By V.P. Gupta Advocate. Residential Status- including implications on Foreign companies Special...
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PRESENTATION ON CERTAIN ASPECTS OF TAXATION OF COMPANIES By V.P. Gupta Advocate
By V.P. Gupta Advocate. Residential Status- including implications on Foreign companies Special provision of Deemed Divided Section 2(22)(e) Precautionary
Residential Status- including implications on Foreign companies
Special provision of Deemed Divided Section 2(22)(e) Precautionary
planning; Expenditure incurred in respect of Exempt Income -
Section 14A, Rule 8D and recent case Laws; Section 115JB (MAT);
Deduction in respect of expenditure on specified business Section
35AD; Section 80JJAA Deduction in respect of employment of workmen;
Explanation to Section 73- speculative share transactions.
Slide 3
Including Implications on Foreign Companies
Slide 4
Section 6 -Existing (3) A company is said to be resident in
India in any previous year, if (i)It is an Indian company; or
(ii)During that year, the control and management of its affairs is
situated wholly in India.
Slide 5
Importance or Relevance of Residential Status Taxability of
income under the Act is determined with reference to residential
status as per section 5 of the Act. In case of resident total world
income is chargeable whereas in case of non-resident income
received or deemed to be received or accrued or deemed to be
accrued is taxable.
Slide 6
Meaning of Indian Company Section 2(26) defines Indian Company
to mean formed and registered under the companies Act. 1956 or
under any other law in force in India or established under a
Central or State or Provincial Act or any association etc. declared
to be a company. Meaning of Control and Management Control and
Management signifies controlling and directing power, the head and
brain as is commonly called. De facto management and not merely the
power or right to control and manage (CIT v. Nandlal Gandalal
(1960) 40 ITR 1 (SC)). Subsidiary company may not necessarily be
resident by virtue of shareholding of the parent company (Vodafone
International Holdings B.V. v. UOI (2012) 341 ITR 1 (SC))
Slide 7
Amendment in Finance Act, 2015 Sub-section 3 is substituted
w.e.f. 01.04.2016,which reads as under: (3) A company is said to be
resident in India in any previous year, if, (i) it is an Indian
company; or (ii) its place of effective management, in that year,
is in India. Explanation.For the purposes of this clause place of
effective management means a place where key management and
commercial decisions that are necessary for the conduct of the
business of an entity as a whole are, in substance made.
Slide 8
Implications As per the earlier provision a foreign company is
resident in India only if its control and management is wholly in
India. As per the amended provision it will be resident in India if
effective management is in India. The amended provision will
seriously impact the foreign company or subsidiaries of Indian
companies formed and registered outside India. There is likely to
be litigation in this regard. Guidelines are supposed to be issued
by CBDT.
Slide 9
Section 2(22)(e)
Slide 10
Section 2 (22) "dividend" includes- Clause (e) any payment by a
company, not being a company in which the public are substantially
interested; of any sum by way of advance or loan; to a shareholder,
being a person who is the beneficial owner of shares (not being
shares entitled to a fixed rate of dividend whether with or without
a right to participate in profits) holding not less than ten per
cent of the voting power; or
Slide 11
to any concern in which such shareholder has a substantial
interest ; or any payment by any such company on behalf, or for the
individual benefit, of any such shareholder; to the extent to which
the company in either case possesses accumulated profits ; but
"dividend" does not include- (ii) any advance or loan made to a
shareholder or the said concern by a company in the ordinary course
of its business, where the lending of money is a substantial part
of the business of the company ; (iii) any dividend paid by a
company against any sum previously paid by it and treated as a
dividend;
Slide 12
Object of the Provision. vide Finance Act, 1987 provisions of
clause (e) were inserted to check possibility of closely-held
companies not distributing there profits to their shareholders by
way of dividend but to make payments by way of loans or
advances.
Slide 13
Issues 1.Shareholder mean registered as well as beneficial
shareholder CIT v. C.P. Sarathy Mudalier, (1972) 83 ITR 170 (SC);
Rameshwarlal Sanwarmal v. CIT (1980) 122 ITR 1 (SC)). ACIT v.
