CASC BULLETIN AUGUST 2015 - casconline.org BULLETIN AUGUST 2015.pdf · CASC BULLETIN, AUGUST 2015 Are we prepared and planned for the ... of Maharashtra, Punjab, Haryana, ... RECENT

3CASC BULLETIN, AUGUST 2015

Are we prepared and planned for thefuture?

The world over is on continuous changeand challenges for seen from unforeseenquarters. The pace with which the changesand challenges are now on, whichever maybe activity whether profession or business,is at staggering speed. The evolution in thespace of profession is much higher and thetime span available at disposal to keepourselves updated with what is new islimited leave alone the thought process ofintegrating the same with thepractice. How can we make sense of thelatest changes while working to meet yourclients’ changing needs and expectations?We have to adopt the changes and takecontrol of our future by preparingourselves may be by adopting the conceptsof the “PCPS firm inMotion e-Toolkit” aspropagated by the American Institute ofCPAs, wherein it is stated that there are 5trend areas to “prepare your firm for asuccessful journey.

• Firm Structure & Strategy - As you lookto move forward, consider importantareas of your firm’s strategy andstructure that may be in need ofupdating

• Staff Development & Culture -Realizing that one size doesn’t fit all, itis important to provide enhanced careerdevelopment plans for everyone withthe right mix of soft skills and technicalskills. Tie it all together with insight on

EDITORIAL

how to effectively manage a multi-generational workforce.

• Clients & Relationship Building -Explore what’s new in creating careerdevelopment plans and coaching andmentoring programs for a changingworkforce. Discover non-traditionalcareers paths and newer roles within thefirm. Learn why these can contribute togreater employee retention and betterwork-life balance down the road.

• Use of Technology - Guide yourpractice to take control of its technologyfor the next 3-5 years. Learn what is onthe horizon and how it can impact yourpeople and your clients.

• Globalization

On the other day while addressing the 2nd

Annual Day of the International Chamberof Indirect taxes, CA. Bharath KrishnaSankar, a Rank-holder CharteredAccountant turned into an entrepreneurheading a huge organisation had conveyedas service consumer on the topic“Expectation of the user of Service”.According to him the minimumexpectation is to “Raise the Bar” both forthe professional and the organisation usingthe services of the professional. Aprofessional should be trustworthy and forthe same he had framework of sevenquestions based on which as servicerecipient he would like to concludewhether the professional is “TRUSTWORTHY”. The framework of the sevenquestions, according to him, are


1. Whether the Professional identifies withhim?

2. Whether the Professional is Solutionfocussed?

3. Whether the Professional is ProcessOriented?

4. Whether the Professional regularlyupgrades?

5. Whether the Professional is BusinessOriented?

6. Whether the Professional is open tolisten to different ideas?

7. Whether the Professional isRelationship Oriented?

Competence and connections together willtranslate to credibility and this makes asignificant difference. These could beconsidered as a benchmark for us to be inthe Trustworthy list of the Client.

What’s New - Tax Administration!The CBDT has come out with an internal“OFFICE MEMORANDA NO” - F.No. P-II-5(513)/KM/LUS/Addl. DG/PR,PP&OL/P&P/2015-16/282 dated08.07.2015. According to the same theCBDT has formed the National EvaluationCommittees for selecting the best orders /Practices for the national digest “Lets ShareVol. VIII”. The office memo stipulates theillustrative criteria based on which theselection may be considered. The firstcriteria states that “Only assessment orderswhere the relevant issues have beenconfirmed in the first appeal or where thetaxpayer has not appealed against the issuewill be considered;” Thus even if the

Assessing Officer has passed a goodreasoned order and the assessee prefers toappeal for more than one obvious reasonsthen it may be out of the reckoning.Whereas in the very next criteria thecommittee has been requested to considercriteria pertaining to amount of additionaldemand taking into consideration thenature of cases in the jurisdiction. This isin a way trying to influence or createconfusion in the mind of the personinvolved. One of the criteria stipulates –“All orders confirmed by the CIT (A) andthe ITAT during the period 01.01.2013 to31.03.2015 should be compulsorily sent forevaluation to the Regional EvaluationCommittee if the monetary limits aresatisfied;” Though all orders are to be sentfor evaluation but the evaluationcommittee has to select only best ordersand what happens to all the orders whichare badly decided on the face of it or wherethe facts or law is not appraised or not aspeaking order?

The CBDT has come out with yet anothercommunication – D. O.No.279 /M-88/2014-TTJ 3rd July, 2015 – in relation to therequirement for due diligence and cautionwhile granting authorisation for furtherappeal. This communication is issued inless than a year’s time since earliercommunication in this regard was issued.The CBDT has only issued letters andcommunication, there is nothing concretedone by it in case of non-compliance tothese directions and / or communications.Unless and until the CBDT takes someaction in whatever little way it deems fit,the communications / letters will have noimpact.


The CBDT has brought in transparency bysharing the details as what the target hasbeen given to its regional field officials andhow the same has to be achieved by wayof action plan. On perusal of the same itwould strike that some regions are notmentioned or they are already covered bythe regions already stated therein like restof Maharashtra, Punjab, Haryana, etc., andit would have been better had theyprovided the criteria based on which theone crore new assessee target has beendistributed, like Pune Region has themaximum target more than 10% of the totaltarget.

The CBEC has come out with a Notification– No. 18/2015-Central Excise (N.T.) dated6th July 2015 – specifying conditions,safeguards and procedures for issue ofinvoices, preserving records in electronicform and authentication of records andinvoices by digital signatures. However,the notification neither refers toInformation Technology Act nor considersthe same. Section 4 of the InformationTechnology Act overwrites all other laws.The Notifications states that Invoice,Records, etc. can be maintained inelectronic form duly attested by Class 2 /3 digital certificates. However the samecannot be transmitted to the buyer tomaintain them in electronic form. Will thisserve the purpose?

ACHEIVEMENTSIt is pride moment for every Indian as Indiabags the largest portfolio of United Nationsaudit assignments as CAG is consideredto be highly professional organisation.“Shri Sharma expressed happiness that our

first report, after joining the UN Board ofAuditors, on UN Peace KeepingOrganizations (UNPKO) has been highlyappreciated by the Advisory Committee onAdministrative and Budgetary Questions(ACABQ) of the UN.”

Announcements:The Management Committee has come toa conclusion to launch Clinics on subjectof importance which are tentativelyscheduled to be held on the 3rd Thursdayof every month. The subjects thought of areDirect taxes, Indirect taxes and CompanyLaw to start with. The ManagementCommittee is in the process of finalisingthe modalities in which such clinics aregoing to be conducted. The ManagementCommittees hereby requests members tocome forward and offer their service to theClinics as well as activities of the CASC.

The next Residential Refresher Course isscheduled in January, 2016 and kindlyawait for further announcements in thisregard.

AppealMembers are requested to attend theprograms conducted by CASC and are alsorequested to send their suggestions and / orvalue additions to the services provided byCASC including this Bulletin. The same canbe sent by hard copy to the office of the CASCor emailed to [email protected] or anyof the Members on the ManagementCommittee.

For and on behalf of Editorial Board

Editor


DISCLAIMER :

The contents of this Monthly Bulletin are solely for informational purpose. Itneither constitutes professional advice nor a formal recommendation. Whiledue care has been taken in assimilating the write-ups of all the authors. Neitherthe respective authors nor the Chartered Accountants Study Circle acceptsany liabilities for any loss or damage of any kind. No part of this MonthlyBulletin should be distributed or copied (except for personal, non-commercialuse) without express written permission of Chartered Accountants Study Circle.

COPYRIGHT NOTICE :

All information and material printed in this Bulletin (including but notflowcharts or graphs), are subject to copyrights of Chartered Accountants StudyCircle and its contributors. Any reproduction, retransmission, republication,or other use of all or part of this document is expressly prohibited, unlessprior permission has been granted by Chartered Accountants Study Circle.All other rights reserved.

ANNOUNCEMENTS :

1. The copies of the material used by the speakers for the regular meetings heldtwice in a month is available on the website and is freely downloadable.

2. Earlier issues of the bulletin is also available on the website in the “News” column.

The soft copy of this bulletin will be hosted on the website shortly.

READER’S ATTENTION

You may please send your Feedback Contributions / Queries on Direct Taxes, IndirectTaxes, Company Law, FEMA, Accounting and Auditing Standards, Allied Laws orany other subject of professional interest at [email protected]

For Further Details contact :“The Chartered Accountants Study Circle”

“Prince Arcade”, 2-L, Rear Block, 2nd Floor, 22-A, Cathedral Road,Chennai - 600 086. Phone 91-44-28114283

Log on to our Website :www.casconline.org

for updates on monthly meetings and professional news.Please email your suggestions / feedback to [email protected]


RECENT DECISIONS IN SALES TAX / VAT

Natural Justice:

The Deputy Commissioner (Appeals) setaside the penalty imposed on thepetitioner-dealer but Tax Board ex parteset aside the finding and restored the orderof penalty. In the proceedings before theTax Board, the petitioner-dealer was notserved and therefore not represented.Allowing the petition, the Court held thatfor violation of the principles of naturaljustice the order passed by the Tax Boardwas liable to be set aside. [2014] 67 VST409 (Raj) GAURAVTRADINGCOMPANY v. ASSISTANTCOMMERCIAL TAX OFFICER, ANTIEVASION, BHARATPUR

Inter-State Hire-purchase:

Petitioner purchased machineries fromoutside TN and consigned the goodsdirectly to a party inside State with whomhire-purchase agreement had been enteredinto by the petitioner. The claim ofexemption by the petitioner, under section3(b) of the CST Act, 1956, was reconsideredby the assessing authority in thereassessment proceedings and wasdisallowed. Penalty u/s 16(2) (a) of theTNGST was also levied. The AAC partlyset aside the penalty but confirmed theassessment. The Tribunal on appealconfirmed the assessment by holding thatin the absence of transfer of property ingoods, the petitioner could not have

carried out subsequent inter-State salesunder the CST Act by endorsing thedocuments of title to the goods. Allowingthe petition, the Court held that thedefinition of “sale” under the CST Act,1956, included not only a sale under theSale of Goods Act, but also transactions,which, strictly speaking were not sales, butcontained elements of sale which was theoption to purchase. The words “be deemedto be a sale”, thereby indicates that a legalfiction had been introduced into theconcept of sale as ordinarily understood.If the definition of “sale” was to includewithin its ambit only that transfer whichtook place at the time of purchase whenthe option was exercised, then it would nothave been necessary to widen the scope ofthe definition to include transfer of goodson hire-purchase and to provide for itseparately. In the case of the assessee therewas undisputedly an endorsement of titleto the goods while the goods were in transitand therefore the assessee was entitled to

CA. V.V. SAMPATHKUMAR


exemption on the transaction in transit.[2014] 67 VST 414 (Mad) NATIONALSMALL INDUSTRIES CORPORATIONLIMITED v. STATE OF TAMIL NADU

Classification:

The judgments relied upon by the dealerand filed along with its letter had not beendiscussed in the assessment order. It wasthe specific contention of the dealer thatrice bran had already been subjected to taxand rice bran and oil having been held tobe one and the same commodity theassessing officer is ought to have takenthese judgments into consideration. Theassessment orders did not indicateconsideration of these judgments. Therewas no discussion how the judgments wereinapplicable to the petitioner’s claim. Theassessment orders were quashed and thematter was remitted to the assessing officerto pass assessment orders afresh.[20141 67 VST 419 (Karn) DAYANANDAEXTRACTION INDUSTRIES PVT. LTD.v. DEPUTY COMMISSIONER OFCOMMERCIAL TAXES (ASSESSMENTS),TUMKUR AND ANOTHER

Penalty:

For failure to furnishing a return by theprescribed date, as required under theGujarat Sales Tax Act, 1969, the competentauthority imposed penalty under section45(3A) of the Act. The Tribunal held thatthe word “shall” contained in sub-section(3A) of section 45 should be read as “may”

and resultantly, it was not mandatory tolevy penalty at the rate of Rs. 200 permonth for the default of filing declarationor return beyond the prescribed date.Considering the facts of the case, theTribunal reduced the penalty from thatimposed by the competent authority andconfirmed by the appellate authority. Onappeal, the Court held, dismissing theappeal, that the penalty under section45(3A) of the Act is not mandatory and thatthe total effect of reduction of penalty inall three appeals put together was less thanRs. 35,000. Under the said circumstanceskeeping the question whether once theauthority decided to impose penalty, itcould reduce it below the minimumprescribed, open to be urged in anappropriate case. On the ground ofsmallness of the claim amount in theseappeals, the appeals were dismissed. [2014]67 VST 423 (Guj) STATE OF GUJARATv. NARENDRAKUMAR REVACHAND

Penalty:

The Act provides for levy of penalty wherethe dealer has without reasonable cause,failed to pay, within the time allowed, thetax due from him. Since the dealer hadrecourse to the statutory remedy availableto him under the Act and had filed anappeal as well as stay application, thedealer could not be said without reasonablecause to have failed to deposit within timeallowed the tax which was due. The factsthat the Tribunal did not pass orders on


the stay application filed by the dealer forsix months, was not a fault attributable tothe dealer. The dealer on its part had withintime prescribed applied for the statutoryremedy and the delay, if any in passing ofthe stay order in this case was attributableto the Tribunal. The order imposingpenalty on the dealer was to be setaside. [2014] 67 VST 426 (All) NATIONALFERTILIZERS LTD. vs COMMISSIONER OFTRADE TAX, U. P., LUCKNOW

