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KPMG Highlights KPMG IN INDIA

KPMG Tax Highlights 9 January 2014

Table of contents

1 General Anti-Avoidance Rules 9 ESOP 2 Overseas Mergers and

Acquisitions 10 Direct Tax - Miscellaneous

3 Tax Residency Certificate 11 Excise 4 Royalty 12 Customs 5 Fees for Technical Services 13 Service Tax 6 Permanent Establishment and

Force of Attraction 14 Foreign Trade Policy

7 Transfer Pricing 15 VAT 8 Depreciation

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General Anti-Avoidance Rules

Central Board of Direct Taxes notify the rules for the application of General Anti-Avoidance Rules The General Anti-Avoidance Rules (GAAR) had first been introduced in the Direct Taxes Code (DTC) in 2009 to curb ‘Impermissible Avoidance Arrangement’ (IAA) entered into by a person to avoid taxes. The GAAR had been introduced to deal with aggressive tax planning involving use of sophisticated structures.

Although originally forming a part of the DTC, now it is a part of the Income-tax Act, 1961 (the Act). Under the current provisions, Chapter X-A, dealing with the provisions of GAAR would come into force with effect from 1 April 2015 (Financial Year 2015-16).

The Central Board of Direct Taxes (CBDT) has notified the rules relating to application of GAAR, which shall deal with the following:

The provision of GAAR shall not apply to:

• An arrangement where the tax benefit arising to all the parties to the arrangement in the relevant assessment year does not exceed INR 30 million in aggregate.

• A Foreign Institutional Investor (FII):

− Who is an assessee under the Act.

− Who has not taken benefit of an agreement referred to in Section 90 or Section 90A of the Act.

− Who has invested in listed securities, or unlisted securities, with the prior permission of the competent authority, in accordance with the Securities Exchange Board of India (Foreign Institutional Investor) Regulations, 1995 and such other regulations, as may be applicable, in relation to such investments.

• A non-resident person who has investment by way of offshore derivative instruments or otherwise, directly or indirectly, in a FII.

• Any income accruing or arising to, or deemed to accrue or arise to, or received or deemed to be received by, any person from transfer of investment made before 30 August 2010.

Other issues:

• GAAR to apply to tax benefit obtained from the arrangement on or after 1 April 2015.

• Where a part of an arrangement is declared to be an IAA, the consequences in relation to tax shall be determined with reference to such part only.

• Certain mechanism has been prescribed for reference of cases for application of GAAR

• Certain time limits have been prescribed for issuance of directions, reference by the tax department authorities.

Notification 75/2013, dated 23 September 2013 For further details please refer to our Flash News dated 26 September 2013 available at this link

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Overseas Mergers and Acquisitions

Andhra Pradesh High Court in the case of Sanofi, based on the facts of this case, held that gains from transfer of shares between two foreign companies with underlying Indian asset is not taxable under India-France tax treaty Murieux Alliance (MA) and Group Industrial Marcel Dassault (GIMD), French companies, were holding 100 percent shares of ShanH, another French company. Further ShanH was holding shares in Shantha Biotechnics Ltd (Shantha), an Indian company. With a view to further improve the business and performance, MA and GIMD sold their shares in ShanH to Sanofi, French company.

The Indian revenue authorities passed an order under Section 201(1)/(1A) of the Act holding Sanofi as an ‘assessee-in-default’ for not withholding taxes on payments made by it to MA and GIMD for acquiring the shares in ShanH. Thereafter, MA and GIMD made an application to the Authority for Advance Rulings (AAR) to determine the taxability, if any, of the transaction in India. The AAR ruled that the capital gains arising from the sale of shares in ShanH by MA and GIMD to Sanofi was taxable in India in terms of Article 14(5) of the India-France Tax Treaty. Subsequently, all the parties, i.e., Sanofi, MA and GIMD filed writ petitions before the Andhra Pradesh High Court.

Based on the facts of the case, the Andhra Pradesh High Court (High Court), inter alia, held as follows:

• ShanH was an independent corporate entity, registered and resident in France and it has a commercial substance and a purpose (FDI in Shantha). It was neither a mere nominee of MA and/or MA/GIMD, nor is a contrivance/device for tax avoidance.

• Since inception till date, ShanH had acquired and continues to hold the Shantha’s shares. There is no warrant for lifting the corporate veil of ShanH.

• The retrospective amendments made in the Finance Act, 2012 have no impact on interpretation of the tax treaty. The said transaction falls within Article 14(5) of the India-France tax treaty and the tax resulting there from is allocated exclusively to France. Accordingly, the AAR ruling was quashed.

Sanofi Pasteur Holding SA v. Dept. of Revenue [2013] 354 ITR 316 (AP) For further details please refer to our Flash News dated 19 February 2013 available at this link

AAR’s ruling in the case of Goodyear on the taxability of transfer of shares of an Indian company without consideration in a group reorganisation upheld by the Delhi High Court Goodyear Tire & Rubber Company (US company) held 74 percent shares of Goodyear India Limited (GIL), which was a listed entity. The US Company has a 100 percent subsidiary in Singapore, named as Goodyear Orient Company (Pte) Limited (Singapore company). Both the US Company as well as the Singapore Company had approached the AAR with respect to the tax liability of the proposed transfer by the US company of its 74 percent share-holding in GIL to its 100 percent subsidiary in Singapore.

The AAR after examining the various provisions of the Act had ruled that there would be no tax liability on either the US Company or the Singapore Company, in case of transfer of shares without consideration.

Based on the facts of the case, the Delhi High Court, inter alia, held as follows:

• The High Court on a perusal of the related provisions reaffirmed that income arising from the transfer of a long-term capital asset, if it is an equity share in a company or a unit of an equity oriented fund, where the transaction of sale of such equity share is chargeable to Securities Transaction Tax (STT), then such income would be exempt under Section 10(38) of the Act.

• The High Court rejected the argument of the tax department that the transaction in question was

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entered into to avoid capital gains liability in India, by taking note of the exemption under Section 10(38) of the Act referred to above.

DIT v. Goodyear Tire and Rubber Company [2013] 214 Taxman 669 (Del) For further details please refer to our Flash News dated 7 March 2013 available at this link

Capital gains arising on transfer of shares by one foreign company to another foreign company of an Indian company which in turn holds infrastructure facilities in India are taxable in Netherlands The taxpayer company was a tax resident of Netherlands. The taxpayer made investment into the equity share capital of Vanenburg IT Park Private Limited, Indian company (VITP) which was into the business of developing, operating and maintaining infrastructure facilities of an industrial park in India. The taxpayer sold its 100 percent share holding in VITP to Ascendas Property Fund (India) Pte Limited, a Singapore based company (Ascendas), and has earned long term capital gains.

The issue for consideration before the Hyderabad Tribunal was whether gains from transfer of shares of an Indian company by the taxpayer were taxable in India

Based on the facts of the case, the Hyderabad Tribunal, inter alia, held as follows:

• The meaning of ‘immovable property’ defined under the Act is specific to that section only and not a general definition and therefore, cannot be used while interpreting a tax treaty. Therefore, the Capital gain arising from the sale of Indian company’s shares will not get covered under Article 13(1) of India-Netherland tax treaty as there was no sale of immovable property.

• Further Article 13(4) of the India-Netherlands tax treaty is also not applicable as the immovable property of Indian company is used in the business of company. Accordingly, as per Article 13(5) of the India-Netherlands tax treaty, capital gain on transfer of shares of Indian company would be taxable in Netherland.

• The shares of the Indian company were notified and approved for the benefit of Section 10(23G) of the Act at the time of sale of such shares and therefore, such capital gain is exempt under the Act.

Vanenburg Facilities B.V. v. ACIT (ITA Nos. 739 & 2118/Hyd/2011, dated 15 March 2013) For further details please refer to our Flash News dated 11 April 2013 available at this link

Tax Residency Certificate

Trade tax paid in Germany and Tax Residency Certificate issued by the authorities are sufficient evidence for a limited partnership to claim the benefit of India-Germany tax treaty The taxpayer was a foreign limited partnership and in the return of income it claimed the benefit of Article 12(2) of the India-Germany tax treaty in respect of royalties and Fees for Technical Services (FTS). On the basis of the OECD Publication, the Assessing Officer (AO) held that the taxpayer is not eligible to claim the benefit of the India-Germany tax treaty since it is not liable to tax in Germany being a limited partnership.

The issue for consideration before the Bombay High Court was whether the limited partnership is eligible to claim benefit of the tax treaty.

Based on the facts of the case, the Bombay High Court, inter alia, held as follows:

• In terms of Article 2(3) of the India Germany tax treaty, the trade tax paid in Germany is one of the taxes to which tax treaty applies. Further, as per Article 3(d) of the India-Germany tax treaty ‘person’

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includes any entity treated as a taxable unit in Germany. The term 'resident' in terms of Article 4 of the India-Germany tax treaty means ‘any person who, under the laws of Germany is liable to tax therein by reason of his domicile, residence, place of management or any criterion of a similar nature’.