Bhaumik Colours (P) Ltd. (2009) 118 ITD 1 (SB) (Mum)). In the case
of CIT v. National Travel Services (2012) 347 ITR 305 (Del) firm
holding the shares in the name of its partners has been held to be
shareholder. CIT v. Jignesh P. Shah (2015) 372 ITR 392 (Bom.) CIT
v. C.J.International Hotels P. Ltd. (2015) 372 ITR 684(Del.) Mrs.
HK, shareholder holding more than 10% in Pure Drinks (New Delhi)
Ltd. Which company was a holding company of assessee had taken loan
from assessee co. AO taxed the loan. Held not taxable as HK was not
a share holder of Assessee)
Slide 14
Issues 2.Payment made during the year only is to be considered,
not the opening balance. 3The person should be shareholder on the
date of giving loan (CIT v. H.K. Mittal (1996) 219 ITR 420 (All.))
4There should be accumulated profit as on the date of giving loan
or advance. Same should be in commercial sense i.e. as per books of
accounts and not as per income tax computation (P.K. Badiani v. CIT
(1976) 105 ITR 642 (SC)). Deemed profit u/s 41(2) would not form
part of accumulated profits (CIT v. Urmila Ramesh (1998) 96 Taxman
533 (SC); CIT v. Express Newspapers Ltd. (1998) 230 ITR
477(SC))
Slide 15
Issues 5.Accumulated profit has to be determined after
excluding the dividend earlier considered u/s 2(22)(e) (CIT v. G
Narasimham (1999) 236 ITR 327 (SC)). 6In case of amalgamation
effective from back date accumulated profit of both the company
taken together have to be considered even though loan had been
given by the amalgamating company on a date when it was not having
sufficient accumulated profits (CIT v. Mukundray K Shah(2007) 290
ITR 433 (SC)). 7.Business transactions are not covered CIT v.
Ambassador Travel (P) Ltd., (2009)318 ITR 376 (Del); CIT v.
Creative Dying & Printing (P) Ltd., (2009) 318 ITR 476(Del);
CIT v. Raj Kumar, (2009) 318 ITR 462 (Del);
Slide 16
Issues 8.To be exempt from taxability money lending should be
substantial part of the business. Various factors needs to be
considered for this purpose. Capital employed in this business is
also one of the consideration (CIT v. Parle Plastics Ltd. (2011)
196 Taxman 62 (Bom);Kishori Lal Agrawal v. CIT, 364 ITR 158 (All).
9.Loan or advance need not be in cash it can be in kind also (M.D.
Jindal v. CIT 164 ITR 28 (Cal)). Supply of material (iron roads) to
the shareholders was considered to be device to circumvent the
provision and was accordingly taxed. 10.The theory of direct or
indirect loan does not apply (Nandlal Kanoria v. CIT (1980) 122 ITR
405 (Cal)). In a case where MD directed an employee to take loan
from
Slide 17
Issues company and pass on the money to him was considered to
be deemed dividend to MD (CIT v. L. Alagusundaram Chettiar (1977)
109 ITR 508 (Mad)). Advance though partnership firm was also
considered as taxable u(CIT v. Mukundray K Shah (2007) 290 ITR 433
(SC)).Payment of expenses on behalf of shareholder will be
considered as deemed dividend (CIT v. K Srinivasan (1963) 59 ITR
788 (Mad)). Advance given to a shareholder for purchase of property
continued as such even after five year is deemed dividend (CIT v.
Sunil Chopra (2011) 201 Taxman 316 (Del)). 11.Repayment of loan
during the year will not affect the taxability Tarulata Shyam v.
CIT, (1977) 108 ITR 345 (SC) Miss P. Sarada v. CIT, (2008) 229 ITR
444 (SC)
Slide 18
Issues 12Payment made to concern is taxable only in the hands
of shareholders CIT v. Ankitech (P) Ltd., (2012) 340 ITR 14 (Del.);
CIT v. MCC Marketing (P) Ltd., (2012) 343 ITR 350; CIT v. Universal
Medicare (P) Ltd. (2010) 324 ITR 263 (Bom); CCIT v. Sarva Equity
(P) Ltd. (2014) 225 Taxman 172 (Kar). CIT v. G.T.Z. Securities Ltd.