Penalty:

Goods being carried by the respondent-dealer were intercepted by theDepartment. The relevant documents wereproduced but in prescribed declarationform, the invoice number and the datewere not filled in. The assessing officer tookthe view that as it was mandatory on thepart of the dealer to fill in all the columnswhen the goods were carried there wasviolation of provision of rules and imposedthe penalty holding that there wasintention of tax evasion by the dealer. Onappeal, the DC (Appeals) deleted thepenalty. The Department appealed to theTax Board, which confirmed the orderpassed by the DC (Appeals) holding thatsince all the relevant documents wereproduced and only one column of thedeclaration form was found to be blank, itcould be on account of inadvertence andin such circumstances, it could not be saidthat there was an intention of tax evasionby the dealer. On a revision petition, the

Court held, dismissing the petition, that“material particulars “would be filling incolumns where quality, weight,description of goods and value wererequired to be clearly filled in and stated.If these were filled in the declaration form,all other particulars though importantwould not be relevant for imposition ofpenalty in a case like the present whereonly the invoice number and date were leftto be filled in. When all "materialparticulars" namely, quality, weight,description of the goods, value, name ofthe transporter, name of the consignor andconsignee had been duly filled in, theapprehension of the Department that theform could have been reused, was notsustainable. The Tax Board and the DC(Appeals) were justified in deleting thepenalty. [2014] 67 VST 430 (Raj)ASSISTANT COMMERCIAL TAXESOFFICER, ANTI EVASION, ALWAR v.RATHI BARS LID. AND ANOTHER

Penalty:

The nature of the business would notjustify the purchase of diesel generator setsas to be forming part of the machinery tobe used in the manufacture. Admittedly,the purchase of the generator set was onlya standby to supply electricity wheneverthere was power failure. Taking note of thedealer’s reply that it was in the first yearof business and had commencedoperations in India for the first time in theyear 2002 and had no previous knowledge


of tax laws in India and that it placedreliance on the purchase department in-charge, who was an engineering graduate,hence, its bona fides could not be doubted,the penalty could be reduced to 50 per centof the tax due. [2014] 68 VST 14 (Mad)HWASHIN AUTOMOTIVES INDIAPVT. LTD. v. STATE OF TAMIL NADU

Penalty:

The assessing officer while issuing noticedid not make any specific allegation thatthere was an element of mens rea on thepart of the dealer and that the conduct ofthe dealer was contumacious and it haddeliberately violated the statutoryprovisions and that the item of machinerywas not included in the registrationcertificate. The dealer in response to suchnotice submitted its explanation. Theassessing officer did not reject theexplanation offered by the dealer outright,but partially accepted it and reduced thelevy of penalty to 100 per cent. On appeal,the Appellate Assistant Commissionerdeleted the penalty. The Tribunal did notexamine the facts of the case’ thoroughlybut gave a peculiar finding that the dealerought to have been careful to issue C formdeclaration only in respect of goodsauthorised in the certificate issued to it.Such a finding was not sufficient to upholdthe penalty levied by the assessing officer.There should have been mens rea on thepart of the dealer to deliberately violate thestatutory provision or its conduct shouldbe of contumacious nature. In the absence

of any such finding rendered by theTribunal, the order of the Tribunal waserroneous and not in consonance with thelaw laid down by the Full Bench of theCourt. The explanation given by the dealershowed that its conduct was neitherdeliberate nor contumacious and hencepenalty is not leviable. 2014] 68 VST 19(Mad) SHOETEK AGENCIES v. STATEOF TAMIL NADU

Alternative Remedy:

For the notices, the dealer was called uponto file objections and was also offered anopportunity of hearing. In response to thesenotices, the dealer submitted the relevantbills of lading. On receipt of these bills, theAC had gone through the documentsproduced by the dealer, checked thetransaction and had come to hisconclusions. Thus, the conclusions arrivedat in the orders were based on thedocuments produced by the dealer. Forarriving at such conclusions, it was notnecessary for the AC to have issued noticeother than the notices issued earlier as perthe KVAT Act After producing bills oflading, the dealer did not seek any furtheropportunity of hearing. In suchcircumstances, the orders were not vitiatedby violation of the principles of naturaljustice. Hence, the dealer had to seekstatutory remedies available under the Act.[2014] 68 VST 63(Ker) RAHMAT BEEVI v.ASSISTANT COMMISSIONER-II, SPECIALCIRCLE, COMMERCIAL TAXES, KOLLAM


Alternative remedy:

Notices were issued by the AO callingobjections. The dealer did not file anyobjection as such but had within less thana month produced the documents insupport of her claim. Thereafter, that isafter production of documents, the officerafter sifting the materials, came to theconclusion that the dealer could not begiven the benefit for due to variousreasons. Admittedly, none of those reasonshad been put to the dealer. The explanationof the dealer was that she understood thatwhat was involved is non-production ofrequisite documents and when thedocuments were produced she was underthe impression she would get relief. Inunder the facts and circumstance of thiscase, the dealer was justified in contendingthat the dealer should not be driven to thealternative remedy as had the dealer beengiven a specific opportunity, she mighthave been able to explain her version andto establish the contention that there wasindeed high seas sales as contemplated inlaw. The dealer was never asked to explainthe various defects found in thedocuments. The dealer should be given anopportunity of hearing treating the ordersas notices served on him. A right of hearingis always connected inextricably with theneed for hearing and the need for hearingwill depend upon the facts of each case.Setting the orders of the single judge in[2014] 68 VST 63(Ker), the matter wasremitted back to AO for fresh

consideration.[2014] 68 VST 66 (Ker)RAHMAT BEEVI v. ASSISTANTCOMMISSIONER-II, SPECIAL CIRCLE,COMMERCIAL TAXES, KOLLAM

Transfer of right to use:

Under the agreement the petitioner hadtransferred the right to use its system, thelicensed right of its names, marks, systems,insignia, symbols and goodwill. Thetransaction was not a claim nor was it adebt or a beneficial interest in movableproperty but a transfer of a right in thetrade mark, a trading style which wereincorporeal rights the transfer of which wasundoubtedly exigible to tax. The transferof its right to use its trade mark, goodwill,reputation was exclusively to thefranchisee in respect of a particular outletand any misuse of such exclusivelylicensed right rendered the franchisee opento action which included termination of theagreement. Therefore, it was a case wheregoods in the nature of intangible orincorporeal goods were available fordelivery, there was consensus ad idem asto the identity of such goods as thetransferee had a legal right to use the goodsand during the period when the agreementwas in force, it was an exclusive right givento the transferee by the petitioner in respectof a particular store and consequently atransfer of right to use and not merely alicense to use’ the goods and during theperiod when the agreement was in force,the petitioner as the transferor could not


transfer such goods with particularreference to the exclusive right given inrespect of a particular store to any otherparty. Thus, all the attributes to constitutetransfer of right to use the goods had beenfulfilled and therefore, the right given bythe petitioner was undoubtedly a transferof right to use incorporeal or intangiblegoods and therefore, exigible to sales tax.[2014] 68 VST 70 (Mad) VITANDEPARTMENTAL STORES & INDUSTRIESLIMITED v. STATE OF TAMIL NADU

Free issues:

The cost price that was paid to the dealerdid not include the value of the free issuematerial, and the dealer had not collectedany sales tax and the railways had not paidany amount on the value representing thefree issue material. In that view of thematter, the sale price, for the purpose ofsection 5 of the APGST Act, 1957 was theactual consideration that was received orreceivable by the dealer alone that couldbe the basis for levy of sales tax. Thevalue of free issue materials used in themanufacture of sleepers would not formpart of turnover of the manufacturerunder section 2(1) (s) of the APGST Act,1957. [2014] 68 VST 87 (AP) V. S.ENGINEERING (P) LIMITED v. STATEOF ANDHRA PRADESH

Common Salt:

The dealer purchased common salt for usein the manufacture of biscuits and otheritems. The claim of the dealer was that the

common salt was an exempted item underentry 7 of Part B of the Third Schedule tothe TNGST Act, 1959 but the case of theDepartment was that common salt wouldfall under entry 62 of Part B of the FirstSchedule to the Act as the salt was usedfor industrial purpose. The assessingofficer levied tax and penalty under section12(3) (b) of the Act. The first appellateauthority confirmed the order of theassessment as did the Appellate Tribunal.On revision petitions, the Court held thatin the case of the same dealer, the Tribunalin respect of the same issue with regard tothe common salt purchased and used, hadgiven a finding in respect of earlierassessment years, viz., 1997-98 and 1998-99 that the common salt used by the dealerwas nothing but salt consumable only forhuman use and therefore, entry 7 of Part Bof the Third Schedule alone wouldsquarely be applicable. Therefore, havingaccepted the decision rendered by theTribunal in respect of the very samecommodity and treated it as exemptedgoods under entry 7 of Part B of the ThirdSchedule, there was no reason why theState had to take different view, especially,when there was no change of in these twosets of assessment years. [2014] 68 VST 93(Mad) BRITANNA INDUSTRIESLIMITED v. STATE OF TAMIL NADU

(The author is a Chennai based CharteredAccountant and he can be reached [email protected])


CASC CHENNAI, MEMBERSHIP FEE

Corporate MembershipCorporate Annual Membership 3,000.00 PLUS SERVICE TAXCorporate Life Membership (20 Years) 20,000.00 PLUS SERVICE TAX

Individual MembershipAnnual Membership 750.00 PLUS SERVICE TAXLife Membership 7,500.00 PLUS SERVICE TAX

CASC BULLETIN - ADVERTISEMENT TARIFF - PER MONTH

Full Page Back Cover 2,000.00 PLUS SERVICE TAXFull Page Inside Back Cover 1,600.00 PLUS SERVICE TAX

Half Page Back Cover 1,250.00 PLUS SERVICE TAXHalf Page Inside Back Cover 1,000.00 PLUS SERVICE TAX

Full Page Inside 1,200.00 PLUS SERVICE TAXHalf Page Inside 750.00 PLUS SERVICE TAXStrip Advertisement Inside 500.00 PLUS SERVICE TAX

Minimum 6 months advertisement is required.If advertisement is 12 months or above, special discount of 15% is available

CASC - HALL RENT

HALL RENT FOR 2 HOURS 1,000.00 PLUS SERVICE TAXHALL RENT FOR 2-4 HOURS 1,500.00 PLUS SERVICE TAXHALL RENT FOR FULL DAY 2,500.00 PLUS SERVICE TAX

LCD RENT FOR 2 HOURS 600.00 PLUS SERVICE TAXLCD RENT FOR 2-4 HOURS 800.00 PLUS SERVICE TAXLCD RENT FOR FULL DAY 1,200.00 PLUS SERVICE TAX

Your demand draft should be drawn in the name of“The Chartered Accountants Study Circle” payable at Chennai.


CASC - LEGAL UPDATE ON DIRECT TAXES

Whether long term capital loss of sale ofequity shares attracting STT can beallowed to set off against long termcapital gains of land in accordance withsection 70(3), as the income from Longterm capital gain on sale of such sharesare exempt u/s. 10(38)?

The issue came up for consideration, inter-alia, in the case of RAPTAKOS BRETT &CO. LTD. v. DCIT, Mumbai [ 2015 ] 58taxmann.com 115 (Mumbai - Trib.) -JUNE 10, 2015.

Facts of the Case:

1. For the Assessment year 2007-08, theCIT(A) has confirmed the action ofDeputy Commissioner of Income Tax(the A.O) by not allowing the claim ofset off of Long term Capital Loss on saleof shares where Security TransactionTax (“STT”) was deducted against theLong Term Capital Gain arising on saleof land at Chennai.

Decision:

2. Exclusion from total income, whetherprofit or loss arises only when thesource is exempted from tax, whereassection 10(38) exempts only incomearising from transfer of Long termcapital asset being equity share orequity fund which is chargeable to STTand not entire source. Distinguishingthe ruling of apex court (discussedherein below), the ITAT Bench directed

CA. PARI G. & CA. PRADEEP KUMAR

the Assessing Officer to allow the claimof set off of Long term capital loss onsale of shares against the Long termcapital gain arising on sale of land

Arguments of the assesse:

3. Section 10(38) is exemption of positiveincome and losses will not come withinthe purview of the said section.

4. The set off of Long term capital loss hasbeen clearly provided in sections 70 and71. The Legislation has not put anyembargo to exclude Long term capitalloss from sale of shares to be set offagainst Long term capital gain arisingon account of sale of other capital asset.

5. Even in the definition of capital assetu/s. 2(14), no exception or exclusion hasbeen provided to equity shares theprofit/gain of which are treated asexempt u/s. 10(38).