• The taxpayer is filing trade tax return in Germany and therefore is paying tax to which the tax treaty applies. Further, the Tax Residency Certificate (TRC) issued by German authorities indicates that the taxpayer is considered as a taxable unit under the taxation laws of Germany.

• Accordingly, the India-Germany tax treaty is applicable to the taxpayer and the benefit of Article 12(2) of the India-Germany tax treaty cannot be denied. Therefore, the taxpayer is eligible for the benefit of lower tax rate on royalty and FTS earned in India as per the India-Germany tax treaty.

DIT v. Chiron Bearing Gmbh & Co. [2013] 351 ITR 115 (Bom) For further details please refer to our Flash News dated 21 January 2013 available at this link

Since TRC issued by the Netherlands tax authority is sufficient evidence of beneficial ownership, the beneficial tax rate under the India-Netherlands tax treaty will apply The taxpayer, a tax resident of Netherland, belonged to the Universal group of companies whose various companies entered into contract with various artists, singers, etc. and these companies were known as Repertoire Companies. The taxpayer had acquired musical recording rights from other Repertoire Companies. During the years under consideration, the taxpayer received royalty from Universal Music India Private Limited for granting commercial exploitation rights of musical tracks and offered royalty income to tax at 10 percent under Article 12 of the India-Netherlands tax treaty.

The Tribunal held that the TRC issued by the Netherlands tax authority had to be accepted as sufficient evidence regarding the status of the taxpayer and the beneficial ownership in terms of the CBDT Circular No.789.

The issue for consideration before the Bombay High Court was whether the taxpayer is the beneficial owner of the royalty income received from an Indian entity. Further, whether the taxpayer is entitled for beneficial tax rate under the India-Netherlands tax treaty.

Based on the facts of the case, the Bombay High Court, inter alia, held that since the tax department had not been able to show anything on record to controvert the finding of the CIT(A) and the Tribunal that the taxpayer is the beneficial owner of the royalty received on the musical tracks given to Universal Music India Private Limited, it was held that the taxpayer was the beneficial owner of the royalty income and it is entitled for beneficial tax rate under the India-Netherlands tax treaty. DIT v. Universal International Music B.V.[2013] 214 Taxman 19 (Bom) For further details please refer to our Flash News dated 14 March 2013 available at this link

CBDT notifies additional details to be furnished by non-residents along with the TRC

The Finance Act, 2012 had provided that in order to be eligible to claim relief under the tax treaty, a taxpayer is required to produce the TRC issued by the Government of the respective country or the specified territory in which such taxpayer is resident, containing certain prescribed particulars. Subsequently, the CBDT prescribed the details to be included in the TRC.

The Finance Act, 2013 has done away with the requirement of obtaining prescribed particulars in the TRC. In other words, the taxpayer can continue to obtain the TRC as issued by the foreign authorities. The Finance Act, 2013 also introduced a provision to clarify that the taxpayer shall now be required to

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furnish such other information or document as may be prescribed.

The CBDT has now issued a notification amending the Income-tax Rules, 1962 (the Rules) prescribing the additional information required to be furnished by non-residents along with the TRC. The details are required to be furnished in Form 10F.

Notification No. 57/2013, dated 1 August 2013

For further details please refer to our Flash News dated 5 August 2013 available at this link

Royalty

Royalty received for licensing of patents, by a foreign company to a foreign equipment manufacturer, used for manufacture of CDMA technology enabled equipments for sale to Indian telecom service providers is not taxable in India The taxpayer was incorporated as a company in USA and had developed key patents to CDMA, a method for transmitting simultaneous signals over a shared spectrum, most commonly applied to digital wireless technology. The taxpayer had licensed its patents to Original Equipment Manufacturers (OEMs) who were situated outside India and were not residents of India. The OEMs used the patents to manufacture the products outside India and sold the products to wireless carriers worldwide.

The OEMs paid royalty to the taxpayer for use of patented technology in the manufacture of products and was determined with reference to the net selling price of the product sold to unrelated wireless carriers worldwide. The products manufactured by the OEMs outside India were purchased by Tata Teleservices and Reliance Communications (the Indian Carriers) from the OEMs. The Indian Carriers, in turn, sold the products to end users in India and the products were used by customers of the Indian Carriers in India.

Based on the facts of the case, the Delhi Tribunal, inter alia, observed and held as follows:

• To tax the royalty income earned by the taxpayer from OEMs located outside India, under the deeming provision of Section 9(1)(vi)(c) of the Act, the burden is on the tax department to prove that the OEMs carry on business in India and that they have used the taxpayer’s patents for the purposes of, such business in India; or that they have used the taxpayer’s patents for the purpose of, making or earning income from a source in India;

• The OEMs manufactured products outside India and sold them to not only service providers in India but also to number of others in other countries. The license to manufacture products by using the patented Intellectual Property of the taxpayer has not been used in India as the products were manufactured outside India and when such products were sold to parties in India, it cannot be said that OEMs have done business in India;

• Technology for manufacturing products was different from products which were manufactured from the use of the technology for which the taxpayer has patents. The role of Qualcomm ends when it licenses its patents on IPR’s pertaining to CDMA products for manufacture and when it collects royalty from OEM’s on these products, when they are shipped out of the country of manufacture;

• The source of the royalty is the place where patent (right, property or information) is exploited, viz. where the manufacturing activity takes place, which is outside India. Hence, the Indian telecom operators would not constitute source of income for the OEMs;

• The title and risk of loss passes to the buyer, on the physical delivery of the equipment by the OEM to the carrier, at the port of shipment. The term ‘port of shipment’ is definitely not a port in India;

• The propositions laid down by the Delhi High Court in the case of Ericsson and Nokia, in relation to

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taxability of GSM equipment with embedded software were squarely applicable in the present case to taxability of OEMs supplying CDMA handsets and equipment. Accordingly, the title in the goods in this case has passed outside India;

• The software was embedded in the chipset and was an integral part of the chipset. Further, the chip set was embedded in the handset/equipment and these were sold outside India. The total price was fixed for the equipment as a whole and there was no separate consideration for the licensed material. The software supplied was a copyrighted article and not a copyright. Accordingly, the income from embedded software cannot be taxed in India;

• Regarding insertion of Explanation 4 to Section 9(1)(vi) of the Act, it was observed that the amendment has no effect in the present case as a controversy in this case was taxability of royalty on patents relating to intellectual property for manufacture of CDMA handsets and equipment and does not relate to royalty on licensing of any computer software. The OEMs sells handsets/equipments to the service providers, outside India and hence the OEMs have no source of income in India;

• Accordingly, the royalty paid to the taxpayer by the OEMs cannot be brought to tax under the Act.

Qualcomm Incorporated v. ADIT [2013] 23 ITR 239 (Del) For further details please refer to our Flash News dated 7 February 2013 available at this link

Fees for Technical Services

IT support services does not ‘make available’ any technical know-how, therefore, it cannot be taxed as FTS under India-Australia tax treaty The taxpayer, a company incorporated in Australia, during the year under consideration, received payments from Sandvik Asia Ltd. and Walter Tools India Pvt. Ltd for rendering of IT support services. The nature of the services under the agreement between the taxpayer and Sandvik Asia Ltd., an Indian affiliate, includes giving advice to the receiving parties, help desk support, contacting Sandvik’s IT personnel, providing IT operations and support services, infrastructure, disseminating related IT information, etc.

The issue for consideration before the Pune Tribunal was whether payments for IT support services are taxable as FTS under the India-Australia tax treaty.

Based on the facts of the case, the Pune Tribunal, inter alia, held as follows:

• The technology will be considered as made available when the person receiving the services is able to apply the technology by himself. The Tribunal relied on the Karnataka High Court decision in the case of De Beers India Minerals Pvt. Ltd.

• The taxpayer had not imparted any technical know-how, skill, process or technical plan or design and hence, in view of Article 12(3)(g) of the India Australia-tax treaty, the amount received by the taxpayer cannot be taxed in India.

• Accordingly, though the services are technical in nature but is not covered under Article 12(3)(g) of the India-Australia tax treaty and hence, the same is not taxable in India.

Sandvik Australia Pty. Ltd v. DDIT [2013] 141 ITD 598 (Pune) For further details please refer to our Flash News dated 13 February 2013 available at this link Payments for bio-equivalent studies do not make available technical skill, knowledge or expertise, etc. and therefore are not taxable under the tax treaty The taxpayer was engaged, inter alia, in research and development of bulk drugs and pharmaceuticals.

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In order to market its products in USA and Canada, the taxpayer was required to get approval from the respective regulatory authorities. For this purpose, the taxpayer was required to get its products tested through certain specialised organisations in USA/Canada which were called as Contract Research

Organisations (CRO). The testing process was called ‘bio-equivalence study’. During the bio-equivalence study, the CROs do clinical research and analyse the impact of the drug on human beings. For conducting the bio-equivalence studies, the taxpayer has made the payments to the CROs without deducting tax at source.