(2013) 359 ITR 345 (J&K) CIT v. Gopal Clothing Company P.Ltd
(2013) 350 ITR 67 (Del)
Slide 19
Precaution Most of the time in the case of transactions between
the group company provisions of section 2(22)(e) are over looked.
In order to avoid implication, it is very important that provisions
should be considered while carrying out the transaction
Slide 20
Liability for TDS and Taxability Company is liable to deduct
TDS as per provision of Section 194 of the Act. This section
specifically provides for deduction of Tax from payments referred
to u/s 2(22)(e) of the Act. Provision of section 115O are not
applicable to such payments as provided in section 115 Q of the
Act. Accordingly, such deemed dividend will not be exempt u/s
10(34) of the Act and same will be chargeable to full rate of tax
in the hands of shareholders.
Slide 21
Section 14A, Rule 8D and Recent Case Laws
Slide 22
Section 14A Section 14A inserted vide Finance Act 2001 w.e.f.
01.04.1962 and sub-sections (2) and (3) inserted w.e.f. from
01.04.2007. 14A.(1) For the purposes of computing the total income
under this Chapter, no deduction shall be allowed in respect of
expenditure incurred by the assessee in relation to income which
does not form part of the total income under this Act. (2) The
Assessing Officer shall determine the amount of expenditure
incurred in relation to such income which does not form part of the
total income under this Act in
Slide 23
Section 14A accordance with such method as may be prescribed,
if the Assessing Officer, having regard to the accounts of the
assessee, is not satisfied with the correctness of the claim of the
assessee in respect of such expenditure in relation to income which
does not form part of the total income under this Act. (3) The
provisions of sub-section (2) shall also apply in relation to a
case where an assessee claims that no expenditure has been incurred
by him in relation to income which does not form part of the total
income under this Act:
Slide 24
Rule 8D Notified on 24.03.2008 and provides -
Clause(i):Expenditure directly relating to exempt income.
Clause(ii):Interest, not directly attributable to any particular
income or receipt, in ratio of average investment to average total
assets. Clause(iii):Amount equal to 0.5%
Slide 25
Rule 8D is prospective Godrej Boyce Manufacturing Co. Ltd. V.
DCIT 328 ITR 81(Bom.) Maxopp Investment Ltd. vs. CIT, 347 ITR 272
(Del.) Birla Corp. Ltd. v. CIT (2014) 267 CTR 540 (Cal.)
Slide 26
Expenditure incurred in relation to exempt income is
disallowable CIT v. Hero Cycles Ltd. (2010) 323 ITR 0518 (P&H);
CIT v. Ms. Sushma Kapoor 319 ITR 299 (Del); ACIT Vs. Eicher Ltd.
101 TTJ (Del.) 369; Maruti Udyog Ltd. v. Dy. CIT (2005) 92 ITD 119
(Del.); Escorts Ltd. Vs. DCIT 102 TTJ 522 (Del.); Wimco Seedling v.
DCIT 107 ITD 267 (Del.) (TM); Space Financial Services Ltd. v. ACIT
115 TTJ 165 (Del.)
Slide 27
AO to record satisfaction Maxopp Investment Ltd. vs. CIT, 347
ITR 272 (Del.); CIT v. Hero Management Service Ltd. (2014) 360 ITR
68 (Del.); Amway India Enterprises Pvt. Ltd v. ITO, ITA No.585/2014
decided on 03.12.2014 Delhi High Court.; CIT v. REI Agro Ltd. 2014
(4) TMI 713(HC Cal.) decided on 09.04.2015; Kodak India Pvt. Ltd.
v. Addl.CIT, (2013) 155 TTJ (Mum) 697; Tata Projects Limited v.
Dy.CIT, I.T.A. No. 544/Mum/2012 decided on 21.02.2014 ITAT; Udhav
Holdings Pvt. v. ACIT, ITA No. 5117/Mum./2012 decided on 06.12.2013
ITAT; ITO v. Reliance Share & stock Brokers (P) Ltd., ITA
74/Mum/2013 decided on 22.10.2014
Slide 28
Satisfaction CIT(A) gave opportunity to assessee and recorded
satisfaction disallowance upheld. (GEBR Pfeiffer (I) (P) Ltd. v.