6. Section 10(38) cannot be read intosection 70 or 71 or sections 45 to 48.In the decision of Hon’ble Calcutta


High Court in the case of ROYALCALCUTTA TURF CLUB v. CIT (1983)144 ITR 709 (Cal), while considering thesimilar issue with regard to the losseson account of breeding horses and pigswhich are exempt u/s. 10(27), whetherthis can be set off against its income ofother source under the head “business”,it is held that

a. section 10(27) excludes in expressedterms only any income derived frombusiness of livestock breeding, poultry ordairy farming. It does not exclude thebusiness of livestock breeding, poultryor dairy farming from the operation ofthe Act.

b. The losses suffered by the assessee inrespect of livestock, breeding were heldto be admissible for deduction and wereallowed to be set off against otherbusiness income. The findings arefurther based on various decisions ofHon’ble Supreme Court, especially inthe case of CIT v. KARAMCHANDPREMCHAND LTD. (1960) 40 ITR 106.

c. The contrary view taken by Hon’bleGujarat High Court in the case ofKISHOREBHAI BHIKHABHAI VIRANIv. ASST. CIT (2014) 367 ITR 261 (Guj),has not referred the decision of Hon’bleCalcutta High Court and therefore, thisdecision does not have precedencevalue as compared to the Calcutta HighCourt decision, which is based onSupreme Court decision on this point.

Arguments of the Department:

7. If the income from the Long term capitalgain on sale of shares is exempt, thenthe loss from such sale of shares will alsonot form part of the total income.

8. It is quite a settled law that incomeincludes loss also and, therefore, if theincome from sale of shares does notform part of the total income.

Conclusions:

9. Long term capital gain has been definedunder section 2(39A), as capital gainsarising from transfer of a Long termcapital asset. Section 2(14) defines“Capital asset” and various exceptionsand exclusions have been providedwhich are not treated as capital asset.

10.Under the I.T. Act, there are certain incomeswhich do not enter into the computation ofthe total income at all. Section 4 is thecharging section and the scheme of “ totalincome “ has been explained by s. 5 of theAct. In computing the total income, certainincomes are not included under s. 10 of theAct. After discussing the variousdecisions of the Hon’ble Supreme Courtspecifically the decision of in the caseof Karamchand Premchand (supra), theHon’ble High Court came to thefollowing conclusion:

“cl.(27) of s.10 excludes in express terms only“any income derived from a business of live-stock breeding or poultry or dairy farming. Itdoes not exclude the business of livestockbreeding or poultry or dairy farming from the


operation of the Act. Therefore, the lossessuffered by the assessee in the broodmaresaccount and in the pig account were admissibledeductions in computing its total income”

11. While distinguishing the decision ofHon’ble Supreme Court in the case ofCIT v. HARIPRASAD & COMPANYPVT. LTD. (1975) 99 ITR 118 that ‘theconcept of income includes loss’ will applyonly when entire source is exempt oris not liable to tax and not in the casewhere only one of the income fallingwithin such source is treated asexempt. The Hon’ble Apex Courtfurther stated that if loss from thesource or head of income is not liablefor tax or congenitally exempt fromincome tax, then it need not becomputed or shown in the return andAssessing Officer also need not assessit.

12. Section 10(38) excludes in expressedterms only the income arising fromtransfer of Long term capital asset beingequity share or equity fund which ischargeable to STT and not entire sourceof income from capital gains arisingfrom transfer of shares. It does not leadto exclusion of computation of capitalgain of Long term capital asset or Shortterm capital asset being shares.Accordingly, Long term capital loss onsale of shares would be allowed to beset off against Long term capital gainon sale of land in accordance withsection 70(3).

13. Distinguishing another decision of theITAT Mumbai Bench in the case ofSCHRADER DUNCAN LTD v. Addl.CIT (2012) 50 SOT 68. which dealt theissue of carry forward and set off ofunits US 64, which is exempt undersection 10(33), the Tribunal held thatthe source both capital gain and capitalloss on sale of units of US64 is itselfexcluded and not only the incomearising out of capital gain. Thereforeinclusion under total income in respectof such income may not arise.

Whether disallowance of Section 43Bcould be made even when assessee optedfor presumptive taxation Scheme u/s44AF of IT Act?

The issue came up for consideration in thecase of GOOD LUCK KINETIC v. ITO, [2015 ] 58 taxmann.com 267 (Panaji - Trib.),JUNE 15, 2015.

The ITAT bench held that disallowancecould be made by invoking the provisionsof Sec. 43B in respect of the statutoryliabilities, even though the assessee offeredhis income to tax on presumptive basis.[Though the principal laid down by the ITATis on erstwhile section 44AF, it may be squarelyapplicable when taxpayer has opted forpresumptive taxation scheme under Section44AD or Section 44AE]

The rulings of the ITAT Bench are as under:

Disallowance of expenses under section43B :


1. As per the provisions of Sec. 44AFadmittedly once the presumptive taxprovision is applied, the income of theAssessee is fixed at 5% of the totalturnover. (The case pertains to the Asst.year 2006-07, wherein 5% of totalturnover has been fixed under thesection 44AF).

2. Sec. 44AF clearly shows that theopening words in the said section are“notwithstanding anything to the contrarycontained in Sec. 28 to 43C”. When thepresumptive tax rate is applied u/s44AF, the said sum equaling 5% of thetotal turnover is deemed to be the profitand gains of such business chargeableto tax under the head “Profit and gainsof business or profession". It onlymeans that the deduction allowable u/s 28 to 43C is deemed to have beenalready granted to the Assessee sincethe provisions are relating to thecomputation of business income of theAssessee.

3. A perusal of the provisions of Sec. 43Bshows that the opening words are“notwithstanding anything contained inany other provisions of this Act”. Sec. 43Bshows that the said provision is a“restriction” on the allowance of aparticular expenditure representingstatutory liability and such otherexpenses claimed in the profit and lossaccount unless the same has been paidbefore the due date of filing the return.Further, the non-obstante clause in Sec.

43B has a far wider amplitude becauseit uses the words “notwithstandinganything contained in any other provisionsof this Act”

4. Therefore, even assuming that thededuction is permissible or thededuction is deemed to have beenallowed under any other provisions ofthis Act, still the control placed by theprovisions of Sec. 43B in respect of thestatutory liabilities still holdsprecedence over such allowance.

5. In these circumstances, the ITAT Benchis of the view that the disallowancemade by the AO by invoking theprovisions of Sec. 43B of the Act inrespect of the statutory liabilities are inorder even though the Assessee’sincome has been offered and assessedunder the provisions of Sec. 44AF of theAct.

Addition in respect of Sundry Creditorsunder Presumptive Taxation:

6. However, in respect of the additionrepresenting the sundry creditors,admittedly the same cannot be made inthe hands of the Assessee whenapplying the provisions of Sec. 44AF.This is because once the presumptivetax provision is applied, then, the booksof accounts are deemed not to beavailable for the purpose ofcomputation of the profit and gains ofthe business.


Withholding Tax under section 195 of ITAct: Whether payment of ‘arranger’s fees’has covered within the meaning of‘interest’ defined under section 2(28A) ofIT Act or with in the purview of fees fortechnical services under section 9(1)(vii) ofIT Act?

The issue came up for consideration in thecase of IDEA CELLULAR LTD. v. ADIT(International Taxation)-3(1) Mumbai [2015 ] 58 taxmann.com 101 (Mumbai -Trib.) - JUNE 10, 2015

Facts of the Case:

1. The assessee (Idea Cellular Limited -ICA) had entered into “Term LoanFacility Agreement” as borrower, withFinnish Export Credit Ltd.(FECL), whois the lender. The HSBC, Hongkong hadarranged for the loan as “Arranger” andUK based Company, HSBC Bank, PLCacted as a facility agent.

2. As per agreement, the assessee has paid‘arranger fees’ to HSBC, Hongkongafter deducting tax @21.12%,considering it as interest andsubsequently filed an appeal before CIT(A) under section 248 of the IT Actholding that ‘arranger’s fees’ is not an‘interest’ as defined u/s 2(28) of IT Actand accordingly TDS provisions are notapplicable.

3. In the remand report called by CIT(A),the ld. ADIT admitted that the amountpayable as “Arranger fee” is not interest,however, he was of the opinion that it

is “fees for technical services” u/s9(1)(vii) as the same is in the nature of“managerial” or “consultancy services”.

4. The ld. CIT(A) held that the paymentof ‘arranger fee’ is not only in the natureof ‘interest’ but also it is in the nature of‘for technical services’ within themeaning of section 9(1)(vii):

a. In the instant case the arranger fee hasbeen charged from the borrower @0.40% of the amount of loan disbursedto the borrower, therefore, it is held thatit has a direct nexus between thepayment of arranger fee and loanadvanced consequently, it is in thenature of interest income arising in Indiawithin the meaning of section 9(1)(v)and section 115A of the Act. The CIT(A) relied on the decision of ITAT,Mumbai Bench in the case of JDIT v. M/s Commonwealth Development Corporationin ITA No. 1987 & 1988/Mum/2001,wherein with regard to “front-end fees”,it was held that it is in respect of debtinvestment at a certain percentage ofproposed investment and thus it has adirect nexus with the debt claimed, it iscovered within the definition of the terminterest under the Act.

b. Regarding such a payment fallingwithin the meaning of fees for technicalservices u/s 9(1)(vii) as contended bythe A.O., CIT (A) held that the arrangerfee is in the nature of service fee formanaging and arranging the finance forthe assessee borrower from the various


lenders. In support, he strongly reliedupon the decision of ITAT, MumbaiBench in the case of Ashapura Minechemv. ADIT in ITA No. 2500/M/2008 forA.Y. 2008-09 order dated 21-05-2010.

5. Analyzing the second limb of definitionof interest u/s 2(28A), which is inclusiveone, that any service fee or other chargewill be covered only when it has beenpaid by the borrower to the lender andnot to the third person, the ITAT Benchallowed the assessee’s appeal byreversing the findings of CIT(A) that thepayment of “Arranger fees” entailsdeduction of tax at source u/s 195. It isheld that `arranger fees’ is neithersubject to deduction of TDS as interestnor fees for technical services.

Conclusions:

6. The role of the Arranger was to liasewith the lender and to procure the loanfor the borrower as well as to negotiatethe terms and conditions of the facilitywith the lender on behalf of theborrower. The Arranger is a third partywho has acted as the middlemanbetween the borrower and the lender toachieve/negotiate the terms andconditions agreeable to both the parties.For this service, the Arranger fee hasbeen paid by the assessee to theArranger,

Arranger fees – whether covered with inthe definition of interest u/s 2(28A) of ITAct:

7. The definition of “interest” u/s 2(28A)reads as under:—

“interest” means interest payable in anymanner in respect of any moneys borrowedor debt incurred (including a deposit, claimor other similar right or obligation) andincludes any service fee or other charge inrespect of the moneys borrowed or debtincurred or in respect of any credit facilitywhich has not been utilised;”

a. From the above definition, the mainlimb of the definition, it is amply clearthat interest should be in respect of themoney borrowed or debt incurred. Inother words, the interest is payable bythe borrower who had borrowed themoney from the lender or the debt hasbeen incurred by him in favour of thelender who has given the money. TheArranger is not the lender as the personwho has provided the money and anyfee paid to him is not in respect of theborrowing. He is merely a facilitatorwho brings lender and borrowertogether for facilitating the loan/creditfacility.

b. The second limb of the definition is aninclusive definition whereby interestencompasses to include service fee orother charge and such fee is in respectof the money borrowed or any debtincurred or, for unutilised credit facility.Here also, such fee or charge is in respect ofmoney borrowed only i.e. given by the lenderto the borrower. The service fee or othercharge does not bring within its ambit


any third party or intermediary who hasnot given any money. Nowhere thedefinition suggests that payment of interestincludes some kind of fee paid to a thirdparty who has not given any loan or anycredit facility.

c. The Arranger fee may be inextricablylinked with the loan or utilisation orloan facility but it is not a part of interestpayable in respect of money borrowedor debt incurred, because therelationship of a borrower or a lenderis missing.

d. Thus, Arranger is only anintermediary/third party andaccordingly, any fee paid as Arrangerfee cannot be termed as “interest” underboth the limbs of the definition;

8. The ratio held in M/s CommonwealthDevelopment (supra) as relied upon bythe ld. CIT(A), has been wronglyapplied as in this case it has been heldthat appraisal fee paid cannot be saidto be interest payable in respect ofmoney borrowed or debt incurred andalso not in the nature of service fee orother charge. Further, the Tribunal hasgiven relief to the assessee on theground that under Article 12(5) of theIndia-UK DTAA such a payment doesnot fall within the meaning of interestincome.

Arranger fees – whether managerialservices?

9. The term ‘managerial’ essentially implycontrol, administration and guidancefor business, day to day functioning. It

includes the act of managing bydirection or regulation orsuperintendence. Arranging of a loancannot be equated with lending ofmanagerial services at all. It is also notin the nature of ‘consultancy services’because, Arranger did not provide anyadvisory or counselling services. TheArranger was not involved in providingcontrol, guidance or administration ofthe credit facility nor it was involved inday-to-day functioning of the assesseein overseeing the utilisation oradministration of the credit facility. Itwas not in charge of entire or part ofthe transaction of arranging services,hence, it cannot be termed asmanagerial or consultancy serviceswithin the meaning of section 9(1)(vii).– Relied on Credit Lyonnais v. ADIT(International Taxation) reported in [2013]35 taxmann.com 583 (Mumbai – Trib)& DDIT (IT) v. Abu Dhabi CommercialBank Ltd. Reported in [2013] 37taxmann.com 15 (Mumbai-Trib).