The issue for consideration before the Hyderabad Tribunal was whether payments for bio-equivalent studies are taxable under India-USA and India-Canada tax treaty.

Based on the facts of the case, the Hyderabad Tribunal, inter alia, held as follows:

• As per Article 12 of the tax treaty, Fee for Included Services is taxable in the source country only if such services make available any technical knowledge, expertise, etc. or there is transfer of technical plan or design.

• There was neither transfer of technical plan or technical design nor making available of technical knowledge, experience or know-how by the CROs to the taxpayer. Accordingly, the amounts paid by the taxpayer do not fall under Article 12, but come within the purview of Article 7 (Business Profits) of the tax treaty.

• The amounts paid are to be considered as business receipts of the said CROs and in absence of CRO’s PE in India, the payments were not taxable in India.

DCIT v. Dr. Reddy’s Laboratories Limited [2013] 144 ITD 392 (Hyd) For further details please refer to our Flash News dated 5 June 2013 available at this link

When FTS clause is missing and such payment is not connected with the PE, it would not be taxable under miscellaneous income article under India-Thailand tax treaty The taxpayer, a company incorporated in Thailand, entered into a technical know-how agreement with an Indian company for transfer of glass technology know-how to the Indian company and for providing technical assistance to the employees of the Indian company to operate the glass plant in India.

The issue for consideration before the Madras High Court, inter alia, was whether the consideration for technical assistance would be taxable in India in the hands of the taxpayer. Based on the facts of the case, the High Court, inter alia, observed and held as follows:

• The services rendered by the taxpayer cover transfer of know-how as well as giving technical assistance and therefore a part of the payment has to be classified as ‘royalty’ and the other part has to be assessed as ‘technical services’.

• As the taxpayer did not have a Permanent Establishment (PE) in India, the consideration for technical services cannot be brought to tax under Article 7 of the India-Thailand tax treaty. The income which would be taxable in India in the instant case is only the income falling under Article 12 of the India-Thailand tax treaty as royalty income and nothing beyond that.

• Further, the consideration for technical assistance cannot even be taxed under the other income article of the India-Thailand tax treaty since it does not classify as miscellaneous income.

Bangkok Glass Industry Co. Ltd. v. ACIT [2013] 215 Taxman 116 (Mad) For further details please refer to our Flash News dated 9 July 2013 available at this link

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Permanent Establishment and Force of Attraction

Payments made for online advertisement on the search engines of Google and Yahoo are not taxable in India

The taxpayer, a florist, had made payments in respect of online advertisements to Google and Yahoo without deducting taxes on the basis that since these entities did not have any PE in India, the payment made to them was not taxable in India.

The AO disallowed the payments in the hands of the taxpayer under Section 40(a)(i) of the Act on the basis that tax was required to be deducted from the payments made to Google and Yahoo. The issue for consideration before the Kolkata Tribunal was whether the payment in respect of online advertising on search engines of Google and Yahoo is taxable in India.

Based on the facts of the case, the Tribunal, inter alia, observed and held as follows:

• A search engine’s presence in a location, other than the location of its effective place of management, is only on the internet or by way of its website, which is not a physical form of presence.

• In accordance with the High Power Committee report, so far as the basic rule of PE is concerned, a website per se cannot be a PE under the Act.

• The interpretation of the expression PE, even in the context of tax treaties, does not normally extend to websites unless the servers on which websites are hosted are also located in the same jurisdiction.

• A search engine, which has only its presence through its website, cannot be treated as a PE unless its web servers are also located in the same jurisdiction. As Yahoo and Google’s servers are not located in India, its presence in India merely through websites cannot be construed as PE in India.

• The Government of India’s reservations on OECD (relating to websites constituting a PE in certain circumstances) does not have an impact in the instant case.

• Relying on the decisions of the Mumbai Tribunal in the case of Pinstorm Technologies Pvt. Ltd. and Yahoo India Pvt. Ltd, the Tribunal held that the payments to Google and Yahoo are not in the nature of ‘Royalty’.

• As long as there is no human intervention in a technical service, it cannot be treated as a technical service under Section 9(1)(vii) of the Act. As there was no human touch involved in the whole process of the advertising service provided by Google and Yahoo, the payments are not in the nature of FTS.

• Therefore, the payments were not taxable in India and there was no requirement for the taxpayer to deduct tax at source.

ITO v. Right Florists Pvt Ltd [2013] 143 ITD 445 (Kol) For further details please refer to our Flash News dated 15 April 2013 available at this link

Purchase of advertisement space on foreign websites by an Indian company from a foreign holding does not constitute a PE under the India-USA tax treaty The taxpayer, an Indian company, and its holding company in US, engaged in the business of providing services of internet advertising and marketing services including e-commerce transactions and provision of related technologies, systems, consultancy, devices, etc. When Indian clients desire to place their advertisement over a foreign website, the taxpayer would get in touch with the US Company which in turn would get in touch with the foreign website owner to book advertisement space. Thereafter, the parent company would sell the space on the foreign website to the taxpayer which in turn is provided to

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the Indian client. The reverse procedure is followed, when the parent company intends to book an advertisement space on Indian websites for its overseas clients.

When the taxpayer places an order to its parent company, the parent company books space on the relevant foreign website and then sells space to the taxpayer at cost plus mark-up. The taxpayer in turn sells the said space to its Indian client at cost plus profit.

During the year under consideration the taxpayer made payments to the US Company for purchases of online advertisement space. The taxpayer claimed that the business income of the US Company was not taxable in the absence of PE and therefore, withholding of tax was not required on such payment.

The issue for consideration before the Mumbai Tribunal was whether the purchase of advertisement space on foreign websites by the Indian company from foreign holding company constitutes PE under the tax treaty. Based on the facts of the case, the Mumbai Tribunal held as follows:

• On perusal of the arrangement made between the taxpayer and the US Company it indicates that neither of the party is doing the business activity on behalf of other. Further, the transactions are independent business transaction wherein the respective margins are recovered from each other.

• The transaction of payment towards the purchase of space on the foreign website by the taxpayer for its client in any case does not constitute a transaction carried out by the taxpayer on behalf of its US Company.

• The taxpayer was doing the business on behalf of its client and offering the income earned from the said business transaction for taxation in India. Therefore, the transaction of purchase of space on the foreign website by the taxpayer from US Company cannot be treated as PE.

• None of the party is dealing with the clients of the other party, hence the activity between the taxpayer and US Company are independent business activities.

• The transaction between the taxpayer and the US Company are independent business between two parties. The risk and reward of the business carried out by the taxpayer is born by the taxpayer which indicates that it is the taxpayer who is answerable to the customers and therefore, the activity of purchase of space on website from the parent company is on principle to principle basis.

• Thus, purchase of advertisement space on foreign website falls under business income of US Company under the tax treaty. However, in the absence of PE of US Company, the said business profits were not taxable in India. Accordingly, the taxpayer was not required to deduct tax in respect of said amount which is trading receipt in view of the decision of the Supreme Court in case of GE India Technology Centre Pvt. Ltd.

ITO v. Pubmatic India Pvt. Ltd. [2013] 36 taxmann.com 100 (Mum) For further details please refer to our Flash News dated 26 August 2013 available at this link

IT enabled customer management services provided by a foreign company result in a PE in India and profit is attributable at the rate of 15 percent. Software payment and link charges are not taxable as royalty The taxpayer, a company incorporated in and a tax resident of USA is engaged in the business of providing IT enabled customer management services. In order to service its customers, the taxpayer had procured certain IT enabled call centre / back office support services from its subsidiary company in India (Indian subsidiary). The Indian subsidiary also made payments to the taxpayer towards reimbursement for link charges and license charges (for use of software).

The AO held that the taxpayer has various forms of PE in India such as Fixed place PE, Service PE and DAPE and attributed huge profits to the PE in India. The AO also held the link charges / license charges

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to be taxable in India as Royalty under Section 9(1)(vi) of the Act and Article 12 of the India-USA tax treaty.

The issue for consideration before the Delhi Tribunal, inter alia, was whether the taxpayer had a PE in India and whether the link charges / license charges are in the nature of royalty.

Based on the facts of the case, the Tribunal, inter alia, observed and held as follows:

PE

• The taxpayer had a fixed place PE in India on the following account:

− The employees of the taxpayer frequently visited the premises of the Indian subsidiary to provide supervision, direction and control the operations of the Indian subsidiary and such employees had a fixed place of business at their disposal.

− Indian subsidiary was practically the projection of taxpayer’s business in India and it carried out its business under the control and guidance of the taxpayer, without assuming any significant risk in relation to its functions.

− Certain hardware and software assets were provided by the taxpayer to the Indian subsidiary on a free of cost basis.

• The Indian subsidiary did not constitute a DAPE of the taxpayer in India as the conditions provided in Article 5(4) of the India-USA tax treaty were not satisfied.

• The Tribunal also outlined the manner in which the profits were to be attributed to the PE so created in India.