Addl. CIT (2014) 64 SOT 172 (URO))
Slide 29
No disallowance for interest if own funds are more than the
amount of investment Munjal Sales Corporation Vs. CIT & Anr.
(2008) 298 ITR 298 (SC); CIT Vs. Reliance Utilities & Power
Ltd. (2009) 313 ITR 340 (Bom.); CIT Vs. Bharti Televenture Ltd.
(2011) 331 ITR 502 (Del.); Addl.CIT vs. Dhampur Sugar Mill Pvt.
Ltd, (2015) 370 ITR 194 (All); Hitachi Home & Life Solutions
(I) Ltd., (2014) 221 Taxman 109 (Mag.) (Guj.);
Slide 30
No disallowance for interest if own funds are more than the
amount of investment DCIT v. Allied Investments Housing P. Ltd.
(ITAT Chennai) December 13 th, 2013; Yatish Trading Co. (P.) Ltd.
v. CIT 2010 TMI ID - 203563 - ITAT, MUMBAI; M/s. Paranjape Autocast
Pvt. Ltd., Vs. DCIT 2012 (8) TMI 549 ITAT, Pune; JCIT v. ANS
Securities Ltd., 2014 (3) TMI 463 ITAT Kol Decided on 13.03.2014.
CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd, (2014) 221
Taxman 479 (Guj.);
Slide 31
Interest on loans taken for business to be excluded for
disallowance ACIT v. Champion Commercial Co Ltd (Kol.)(Trib.)
www.itatonline.org. Dy. CIT v. REI Agro Ltd. ITA No. 1811/Kol./2012
Decided on 14.05.2013 (upheld by High Court in ITA No. 161/2013
decided on 23.12.2013.) ACIT vs. Best & Crompton Engineering
Ltd (ITAT Chennai).
Slide 32
No disallowance in respect of investment made in subsidiary /
group companies CIT vs. Oriental Structural Engineers Pvt. Ltd. 216
Taxman 92. Garware Wall Ropes Ltd vs. ACIT (2014) 65 SOT 86 (Mum)
Interglobe Enterprises Ltd. v. DCIT, 2014 (4) TMI 269 ITAT Del.
decided on 04.04.2014 JM Financial Limited vs. ACIT (ITAT Mumbai)
ITA No.- 4521/Mum/2012, date of decision 26.03.14 EIH Associated
Hotels Ltd vs. DCIT (ITAT Chennai) ITA No.- 1503/MDS/2012
Slide 33
No disallowance if there is no exempt income. CIT v. Holcim
India P. Ltd., (2014) 272 CTR (Del) 282 CIT vs. Shivam Motors (P)
Ltd. (2010) 272 CTR 277 (All.) CIT v. Corrtech Energy Pvt. Ltd.
(2014) 223 TAXMAN 130 (GUJ) HC CIT v. Lakhani Marketing Inc. (2014)
272 CTR 265 ( P & H) CIT v. Winsome Textile Ind. Ltd., 319 ITR
204 ( P & H) CIT v. Delite Enterprises ITA NO. 110/2009 (Bom.)
(HC)
Slide 34
Disallowance is to be restricted to exempt income Joint
Investments Pvt. Ltd. v. CIT, (2015) 372 ITR6 94 (Delhi) Indus
Valley Investment & Finance Pvt. Ltd. v. DCIT, ITA
No.3763/Del/2013 decided on 29.04.2015
Slide 35
No disallowance if income from investments is taxable.
Investment in Foreign Companies CIT v. Suzlon Energy Ltd. (2013)
354 ITR 630 (Guj.) Birla Group Holding Ltd. v. Dy. CIT (2007) 13
SOT 642 (Mum.) ITO v. Strides Acrolab Ltd. (2012) 138 ITD 323
(Mum.) Preference Shares ACIT v. Tellicherry Co-op Hospital Society
Ltd. ITA No. 404/Coch./2013 dt. 04.04.2014 (A.Y. 2008-09)
Short-term investments, gains from which are taxable CIT v. Holcim
India P. Ltd., (2014) 272 CTR (Del) 282 Sundaram Asset Management
Co. Ltd. v. Dy. CIT (2013) 145 ITD 17 (Chennai)
Slide 36
Disallowance only with respect to investment on which exempt
income was received Dy. CIT v. REI Agro Ltd. ITA No. 1811/Kol./2012
decided on 14.05.2013
Slide 37
Disallowance on reasonable basis keeping in view the
expenditure actually incurred J.K. Investors (Bombay) Ltd. v. ACIT,
ITA No. 7858/Mum./2011 decided on 13.03.2013. Godrej Consumer
Products Ltd. v. Addl. CIT (2014) 159 TTJ 21 (Mum.) (Trib.)