Issue

Whether the amounts paid by the ONGCto the non-resident assessees forproviding various services in connectionwith prospecting, extraction orproduction of mineral oil is chargeableto tax as “fees for technical services”under Section 44D read with Explanation2 to Section 9(1)(vii) of the Income TaxAct or will such payments be taxable ona presumptive basis under Section 44BBof the Act?


The issue came up in the case of [2015] 59taxmann.com 1 (SC) SUPREME COURTOF INDIA Oil & Natural Gas CorporationLtd. v. Commissioner of Income-tax

Facts

ONGC and a non-resident/foreigncompany had entered into an agreementby which the non-resident company hadagreed to make available supervisory staffand personnel for operation andmanagement of drilling rigs and forservices in connection with prospecting,extraction or production of mineral oils.

The primary/assessing authority took theview that the assessments should be madeunder Section 44D of the Act and notSection 44BB of the Income Tax Act(hereinafter referred to as the ‘Act’). TheAppellate Commissioner and the IncomeTax Appellate Tribunal disagreed with theviews of the assessing authorities. TheHigh Court considered the factsoverturned the view taken by the AppellateCommissioner and the learned Tribunaland held the payments made to be liablefor assessment under Section 44D of theAct.

Section 44BB(1) provides that in case of anon-resident providing services or facilitiesin connection with or supplying plant andmachinery used or to be used inprospecting, extraction or production ofmineral oils the profit and gains from suchbusiness chargeable to tax is to becalculated at a sum equal to 10% of the

aggregate of the amounts paid or payableto such non-resident assessee as mentionedin Sub-section (2). On the other hand,Section 44D contemplates that if the incomeof a foreign company with which thegovernment or an Indian concern had anagreement executed before 1.4.1976 or onany date thereafter the computation ofincome would be made as contemplatedunder the aforesaid Section 44D. It defines“fees for technical services” to meanconsideration for rendering of anymanagerial, technical or consultancyservices. However, the later part of theexplanation excludes from considerationfor the purposes of the expression i.e. “feesfor technical services” any paymentreceived for construction, assembly,mining or like project undertaken by therecipient or consideration which would bechargeable under the head “salaries”. Feesfor technical services, therefore, by virtueof the aforesaid explanation will notinclude payments made in connection witha mining project.

A Circular No. 1862 dated 22.10.1990having a bearing on the subject was placedfor consideration before the HC.

Whether prospecting for, or extraction orproduction of, mineral oil can be termedas ‘mining operations. The AttorneyGeneral has opined that such operationsare mining operations and the expressions‘mining project’ or ‘like projects’ occurringin Explanation 2 to Section 9(1) (ii) of theIncome Tax Act would cover rendering of


services like imparting of training andcarrying out drilling operations forexploration or exploitation of oil andnatural gas. The consideration for suchservices will not be treated as fees fortechnical services for the purpose ofExplanation 2 to Section 9(1) (vii) of theIncome-tax Act, 1961. Payments for suchservices to a foreign company, therefore,will be income chargeable to tax under theprovisions of section 44BB of the Income-tax Act, 1961 and not under the specialprovision for the taxation of fees fortechnical services contained in section 115Aread with section 44D of the Income-taxAct, 1961.

Assessee's Arguments

It was urged that the eventual test is oneof pith and substance of the agreement,namely, whether the works contemplatedor services to be rendered under theagreement is directly and inextricablylinked with the prospecting, extraction orproduction of mineral oil. It was that theagreements in question satisfy the abovetest for which purpose the contracts werecategorized as follows -

1. Carrying out seismic surveys anddrilling for oil and gas

2. Services starting/re-starting/enhancingproduction of oil and gas from wells

3. Services for prospecting for explorationof oil and or gas

4. Planning and supervision of repair ofwells

5. Repair, Inspection or Equipment usedin the exploration, extraction orproduction of oil and gas

6. Imparting Training

7. Consultancy in regard to exploration ofoil and gas

8. Supply, Installation, etc. of softwareused for oil and gas exploration"

Further It was also urged that theinstruction/Circular dated 22.10.1990issued by the CBDT was binding on theprimary authority on the ratio of thedecision of this Court in K.P. Varghese v.Income Tax Officer, Ernakulam and Others[1981] 4 SCC 173. It was argued thatrendering any service in connection withprospecting and extraction is an integralpart of mining and that the expression"mining" in the Explanation 2 to Section9(1) of the Income Tax Act, in the absenceof any definition under the Income Tax Act,has to be understood as per the provisionsof the Oil Fields (Regulation andDevelopment) Act, 1948 read with thePetroleum and Natural Gas Rules, 1959.

Revenues Arguments

The Revenue has urged that the opinionof the Attorney General relied upon andthe CBDT Circular has no relevance to thepresent case inasmuch as the agreementsbetween ONGC and the non-residentcompanies made it abundantly clear thatwhat is paid to the non-resident companyare fees for technical services rendered.Though such services may have some


connection with the prospecting,extraction or production of mineral oil, theprimary service rendered by the non-resident companies on the basis of theagreements is not for prospecting,extraction or production of mineral oil butvarious ancillary services like training ofpersonnel etc. which may have asomewhat remote connection with thebusiness of prospecting, exploration orproduction of mineral oils. Learnedcounsel for the revenue has even suggestedthat if it is held that the High Court oughtto have examined each agreement orcontract to find out its real purpose andintent the revenue would have no objectionif the matters are remanded for a completeexercise to be made on the above basis.

Conclusion

It is the proximity of the workscontemplated under an agreement,executed with a non-resident assessee or aforeign company, with mining activity ormining operations that would be crucialfor the determination of the questionwhether the payments made under suchan agreement to the non-resident assesseeor the foreign company is to be assessedunder Section 44BB or Section 44D of theAct. The test of pith and substance of theagreement commends to us as reasonablefor acceptance. Equally important is thefact that the CBDT had accepted the saidtest and had in fact issued a circular as farback as 22.10.1990 to the effect that miningoperations and the expressions "mining

projects" or "like projects" occurring inExplanation 2 to Section 9(1) of the Actwould cover rendering of service likeimparting of training and carrying outdrilling operations for exploration of andextraction of oil and natural gas and hencepayments made under such agreement toa non-resident/foreign company would bechargeable to tax under the provisions ofSection 44BB and not Section 44D of theAct. The court felt that there were no otherview that can be taken if the works orservices mentioned under a particularagreement is directly associated orinextricably connected with prospecting,extraction or production of mineral oil.

The above facts would indicate that thepith and substance of each of the contracts/agreements is inextricably connected withprospecting, extraction or production ofmineral oil. The dominant purpose of eachof such agreement is for prospecting,extraction or production of mineral oilsthough there may be certain ancillaryworks contemplated thereunder. It heldthat the holding that the payments madeby ONGC and received by the non-residentassessees or foreign companies under thesaid contracts is more appropriatelyassessable under the provisions of Section44BB and not Section 44D of the Act.

(The authors are Chennai based CharteredAccountants and they can be reached [email protected] & [email protected] respectively)


How to insert blank /empty rows in Excel?At times, in Excel, we need to insert a blank row between each ofthe existing rows. The same can be done by inserting a blank rowmanually, however inserting hundreds of blank rows will be atedious task.

A quick trick to help solve this problem is as follows:

Insert blank rows with Sort functionThis method is an easier but roundabout to insert blank rows between exiting rows. Wecan do as follows:

1. We need a blank column adjacent to our data. For example, we have a worksheetcomprises A1:E11, we can use column F.

2. In cell F1 input the number 1, and input 2 in cell F2.3. Select the number 1 and number 2, and double-click the fill handle, Excel will auto-

fill the cells in column F.4. Then copy this new column F (F1:F11), select the cell F12, and paste the auto-fill

number from F1:F11. See Illustration below:

EXCEL TIPS

CA. DUNGAR CHAND U. JAIN

5. And then click Data > Sort, and a Sort Warning dialog box will pop out, selectExpand the selection option, and click Sort… See Illustration below:


6. And a Sort dialog box will appear, choose Column F from the Sort by dropdown list.See Illustration below:

6. Click OK. Then delete the column F. And the new blank rows have been inserted inthe exiting rows. See Illustration below:

Note : If two or three blank rows needs to be inserted between each row, we can copythe new auto-fill column two or three times to add the new rows.

(The author is a Madurai based Chartered Accountant and he can be reached at [email protected])


SERVICE TAX - MANUAL SCRUTINY

Tax on Services introduced in 1994 hasmade large progress, perhaps no tax inIndependent India can boost of a morefaster and rapid growth at no extra cost tothe exchequer. So popular it is now, thatevery official would like to be posted inthe service tax department and a postingin excise is considered a punishmentposting, for obvious reasons (punintended).

The Central Board of Excise and Customsvide Circular No.185/4/2015-Service Taxdated June 30, 2015 has instructed itsofficials to commence a preliminary onlinescrutiny of all the returns and a detailedmanual scrutiny of select service taxreturns with effect from August 1, 2015.

The returns which have been filed onlinewill be scrutinized by the JurisdictionalSuperintendent for ensuring thecompleteness of the information furnishedin the return, arithmetic correctness of theamount computed as tax, its timelypayment and date of filing of the return.During this process the non-filers and stopfilers will also be identified. Non-Filerswould mean those who have obtainedregistration under The Finance Act, 1994and Stop Filers would mean those assesseswho did file returns but have stoppedfiling the same. The preliminary scrutinywill be done by the officer and will notinvolve the assessee or his authorizedrepresentative.

Under section 70 of The Finance Act, 1994,contains that every person liable to payservice tax shall himself assess the tax dueon the services provided by him andfurnish a return to the Superintendent. Thereturns which have been furnished undersection 70 shall be the basis of detailedmanual scrutiny, on the lines of thescrutiny of returns done by the income taxdepartment.

The detailed manual scrutiny (DMS) is toensure:

Ø Correctness of the assessment of taxmade by the assessee

Ø Checking the taxability of service

Ø Checking the correctness of value of thetaxable service

Ø Admissibility of exemption notification

Ø Admissibility of abatement

Ø Admissibility of export of taxableservice

Ø Ensuring correct availment/utilizationof Cenvat Credit

CA. RAJENDRA KUMAR P., FCA


The assessee will be required to submitrelated documents like agreements,contracts, invoices and such other recordswhich would ensure the verification of theabove details. It is expressly stated in thecircular that “detailed financial recordsshould not be called for in a routinemanner”.

The DMS will be conducted by the ServiceTax Range headed by the Superintendentwho will be assisted by an Inspector.However, the divisional AC/DC shall beresponsible for the overall supervision ofthe DMS being conducted under hisjurisdiction.

An intimation letter which is in a specifiedformat will be sent to the assessee at least15 days prior to the commencement ofDMS communicating that this case hasbeen selected for DMS. In the currentprocess which will commence from August1, 2015 the returns filed for the financialyear 2013-14 will be taken up for DMS.

The circular also clearly specifies that oneof the important objectives of DMS is toensure validation of the informationfurnished by the assessee in the ST 3 returnreconciling the same with ITR Form 4, 5, 6and 26AS including any third partyinformation available with the department.The data available with the income taxdepartment has been shared with theservice tax authorities and it is expectedthat the service tax authorities will use thisdata while conducting the DMS.

Detailed check lists have been preparedand the scrutiny officer is required to fill

up those during the course of verificationsso as to summarize the findings. Theoutcome of the scrutiny has to bedocumented and were it is found that thereare issues the officer may refer the same tothe audit or the anti evasion wing. If theDMS results in detection of defaults inpayment of service tax and it appears tothe officer that further period should beverified he can extend the same to a periodof 6 months prior to the date of the financialyear relevant to which DMS is beingconducted. In no case the officer can invokethe extended period of limitation of 5 yearswhile conducting the DMS. The entireprocess of scrutiny should be completedin a period not exceeding three months.The circular is silent on the extension ofthis time limit.

The period from August 1st will keep usbusy with tax audits, deadline to filereturns, Vat Audit and as a top up DMS. Itis suggested that meticulous care is takenwhile submitting the data and patienceshould be the key word as the officers ofthe service tax department especially at therange level do not possess necessaryexposure in handling a scrutiny andneither do many have accountingexpertise. And finally tell the assessee thathe must increase his budget for theDeepavali and add new friends in hislist……….for whatever reason…….(deliberately left blank for yourimagination…..)

(The author is a Chennai based CharteredAccountant and he can be reached at [email protected])


WITHHOLDING TAX (WHT) ON REIMBURSEMENT OF FTS

Reimbursement - meaning:

1. The term ‘reimbursement’ has not beendefined under Income tax Act and thedictionary meaning of ‘reimbursement’,in common parlance, denotes:

K As per Black’s Law Dictionary the term,‘reimburse’ means to pay back, to makerestoration, to repay that is expended, toindemnify or make whole.

K As per the Concise Oxford Dictionarythe term ‘reimburse’ means repay (aperson who has expended money) or repays(a person’s expenses)

2. The Supreme Court in the case of TISCOv. UNION OF INDIA [2001] 2 SCC 41held, the meaning of reimbursement,that:

i) in common parlance the word‘reimbursement’ would mean andimply to pay back or refund;

ii) it denotes restoration of something paidin excess

iii) ‘reimbursement’ has to mean and implyrestoration of an equivalent forsomething paid or expended and

iv) ‘reimbursement’ pre-supposes previouspayment.