Taxability of link charges/ license charges

• Relying on the decision of the Mumbai Tribunal in the case of B4U International and the decision of the Delhi High Court in the case of Nokia Networks OY, the Tribunal held that the amendment to Section 9(1)(vi) of the Act does not affect the provisions of the tax treaty in any manner.

• Purchase of software would fall within the category of copyrighted article and not towards acquisition of any copyright in the software and hence the license charges are not in the nature of royalty.

• With regard to the taxability of the link charges, the Tribunal held that since neither the taxpayer nor the Indian subsidiary had any control or possession over the equipment, link charges do not qualify as equipment royalty in terms of Article 12 of the tax treaty and hence are not taxable in India.

Convergys Customer Management v. ADIT [2013] 58 SOT 69 (Del) For further details please refer to our Flash News dated 14 May 2013 available at this link

Indian branch of a foreign company providing pre-sale activities and incidental post sale support activities for products supplied by the parent and overseas group companies cannot be treated as dependent agent PE and in the absence of PE the force of attraction rule under relevant tax treaties does not apply The Mumbai Tribunal in the case of VIPL India branch (the taxpayer) held that Indian branch cannot be constituted Dependent Agent Permanent Establishment (DAPE) of US parent and overseas group companies under the tax treaty since the taxpayer does not have authority to negotiate or conclude contracts on behalf of the foreign companies; it does not maintain stock of goods sold by such foreign companies and it does not secure order on behalf of foreign companies in India. Accordingly, since the taxpayer does not have DAPE under the tax treaty, the profit attributable to such foreign enterprises cannot be taxed in India.

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Further, since the taxpayer does not constitute a PE of the various group companies, profits of foreign enterprise shall not be taxed in the hands of the taxpayer in India under the ‘Force of Attraction Rule’ in the respective tax treaties.

Varian India Pvt Ltd v. ADIT [2013] 33 taxmann.com 249 (Mum) For further details please refer to our Flash News dated 24 July 2013 available at this link

Transfer Pricing

Discounted Cash Flow Method is preferable over CCI Guidelines for determining the ALP for sale of shares

The taxpayer and L&T Infocity Limited (LTIL) entered into an agreement with Ascendas Property Fund India (AFPI), an Associated Enterprise (AE), for selling their respective stake in L&T Infocity Ascendas Limited (LTIAL). The taxpayer was also involved in another transaction pertaining to sale of shares held in Ascendas IT Park Ltd (AITPL) to AFPI. For sale of shares in LTIAL, the taxpayer adopted the Comparable Uncontrolled Price (CUP) Method by comparing the price at which LTIL sold its shares to AFPI. For the transaction of sale of shares in AITPL, the sale price of AITPL shares was supported by a valuation certificate provided by a Chartered Accountant in accordance with the previous CCI Guidelines

LTIL’s sale price as CUP for taxpayer’s sale of LTIAL shares The Transfer Pricing Officer (TPO) rejected the argument that the sale price of shares by LTIL constituted a CUP for the purpose of determining the ALP for sale of shares by the taxpayer, as the sale of shares by LTIL is an intimate connection and it is an AE by virtue of common participation. The Tribunal held that the sale of shares by LTIL and the taxpayer is through a single agreement and treatment of one part of the agreement as an uncontrolled transaction and another as a controlled transaction is not acceptable. Hence the transactions cannot be considered a CUP for sale of shares in LTIAL.

CCI Guidelines v. Discounted Cash Flow Method The TPO rejected the valuation based on the CCI Guidelines and adopted the Discounted Cash Flow (DCF) method for valuation of shares for both the companies. The Tribunal held that difficulty may arise in ascertaining the Fair Market Value (FMV), but such difficulties should not be a reason for not adopting the rules and method prescribed. Subtle adjustment can be made in the methodology prescribed for evaluation. The Tribunal observed that CCI Guidelines were for a totally different purpose and could not be used for pricing methodology prescribed for ALP. Further, Rules prescribed for determination of the FMV under Section 56 of the Income-tax Act (the Act) cannot be taken as a basis for valuation in a transfer pricing matter.

Valuation of shares based on DCF Method The Tribunal held that in the taxpayer’s case, where market value of the investment is not readily ascertainable, the DCF was the most appropriate valuation method. Observing some mistakes in the workings of the TPO, the Tribunal restored the matter to the TPO for working out the value afresh as per standard practises. With regard to illiquidity risk, the Tribunal rejected any adjustment for the same by observing that the discounting factor (adopted for ascertaining the present value of future cash flows) takes into account all related risks.

Ascendas (India) Private Limited v. DCIT (ITA No.1736/Mds/2011) For further details please refer to our Flash News dated 10 January 2013 available at this link

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Delhi Special Bench of the Tribunal held that TP adjustment in relation to Advertisement, Marketing and Promotion expenditure incurred by the taxpayer for creating or improving the marketing intangible for and on behalf of the foreign AE is permissible

The taxpayer, a wholly owned subsidiary of LG Electronics Inc., Korea (LG Korea) was given a right to use the technical information, designs, drawings and industrial property rights for the manufacture, marketing, sale and services of the agreed products from LG Korea on payment of a royalty. The taxpayer was also allowed to use the brand name and trademarks owned by LG Korea without payment of any royalty during the relevant period.

The Special Bench inter alia held:

Whether TPO could suo-moto assume jurisdiction without any reference from the AO on this transaction – Suo-moto assumption of jurisdiction of the TPO in this case was covered by Section 92CA(2B) of the Act, which had retrospective operation from 1 June 2002. The challenge to the retrospective operation of the sub-section was rejected.

Whether Advertisement, Marketing and Promotion spend construes a Transaction – Display of the brand in the advertisements coupled with proportionately higher Advertisement, Marketing and Promotion (AMP) spend by the taxpayer indicated an oral or tacit understanding between the taxpayer and its foreign AE regarding Brand promotion by the taxpayer. Tribunal held that a `transaction’ can be both express as well as oral. So long as there exists some sort of understanding between two AEs on a particular point, the same shall have to be considered as a transaction, whether or not it has been formalised as part of a written agreement.

Whether AMP spend construes an ‘International Transaction’ – The Special Bench held that in view of brand advertisement by the taxpayer, coupled with higher AMP spend, it could be concluded that the taxpayer had provided services to its AE, which owned the brand. ‘Provision of services’ was an international transaction in terms of Section 92B(1) of the Act.

Bright Line Test – The Special Bench upheld the tax department’s stand that the Bright Line Test is simply a tool to ascertain the cost of the international transaction. The method used to determine the ALP in this case is the cost plus method. In this case, since the taxpayer did not declare any cost/value of the international transaction of brand building, the onus comes upon the TPO to determine the cost/value of such international transaction in some rational manner.

Interplay amongst Sections 37(1), 40A(2) and 92 of the Act – The Special Bench held that in regard to international transactions, TP provisions as special provisions shall prevail over the other regular provisions governing the deductibility or taxability of an amount from such transactions.

Relevant factors for determining cost/value of international transaction of AMP expenditure – What does not constitute AMP Expenditure? – Special Bench accepted the taxpayer’s contention that expenditure incurred directly ‘in connection with’ and not ‘for promotion of’ sales should not be put in the same basket as AMP expenditure.

Testing of entity level profits v. Transaction level profits and whether use of more than one method is permissible?

• Transactional Net Margin Method (TNMM) could be applied only on a Transactional Level and not on an Entity Level. The only exception would be when all the international transactions are of sale by the taxpayer to its foreign AE and there is no other transaction of sale to any outsider and also there is no other international transaction.

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• There is no bar on the power of the TPO in examining all international transactions under the TP provisions, even when the overall net profit earned by the taxpayer is higher than the comparable companies.

• The fact that the taxpayer has a better net profit rate in comparison with other comparable companies does not substantiate that the taxpayer purchased the goods at a concessional rate from its foreign AE as net profit is not dependent only on purchase cost.

• Only one method, as against combination of the prescribed methods, can be used for determining the ALP of an international transaction. The DRP and the AO were right in applying the spirit of the cost plus method to the facts of the instant case. The mere fact that DRP did not specifically mention it in so many words, will not ipso facto mean that it did not apply the cost plus method.

• The Dispute Resolution Panel (DRP) went wrong by arbitrarily determining the rate of mark-up at 13 percent without showing as to how much an independent comparable entity would have earned from an international transaction similar to that which is under consideration.

Whether mark-up is permissible?

• The Special Bench held that the addition of mark-up to the costs has the sanction of law as seen from iv) of clause (c) to Rule 10B(1) of the Rules. Thus, mark-up can be validly imposed. However, the mark-up should be based on the mark-up charged by comparable companies for rendering similar services and should not be an ad-hoc mark-up.