Slide 38
No disallowance where shares are held as stock in trade. CCI
Ltd. v. JCIT (2012) 206 Taxman 563 (Ker.) CIT v. Smt. Leena
Ramachandran (2011) 339 ITR 293 (Ker.) Esquire Pvt Ltd v. DCIT (
Mum.) (Trib.) CIT v. Gulshan Investment Co. Ltd., 2013(3) TMI 393
(Kolkata) dated 11.03.2013. Ethio Plastic Pvt. Ltd. Vs. DCIT,
2013(1) TMI 235 (Ahmd.). Dy. CIT v. Baljit Securities Pvt. Ltd. -
ITA No. 1183/Kol./2012 dt. 21.10.2014
Slide 39
No disallowance where shares are held as stock in trade.
AGAINST ITO v. Daga Capital Management (P) Ltd. (2009) 117 ITD 169
(Mum.)(S.B.) (Appeal pending before Bombay High Court ITA NO.
989/2009). DCIT Vs Hathway Investment Pvt Ltd 2015-TIOL-79-ITAT-
MUM in the case of shares held as stock-in-trade, same activity,
i.e., the purchase and sale of shares, results in two streams of
income, being the share trading income (which is taxable) and
dividend income (which is not taxable), so there is no feasibility
of recording expenditure separately, and the estimation of
expenditure becomes inevitable. D.H. Securities Pvt. Ltd. v. Dy.
CIT (2014) 146 ITD 1 (Mum.)TM
Slide 40
DISALLOWANCE CANNOT BE MORE THAN THE EXPENDITURE INCURRED AND
CLAIMED Gillette Group India Pvt. Ltd. v. ACIT (2012) 16 ITR 57
(Trib.) Modern Info Technology Pvt. Ltd. Vs ITO 2012-TIOL- 644
ITAT-DEL Udhav Holdings Pvt. Ltd. v. ACIT 2014 (1) TMI 1134 (Mum.)
ITA No. 5117/Mum./2012 decided on 06.12.2013 Tata Projects Limited
v. Dy.CIT, I.T.A. No. 544/Mum/2012 Adani Port Infrastructure Pvt.
Ltd. v. DCIT 2014 (1) TMI 1122 ITAT Ahm. ITA No. 1383/Ahm/2013
decided on 22.011.2013
Slide 41
DISALLOWANCE CANNOT BE MORE THAN THE EXPENDITURE INCURRED AND
CLAIMED M/s Cresent Trading Pvt. Ltd. v. ACIT 2014 (6) TMI 218 ITAI
Mum. Anahaita Nalin Shah Versus Asst. CIT, Range 4(1), Mumbai No. -
I.T.A. No.301/Mum/2012 dated - July 24, 2013 Derive Trading Pvt.
Ltd v. DCIT, ITA No. 3101/MUM/2012 decided on 01.01.2015. ACIT v.
Iqbal M. Chagla (2014) 34 ITR 636 (Trib.) Mum ITA No. 877/Mum./2013
dt. 30.07.2014
Slide 42
EXPENSES INCURRED ON STATUTORY COMPLIANCES IN CASE OF COMPANY
IS ALLOWABLE CIT v. New Savan Sugar & Gur Refining Co. Ltd.,
185 ITR 564 (Cal.) CIT v. Ganga Properties Ltd., 199 ITR 94 (Cal.)
CIT v. Rampur Timber and Turnery Co. Ltd., 129 ITR 58 (All.)