3. Thus reimbursement follows the incurrenceof expenditure by replacing the quantum ofdisbursement. It does not have the potentialof earning gains for the payee or thepotential of generating a surplus. ‘Income’

CA. PARI Gon the other hand would, as per thedefinition under section 2(24)(i), meanprofit or gain.

4. In the case of BOVIS LEND LEASE(INDIA) (P.) LTD. v. INCOME-TAXOFFICER, INTERNATIONALTAXATION, WARD - 19(1),BANGALORE[2010] 36 SOT 166(BANG.),observedthe followingconditions are to be satisfiedcumulatively for a reimbursement:

(a) The actual liability to pay should be ofthe person who reimburses the moneyto the original payer.

(b) The liability ought to have been clearlydetermined. It should not be anapproximate or varying amount.

(c) The liability ought to have beencrystallized. In other words, paymentswhich were never required to be done,but were done just to avoid a potentialproblem may not qualify.

(d) There should be a clear ascertainablerelationship between the paying and


reimbursing parties. Thus, an allegedreimbursement by an unconnectedperson may not qualify.

(e) The payment should be first be madeby somebody else whose liability itnever was and the repayment shouldthen follow to that person to square offthe account.

(f) There should be clearly three partiesexisting - the payer, the payee and thereimburser.

Payments should not be camouflaged asreimbursements – substance prevail overname:

5. Payments u/s 195 could not beexempted from tax merely because theyare termed as ‘reimbursement’. Thetrue nature and character of transactionare relevant in deciding the applicationof TDS provisions. It is The Hon’bleSupreme Court in the case ofNATIONAL CEMENT MINESINDUSTRIES v. CIT [1961] 42 ITR 77had observed that, “the name which theparties give to the transaction which is thesource of receipt and characterization of thereceipt by them are of little moment and thetrue nature and character of the transactionhave to be ascertained from the covenantsof the contract in the light of thesurrounding circumstances”.

6. Thus, reimbursement is a cost re-chargearising out of expenses incurred by oneperson on behalf of another. Thedeterminant factor of reimbursementwould be whether there exists an

obligation on the part of person bearingthe expenditure to incur suchexpenditure. Where the ultimateobligation/liability to bear an expenserest on another person and the paymentis made on his behalf, any recoupmentof expense would partake the nature ofreimbursement.

Any sum chargeable under the provisionsof this Act’ u/s 195 of IT Act – Whetherapplicable to reimbursements, which donot have ‘income element’:

7. Section 195 of IT Act deals withdeduction of Tax at Source (TAS) on thepayments, which are chargeable to tax,made to non-residents. The object ofsection 195 is to ensure that the tax duefrom non-resident persons is secured atthe earliest point of time so that there isno difficulty in collection of taxsubsequently at the time of regularassessment. No thresh hold limit forexemption has been prescribed u/s 195as in domestic TDS provisions.

8. Section 195 of the IT Act requires anyperson to deduct TAS before makingpayments to a non-resident if the incomeof such non-resident is chargeable to tax inIndia.’Person’, here, will take itsmeaning from section 2 and wouldinclude all persons, whether resident ornon-resident. Therefore, a non-residentperson is also required to deduct TASbefore making payments to anothernon-resident, if the payment representsincome of the payee non-resident, chargeableto tax in India.


9. The scheme of sub-sections (1), (2) and(3) of section 195 and section 197 leavesno doubt that the expression ‘any othersum chargeable under the provisions ofthis Act’ would mean ‘sum’ on whichincome-tax is leviable. In other words, thesaid sum is chargeable to tax and couldbe assessed to tax under the Act -TRANSMISSION CORPN. of A.P. Ltd.v. CIT [1999] 105 Taxman 742/239 ITR587 (SC). Where the payment made toa foreign company was exempt fromincome-tax under section 10(6A) of theAct, tax was not required to be deductedat source on that payment.HYDERABAD INDUSTRIES LTD. v.ITO [1991] 59 Taxman 202 (Kar.).

10. Applying the ratio, if reimbursementcontains an element of income, it isliable to TDS. Conversely, if thereimbursement does not contain anelement of income, no deduction of taxis required. Deduction or non-deduction of TDS is essentially relatedto facts of each case.

When the recipient of thereimbursement has not claimed theamount as an expense/deduction inits income-tax assessment, theexpenditure reimbursed would notbe liable to tax under the IT Act:

11. In the case of MAHINDRA &MAHINDRA LTD. v. Dy. CIT [2009] 30SOT 374 (Mum.)(SB), it was held thatin respect of reimbursement ofexpenses there was no obligation to

deduct tax at source if there was noelement of income involved in suchpayments.

12. In NATHPA JHAKRI JOINTVENTURE v. ASSTT. CIT [2010] 37SOT 160 (Mum.), for thereimbursement of bank guaranteecommission, social insurance forexpatriates who worked for executionof the contract and software chargesto an associate concern, it was held thatthe payment towards reimbursementof expenses was not in the nature ofincome and, resultantly, there was noobligation to deduct tax at sourceunder section 195.

Categories of reimbursement:

13. Generally, expenses forreimbursement are of the followingcategories:

a. Reimbursement categorized as ‘Feesfor Technical Services’ (FTS)

b. Reimbursement on ‘cost plus mark up’basis

c. Reimbursement on ‘cost to cost’ basis

d. Reimbursement under ‘CostAllocation Arrangements’

e. Reimbursement of ‘out of pocketexpenses’ and

f. Reimbursement of ‘employee costs’.

14. In this article, the ‘reimbursementcategorized as FTS alone has beentaken for discussion. It is observed thatthe concept of reimbursement has


much diluted in the case of FTS, andin most cases it has been held taxableby relying on its chargeability underthe provisions of income tax andDTAA though it has satisfied the testof reimbursement generally.

FTS – meaning:

15. Explanation 2 of section 9(1)(vii) whichcontains a definition of FTS reveals that,FTS means ‘any consideration for therendering of any managerial, technical orconsultancy services including theprovision of services of technical or otherpersonnel, but does not includeconsideration for any construction,assembly, mining or like projectundertaken by the recipient orconsideration which would be income ofthe recipient chargeable under the head‘Salaries’.

Reimbursement of FTS – not taxablerelying on the meaning as in Explanation2 of Sec. 9 (1)(vii)::

16. In the case of ASSISTANTCOMMISSIONER OF INCOME-TAX,Circle 23(2), New Delhi v. MODICONNETWORK (P.) LTD. [2007] 14 SOT204 (DELHI), for the reimbursement ofconsultancy charges to draw up pre-biddocuments, by the assesse, to a companyincorporated in Hong Kong, by wayof reimbursement, it was held thatsince there was no income element inremittance it is not required to deducttax at source under section 195.Reliance is also placed on the above

definition that service was notrendered by the recipient (Hong KongCompany), which acted only as afacilitator.

Reimbursement of audit fees has ‘incomeelement’ – even referring the decision ofMODICON NETWORK (supra):

17. In the case ofSPX INDIA (P.) LTD.v.CIT (Appeals)-XII, New Delhi [ 2013] 36 taxmann.com 377 (Delhi - Trib.),in case of payment of share of expenses forISO audit fees by assessee-company toits foreign parent company, it was heldthat TDS was required to be deductedat source under section 195, as elementof income was embedded in receipt ofaudit fees Having the receipts arerouted through the parent companythat do not extinguish the element ofincome from the payments. Thedecision of MODICON NETWORK PLTD has also been referred into thisdecision.

Reimbursement of marketing expenses –taxable as Business Income since failedto establish as reimbursement:

18. Assessee-company was tax resident ofNetherland .Assessee entered into anagreement with Indian hotel companyITC and provided marketing serviceoutside India. ITC paid marketing fee.HELD, Assessee failed to demonstratethat actual expenses incurred wereequal to amount received and thus,impugned receipts were notreimbursement of expenses as claimed.


Taxability of impugned amount wasrequired to be determined in terms ofarticle 7 - MARRIOTTINTERNATIONAL LICENSING CO.BV vs. DDIT [2014] 151 ITD 653(Mumbai – Trib.)

Reimbursement to meet warrantyobligation – Not a consideration forservice, NOT TAXABLE u/s 194J:

19. Assessee issued free service couponsto customers along with vehicles soldfor service of vehicles. Reimbursementwas made by assessee to dealers forcarrying out service on presentation ofcoupons. HELD, since contractbetween dealer and customer was anindependent and separate contract,reimbursement by assessee was not forservices rendered. Therefore, it couldnot be held that dealer renderedtechnical services as contemplatedunder section 194J and no tax wasrequired to be deducted by assessee onreimbursement to dealers - HEROMOTOCORP LTD. vs. ACIT [2013] 156TTJ 139 (Delhi – Trib.))

Deemed accrual of FTS under Income taxAct – Sec. 9 (1)(vii):

20 Income by way of FTS shall be deemedto accrue or arise in India, if payableby:

a. Government

b. Resident except where services areutilised in a business or professioncarried on by such person outside

India or for the purposes of making orearning any income from any sourceoutside India

c. Non-Resident where services areutilised in a business or professioncarried on by such person in India orfor the purposes of making or earningany income from any source in India

21. Explanation to Section 9 (2) providesthat income shall be deemed to accrueor arise in India irrespective ofwhether;

K Non resident has residence/ place ofbusiness/ business connection in India

K Non resident has rendered services inIndia

Managerial, technical or ConsultancyServices –‘ human element’ essentialin rendering services:

22. The term “managerial, technical orconsultancy services” has not beendefined either under the Act or underDTAA. The Delhi High Court in CITv. BHARTI CELLULAR LTD. [2009] 319ITR 139/[2008] 175 Taxman 573 hasobserved that the word “technical” ispreceded by the “managerial” andsucceeded by the word “consultancy”.Applying the rule of noscitur a sociis,the word “technical” would takecolour from the words “managerialand consultancy” between which it issandwitched. Referring the dictionarymeaning of the words “managerialand consultancy” it can be noted that


they involve a human element andapplying the rule of noscitur a sociis, theword “technical” as appearing in theExplanation 2 to section 9(1)(vii) wouldalso have to be construed as involvinga human element.

23. The Court furthermore observed thatthe word “consultancy” has beendefined in the said Dictionary as `thework or position of a consultant, adepartment of consultants’. Consultantsitself has been defined, inter alia, as aperson who gives professional adviceor services in a specialized field. It isobvious that the service of consultancyalso necessarily entails humanintervention. The consultant whoprovides the consultancy services, hasto be a human being. A machinecannot be regarded as a consultant.

24. In CLEARWATER TECHNOLOGYSERVICES (P.) LTD. v. ITO [2012] 139ITD 479/27 taxmann.com 238, theBangalore Tribunal held that thepayment made to non-resident inrespect of telecom voice services availedoutside India could not be termed as“fees for technical services”.

The term ‘make available’ in DTAAs forTechnical and Consultancy services:

25. The words ‘make available’ only refer tothe willingness of the provider of theservices and do not refer to the acceptanceof the receiver of the services.The

dictionary meaning of the words ‘makeavailable’ is to be able to use or obtain. Itdoes not mean that the recipient shouldequally use the technology. In a case wheregroup owns a number of companies andcertain companies provide services to thecompanies belonging to the group then itbecomes the policy of the group to getservices of that company, though othergroup companies might be able to performthe same functions on the basis of theservices already provided to them. -BOVIS LEND LEASE (INDIA) (P.)LTD.v.ITO, INTERNATIONALTAXATION, WARD - 19(1),Bangalore [2010] 36 SOT 166 (ITAT -BANG.)

26. The concept of ‘make available’ has beenexplained by the Memorandum toIndia-USA tax treaty and analyzed innumerous case laws to broadly meanthat:

K Person acquiring the technicalknowledge or skill is enabled to applythat knowledge or skill withoutrecourse to the service provider.

K The knowledge or skill must remainwith the recipient even when theservice has ended.

K The service must have some sort ofpermanency to it.

K The recipient of the service is at libertyto use the knowledge or skill whendesired.


Exclusions from the Taxability of FTS:

27. Accordingly, if the services fall in thecategory of the appended list, thepayer may tax withholding onreimbursements take a position that notax withholding is required:

K Non–technical services or non-consulting services; or

K Technical or consultancy services,however, not making availabletechnical knowledge, experience, skill,know-how, if provided in DTAAs; or

K Providing non-managerial services.

‘make available’ not provided inDTAAs (as on 31.05.2014):

28. The countries (53) of DTAAs where thephrase “Managerial, Technical andConsultancy” appears in FTS and thereis no PROTOCOL or protocol does notcontain MFN clause restricting thescope of FTS article are givenhereunder for an immediate reference:

K Albania, Armenia, Austria, Belarus,Botswana, Bulgaria, China,CzechRepublic, Denmark, Estonia,Ethiopia, Georgia, Germany, Jordan,Iceland, Ireland, Italy, Japan, Kenya,Korea, Kuwait, Kyrgyz Republic,Latvia, Lithuania, Luxembourg,Malaysia, Mexico, Mongolia,Montenegro, Morocco, Namibia,NewZealand, Norway, Oman, Poland,Qatar, Romania, Russia, Serbia,Slovenia, South Africa, Sri- Lanka,

Sudan, Taipei, Trinidad and Tobago,Turkey, Turkmenistan, Uganda,Ukraine, Uruguay, Uzbekistan,Vietnam, Zambia.