LG Electronics India Private Limited v. ACIT [2013] 22 ITR(T) 1 (Del) For further details please refer to our Flash News dated 25 January 2013 available at this link Mumbai Tribunal accepts a company incurring losses in two out of three years based on similarity in nature of services; in applying CUP method emphasises on similarity in business profiles vis-a-vis ownership profile The taxpayer was engaged in securities broking, merchant banking and financial advisory services. The TPO made an upward adjustment to the following international transactions (1) Business support services (2) Brokerage services and (3) Investment advisory services.

Business Support Services

• The taxpayer adopted the TNMM as the most appropriate method. TPO rejected one of the comparables from the taxpayer’s set as a loss-making concern. The Taxpayer provided a detailed description of its business and submitted that the company was loss-making only for the last two years and had an operating profit of 27.25 percent in 2005.

• The Tribunal held that since the nature of services rendered by the company was similar to that of the taxpayer, it cannot be disqualified as a comparable even though it had incurred a loss during the year.

Brokerage services

• The Taxpayer adopted CUP as the most appropriate method and considered the average brokerage rate charged by third party unrelated Indian brokers to its AE to benchmark its broking transaction. TPO segregated the comparables applied by the taxpayer into foreign-owned and Indian-owned comparables and determined the arm’s length brokerage rate based on the brokerage rate charged by foreign-owned Indian brokers to the AE as the taxpayer was also a foreign-owned broking house.

• The Tribunal held that both foreign owned brokers and Indian-owned brokers matched the business profile of the taxpayer. All third party brokers were providing services in an uncontrolled regime and there was nothing contrary in the conduct and management of business of the comparables and the taxpayer. Thus, the CUP method applied by the taxpayer was appropriate.

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Investment advisory services

• The TPO rejected the taxpayer’s set of comparables and substituted it with his own set of comparables engaged in providing merchant banking activities.

• The Tribunal, relying on Carlyle India Advisors Private Limited v. ACIT [2012] 53 SOT 267 (Mum), rejected the comparables of the TPO as they were engaged in merchant banking activities. The Tribunal took cognizance of the fact that the taxpayer did not have a license to enter the merchant banking business.

Goldman Sachs (India) Securities Pvt. Ltd. v. ACIT (ITA No. 7724/Mum/2011) For further details please refer to our Flash News dated 6 February 2013 available at this link

Safe Harbour rules notified To reduce increasing number of transfer pricing audits and prolonged disputes, the CBDT had issued the draft Safe Harbour rules (SHR) on 14 August 2013, inviting public comments. The final SHRs are notified on 18 September 2013 after considering the comments of various stakeholders.

Safe harbours for various sectors, shall be as under –

Eligible International Transaction Safe Harbour ratios

Software development services (IT services) and Information Technology Enabled services (ITES), with insignificant risks

• where the aggregate value of such transactions < INR 500 crores

• where the aggregate value of such transactions > INR 500 crores

Operating profit margin to operating expense

≥ 20 percent

≥ 22 percent.

Knowledge processes outsourcing services (KPO services), with insignificant risks

Operating profit margin to operating expense ≥ 25 per cent

Intra-group loan to wholly owned subsidiary (WOS) where the amount of loan:

• < INR 50 crores

• > INR 50 crores

Interest rate equal to or greater than the base rate of State Bank of India (SBI) as on 30th June of the relevant previous year:

plus 150 basis points

plus 300 basis points

Explicit corporate guarantee to WOS where the amount guaranteed

• < INR 100 crores

• > INR 100 crores, and the credit rating of the borrower, by a SEBI registered agency is of the adequate to highest safety

• Commission or fee of 2 per cent or more per annum

• Commission or fee of 1.75 per cent or more per annum

Specified contract research and development services (Contract R&D services), with insignificant risks, wholly or partly relating to software

Operating profit margin to operating expense ≥ 30 per cent

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development

Contract R&D services, with insignificant risks, wholly or partly relating to generic pharmaceutical drugs

Operating profit margin to operating expense ≥ 29 per cent

Manufacture and export of:

• core auto components

• non-core auto components

where 90 percent or more of total turnover relates to Original Equipment Manufacturer sales

Operating profit margin to operating expense:

≥ 12 per cent

≥ 8.5 per cent

The final SHRs are applicable for a period of 5 years starting with assessment year (AY) 2013-14 for the prescribed sectors. The option of being governed by SHRs shall continue to remain in force for the period specified by the taxpayer in the prescribed form (Form No. 3CEFA) or a period of five years whichever is less. The taxpayer can opt-out of the safe harbour regime from the second year onwards, by filing a declaration to that effect with the AO.

The Rules provide for a time bound procedure for determination of the eligibility of the taxpayer and of the international transactions for SHR. In case action is not taken by AO/TPO within the prescribed time lines, the option exercised by the taxpayer shall be treated as valid. The taxpayer shall also have a right to file an objection with the Commissioner against an adverse order regarding the eligibility of taxpayer/international transaction. Even where the taxpayer opts to be governed by the SHRs, they will be required to comply with the regulations regarding mandatory documentation and filing the Accountant’s report for each AY under consideration.

Source: http://finmin.nic.in CBDT Notification No. 73/2013, dated 18 September 2013 available at this link

Transfer Pricing reporting requirement expanded. Additional clauses and Specified Domestic Transactions reporting introduced in Revised Accountant’s Report The CBDT has issued a Notification amending the relevant rules and revising the Accountant’s Report in Form No. 3CEB to align the reporting requirements with the amended definition of international transaction and the extended provisions of Transfer Pricing covering Specified Domestic Transactions (SDT).

Salient features of the revised Form include:

• Specific reporting for International Transactions - The details of international transactions like guarantees received or given, issue/buyback of equity shares/ convertible preference shares/convertible debentures, purchase/sale of marketable securities, capital financing transactions including receivables and any transaction arising out of business restructuring or reorganization are to be reported in separate clauses. Deemed international transactions are also to be reported under a separate head.

• Reporting of Specified Domestic Transactions – A separate Section ‘Part C’ has been introduced in Form 3CEB for reporting of SDT. The details of the transactions of expenditure to persons specified under Section 40A(2) (b) of the Act, acquisition or transfer of goods and services with reference to Section 80A(6), 80-IA(8) and 80-IA(10) of the Act as well as any other transactions covered under SDT are to be reported in specific clauses along with quantitative details, wherever relevant.

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Reporting is required for SDT resulting in more than ordinary profits to an eligible business under Section 80-IA(10) or Section10AA of the Act.

Notification No. 41/2013 dated 10 June 2013 For further details please refer to our Flash News dated 13 June 2013 available at this link

CBDT provides breather to taxpayers in relation to Circulars issued on contract R&D centres and application of Profit Split Method thereto Based on representations received from various stakeholders, CBDT has: I) Issued Circular No. 5 of 2013 dated 29 June 2013 which rescinds Circular No. 2 of 2013 dated

26 March 2013 The CBDT had issued Circular No. 2 wherein it provided guidance on application of the PSM for entrepreneurial R&D work that may be undertaken in India. The CBDT has now issued Circular No. 5 of 2013 which rescinds the aforesaid Circular No. 2 of 2013. In its Press release on this matter, the CBDT clarified that the crux of Rule 10C of the Rules is that the tax officer shall take into account the factors enumerated thereunder to choose the most appropriate method which is best suited to the facts and circumstances of the case and which provides the most reliable measure of an arm’s length price in relation to that transaction. It was felt that Circular 2 appeared to give the impression that there was a hierarchy among the six methods listed in Section 92C of the Act and that PSM was the preferred method in cases involving unique intangibles or in multiple interrelated international transactions. Accordingly, Circular 2 is rescinded to eliminate this perceived conflict between provisions of Section 92C/ Rule 10C and contents of Circular 2.

II) Issued new Circular No. 6 of 2013 dated 29 June 2013 (amending Circular No. 3 of 2013 dated 26 March 2013) Circular 6 recognises that the R&D Centres set up by foreign companies in India can be classified into three broad categories based on functions, assets and risk assumed by them. These are:

• Centres which are entrepreneurial in nature (these would be entities performing significantly important functions and assumes substantial risks);

• Centres which undertake contract R&D (these would be entities with minimal functions, assets and risk; and

• Centres which are based on cost-sharing arrangement (these entities would have a profile that would fall between the entrepreneurial model stated in ‘1’ above and the contract R&D model stated in ‘2’ above)

CBDT observes that in a large number of cases taxpayers claim that they must be treated as a contract R&D service provider with insignificant risk and consequently the Transactional Net Margin Method (TNMM) is adopted as the most appropriate method.

The CBDT has laid down the following guidelines for identifying contract R&D service providers with insignificant risk.

• Functions: All economically significant functions involved in research or product development cycle are performed by foreign Associated Enterprise (AE) either through its own employees or through other AEs while the Indian Development Centre carries out the work assigned to it by the AE. Economically significant functions would include critical functions such as conceptualisation and design of the product and providing the strategic direction and framework.

• Funding: The foreign principal or its AE provides funds/ capital and other economically significant assets including intangibles for R&D. The foreign principal or its AE provide remuneration to the Indian development centre.