Daljeet Export ((Ind.) (P.) Ltd., 36 ITD 305 (Del.) Udhav Holding
Pvt. Ltd. Vs. Asstt.CIT, (2014) 1 TMI 1134 ITAT Mumbai DSP Adiko
Holdings Pvt. Ltd. v. Dy.CIT, I.T.A. No.7598/Mum/2011 decided on
22.01.2014
Slide 43
Conclusion Assessee should make disallowance on a reasonable
basis. Assessee should be able to substantiate the basis. Basis can
be volume and the frequency of the transactions, receipts of exempt
income. CBDT, in the interest of avoiding litigations, should
clarify the position and also suitably modify Rule 8D.
Slide 44
Minimum Alternate Tax
Slide 45
Taxpayable on Book Profit Section 115JB provides for levy of
tax on book profit @ 18.5%. Profit will be as per Profit & Loss
Account prepared in accordance with Schedule- VI to the Companies
Act, 1956. Adjustments can be made as have been specified in the
section (Apollo Tyres v. CIT (2002) 255 ITR 273 (SC); Malyalam
Manorma v. CIT (2008) 300 ITR 251 (SC)). MAT Credit is also
available for set off against tax payable on income computed as per
provision of Income Tax Act.
Slide 46
Issues / Controversies There have been many controversies in
regard to provisions of section 115J / 115JA / 115JB. Most of the
same have been resolved by way of amendments in the section from
time to time. Still there are following controversies:- Levy of MAT
on foreign companies. Held leviable in the cases Castleton
Investment Ltd., In re (2012) 211 Taxman 282 (AAR); (2013) 212
Taxman 246 (AAR). Held not leviable in the case of Timken Co., In
re (2010) 326 ITR 193 (AAR). Vide Finance Act, 2015 capital gain
and also interest, royalty or fee for technical services chargeable
to tax at rate less than 18.5% is to be excluded from book profit.
Adjustment on account of provision for gratuity and leave
encashment;
Slide 47
Issues / Controversies Adjustment on account of expenditure to
exempt income; Adjustment on account of prior period expenses;
Claim for bad debts written off against provision added in book
profit in earlier years; Adjustment on account of income or expense
not credit or debited, specified in notes to accounts or adjusted
in reserves in the balance sheet; Determination of amount of loss
or depreciation for earlier years, whether on year to year basis or
cumulative basis
Slide 48
Section 35AD
Slide 49
Clause Specified BusinessCommenced on or After Deduction
Allowable (i)Cold Chain Facility01.04.2009150% if commenced on or
after 01.04.2012 (ii)Warehousing Facility for Agricultural Produce
01.04.2009150% if commenced on or after 01.04.2012 (iii)Cross
Country Natural Gas or Crud or Petroleum Pipe Line, including
storage facility 01.04.2007100% (iv)Hotel of Two-Star or Above
Category 01.04.2010100% (v)Hospital with at least 100
Beds01.04.2010150% if commenced on or after 01.04.2012 (vi)Housing
Project for Slum Redevelopment or rehabilitation
01.04.2010100%
Slide 50
Clause Specified BusinessCommenced on or After Deduction
Allowable (vii)Housing Project for Affordable Housing
01.04.2011150% if commenced on or after 01.04.2012 (viii)Production
of Fertilizer01.04.2011150% if commenced on or after 01.04.2012
(ix)Inland Container Depot or a container Freight Station
01.04.2012100% (x)Bee-Keeping and Production of Honey and Beeswax
01.04.2012100% (xi)Warehousing Facility for Sugar01.04.2012100%
(xii)Slurry Pipeline for Transportation of Iron Ore 01.04.2014100%
(xiii)Semi-Conductor Wafer Fabrication Manufacturing Unit
01.04.2013100%
Slide 51
Conditions Expenditure of capital nature incurred, wholly and
exclusively for the purpose of business carried on during the year,
other than the expenditure incurred on the acquisition of any land
or goodwill or financial instrument. The expenditure incurred prior
to commencement of operation and capitalized in the books of
accounts will be allowable in the year of commencement. Business is
not set up by splitting-up or reconstruction. Plant and machinery
not used earlier, except to the extent of 20% of total value of
plant and machinery used in the business or machinery imported from
out side India.
