News Flash May 2013

abm & associates CHARTERED ACCOUNTANTS

NEWS FLASH May 2013

http://www.abmnassociates.com/


Head Office : Navi Mumbai Branches : Pune | Kolhapur | Belgaum 1

Contents

WEB SEARCH ONLINE ADVERTISEMENT PAYMENTS MADE TO GOOGLE AND YAHOO NOT

TAXABLE IN INDIA ______________________________________________________ 2

IN BRIEF ................................................................................................................................... 2

ISSUE UNDER CONSIDERATION ........................................................................................................ 3

TRIBUNAL RULING........................................................................................................................ 3

OUR VIEW ................................................................................................................................. 3

CHANGES IN THE CONSOLIDATED FDI POLICY GUIDELINES EFFECTIVE FROM APRIL 25,

2013 _________________________________________________________________ 4

TAX DEDUCTION AT SOURCE (TDS) RATES FOR FY 2013-14 ______________________ 6

UNINTERRUPTED POWER SUPPLY (“UPS”) IS ENERGY SAVING DEVICE AND HENCE

QUALIFIES FOR 80% DEPRECIATION _______________________________________ 8

IN BRIEF ................................................................................................................................... 8

ISSUE UNDER CONSIDERATION: ....................................................................................................... 8

TRIBUNAL RULING: ...................................................................................................................... 8

TRIBUNAL HELD THAT ................................................................................................................... 8

SERVICE TAX RETURN FILING DATE FOR OCT-2012 TO MARCH-2013 EXTENDED TO

31.08.2013 ____________________________________________________________ 9



Web Search Online Advertisement Payments made to Google and Yahoo

not taxable in India

In Brief

Recently, ITAT Kolkata ‘B’ Bench in case of

Right Florists Pvt. Ltd1 held that payment

made to Google and Yahoo for Online Web

Search engine based advertisement is not

liable to be tax in India as “Website”

doesn’t constitute ‘PE’ unless the servers

on which websites are hosted are also

located in the same jurisdiction. As the

servers of Google and Yahoo are not

located in India, there is no PE in India.

Further, it has also held that payment is

neither “Royalty” u/s 9(1)(vi) nor “FTS” u/s

9(1)(vii).

Facts

Assessee is a florist and he uses advertising

1 I.T.A. No.: 1336/ Kol. / 2011 for A.Y. 2005-06

on search engines, i.e. by Google and

Yahoo, which does a web search for anyone

on use of certain keywords whereby

assessee name is shown as a result of such

search. The assessee had made payments

aggregating to Rs 30.44 Lakhs in respect of

online advertising to US based entities,

namely Google Ireland Limited (Google

Ireland, in short) and Overture Services Inc

USA (Yahoo USA, in short). However, no

taxes were withheld from these payments.

The AO held that the assessee ought to

have deducted TDS and that as there was

a failure, the expenditure was not allowable

u/s 40(a)(i). This was deleted by the CIT

(A) on the ground that Google and Yahoo

did not have a PE in India.



Issue under consideration

Whether payment made to Google and

Yahoo for Online Web Search based

Advertisement Payment is taxable in India

either as “Business Income”, or as

“Royalty” or as “FTS”.

Tribunal Ruling

Tribunal held that

A website does not constitute a

‘permanent establishment’ unless the

servers on which websites are hosted

are also located in the same jurisdiction.

As the servers of Google and Yahoo are

not located in India, there is no PE in

India. S. 9(1)(i) does not apply as there

is no “business connection” in India nor

are the online advertising revenues

generated in India.

As regards s. 9(1)(vi), relying on

decision in case Yahoo2 and Pinstorm3

that the advertising revenues are not

assessable as “royalty”.

As regards ‘FTS” under s. 9(1)(vii), the

services are not “managerial” or

“consultancy” in nature as both these

2 140 TTJ 195 (Mum)

words involve a human element.

Applying the rule of noscitur a sociis,

even the word “technical” in

Explanation 2 to s. 9 (1) (vii) would

have to be construed as involving a

human element. If there is no human

intervention in a technical service, it

cannot be treated as a technical service

u/s 9(1)(vii). The process is a wholly

automated as services are rendered by

the search engines, there is no human

touch at all. The results are completely

automated. Consequently, the whole

process of actual advertising service

provided by Google & Yahoo, even if it

be a technical service, is not covered by

the limited scope of s. 9(1)(vii).

Consequently, the receipts in respect of

online advertising on Google and Yahoo

cannot be brought to tax in India under the

provisions of the Act or the India US and

India Ireland tax treaty.