29. In the absence of ‘make available’clause, the term FTS has been widelydefined in the above countries andconsequently the narrowerinterpretation as applicable to India-US and India-UK treaties, where theconcept of ‘makeavailable’ is presentwill not be applicable to the abovecountries.

India – UK Treaty – ‘make available’:

30. Reimbursement of salary cost ofseconded employees, not FTS:Paymentsfor reimbursement of salaries, costs, etc.of seconded staff are not in the nature ofpayments for rendering of any services. Asa result of the said payments, the assessee,is not equipped with transfer of technology,processes, skills, etc. Therefore, thereimbursement of salary and other costsby the assessee cannot be regarded as ‘feesfor technical services’ under Article 13 ofthe India-UK Treaty. [Para 16.6] -ABBEY BUSINESS SERVICES(INDIA) (P.) LTD. v.DCTO, Circle11(1), Bangalore - [2012] 23taxmann.com 346 (ITAT- Bang.)

31. Reimbursement of in house trainingand market awareness developmenttraining under India – UK DTAA:UKbased companies provided in-housetraining and market awareness and


development training to assesseecompany’s employees, it has been heldthat training services rendered weregeneral in nature and did not involveany transfer of technology. In theabsence of transfer of technology,training fees paid to UK companieswas not taxable as fees for technicalservices under article 13(4)(b) of India-UK DTAA - ITO, InternationalTaxation –II v. VEEDA CLINICALRESEARCH (P.) LTD - [ 2013 ] 35Taxmann.com 577 (Ahmedabad -Trib.).

Indo-French Tax Treaty - ‘makeavailable’:

32. Reimbursement of technicalexpenses as cost allocation: Technicalexpenses allocated by head office toassessee-Indian division was in natureof reimbursement of technicalexpenses to head office and not onaccount of any specific technicalservices having been ‘made available’and, therefore, such amount could notbe brought to tax in hands of assesseeunder article 13 of Indo-French TaxTreaty. Also, said amount could notalso be taxed in hands of assesseeunder article 7 as it was not an income‘attributable to PE’. - BUREAUVERITAS-INDIAN DIVISION vs.ADIT (International Taxation) 3(2),Mumbai [2015] 54 com 139 (Mumbai –Trib.)

India – USA Treaty: Reimbursement forconsultant fees, not taxable as thefacilitator is not the beneficiary:

33. Fees for provision of architecturaldesign services under the agreementcan also fall under article 12(4)(b) ofIndo-US treaty as they also renderarchitectural services. However, sinceHOK (the person who is receiving thepayment) is not the beneficiary of thesaid payments and they are to bepassed on to the consultant in the USAfor the services rendered outside India,such payments will not attract taxliability under the Act in India. HMSREAL ESTATE (P.) LTD., In re [2010]190 TAXMAN 22 (AAR – NEW DELHI.

NON-DISCRIMINATORY clause 24(1)of DTAA with India and Germany:

34. In SMS DEMAG (P.) LTD.v.DCIT, 9(1),New Delhi [2010] 38 SOT 496 (ITAT -DELHI) it was held that paymentmade for purchase of software cannotbe treated either as royalty or fees fortechnical services. The ITAT Benchfurther upheld the contention of theassesse that even if the income waschargeable to tax in India because of non-discrimination clause 24 (1) of the DTAAbetween Republic of India and FederalRepublic of Germany the nationals of acontracting State would not be subjectedin the other contracting State to anytaxation or any requirement connectedtherewith, which was more burdensomethan the taxation and connected


requirement to which nationals of thatother State in the same circumstances andunder the same conditions were or mighthave been subjected to

Reimbursement of OUT OF POCKETEXPENSES under FTS:

35. Reimbursement of out of pocketexpenses under FTS are mostlytaxable, relying on DTAAs, whichtaxes FTS mostly on gross basiswithout permitting any deduction forexpenses.

36. Reimbursement of travelling expenses as FTS, taxable under India– Singapore Treaty: Wherereimbursement of travelling expensesto foreign holding company was inconnection with technical serviceagreement, such expenditure could besaid to have been incurred for earningroyalty/FTS. Article 12 of DTAAbetween India and Singapore taxesroyalty/FTS on gross basis and doesnot permit deduction of expenses;therefore, amount paid forreimbursement of expenses fortravelling or other expenses of foreigncompany would be liable to beincluded in its gross receipts - CSCTECHNOLOGY SINGAPORE Pte.LTD. vs. ADIT [2012] 50 SOT 399(Delhi)).

37. Reimbursement of travellingexpenses as FTS: TAXABLE: Assessee-company, engaged inmanufacturing of motor vehicles,

entered into an agreement with aforeign company for supply ofdesigns, drawings and consultancy indevelopment of engines. Assesseeagreed to reimburse expenditurestowards air fare, accommodation andsubsistence cost of personnel deputedby foreign company. HELD, sincepayment on account of reimbursementwas part and parcel in process ofadvice of a technical character, itwould attract provisions of section195. - ASHOK LEYLAND LTD. vs.DCIT [2008] 119 TTJ 716 (Chennai))

Conclusion:

38. Deduction of tax on reimbursement ofexpenses in connection with FTS is socomplex and it requires considerationof so many factors in line with the factsof each case. Absence of ‘profitelement’ alone will not conclude thatreimbursements are free from WHT.Recent decisions rule that chargeabilityof reimbursements under the Incometax Act as well as in respective DTAAsshall also to be considered as if thesetransaction are not of reimbursements,for the purpose of deciding WHT,though basically when transactionswhich do not contain ‘profit element’are outside the purview of WHT.

(The author is a Chennai based CharteredAccountant and he can be reached [email protected])


ESTOPPELVENIRE CONTRA FACTUM PROPRIUM NON VALET

By CA. Louis Dominic

Meaning:

This word has its origin from colloquialLatin word ‘stuppa’. Dictionary meaningof the word Estoppel is: “It is a rule ofevidence whereby a person is precludedfrom denying the truth of a statement offacts he has previously asserted”. Estoppelis only a RULE OF EVIDENCE. It is not acause of action. This rule cannot overridethe provisions of a statute. “Doctrine ofpromissory Estoppel should not bereduced to rule of thumb. It is an equitabledoctrine and, therefore, it has to be moldedto suit particular situations. It is not a hardand fast rule but elastic one, the objectiveof which is to do justice between partiesand to extend equitable treatment tothem”. [State of H.P. v. Ganesh WoodProducts AIR 1996 SC 149]

Estoppel under Indian Laws:

It is commonly said that there are threekinds of Estoppel viz., by matter of record,by matter in writing and by matter in pais.

1. Estoppel on record is founded either ona judicial or a legislative record (resjudicata). This has been dealt with indetail in an earlier bulletin.

2. Estoppel by matter in writing is basedon either a deed or a written contract:S.43 of the Transfer of Property Actdeals with this and has no relevance intax matters.

3. Estoppel by matter in pais is foundedon misrepresentation, express orimplied. S.115 of the Evidence Actreads: “When one person has, by hisdeclaration, act or omission,intentionally caused or permittedanother person to believe a thing to betrue and to act upon such belief, neitherhe nor his representative shall beallowed, in any suit or proceedingbetween himself and such person or hisrepresentative, to deny the truth of thatthing”.

Invoking this doctrine - Conditionsrequired: The Supreme Court in the caseof Gyarsi Bai v.Danshuk Lal [AIR 1965 SC1055] explained the provisions of Estoppel-in-pais. Before the doctrine of Estoppel canbe invoked there must be, (a)representation by a person to another, (b)the other should have acted upon the saidrepresentation, and (c) such action shouldhave been detrimental to the interest of theperson to whom the representation wasmade.

All these three conditions must co-exist toinvoke this rule of evidence. S. 115 of theEvidence Act, lays down that when oneperson by making false representation hasintentionally caused a person to believe athing to be true and to act upon such belief;neither he nor his representative in asubsequent proceeding will be allowed to


say that the representation was false.[Chaitanya Charan v. Manik Chandra AIR1972 Cal 520 (FB)] This doctrine cannot beinvoked against a statute or Governmentservant. The applicability of this rule ofevidence is a mixed question of fact andlaw and therefore, the decision depends onthe facts and circumstances in each case.

Applicability of Estoppel in tax laws:

It is well settled law that there is no resjudicata in tax proceedings. If res judicatais made applicable in tax proceedings, theA.O. is estopped from making areassessment. Estoppel by matter inwriting comes under Transfer of PropertyAct and has no relevance under tax laws.Courts have referred to section 18 of theEvidence Act whenever a statement ofadmission of a tax payer was made anissue. In almost all cases tax payers confessor agree to be assessed on certainundisclosed income and retract such astatement recorded on oath u/s 132.However, assessments are framed basedon such confessional statement on theground that tax payer is estopped u/s 115of the Evidence Act, from retracting theconfessional statement.

A confessional statement recorded onoath is inadmissible in evidence as madeunder compulsion of oath. [Brij Basi Lalv. State of M.P. AIR 1979 SC 1080] Before aconfession is relied upon it must be provedto be voluntary. Court should not give afinding on the basis of the statementrecorded under undue influence byCustoms Authorities. But it all depends on

the facts and circumstances in each caseand no hard and fast rule could be laiddown whether the alleged confessionalstatement should be accepted. [FrancisStanly v. Narcotics Control Bureau AIR2007 SC 794] A confession if recordedduring investigation of a case, itsadmissibility is very poor. [Mika Ram v.State of H.P. AIR 1972 C 2077 (SC)]

Estoppel v. Admission:

There is marked difference betweenadmission and Estoppel. Admissions beingdeclarations against an interest are goodevidence but they are not conclusive and aparty is always at liberty to withdrawadmissions by proving that they are eithermistaken or untrue. But Estoppel createsan absolute bar from recalling from therepresentation made [Chhaganlal v. NaranDas AIR 1982 121]. Admission is a piece ofevidence but Estoppel creates title.[Dattatraya v. Renganath Gopal Rao AIR1971 SC 2548]

Meaning and effect of admission:

Sections 17, 18, 19 and 20 of the EvidenceAct taken together define admissions. Anadmission is a statement, oral ordocumentary, which suggests anyinference as to fact in issue or relevant factand which is made by a party to an actionor by a person deemed to be entitled tomake such statement on his behalf. Effectof admission is that it shifts onus onpersons admitting fact on the principle thatwhat party himself admits to be true mayreasonably be presumed to be so and until


presumption was rebutted. [United Indiainsurance co v. Samir Chandra Choudary(2005) 5 SCC 784]. Admission should be ofa precise fact. Only admitted facts arebinding and not inference there from. It iswell settled principle that a statement tobe read as an admission of a party, it mustbe definite, clear and specific and mustspecifically relate to the point or fact indispute. Otherwise, it is not an admissionnor can it be treated as admission.

When admission is evidence:

Before an admission may be relied upon itmust be legally proved. Where witnessescould not exactly give an account of whatactually were the words which had beenused by the party when he is alleged tohave made the admission, the admissionis not legally proved. Admission issubstantive evidence of the fact admitted.What weight is to be attached to anadmission is a matter of difference fromits use as relevant evidence. Admissionduly proved with corroborative materialsis admissible evidence. Any admissionmade in ignorance of right or under duresscannot bind the maker of the admission.[Shri Krishna v. kurukshetra UniversityAIR 1976 SC 376] Admission made byGovernment servant undermisapprehension of law is not bindingeither upon the maker or upon theGovernment. Statement to operate asadmission must be clear in meaning,precise, not vague or ambiguous. If anadmission is capable of two interpretations,

an interpretation unfavorable to the personmaking it should not be put on hisadmission [AIR 1956 SC 593].

Statement:

The Evidence Act has not defined it. Theword statement occurs in sections 17 to 21,32, 39, 145, 155 and 157. The wordstatement means only something that isstated and the element of communicationto another person is not necessary. Thestatement made by a person can be usedagainst him subject to other rules.

Confession:

Confession is a direct acknowledgement ofguilt. It is settled law that the rule ofprudence requires that whenever possible,the confession should be corroborated byindependent evidence. Privy Councilcautioned: “Confessions are not alwaystrue and that they must be checked in thelight of whole evidence on record in orderto see if they carry conviction. It would bedangerous in the extreme to act on aconfession put into the mouth of theaccused, having motive for implicatingsomeone, and uncorroborated fromanother source”. Sections 17 to 31 of theEvidence Act deal with admissiongenerally and include sections 24 to 30which deal with confession asdistinguished from admission. From areading of these sections it appears thatconfessions are a species of whichadmission is the genus. All admissions arenot confessions; but all confessions areadmissions.


Retraction of admission:

Admission includes confession. It can beretracted if it is shown that the admissionwas obtained under duress or given inignorance of law or fact. If confession isretracted, it has to be corroborated on thebasis of independent evidence [AIR 1956SC 9]. However, the retraction must be atthe earliest. Recording of statement afterprolonged detention may stamp theadmission as involuntary and the intrinsicvalue of such a statement may be vitiated.[Nathu v. State of U.P. AIR 1956 SC 56]Courts have disregarded the validity ofadmission statements if it is demonstratedthat recording of statement wasunauthorized conversion into aninterrogation, often with hints ofintimidation or subtle threat or theconfessions having to be made underduress or statement was taken underinducement of protection from furtherproceedings or to escape the wrath of theofficials. Mere allegation of threat etc is notenough. Some concrete evidence likeaffidavit of witness presents etc or thesurrounding circumstances have to bebrought on record to support theaverments in retraction.