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• Supervision and Control: The Indian development centre works under direct supervision of the foreign principal or its AE. The foreign principal or its AE to be actually in-charge of strategic decisions relating to performance of core functions as well as monitor activities on regular basis.

• Risk profile: The actual conduct of the Indian development centre and the AE show that significant risks are borne by the AE which are in line with the contractual arrangement.

• Location of AE: In case the AE is located in low or no tax jurisdiction then it will be presumed that the AE does not bear any risk unless the taxpayer can prove to the contrary; Low tax jurisdiction shall mean any country or territory notified in this behalf under Section 94A of the Income-tax Act, 1961 (the Act) or any other country or territory that may be notified for the purpose of Chapter X of the Act.

• Ownership Rights: The right of the intangible (legal or economic) developed vests with the AE and the Indian development centre does not have any ownership over the same. Further this should be evident from the conduct of the parties.

The Circular states that pursuant to the aforesaid analysis, the AO or the TPO, as the case may be, shall consider the application of the ‘most appropriate method’ as elaborated in Section 92C of the Act and Rule 10A to Rule 10C of the Income-tax Rules, 1962 (the Rules).

Key Changes: Some of the key changes are highlighted below:

• It is recognised that economically significant functions to be performed by foreign principal could be performed either through own employees or through its AEs.

• The term ‘economically significant functions’ has been explained to include critical functions such as conceptualization and design of the product and providing the strategic direction and framework.

• It is clarified that funding to the Indian development centre could be provided either by the foreign principal or its AEs.

• It is clarified that remuneration to the Indian development centre could be provided either by the foreign principal or its AEs.

• In terms of supervision, it is clarified that the Indian development centre could work either under the supervision of the foreign principal or its AEs.

• The term ‘Low tax jurisdiction’ has been defined to mean any country or territory notified in this behalf under Section 94A of the Act or any other country or territory that may be notified for the purpose of Chapter X of the Act.

• Circular 6 eliminates the words ‘cumulatively complied with’ in relation to the ‘conditions’ stated in Circular 3. Instead Circular 6 lays down ‘guidelines’ thereby allowing the tax authority to take a final decision based on the totality of the facts and circumstances of the case.

III) Side Note on ‘Safe Harbour’ The CBDT has, vide its Press Release, provided that Safe Harbour Rules under Section 92CB of the Act are under consideration and will be issued shortly by the CBDT and the Safe Harbour Rules are expected to bring further certainty in assessment of Development Centres that are engaged in providing contract R&D services.

Circular No. 05/2013 and 06/2013 dated 29 June 2013 For further details please refer to our Flash News dated 1 July 2013 available at this link

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Depreciation

Supreme Court rules that the leasing company is entitled to claim depreciation at higher rate on the leased vehicles used in business of running on hire The taxpayer, a Non Banking Finance Company was engaged in the business of hire purchase, leasing etc. As a part of its business, the taxpayer purchased the vehicles against direct payment to the manufacturers and leased out vehicles to its customers. Lessees were registered as the owners of the vehicles, in the certificate of registration issued under the Motor Vehicles Act, 1988 (the MV Act). On such vehicles, the taxpayer claimed depreciation at a higher rate on the ground that the vehicles were used in the business of running on hire.

The AO disallowed both the claims i.e., normal depreciation and higher rate of depreciation, on the grounds that the taxpayer’s use of the vehicles was only by way of leasing out to others and not as actual user of the vehicles in the business of running them.

The issue for consideration before the Supreme Court was whether the taxpayer is the owner of the vehicles which are leased out to its customers and also eligible to claim depreciation on the same. Further, whether the taxpayer is entitled to claim higher rate of depreciation on the said vehicles on the ground that they were hired out to its customers.

The Supreme Court held that the taxpayer is the owner of the assets and entitled to higher rate of depreciation since:

• The vehicle, along with its keys, was delivered to the taxpayer upon which, the lease agreement was entered into by the taxpayer with the customer and the ownership was with the taxpayer.

• MV Act creates a legal fiction of ownership in favour of lessee only for the purpose of the MV Act. It is not a statement of law on ownership in general. Also, the lessee has not claimed depreciation on the vehicles.

• The entire lease rent received by the taxpayer is assessed as business income in its hands and the entire lease rent paid by the lessee has been treated as deductible revenue expenditure in the hands of the lessee. This reaffirms the position that the taxpayer is in fact the owner of the vehicle, in so far as Section 32 of the Act is concerned.

• The taxpayer is the owner of the vehicles and as an owner, it used the assets in the course of its business, satisfying both the requirements of Section 32 of the Act and hence, is entitled to claim depreciation on the same.

• The taxpayer uses the vehicles in the course of its leasing business and hence, is entitled to claim a higher rate of depreciation.

I.C.D.S Ltd v. CIT [2013] 350 ITR 527 (SC) For further details please refer to our Flash News dated 18 January 2013 available at this link

ESOP

SEBI amends ESOP Guidelines to prohibit companies from acquisition of own securities in secondary market The SEBI, had issued guidelines in 1999 (referred to as ESOP Guidelines) to provide a regulatory framework for listed companies to implement security based compensation schemes. These ESOP Guidelines were amended by SEBI by its Circular issued on 17 January 2013.

The amendments were brought in since it was noticed that some listed companies have ESOP schemes wherein an Employees’ Welfare Trust (EWT) is set-up. The EWT’s purpose is to deal in the company’s

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own shares in the secondary market, for issuance to the employees. Such dealing was not envisaged in the ESOP Guidelines.

SEBI feared that the EWT route may be utilized for inflating, depressing, maintaining or causing fluctuation in the price of the securities, by engaging in fraudulent and unfair trade practices. This could also give rise to concerns vis-à-vis compliance with the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003 and SEBI (Prohibition of Insider Trading) Regulations, 1992.

SEBI has therefore issued a Circular to amend the ESOP Guidelines and the Equity Listing Agreement (which are conditions set for listing on a stock exchange), to prohibit listed companies from framing any employee benefit schemes involving the acquisition of own securities from the secondary market. Further, companies that have already implemented ESOP schemes that are not in accordance with the amended ESOP Guidelines, are required to furnish certain information to SEBI before 16 February 2013 and to align such ESOP schemes with the amended ESOP Guidelines before 30 June 2013 (for example, by transferring the securities to the employees or selling them in the market for transferring the benefit to the employees).

The amended ESOP Guidelines will impact both existing ESOP schemes as well as new schemes to be framed and implemented.

Circular No. CIC/CFD/DIL/3/2013 dated 17 January 2013 For further details please refer to our Flash News dated 18 January 2013 available at this link

Special Bench held that discount on issue of ESOP is an allowable business deduction during the vesting period

The taxpayer framed an ESOP pursuant to which it granted options to its employees to subscribe for shares at the face value of INR 10. As the market price of each share was INR 919, the taxpayer claimed that it had given a discount of INR 909, which should be allowable as a deduction as ‘employee compensation’ under Section 37 of the Act in the Assessment Years (AYs) 2003-04 to 2007- 08. Although the options vested equally over four years, the taxpayer claimed a larger amount in the first year than was available under the SEBI guidelines.

The Bangalore Special Bench held as follows:

• The difference (discount) between the market price of the shares and their issue price is expenditure in the hands of the taxpayer because it is a substitute for giving a direct incentive in cash for availing the services of the employees.

• There is no difference between a case where the company issues shares to the public at market price and pays a part of the premium to the employees for their services and another where the shares are directly issued to employees at a reduced rate. In both situations, the employees are compensated for their effort.

• The liability cannot be regarded as being contingent in nature because the rendering of service for one year is sine qua non for becoming eligible to avail the benefit under the scheme. Once the service is rendered for one year, it becomes obligatory on the part of the company to honor its commitment of allowing the vesting of 25 percent of the option.

• There is likely to be a difference in the quantum of discount at the stage of vesting of the stock options (when the deduction is allowable) and at the stage of exercise of the options. The difference has to be adjusted by making suitable northwards or southwards adjustment at the time of exercise of the option depending on the market price of the shares then prevailing. The fact that the SEBI Guidelines do not provide for the adjustment of discount at the time of exercise of options is irrelevant because accounting principles cannot affect the position under the Act.

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• The Bangalore Tribunal reversed adverse decision of Delhi Tribunal in the case of Ranbaxy Laboratories Ltd. v. Add. CIT [2009] 124 TTJ 771 (Delhi).

Biocon Limited v. DCIT [2013] 35 taxmann.com 335 (Bang) For further details please refer to our Flash News dated 30 July 2013 available at this link

Direct Tax – Miscellaneous

The Supreme Court holds that a taxpayer is not entitled to receive interest on interest due on tax refund The Gujarat High Court in this case, had observed that the taxpayer had deducted the tax at source on payment to a non-resident. Further, in view of amended provisions of Section 10(6A)5 of the Act, the taxpayer was liable to receive refund of the tax deducted at source. The revenue authorities granted the refund of the said amount, however, they did not pay interest on such refund.