Our View

This verdict has reasserted that mere

‘Website’ doesn’t constitute “Permanent

Establishment” and wholly automated

process without human intervention

doesn’t amount to ‘Technical Service’

3 54 SOT 78 (Mum)

http://itatonline.org/archives/index.php/yahoo-india-pvt-ltd-vs-dcit-itat-mumbai-for-equipment-royalty-us-91vi-control-of-equipment-by-payer-essential/



Changes in the Consolidated FDI Policy Guidelines effective from April 25, 2013

Pricing of shares

The criteria has been changed for the

shares subscribed under Memorandum of Association. Now the condition of

DFCF method in case of subscription shares has been dispensed with and

such shares can be issued at face value.

Conversion of External Commercial

Borrowings / Lump Sum Fee / Royalty etc. into Equity

As per old FDI Policy, the companies

were allowed to issue Equity Shares against import of capital goods /

machinery (excluding second hand machinery), subject to certain

conditions. One among these conditions was mandatory requirement of independent valuation of Capital goods

/ machinery by third party, preferably by an independent valuer from the

country of import along with production of copies of documents issued by

customs authorities towards

assessment of the fair value of such imports. The said condition is dispensed with in new FDI Policy dated April 5,

2013.

Pakistan citizens, nationals and

companies are allowed to invest in India after prior approval from the

government.

RBI has prescribed the format for filing

annual Return of Foreign Assets & Liabilities for Indian Companies. The said return is to be filed with RBI.

Transfer of Shares / Convertible debentures from Resident to Non –

Resident

As per amended definition of ‘Person

Resident Outside India’ includes foreign national, NRI, incorporated non-

resident entities, FII other than erstwhile OCBs. Earlier definition of ‘Person Resident Outside India’

excluded foreign national, FII, NRI for



the purposes of transfer of Shares / Convertible Debentures from resident

to non-resident.

Allowed 49% stake by a foreign airlines

in the domestic carriers which are cash-strapped.

Raised FDI cap in various broadcasting

services to 74%.

Allowed upto 51% inflows of FDI in

multi-brand retail sector.

Permitted up to 49% foreign investment

in the power trading exchanges.

Increased foreign investment ceiling in

ARCs to 74%, up from 49%. This move

is aimed at inviting foreign expertise in this segment. It has also been said that the total shareholding of an FII in an

ARC will not exceed 10 per cent of the total paid-up capital.



TAX DEDUCTION AT SOURCE (TDS) RATES FOR FY 2013-14

Sr.

No.

Section

of

Income

Tax Act

Nature of Payment to Resident Threshold

Limit

₹

Rates in force4

(%)

Individual

or HUF

Others

1 192 Salaries (including payments to Non-Resident) Basic

Exemption Slab Rates5

-

2 193 Interest on Securities 5,000 10 10

3 194 Deemed dividend - 10 10

4 194A Interest other than Interest on Securities by

Bank on Term Deposit 10,000 10 10

5 194A Interest other than Interest on Securities 5,000 10 10

6 194B Lottery, Cross Word Puzzle, Gambling 10,000 30 30

7 194BB Winnings from Horse Race 5,000 30 30

8 194C Contracts including Sub-Contracts,

Advertisement Contracts6 30,0007 1 2

9 194D Insurance Commission 20,000 10 10

10 194EE Payments out of deposits under NSS 2,500 20 -

11 194F Repurchase of units by MF/UTI 1,000 20 20

12 194G Commission on sale of lottery tickets 1,000 10 10

13 194H Commission or Brokerage 5,000 10 10

14 194I

Rent for Land, building, furniture or fittings 1,80,000 10 10

Rent for Plant and Machinery, Equipment,

Vehicles etc. 1,80,000 2 2

15 194IA Transfer of immovable property other than

agriculture land8 50 Lakh 1 1

16 194J

Fees for Professional, Technical Services or

Royalty or Non-compete 30,000 10 10

Any remuneration or fees or commission paid to

director of the company including Sitting Fees

other than Salaries9

NIL 10 10

17 194LA Compensation on acquisition of immovable

property 2,00,000 10 10

4 Rate shall be at “rates in force” or 20% whichever is higher in case payee doesn’t possess PAN 5 Equal Monthly Instalment of Estimated Yearly Tax (Tax including Surcharge and cess applicable) 6 No TDS on payment of freight for Goods Transport to Transport contractor furnishing PAN to payer 7 Individual Contract less than ₹ 30,000 but aggregate of all contracts during the year exceeds ₹ 75,000- TDS applicable. 8 Newly inserted by Finance Bill, 2013, shall be effective from 1.06.13, Purchaser shall deduct the Tax. 9 Effective from 1.07.12



