Happy Diwali and best of wealth and health for the year ahead. I am sure, you would have all had a pollution free Diwali. Team RNM was represented at the recent GGI World Conference in Boston, USA in October thru CA Raghu Marwah, Partner. He made a presentation at the M&A Practice Group meeting on some of the key deal flows in India, which was much appreciated. While in London, UK he attended a Seminar on Probate and Inheritance Tax (IHT) to get a fresh update on HMRC changes in this field. The Organisation for Economic Co-operation and Development (OECD) has revised downwards its global growth forecast to 2.9% in 2015 and 3.3% in 2016 from the earlier estimate of 3% and 3.6%, respectively. The agency expects India’s economy to grow at 7.2% in FY16, 7.3% in FY17 and 7.4% in FY18. During the month of October, equity markets worldwide recovered after falling for two consecutive months. FII’s bought $1.03bn in equities in India during October. The Rupee appreciated 0.5% versus the Dollar. Domestic Mutual funds continue to see healthy inflows. The policy direction is right and economy is making good progress on most fronts. Improving margin outlook of corporates, likely lower interest rates, soft commodity prices and reasonable valuations lead to a positive outlook for equity markets over the medium to long term, as per Experts. The recent unexpected results of the Bihar elections, have put a partial dampener on the potential of pushing thru key legislations like the GST Bill thru Parliament. However, the recent FDI proposals for changes in 15 key sectors once the changes get notified is likely to result in a major thrust with simplification being the key buzzword. Team RNM is putting together a separate Special RNM Alert on the FDI proposals which should be on your desk soon. Regards, CA U.N. Marwah For and behalf of the RNM Alert Editorial Board All Rights of Circulation restricted Issue No. 81: OCT, 2015 Page 2 of 22 CO NTENTS Direct Tax -Case Laws - Salary 4 - Expenses related to Exempt Income 4 - Profits or Gains of Business or Profession 5 - Capital Gains and Its Deduction 5 - Carry forward and set off of Loses 5 - Assessment 5 - Appeals 5 - Penalties 6 - Article - Why Indian Citizens and Businesses are being asked to sign FATCA Declarations 7-8 Indirect Tax -Service Tax -Case Laws - Dealers of SIM cards can't take credit of service tax paid by telecom companies 9 - Dept. must specify default committed by assessee in SCN without which demand is invalid 9 - Even in case of large scale fraud, recovery can't be made beyond 5 years of relevant date 9 - Exemption available on payment of duty in cash isn't available if duty paid by use of credit 9 -Food cooked in restaurant classifiable as branded food if trade mark of restaurant is registered 9-10 -HC condoned delay of 76 days in filing appeal before Tribunal on payment of cost of Rs. 2,000 10 - High Court quashed adjudication order due to unexplained delay of 22 months in passing order 10 - No service-tax on entrance fee collected by club which doesn't confer any access to services 10 Issue No. 81: OCT, 2015 Page 3 of 22 - Refund of duty paid on material which is used in export goods should be claimed within 1 year 10 - SEZ units can claim ST-refund within one year from date of payment of ST; date of advance payment is irrelevant 10 - Time limit to file refund claim doesn’t apply to rebate claim arising out of export 10-11 - Tribunal can't examine validity of review order passed by Committee of Chief Commissioners 11 RBI Updates -Circular - Annual Return on Foreign Liabilities and Assets (FLA Return) – Reporting by Limited Liability Partnerships 12 - Non-Banking Financial Company-Micro Finance Institutions (NBFC-MFIs) – Directions – Modifications 12 Corporate Finance - Latest News - Private Equity 13-15 - Mergers & Acquisition 15-16 - Venture Capital 17-21 DIRECT TAX DIRECT TA Issue No. 81: OCT, 2015 Page 4 of 22 DIRECT TAX Case Laws Salary Sec 17(3)(iii)(A) -Amount received by prospective employee for loss of employment offer is a capital receipt and is neither taxable as "salary" or as "other sources" [PRITAM DAS NARANG V. CIT, ITA 203/2014(Delhi)] Expenses related to Exempt Income Sec 14A - Rule 8D does not apply to shares held as stock-in-trade. AO cannot apply Rule 8D to make a disallowance without showing how the assessee's disallowance is wrong. [M/s. G. K. K. Capital Markets (P) Ltd. V. DCIT, I.T.A No.805/Kol/2012] Sec 14A - Interest liable to be disallowed u/s 14A on proportionate basis even if assessee-bank's