Slide 52
Conditions In case of business of natural gas or crude or
petroleum oil pipeline the business is run by a company formed
under the Companies Act or by a consortium of such companies or by
an authority constituted under any Central or State Act and the
business has been approved by Petroleum and Natural Gas Regulatory
Board and it has also made pipeline capacity for use as common
carrier by any person other than the assesse, to the extent
specified by the Board and also fulfils such other conditions as
may be prescribed. The assets in respect of which deduction claimed
and allowed shall be used for a period of 8 years only for that
business.
Slide 53
Conditions Where deduction has been claimed and allowed in
respect of business for any assessment year under this section no
deduction shall be allowed to the assesse u/s 10AA or Chapter VI-A
(Sections 80IA, 80IB, 80IC etc.). No deduction in respect of
expenditure will be allowable under any other section in that year
or in any other year.
Slide 54
Section 80JJAA
Slide 55
Deduction is allowable in respect of additional wages paid to
new regular employees employed during the year in a factory engaged
in the business of manufacture of goods, for a period not less than
300 days and are also not casual employees or though contract
labour. Deduction is allowable equal to 30% of additional wages for
three assessment years, including the assessment year in which new
employees were employed.
Slide 56
Vide Finance Act, 2015 following amendments have been made
w.e.f. 01.04.2016:- Earlier deduction was available to an Indian
Company. Now deduction will be available to all the assesses;
Earlier there was condition of 100 new workers or 10% of strength
as on the last day of the preceding year, whichever is higher. Now
number has been reduced to 50 or 10% of existing strength.
Slide 57
Issues 1. If the worker is employed for less than 300 days in
the first year, whether the deduction will be available in the
subsequent years. If yes, whether for two years or three years; 2.
If the worker, who is qualified in the first year, leaves the job
in second year working for less than 300 days, whether deduction
will be available for his wages;
Slide 58
Explanation to Section 73
Slide 59
Section 73 Explanation.Where any part of the business of a
company other than a company whose gross total income consists
mainly of income which is chargeable under the heads "Interest on
securities", "Income from house property", "Capital gains" and
"Income from other sources", or a company the principal business of
which is the business of trading in shares or banking or the
granting of loans and advances, consists in the purchase and sale
of shares of other companies, such company shall, for the purposes
of this section, be deemed to be carrying on a speculation business
to the extent to which the business consists of the purchase and
sale of such shares.
Slide 60
Object and purpose Explanation was inserted vide Taxation Laws
(Amendment) Act, 1975 w.e.f. 01.04.1977 to curve the device
sometime resorted to by business houses controlling group of
companies to manipulate and reduce the taxable income of the
companies under their control (Circular No. 204 dated
24.04.1976).
Slide 61
Scope of Explanation This is a deeming provision. In general
section 43(5) defines speculative transaction to mean a contract
settled otherwise than the actual delivery. Section applies only to
a company. Investment or a company having principal business of
trading in shares or banking or granting of loans and advances is
outside the purview. In other words a company engaged in any other
business and is also carrying on business of purchase and sale of
shares is covered.
Slide 62
Issues Explanation applies to loss in shares transactions and
not to the profit. Explanation applies to a single or more
transactions in shares constituting business and not to the shares
held as investment. In order to decide whether it is mainly an
investment company, normal test can be more than 50% of its income
from such income but it is not a sole criteria and other factors
also needs to be looked into. In order to decide whether main
business is investment or granting of loans or advances, loss may
also be considered as profit for the purpose of comparison.
Slide 63
Issues Even the activity or income in one year may not be
deciding factor. What needs to be considered is major source of
income. (Nawn Estates (P) Ltd. v. CIT (1977) 106 ITR 45 (SC); CIT
v. Coochbehar Trading Co. Pvt. Ltd. (1979) 120 ITR 535 (Cal). The
fact that there was physical delivery of shares would not save the
assesse from deeming the loss as speculative. In other words even
if a transaction in non-speculative according to Section 43(5),
still it would be speculative for the purpose of this Explanation
(Merfin (I) Ltd. v. DCIT (2002) 80 ITD 399 (Hyd.); CIT v. Lokmat
News Papers P Ltd. (2010) 322 ITR 43 (Bom))
Slide 64
Issues Loss arising on account of valuation of shares at the
end of the year will also attract Explanation. (Centurion
Investment and International Trading Co. Pvt. Ltd. v. ITO (2009)
318 ITR (AT) 24 (Del