Evidentiary value of retracted admission:

The doctrine of Estoppel is not applicableto an admission in a statement recordedon oath u/s 132 (4) of the Income tax Actand more particularly, S. 115 of theEvidence Act is not applicable to anadmission as it is not a ‘misrepresentation’as envisaged under the said section. An

admission is governed by sections 17 to 31and it is open to a person to retract hisadmission subject to the provisions of theEvidence Act, as interpreted by theSupreme Court.

“It is unsafe to rely upon a confession muchless on a retracted confession, unless thecourt is satisfied that the retractedconfession is true and voluntarily madeand has been corroborated in materialparticulars”. [Pyare Lal Bhargava v. Stateof Rajasthan AIR 1963 SC 1094]

“Retracted statement has to be seen withgreat circumspection. The statement, ifobtained by any inducement, threat, andcoercion or by any other improper means,must be rejected. At the same time, it is tobe noted that merely because a statementis retracted, it cannot be recorded asinvoluntary or unlawfully obtained. It isonly for the maker of the statement whoalleges inducement, threat etc to establishthat such improper means have beenadopted. However, even if the maker ofthe statement fails to establish hisallegations of inducement, threat etcagainst the officer who recorded thestatement, the authority, while acting onthe inculpatory (blame to be imputed to)statement of the maker, is not completelyrelieved of his obligation, at leastsubjectively, to apply its mind to thesubsequent retraction to hold that theinculpatatory statement was not extorted.”[K.T.M.S. Mohammed 197 ITR 196 (1992) SC]

“Citizen must be taught obedience to law,else a state is impossible.” Aristotle


RECENT DECISIONS - EXCISE AND CUSTOMS LAW

Rebate of Automobile Cess levied underThe Industries (Development andRegulation), Act, 1951 can be claimedunder Rule 18 of Central Excise Rules,2002, if paid on goods exported

In the case of TVS Motors Co Ltd vs UOI[2015-TIOL-1478-HC-KAR-CX], thetaxpayer was engaged in the manufactureof motor cycles/two wheelers and clearedthe vehicles to their Hosur Plant onpayment of duty including AutomobileCess, from where the vehicles wereexported to various countries. In pursuantto this, taxpayer filed a rebate claim underRule 18 of the Central Excise Rules, 2002(“Excise Rules”). Revenue denied therebate claim to the extent of AutomobileCess, Education Cess on Automobile Cessand Secondary Higher Education Cess onAutomobile Cess (collectively referred as“Auto Cess”) on the ground thatNotification No 19/2004 – CE (NT) datedSeptember 6, 2004 (“Rebate Notification”)does not specify Auto Cess as duty eligiblefor rebate.

The High Court observed that:

• The provisions of Central Excise Act andRules made thereunder shall beapplicable with respect to levy andcollection of duty of Auto Cess;

• The provisions of refund under CentralExcise Act and rules made there underwould also apply to Auto Cess;

• The expression “duty” used in Rule 18of the Excise Rules would include AutoCess by virtue of Rule 3 of Auto CessRules;

• The Auto Cess has been collected as a‘duty of excise’ in terms of the provisionsof Central Excise Act. Thus, ‘duty’referred in the Rebate Notificationwould also include Cess collected as aduty of excise.

Considering the above, the High Courtheld that the rebate of Automobile Cesspaid on exported goods will be admissibleunder Rule 18 of the Central Excise Rulesread with Rebate Notification.

The power of the Tribunal to extend stayalready granted has not been attenuatedwith the abolition of Section 35C(2A)with effect from August 06, 2014,

In the case of ITC Ltd Vs CC [2015-TIOL-1239-CESTAT-DEL], the taxpayer hadfiled a Miscellaneous Application beforethe Tribunal seeking extension of Staygranted by it earlier. The Revenue

CA. SUKHPAL SINGH & CA. SRIHARI V.K.


contended that with effect from August 6,2014, Section 35C(2A) of the Central ExciseAct, 1944 (“Central Excise Act”) has beenabolished and therefore the Tribunal doesnot have any power to grant extension ofstay.

The Tribunal observed that the power togrant stay has not been expressly providedin the statute but is an inherent power.Section 35C(2A) only sought to put fetterson the power of the Tribunal to grant staybeyond a certain period. Abolition ofSection 35C(2A) can only have an effect ofremoval of that fetters.

The Tribunal also referred to the case ofHalidram India Pvt. Ltd. 2014-TIOL-1965-CESTAT-DEL-LB wherein it was held thatthe Tribunal had power to extend the staybeyond the period of 365 days in caseswhere taxpayer was ready and willing topursue the appeal, but the Tribunal wasunable to take up the appeal owing to theolder pendency.

In the light of the foregoing, the Tribunalrejected the contention of the Revenue.Having regard to the fact that the delay intaking up the appeal is not attributable tothe taxpayer, the Tribunal extended thestay granted earlier.

No cause for reversal of CENVAT crediton inputs sold as a part of slump sale ofon-going factory along with rawmaterials, packing materials etc as thereis no “removal” from factory.

In the case of CCE vs Hindustan LeverLimited [2015-TIOL-966-CESTAT-MUM], the taxpayer have sold theirmanufacturing unit to another company(“the buyer”) by way of slump salecomprising of land, building, rawmaterials, packing materials and work inprogress stocks. The Revenue demandedCenvat Credit with respect to inputs andsemi-finished goods transferred to thebuyers on the ground that such removalsshould be treated as ‘input cleared as such’in terms of Rule 3 of Cenvat Credit Rules2002/2004.

The Tribunal observed that the sale is on‘as is where is’ basis. The input in questionwas not removed from the factory and,therefore, in absence of removal of inputfrom the factory, duty demand is notsustainable. The Tribunal thus upheld theorder passed by the Commissioner(Appeals) and dismissed the Appeal filedby the Revenue.

Electricity sent to power grind outside thefactory for synchronization and receivedback in factory can be treated as a jobwork and Cenvat Credit on fuel used forgeneration of such electricity is allowed.

In the case of Jindal Stainless Ltd vsCCE&ST [2015-TIOL-1397-CESTAT-DEL], the taxpayer was engaged in themanufacture of Steel Slabs, Ingots, Bloomsetc and had set up a captive power plantin their factory. The electricity generatedin the captive power plant was used in theirown factory and a portion of the electricity


was sent to power grid maintained byHaryana State Electricity Board (HSEB) forsynchronization and it was received backin their factory after synchronization.HSEB charged certain fees for providingthe facility of synchronization. Thetaxpayer was availing benefit of CenvatCredit of inputs, input service and capitalgoods under Cenvat Credit Rules. TheRevenue denied Cenvat Credit taken onthe fuel used in the generation of electricityand cleared to HSEB on the ground thatCenvat Credit is not admissible on inputsutilized in generation of electricity clearedto the grid (ie not used in furthermanufacturing).

The Tribunal observed that –

• There is no sale of electricity by thetaxpayer to the power grid.

• Electricity sent to power grid wasreturned back which was further usedin the manufacture of final product.

• As per Rule 4(5)(a) of Cenvat CreditRules, 2004 (“Cenvat Rules”), CenvatCredit shall be allowed even if any inputor capital as such or after being partiallyprocessed are sent to a job worker forfurther processing, testing etc or anyother purpose and are received back inthe factory. The expression “any otherpurpose” in Rule 4(5)(a) have wideamplitude.

Basis the above, the Tribunal held that theCenvat Credit will be allowed on input,namely fuel, used in the generation of

electricity which was sent to power gridfor synchronization and received back inthe factory by treating the process as jobwork within the purview of Rule 4(5)(a) ofthe Cenvat Rules.

Notification comes into effect on date itis published and offered for sale

In the case of Union of India vs ParamIndustries Ltd and Others [2015-TIOL-140-SC-CUS], the taxpayer had importedRBD Palmolein under bill of entry onAugust 3, 2001, after payment of importduty as per the applicable notificationwhich was in existence as on that date.Revenue claimed that the tariff value inrespect of RBD Palmolein had beenincreased with effect from the August 3,2001 and demanded differential duty.

The High Court held that for bringing anotification into force and making iteffective, two conditions are mandatory,viz., (1) Notification should be dulypublished in the official gazette; (2) itshould be offered for sale on the date of itsissue by the Directorate of Publicity andPublic Relations of the Board, New Delhi.

In the case of the taxpayer, the High Courtobserved that second condition was notsatisfied in as much as it was offered forsale only on August 6, 2001 though it waspublished in late evening hours of August3, 2001

The Supreme Court held that the RA is notjustified and lawful to claim the differential


amount of duty on the basis of saidnotification.

Eligibility of CENVAT credit on servicesof inspecting vehicles at RTO

In the case of Mahanagar Gas Ltd vs CCE[2015-TIOL-1365-CESTAT-MUMBAI],the issue is regarding the Cenvat credit ofservice tax paid on the services forinspecting vehicles providing MS plates atregional transport office.

The taxpayer contended that

• In order to comply with variousconditions of CNG, instead ofappointing the testing agency atdifferent locations the testing agency isappointed at Regional Transport Officeand the testing charges and certificationcharges are paid by the appellant

• The services which are received are inrespect of the activities relating tobusiness as without such a test sale ofCNG cannot take place

• Compression of CNG is a manufacturingactivity and every retail outlet which isbeing used to dispense/vend the CNGis registered with the Central Excisedepartment

Revenue argued that –

• Service rendered by the cylindercertifying agency are not rendered to theappellant but to the vehicle owners whohave fitted the cylinder in the vehicle;

• The final product CNG are cleared fromthe tanks into the retail outlet andsubsequent filling of the cylinder is nota manufacturing activity as compressionof the natural gas takes place and thesaid natural gas is delivered into the tanklocated at the outlet.

• Inspection of cylinder is taking placeoutside the manufacturing activity areaas it is undisputed that the inspection ofthe cylinder is undertaken at RegionalTransport Office.

The Tribunal observed that –

• Unless the cylinders are certified, theappellant cannot fill the gas in the saidcylinder, is an activity in connection totheir business of sale of CNG;

• Activity could not be carried out unlessthe said cylinder are certified as worthyof filling gas, the certification, even if ittakes place outside the premises, Cenvatcredit on service tax paid cannot bedenied;

Basis above, it was held that CENVATcredit is eligible.

Availment of CENVAT credit of SADbased on supplementary invoice

In the case of M/s Indo Count IndustriesLtd vs CCE [2015-TIOL-1388-CESTAT-MUM], the taxpayer who was engaged inthe manufacture of electronic goodsavailed CENVAT credit of SpecialAdditional Duty (“SAD”) on the strengthof supplementary invoices issued by M/s


MIRC Electronics Limited (“MEL”).Revenue denied the credit on the groundthat the duty was paid by MEL, only afterdetection of the case in as much as the rawmaterials were cleared by M/s MEL assuch under Rule 3(5) of the Rules withoutpayment of duty.

The taxpayer argued that dispute is nolonger res integra as for the same matter,appeal have been allowed in the case ofMEL.

The Tribunal took the view that since issuedecided in favour of the MEL, no cause ofaction remains with the taxpayer.

Supply of goods against ICB - Exemptionfrom Excise duty allowed even whencondition prescribed for customs duty isnot satisfied

In the case of M/S Jindal Steel and Powerltd vs CCE, the taxpayer was supplyingIron & steel angle to M/s L&T Ltd onaccount of M/s Jindal Power against ICBat nil rate of duty under Notification No.6/2002-CE (“Exemption Notification”).Revenue denied the exemption sincetaxpayer was not fulfilling one conditionout of the three condition prescribed underCustoms Notification.

The taxpayer argued that -

• Joint Secretary has clarified that thecondition (based on which revenuedenied exemption) is not applicable tothe instant project; and

• When certain condition prescribed in theCustoms Notification is not applicable,the fulfilment of that condition cannotbe insisted upon;

However, Revenue argued that when JointSecretary clarified that one of the conditionis not applicable, it has to be treated as notfulfilled and therefore denial of exemptionis justified.

The Tribunal observed that

• There is no dispute that the supply is aninter-state supply against whichcertificate is issued by the Joint Secretaryto Govt. of India, Ministry of Power andalso there is no dispute that the goodshad been supplied against ICB;

• In respect of the third condition, the JointSecretary has clarified that suchcondition is not applicable forindependent power project; and

• When a particular condition prescribedin Customs Notification for full customsduty exemption is not applicable, itsfulfilment cannot be insisted upon forclaiming excise duty exemption.

Basis aforesaid, it was held that since oneof the condition prescribed under CustomsNotification is impossible to fulfill due toits non-applicability, such condition cannotbe insisted upon for claiming excise dutyexemption.

Refund of SAD on deemed sale ofimported goods


In the case of CC vs RelianceCommunication [CUSTAA 23/2012], thetaxpayer imported set top boxes and weresupplied to its customers on right to usebasis by charging sales tax. The taxpayerclaimed refund of SAD in terms ofNotification of 102/2007-Cus and CBECCircular 6/2008-Cus. Revenue rejected therefund stating that transaction was not salesince property remains with taxpayer.