The Gujarat High Court relied on the Supreme Court’s decision of Sandvik Asia and directed the revenue authorities to pay interest on such amount upto the date of refund and also directed to pay interest for the delay in payment of such interest due on refund.

Subsequently, the division bench of the Supreme Court (before referring it to the larger bench) observed that there is nothing in provisions of Act providing for payment of interest on excess payment of advance-tax and hence the order passed in Sandvik Asia Ltd. was not correct. Accordingly, the matter was referred to the larger bench of the Supreme Court.

The larger bench of the Supreme Court has held that it is only interest provided under Section 244A of the Act which may be claimed by the taxpayer and no other interest on such statutory interest would be available. The Supreme Court held that the decision in the case of Sandvik Asia Ltd. has been misquoted and misinterpreted by the taxpayer and also by the revenue authorities. The misinterpretation is that the revenue authorities are obliged to pay an interest on interest in the event of its failure to refund the interest payable within the statutory period.

CIT v. Gujarat Fluro Chemicals (SLP No. 11406 of 2008) For further details please refer to our Flash News dated 15 October 2013 available at this link

Share sale consideration kept as Escrow cannot be demanded towards tax liabilities of share issuing company which is not party to the agreement The petitioner along with other shareholders of the taxpayer entered into a Share Purchase Agreement (SPA) for sale of their shareholding in the taxpayer. A part of the sale consideration was kept in Escrow. Escrow agreement provided that in case certain tax liabilities arise in the taxpayer, the Escrow agent should release the escrow amount to the purchaser. The specified tax liabilities were raised on the taxpayer. Considering the agreement that Escrow amount was linked to tax demand, the AO claimed the Escrow amount, and after initial denial, the Escrow agent paid the same to the AO.

On a writ the High Court held that recovery proceedings under Section 226(3) of the Act are in the nature of garnishee proceedings whereby a garnishee is called upon to directly to pay a debt to the creditor of a person to whom the garnishee is indebted.

The provision neither confers jurisdiction nor provides machinery for an AO to adjudicate the indebtedness of a third party to the taxpayer. Thus, it enable the AO to recover only in cases where a third party admits to owing money or holding any money on account of the taxpayer or in cases where it is indisputable that the third party owes money to or holds money on account of the taxpayer. The

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decision of the AO was set aside and was directed to forthwith refund the amount recovered from the Escrow agent.

AAA Portfolios (P.) Ltd v. DCIT [2013] 37 taxmann.com 23 (Del) For further details please refer to our Flash News dated 5 August 2013 available at this link

Delhi Tribunal rule on various contentious issues relating to royalty, tax deduction at source, deemed dividend, allowability of revenue expenditure, etc. The taxpayer was a company engaged in the manufacturing and selling of two-wheelers. The key issue, inter alia, decided by the Tribunal is summarised as follows:

The taxpayer, an Indian company, was appointed as one of the partner for cricketing events organised by the International Cricket Council (ICC). It made payments to two Singapore companies viz., Global Cricket Corporation Pte Ltd (GCC) and Nimbus Sports International Pte Ltd (Nimbus), for getting certain sponsorship rights i.e. the right to advertise on billboards at the venue, colour advertisement space in the official brochure/website of the ICC etc.

The issue for consideration before the Delhi Tribunal, inter alia, was whether the payments to GCC and Nimbus were in the nature of royalty.

Based on the facts of the case, the Tribunal, inter alia, observed and held as follows:

• Relying on the decisions of the Delhi High Court in the case of DIT v. Sheraton International Inc [2009] 313 ITR 267 (Del HC), DIT v. Sahara India Financial Corporation [2010] 189 Taxman 102 (Del HC) and the decision of the Delhi Tribunal in the case of Nimbus Sports International Pte Ltd [2011] 145 TTJ 186 (Del), the Tribunal held that the payment by the taxpayer to Nimbus and GCC was purely for advertisement and publicity of the brand name of the taxpayer;

• The payment was not in the nature of royalty as it was not for the use of any trade mark or brand name. The use of the ICC’s logo was only incidental to the main services obtained by the taxpayer; and

• As GCC and Nimbus did not have any PE in India, the payments were not taxable in India and consequently there was no requirement for deduction of tax at source on such payments.

Hero MotoCorp Ltd. v. ACIT [2013] 156 TTJ 139 (Del) For further details please refer to our Flash News dated 14 May 2013 available at this link

The Delhi High Court issues remedial directions to improve hardships faced by taxpayers in claiming TDS credit The Delhi High Court, on its own motion issued remedial directions to the tax department to reduce the hardships faced by taxpayers:

• Each rectification application has to be disposed off and decided by a speaking order and relevant column should be filled in the register.

• While adjusting tax refunds against existing demands, prior intimation needs to be given to taxpayers, so that they can respond before any adjustment of refund is made towards the demand.

• In case where returns have been processed by CPC and refunds have been fully or partly adjusted against the past arrears, all such cases need to be transferred to the AOs and appropriate procedures should be followed prior to passing an order.

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• The High Court directed that interest on refund should be paid for false or wrong uploading of past demands and failure to follow the mandate before adjustment of refund by the tax department.

• Further, interest cannot be denied to the taxpayer when the conditions provided under the Act are satisfied and are in favour of the taxpayer.

• The onus to show that the order was communicated and was served on the taxpayer is on the tax department and not upon the taxpayer.

• The tax department should fix a time limit within which they shall verify and correct all unmatched challans and details, in relation to the tax deducted at source. Once payment has been received by the tax department, credit should be given to the taxpayer.

• Where a taxpayer approaches the AO with requisite details and particulars, the AO shall verify whether or not the deductor has made payment of the TDS and if the payment has been made, credit of the same should be given to the taxpayer.

• Pursuant to this order of the High Court, taxpayers would look forward for further steps to be taken by the tax department to comply with the directions and to receive rightful claim of tax credits.

Court on its own Motions v. CIT [2013] 352 ITR 273 (Del) For further details please refer to our Flash News dated 26 March 2013 available at this link

Income of a US company attributable in India cannot be taxed in the hands of Hongkong Subsidiary on account of subsidiary’s Liaison Office in India The taxpayer is a Hong Kong based company and a wholly owned subsidiary of St. Jude Medical Inc. (SJMI), a US based company. The taxpayer had set up a Liaison Office (LO) in India with the permission of the Reserve Bank of India (RBI).

Even though the taxpayer had a LO, SJMI as well as taxpayer were conducting their sales through network of distributors established over the years. Also, the LO was co-ordinating the market survey, propagation etc. in India as permitted by the RBI.

The AO treated the taxpayer’s LO in India as Permanent Establishment (PE) of SJMI and estimated the profits on the sales made by SJMI as well as the taxpayer, and determined the tax and interest thereon in one assessment order (i.e. in taxpayer’s hands).

The issue for consideration before the Mumbai Tribunal was whether the income attributable to the PE of the US company in India can be taxed in the hands of a Hong Kong company on account of the Hong Kong company’s liaison office in India?

Based on the facts of the case, the Mumbai Tribunal, inter alia, held as follows:

• The procedure adopted by the AO, to attribute the income of SJMI in the hands of the taxpayer, was not correct since there should be separate proceedings for two separate companies established in different countries.

• The documents submitted by the tax department do not indicate that the taxpayer was involved in direct sales activity except co-ordinating and liaisoning with various distributors and doctors who are to use the products.

• The taxpayer was involved in liaison activities upto 31 March 1999 and not in sales activity. The attribution of income and estimation of gross profits in relation to AY 1999-2000 cannot be done since the taxpayer did not have any business connection or business activity though it’s LO.

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• Accordingly, the addition of business profits of SJMI as income of the taxpayer was deleted and the profit attributable to the liaison period was also deleted.

St. Jude Medical (Hongkong) Ltd. v. DDIT (ITA Nos.4626 & 4627/Mum/2005, 5 June 2013) For further details please refer to our Flash News dated 14 June 2013 available at this link

CBDT clarifies the process of set-off and carry forward of losses in relation to eligible units pertaining to Section 10A, 10AA, 10B and 10BA of the Act The CBDT has issued a Circular pertaining to Sections 10A (in relation to free trade zone, etc), 10AA (in relation to Special Economic Zone), 10B (in relation to 100 percent export oriented undertakings) and 10BA (in relation to export of certain articles or things) of the Act, setting out the tax department’s view in relation to set-off and carry forward of losses of ineligible units against the profits of the eligible units, as follows:

• The income computed under various heads of income has to be aggregated in accordance with the provisions of Chapter VI (i.e. Chapter dealing with aggregation of income and set-off or carry forward of loss) of the Act.

• Accordingly, first the income/loss from various sources, i.e. eligible and ineligible units, under the same head would be aggregated in accordance with the provisions of Section 70 of the Act.

• Thereafter, the income from one head would be aggregated with the income or loss of the other head in accordance with the provisions of Section 71 of the Act.