Note:

a) TDS needs to be deducted on payment or credit whichever is earlier including credit to

“Suspense Account”.

b) TDS needs to be paid with 7 days from date of deduction in case of salaries and before

7th of the succeeding month in case of payments other than salaries. TDS deducted on

31st March (on Credit) shall be paid before 30th of April.

c) Quarterly Return in Form 24 in case of Salary and in Form 26 in case of others before

15th of the end of Quarter and before 15th of May in case of March Quarter needs to

filed.

d) Non-deduction, delay deduction, wrong deduction are liable for interest @ 1.5% per

Month and delay in payment is liable for interest @1 % per month.

e) Non-deduction, Non-payment of Tax before due date of filing Return of Income is liable

for disallowance of Expenditure and penalties and prosecutions (in case delay is beyond

1 year) and Deductor shall be treated as “Assessee in Default”

f) Delay in filing Quarterly Returns is liable for fees of ₹ 200 per day of delay (mandatorily)

in addition to Penalty.



Uninterrupted Power Supply (“UPS”) is Energy Saving Device and hence qualifies for 80% Depreciation

In Brief

Recently, ITAT Mumbai ‘G’ Bench in case of Godery Phillips India Ltd10 held that

Uninterrupted Power Supply (“UPS”) is an ‘Automatic Voltage Controller’ falling within the heading ‘Energy Saving Device‘in the

Appendix to the Income Tax Rules 1962 giving depreciation rates @ 80% and hence

qualifies for such depreciation.

Facts:

Assessee for the Assessment Year 2006-07

and 2007-08 considering the Uninterrupted

Power Supply (“UPS”) as Energy Saving

Device had claimed depreciation at higher

rate i.e. 80%. AO disallowed such excess

depreciation of ₹ 5,74,579 for A.Y. 2006-07

and ₹ 4,72,596 for A.Y. 2007-08.

Issue under consideration:

Whether Uninterrupted Power Supply

(“UPS”) is an ‘Automatic Voltage Controller’ falling within the heading ‘Energy Saving

Device‘ and eligible for higher Depreciation.

Tribunal Ruling:

Tribunal held that

“Automatic Voltage Controller’ falling within the heading of energy saving device

10 ITA No. 7682/Mum/2010 and ITA No. 8549/Mum/2010

in the Appendix to the Income Tax Rules 1962 giving depreciation rates. Legislature

in its wisdom has chosen to show an Automatic Voltage Controller’ as an

electrical equipment eligible for 100% depreciation, falling under the broader head of energy saving devices. Once

Legislature deemed that an ‘Automatic Voltage Controller’ is a specie falling within

energy saving device, it is not for the Assessing Officer or Ld. CIT (A) to further analyse whether such an Item would

indeed an energy saving device. In fact it is beyond their powers. Hence the only

question to answer, in our opinion is whether an UPS is an Automatic Voltage Controller’. It is mentioned in the product

that the UPS automatically corrected low and high voltage conditions and stepped up

low voltage to safe output levels. Thus in our opinion there cannot be a quarrel that

UPS was doing the job of voltage controlling automatically. Even when it was supplying electricity at the time of power

voltage, the outages remained controlled. Therefore in our opinion a UPS would

definitely fall under the head of ‘Automatic Voltage Controller’.



Service Tax Return Filing date for Oct-2012 to March-2013 Extended to 31.08.2013

Date for filing the ST-3 return, for the

period from Oct’12 to March’13 has been

extended from 25th Apr, 2013 to 31st

August, 2013

Vide Order No: 03/2013-Service

Tax, CBEC has extended the return filing

date for the period starting October, 2012

to March, 2013, from 25th April, 2013 to

31st August, 2013. Further it is also

informed that utility to prepare the service

tax return will be available at ACES website

by 31st July, 2013.

Please refer Notification No: Order No:

03/2013-Service Tax dated 23rd April, 2013

at

https://www.aces.gov.in/Documents/orde

r_3_of_2013_service_tax_dated_23_4_20

13.pdf

https://www.aces.gov.in/Documents/order_3_of_2013_service_tax_dated_23_4_2013.pdf






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: +91 20 2539 7707

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: +91 231 2531 707

The information contained herein is of general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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