The Revenue argued that-

• The value of goods sold afterimportation is less than the landed cost;

• The transaction underlying the refundclaim did not satisfy the test of sale

The High Court observed that as per thedefinition of ‘sale’ as per StandardsWeights and Measures Act, 1976 andCentral Sales Tax Act, 1956, transfer of rightto use would amount to deemed sale.

In view thereof, the refund claim wasallowed.

No Education Cess is applicable whereimport duty is exempt

In the case of CC vs Bhushan Steel &Strips Ltd [Appeal No.C/543 to 547/06], thetaxpayer was importing goods underTarget Plus Scheme, claiming Basic andAdditional Customs Duty exemptionunder Notification No. 32/2005-Cus.Revenue raised demand of 2% EducationCess.

The Revenue argued that-

• Under Target Plus Scheme, EducationCess was not exempted and that samehad to be collected on the amount ofBasic and Additional duty payable;

• Circular No 5/2005- Cus (“Circular”)dated January 31, 2005, privdes for levyand collection of 2% Education Cess onimports under Export PromotionSchemes

The taxpayer contended that Circular hasbeen struck down by Gujarat HC in caseof Gujarat Ambuja Exports Ltd. [2013 (289)ELT 273 (Guj)].

The Tribunal observed that-

• If the goods are fully exempt fromcustoms and excise duty, there is nocollection of duty and hence, noeducation cess is leviable on suchclearances;

• When neither Basic Customs Duty norCVD is charged on imports, debitingEducation Cess from certificate issuedunder the scheme, as applicable toassessee, cannot be justified.

Basis, the appeal filed by the revenue wasrejected.

(The authors are Chennai based CharteredAccountants and they can be reached [email protected] &[email protected] respectively)


Introduction

“One Person Company” is a new concept introduced by theCompanies Act, 2013. As the name suggests, a one person company isformed with only one person as its member. Since such companieshave only one member, these companies enjoy certain privileges orexemptions as compared to other companies.

Definition

Section 2(62) defines a One Person Company as “One PersonCompany” means a company which has only one person as a member.

Salient Features

• A One Person Company is incorporated as a private limited company.

• It must have only one member at any point of time and may have only one director. Itcan have more than one director also.

• The words “One Person Company” must be mentioned in brackets below the name ofthe company.

• The member and nominee should be natural persons, Indian Citizens and resident inIndia. The term “resident in India” means a person who has stayed in India for a periodof not less than 182 days during the immediately preceding one calendar year.

• A body corporate cannot incorporate an OPC.

• A person cannot incorporate more than 1 OPC or become nominee in more than 1 OPC.

• If a Member of OPC becomes a member in another OPC by virtue of his being nomineein that OPC, then within 180 days of his becoming member in the second OPC, heshould decide in which OPC he wants to continue as member.

• No minor shall become member or nominee of a One Person Company or can holdshares therein with beneficial interest.

• Such Company cannot be incorporated or converted into a company under section 8 ofthe Act.

• Such Company cannot carry out Non-Banking Financial Investment activities includinginvestment in securities of any body corporate.

CS S. DHANPAL

ONE PERSON COMPANY


• No OPC can voluntarily convert itself into any other kind of company unless 2 years isexpired from the date of incorporation of the OPC, except in cases where capital orturnover threshold limits are reached.

• Existing Private Limited Companies can convert themselves into one Person Companyby following the procedure prescribed in the rules, provided their capital and turnoveris below the threshold limits.

Special Provisions and Exemptions available to a One Person Company

A. Incorporation and related matters (Sections 3, 4, 12):

Incorporation

• A One Person company is incorporated as a private limited company with only oneperson as its member.

• The words ‘‘One Person Company’’ shall be mentioned in brackets below the name ofsuch company, wherever its name is printed, affixed or engraved.

Nomination of person to act as member in event of death/incapacity to contract

• The memorandum of One Person Company shall indicate the name of the other person,who shall, in the event of the subscriber’s death or his incapacity to contract become themember of the company.

• Prior written consent from the other person should be obtained and the nominationand consent should be filed with Registrar of Companies at the time of incorporationalong with the memorandum and Articles. Nomination should be filed in Form INC. 2and Consent in Form INC. 3 along with fee as may be applicable.

Withdrawal of Consent

• Nominee is entitled to withdraw his consent by giving notice in writing to such solemember and to the One Person Company.

• Member to nominate another person within 15 days of receipt of notice of withdrawaland send details of new nomination to company along with consent in Form INC. 3.

• Company to file notice of withdrawal of consent and intimation of name of new nomineein Form INC.4 and consent of new nominee in Form INC.3 to ROC within 30 days ofreceipt of withdrawal of consent along with requisite fees.


Change in Nominee by Member

• Member of One Person Company may at any time change the name of such other personby indicating it in the memorandum or by giving notice in writing to the company.

• Consent should be obatined from new nominee prior to the change in Form INC. 3.

• Such change should be intimated to the company by the member.

• The company in turn will intimate to the Registrar by filing a notice of such change inForm INC.4 along with fee and with the written consent of the new nominee in FormINC. 3 within 30 days of receipt of intimation of the change.

• Any such change in the name of the person shall not be deemed to be an alteration of thememorandum.

Appointment of new nominee on existing nominee becoming member

• A nominee on becoming member himself shall nominate another person within 15 daysof becoming member and obtain prior consent of the new nominee in Form INC. 3.

• The nominee turned member should intimate the ROC regarding such cessation andnomination in Form INC.4 along with the requisite fee within 30 days of the change.

B. Annual Return (Section 92):

• The annual return of a One Person Company shall be signed by the company secretary,or where there is no company secretary, by the director of the company.

C. General Meetings (Section 122):

• The provisions of Section 98 and Sections 100 to 111 (both inclusive), more specifically,all provisions regarding annual general meetings like notice period, contents of notice,explanatory statement, quorum requirements, proxies, voting etc., shall not apply to aOne Person Company.

• Provisions regarding calling of an Extra-Ordinary General Meeting by the Board orTribunal do not apply to a One Person Company.

• It shall be sufficient compliance if all resolutions, ordinary or special, required to bepassed by a One Person Company at any general meeting, are communicated by themember to the company and entered in the minutes-book, signed and dated by themember and such date shall be deemed to be the date of the meeting for all the purposesunder this Act.


• The provisions of Secretarial standards relating to General Meetings, namely SS2 do notapply to a One Person Company.

D. Board of Directors and Board Meetings (Sections 149, 152 and 173):

• A One Person Company needs to have minimum of one director. It can have directorsup to a maximum of 15 which number can also be inceased by passing a special resolutionas in case of any other company.

• If the Articles of Association do not contain the name of the first director, member of theone person company will be deemed to be the first director till the time director(s) isduly appointed by following provisions of law.

• For the purposes of holding Board Meetings, in case of a one person Company whichhas only one director, it shall be sufficient compliance if all resolutions required to bepassed by such a Company at a Board meeting, are entered in the minutes-book, signedand dated by the member and such date shall be deemed to be the date of the BoardMeeting for all the purposes under this Act.

• For other One Person Companies, atleast one Board Meeting must be held in each halfof the calender year and the gap between the two meetings should not be less thanninety days.

Board Meetings

One Director More than One Director

Date of entering resolutions

in minutes book deemed Jan-June July-Dec as meeting date One Meeting One Meeting Atleast 90 day’s gap


• The provisions of Secretarial standards relating to Board Meetings, namely SS1 do notapply to a One Person Company in which there is only one Director on its Board.

E. Financial Statements (Sections 134 and 137):

• The financial statements of a one person company can be signed by one director alone.

• Board's report to be annexed to financial statements may only contain explanations orcomments by the Board on every qualification, reservation or adverse remark ordisclaimer made by the auditor in his report.

• Cash Flow Statement is not a mandatory part of financial statements for a One PersonCompany. [Section 2(40)]

• Financial statements of a one person company needs to be filed with the Registrar, afterthey are duly adopted by the member, within 180 days of closure of financial year alongwith all necessary documents.

F. Applicability of Secretarial Standards (Section 118)

• Provisions of Secretarial Standards, namely, Secretarial Standards on Board Meetings(SS1) shall not apply to a One Person Company in which there is only one Director onits Board.

• Provisions of Secretarial Standards, namely, Secretarial Standards on General Meetings(SS2) are not applicable to a One Person Company.

G. Applicability of CARO:

• Companies (Auditor’s Report) Order, 2015 is not applicable to One Person Company.

H. Mandatory Rotation of Auditors (Section 139 and Rules):

• Provision regarding mandatory rotation of auditor/maximum term of auditor being 5years in case of an individual and 10 years in case of a firm of auditors is not applicableto an OPC.

I. Contract by a One Person Company (Section 193):

• In case a One Person Company enters into any contract, not in the ordinary course ofbusiness, with its sole member who is also a director, then such contract must –

- either be in writing, or


- the terms of the contract or offer are contained in a memorandum, or

- recorded in the minutes of the meeting of the Board of Directors held for the first timeafter entering of the contract

and the particulars of the said contract must be filed by the company with the Registrarwithin 15 days of the approval of the contract by the Board.

J. One Person Company to convert itself into a public company or a private company incertain cases

• An OPC will cease to be entitled to continue as OPC if either the paid up capital exceedsRs. 50 Lakhs or average annual turnover during 3 immediate preceding financial yearsexceeds Rs. 2 Crores.

• Such One Person Company shall be required to convert itself, within 6 months of thedate on which its paid up share capital is increased beyond fifty lakh rupees or the lastday of the relevant period during which its average annual turnover exceeds two crorerupees as the case may be, into either a private company with minimum of two membersand two directors or a public company with minimum of seven members and threedirectors in accordance with the provisions of section 18 of the Act.

• Within 60 days of happening of above, OPC is required to intimate ROC in Form INC.5that it is required to convert itself either into a private or a public company and raise itsminimum number of members and directors accordingly.

• OPC should alter its MOA and AOA to give effect to the conversion by passing aresolution to this effect and make other necessary changes.

• An OPC can also voluntarily convert itself into a private or public company by increasingits paid up capital, number of directors and members as per the requirements of a privateor public company and by following provisions of Section 18 of the Act.

K. Conversion of private company into One Person Company

• A private company other than a company registered under section 8 of the Act havingpaid up share capital of Rs. 50 Lakhs or less and average annual turnover during threeimmediately preceding consecutive years of Rs. 2 Crores or less may convert itself intoone person company by passing a special resolution in the general meeting.


• Before passing such resolution, the company shall obtain No objection in writing frommembers and creditors.

• The company shall file an application in Form INC.6 for its conversion into One PersonCompany by attaching following documents:

(i) The directors of the company shall give a declaration by way of affidavit dulysworn in confirming that all members and creditors of the company have giventheir consent for conversion, the paid up share capital company is Rs. 50 Lakhs orless and average annual turnover is less than Rs. 2 Crores, as the case may be;

(ii) the list of members and list of creditors;

(iii) the latest Audited Balance Sheet and the Profit and Loss Account; and

(iv) the copy of No Objection letter of secured creditors.

• On being satisfied about the compliance with requirements stated herein above, theRegistrar shall issue the Certificate of conversion.

• The OPC so converted shall file copy of the special resolution with the Registrar ofCompanies within 30 days from the date of passing such resolution in Form MGT.14.

L. Penal Provisions

(The author is a Chennai based Company Secretary in practice. He can be reached [email protected])

S.No. Nature of Default Amount of Penalty

1. Non-Compliance of any Provisionsof the Rules relating to OPC

Company and Officer in Default -Fine which may extend to Rs. 500/-for every day after the first offenceduring which such contraventioncontinues


SUMMARY OF COST INFLATION INDEXCOST INFLATION INDEX SINCE APPLICABLE TILL CURRENT DATE –

Cost Inflation Index for the Financial Year 2015-16 has been notified as per NotificationNo.60/2015/F.No.142/10/2015-TPL, dated 24th July 2015. The Notified Cost Inflation Indexfor Financial Year 2015-16 is 1081.

S.No Financial Year Cost Inflation Indexes % Increase Cumulat- ive % Increase123456789

1011121314151617181920212223242526272829303132333435

1981-19821982-19831983-19841984-19851985-19861986-19871987-19881988-19891989-19901990-19911991-19921992-19931993-19941994-19951995-19961996-19971997-19981998-19991999-20002000-20012001-20022002-20032003-20042004-20052005-20062006-20072007-20082008-20092009-20102010-20112011-20122012-20132013-20142014-20152015-2016

100109116125133140150161172182199223244259281305331351389406426447463480497519551582632711785852939

10241081

-9.00%6.42%7.76%6.40%5.26%7.14%7.33%6.83%5.81%9.34%

12.06%9.42%6.15%8.49%8.54%8.52%6.04%

10.83%4.37%4.93%4.93%3.58%3.67%3.54%4.43%6.17%5.63%8.59%

12.50%10.41%8.54%

10.21%9.05%5.57%

-9.00%

16.00%25.00%33.00%40.00%50.00%61.00%72.00%82.00%99.00%

123.00%144.00%159.00%181.00%205.00%231.00%251.00%289.00%306.00%326.00%347.00%363.00%380.00%397.00%419.00%451.00%482.00%532.00%611.00%685.00%752.00%839.00%924.00%981.00%

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