current deposits exceed its investments yielding tax-free returns. Assessee-bank cannot escape disallowance of interest u/s 14A by taking the plea that its interest-free funds (own funds or current account deposits) exceeded the amount of its tax-free income yielding investments in shares and mutual funds. [DCIT V.HDFC Bank Ltd., [2015] 61 taxmann.com 361 (Mumbai - Trib.)] Profits or Gains of Business or Profession Sec 32 - Even prior to the insertion of "intangible assets" in s. 32, intellectual property rights such as trademarks, copyrights and know-how constitute "plant" for purposes of depreciation. The department is not entitled to rewrite the terms of a commercial agreement. [M/s. Mangalore Ganesh Beedi Works V.CIT, APPEAL NOS. 10547-10548 OF 2011(SC)] Sec 37(1)-If a claim of damages and interest thereon is disputed by the assessee in the court of law, deduction cannot be allowed for the interest claimed on such damages. [M/s National Agricultural Cooperative Marketing Federation of India Ltd., V. JCIT, ITA Nos.1999 & 2000/Del/2008] Sec 41–Where once amount realized by assessee by sale of building, plant and machinery was treated as income arising out of profits and gains from business by virtue of sub-section (2) of section 41 notwithstanding fact that assessee was not carrying on any business during relevant assessment year, provision contained in sub-section (2) of section 32 would become applicable and, consequently, set-off had to be given for unabsorbed depreciation allowances of previous year brought forward in terms of said provision. [Karnataka Instrade Corporation Ltd. V. ACIT, [2015] 62 taxmann.com 239 (Karnataka)] Sec 48–In computing "capital gains" the AO is not entitled to substitute the "market value" for the actual "consideration" received by the assessee. He also cannot disregard the valuation report without cogent material. [Venus Financial Services Ltd. V.ACIT, ITA No. 5335/Del/2012(Karnataka)] Issue No. 81: OCT, 2015 Page 5 of 22 Capital Gain& Its Deductions Sec 54F -Sec. 54F is a beneficial provision & must be interpreted liberally. It does not require that the construction of the new residential house has to be completed, and the house be habitable, within 3 years of the transfer of the old asset. It is sufficient if the funds are invested in the new house property within the time limit. [SMT. B S SHANTHAKUMARI V.CIT, ITA No.165/2014(Karnataka)] Carry forward and set off of Losses Sec 79 -Transfer of shares of the loss-making company by the shareholder-company to its subsidiary is not hit by sec. 79 [CIT V. M/s. AMCO Power Systems Ltd., ITA No.766 OF 2009 c/w ITA Nos.769/2009, 1046/2008, 765/2009 & 767/2009 (Karnataka)] Assessment Sec 143(2) -Failure to issue a s. 143(2) notice renders the reassessment order void. [PCIT V.Shri Jai Shiv Shankar Traders Pvt. Ltd., ITA 519/2015(Delhi)] Sec 147– Reopening only on the basis of information received that the assessee has introduced unaccounted money in the form of accommodation entries without showing in what manner the AO applied independent mind to the information renders the reopening void [G & G PHARMA INDIA LTD V. CIT, ITA 545/2015(Delhi)] Sec 147 - Where during assessment under section 143(3), receipts by assessee-US company was treated as royalty and taxed on gross basis at rate of 15 per cent, but Assessing Officer initiated reassessment contending that, since assessee had a PE in India, said receipt was to be attributed to Indian PE and said amount was to be taxed at 20 per cent, since Assessing Officer had earlier examined entire issue of royalty and its taxability in its entirety and all relevant facts were fully and truly disclosed by assessee, reassessment proceedings was to be quashed. [Oracle Systems Corporation V. ADIT, [2015] 62 taxmann.com 291 (Delhi)[08-10-2015]] Sec 148- IfDept behaves in an irresponsible manner and does not furnish the recorded reasons on the basis that the assessee was already aware of them, the assessment has to be quashed. [M/s Trend Electronics V. CIT, INCOME TAX APPEAL NO. 1867 OF 2013(Bombay)] Sec 153C - Delhi HC lays down principles to avoid vexatious proceedings u/s 153C against person other than person searched [CIT-7 V. RRJ Securities Ltd., [2015] 62 taxmann.com 391 (Delhi)] Appeals Sec 263-Claim that notional interest on funds placed by the s. 10A eligible unit with the H.O. is allowable as a deduction to the H.O. and is exempt in the hands of the s. 10A unit is an “unsustainable view” justifying revision action [THOMSON PRESS (INDIA) LTD.