• If after giving effect to the provisions of section 70 and 71 of the Act, there is any income (where there is no brought forward loss to be set off in accordance with the provisions of section 72 of the Act), and the same is eligible for deduction in accordance with the provisions of Chapter VI-A or section 10A, 10B etc. of the Act, it shall be allowed in computing the total income of the taxpayer.

• If after aggregation of income, in accordance with the provisions of section 70 and 71 of the Act, the resultant amount is a loss (pertaining to AY 2001-02 and any subsequent year) from the eligible unit, it shall be eligible for carry forward and set-off in accordance with the provisions of section 72 of the Act. Similarly, if there is a loss from an ineligible unit, it shall be carried forward and may be set off against the profits of eligible unit or ineligible unit as the case may be, in accordance with the provisions of section 72 of the Act.

• The provisions of Chapter IV and Chapter VI of the Act shall also apply in computing the income for the purpose of deduction under Section 10AA and 10BA of the Act subject to the conditions specified in these sections.

Circular No.279/Misc./M-116/ 2012-ITJ, dated 16 July 2013 For further details please refer to our Flash News dated 22 July 2013 available at this link

CBDT supersedes recent Rules relating to information required to be furnished on payment made to non-residents Rule 37BB of the Income-tax Rules, 1962 (the Rules) provides the information required to be furnished by a person while making payment to a non-resident. This information is required to be furnished in Form No. 15CA and a certificate from a Chartered Accountant (CA) is required to be obtained in Form No. 15CB. Further, Form No. 15CA shall be furnished electronically to the website designated by the Income-tax department and thereafter a signed copy (in physical form) shall be submitted prior to remitting the amount.

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In August 2013, the Central Board of Direct Taxes (CBDT) had amended Rule 37BB of the Rules to broaden the requirement of collecting information and reporting requirements for all remittances outside India. The Rule also prescribes to provide information in cases where amounts are claimed as not liable to be taxed under the Act.

On 2 September 2013, the CBDT has substituted the earlier Notification which has further revised the scope and the format of reporting of information under Rule 37BB of the Rules. It provides that the person responsible for making any payment including any interest or salary or any other sum chargeable

to tax under the Act shall be required to furnish details in the prescribed forms. However, the information with respect to the payment which is not chargeable to tax has been done away with. The amended Rule has come into force from 1 October 2013.

The key amendments are summarised as follows:

Part A of the revised Form 15CA If the amount of remittance does not exceed INR 50,000 and aggregate of such payments made during the financial year does not exceed INR 250,000 then the same has to be reported in Part A.

Part B of the revised Form 15CA In Part B, the payments other than those covered under Part A, after obtaining a CA Certificate or withholding orders from AO are required to be reported. The contents are covering the details about the Remitter, Recipient, Bank, CA Certificate/withholding orders and expansive information about the remittance and its taxability under the Act as well as the applicable tax treaty.

Procedure Once the remitter furnishes the above information on Government’s website, a signed hard copy of Form 15CA is required to be submitted to the Bank prior to the remittance.

Notification No. 67 of 2013, dated 5 August 2013 For further details please refer to our Flash News dated 6 September 2013 available at this link

CBDT notifies income-tax returns and extends the scope of e-filing The CBDT has widened the scope of e-filing of income-tax returns. The changes are summarised as follows:

The taxpayer is required to file Tax Audit report under Section 44AB, Transfer Pricing report under Section 92E and Minimum Alternate Tax related report under Section 115JB of the Income-tax Act, 1961 (the Act) electronically along with the return of income.

E-filing is mandatory for the taxpayers claiming tax treaty benefit under Section 90 or 90A of the Act. Further e-filing is also mandatory for the taxpayers who claim relief from double taxation under Section 91 of the Act in absence of a tax treaty.

Notification No. 34/2013, dated 1 May 2013

For further details please refer to our Flash News dated 6 May 2013 available at this link

Key amendments to Combination Regulations under the Competition Act 2002 The provisions of Competition Act, 2002 relating to ‘Regulation of Combinations’ have been in force since 1 June 2011. These were subsequently amended with a view to relax certain requirements with regard to filings by corporate entities for combinations that are unlikely to raise adverse competition concerns (Ministry of Corporate Affairs – Press Release dated February 24, 2012) and now the

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Competition Commission of India (CCI) has further amended the Combination Regulations with a view to further simplify the filing requirements and bring about greater certainty in the application of the Act and the Regulations. The Key amendments in the Combination Regulations are as follows:

Exemption from filing notice for creeping acquisition of upto 5 percent in a financial year (upto 50 percent) – In addition to the exemption for initial acquisition of upto 25 percent; the Regulations now do not require a notice to be filed for additional acquisition of shares or voting rights of companies if the acquisition is less than 5 percent of the shares or voting rights of the company in a financial year. Such exemption is applicable where the acquirer already holds more than 25 percent but less than 50 percent of the shares or voting rights of the company (both pre and post acquisition). Acquisition of sole or joint control by the acquirer or its group through such creeping acquisition is however not exempted.

Merger exemption widened from wholly owned entities to entities held more than 50 percent within the Group – To reduce compliance requirements, mergers/amalgamations involving two enterprises where one of the enterprises has more than 50 percent shares or voting rights of the other enterprise would be exempted from filing a notice. Similarly, the requirement of giving notice is also dispensed for merger or amalgamation of enterprises in which more than 50 percent shares or voting rights in each of such enterprises are held by enterprise(s) within the same group. Mergers involving transfer from joint to sole control have however been excluded.

Intra-group acquisition clarified to exclude jointly controlled enterprises – A clarification on the nature of intra-group acquisitions has been given, wherein Item 8 of Schedule I is amended to state that the relaxation would not apply where the acquired enterprise is jointly controlled.

Item 5 and Item 9 of Schedule I are clubbed and provided as one category under Item 5, to have one category of exemption for acquisition of certain current assets like stock-in-trade, raw materials, etc.

Ministry of Corporate Affairs – Press Release dated 4 April 2013 For further details please refer to our Flash News dated 8 April 2013 available at this link

Excise

Valuation Valuation of goods sold at a price below its cost of manufacturing

The review petition filed by the Respondents with respect to the decision of CCE v. Fiat India Private Limited & Others [2012-TIOL-58-SC-CX] was dismissed by the Supreme Court. Hence, in case the goods are sold at a price below the manufacturing cost for a considerably long period of time, the following valuation aspects is required to be considered:

• In case, the goods are consistently sold for a considerably long period (5 years or more) at a price below the manufacturing cost, it may be said that the goods are not ‘ordinarily sold’. Further, in case the goods are sold at a low price to penetrate market, it may be said that ‘price is not the sole consideration’.

• In case the goods are not ‘ordinarily sold’ or ‘price is not the sole consideration’, then the sale price cannot be considered as ‘normal price’ or ‘transaction value’, as the case may be.

• Accordingly, in such cases for the purpose of valuation, one has to resort to the valuation rules. The assessable value determined on the basis of ‘cost of production’ appears to be reasonable, as the

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• Assessable value in such cases cannot be better determined by any other methods prescribed under the valuation rules.

Fiat India Private Limited v. CCE [2012-TIOL-110-SC-CX] Valuation of goods manufactured on job work basis

The taxpayer was engaged in the activity of building a body on the chassis received from the principal manufacturers and was also purchasing some inputs required for this process. The taxpayer availed Credit on the chassis and accessories received from the principal manufactures, and after manufacturing, the finished goods were cleared to the depot/regional sales office of the principal manufacturers on payment of duty under the provisions of Rule 6 of Valuation Rules (i.e. on the basis of processing/ job charges plus cost of goods procured plus cost of materials received from the principal manufacturers plus profit margin).

However, the Central Excise authorities contended that the valuation of goods is required to be done under the provisions of Rule 10A of the Valuation Rules (i.e. on the basis of sales price adopted at the depot of the principal manufacturer).

The taxpayer contended that Rule 10A will be attracted only when the goods are manufactured on behalf of the principal manufacturer. Since the transaction with the principal manufacturer is on a principal to principal basis and the goods are manufactured for the principal manufacturer and not on behalf of the principal manufacturer, the case is not covered under the provisions of Rule 10A. Further, when the job worker contributes his own raw material to the article supplied by the customers and manufactures goods, it does not amount to job work.

The Mumbai Tribunal held that it cannot be said that the expression ‘on behalf of’ used in Rule 10A would indicate that in order to be a job-worker, he has to be a representative of or on behalf of the principal manufacturer to the third party. Accordingly, the value of the goods is required to be determined under Rule 10A and not under Rule 6 of the Central Excise Valuation Rules.

Hyva (India) Private Limited v. CCE [2013-TIOL-166-CESTAT-MUM] CENVAT Credit Manufacture of dutiable and exempted final products out of the common inputs-exercising option for CENVAT Credit In the instant case, the taxpayer manufactured dutiable and exempted final products using common inputs for which CENVAT Credit was availed. With regard to CENVAT credit availment, two options have been laid down under Rule 6(3) of the CENVAT Credit Rules, 2004 viz.

• Option 1 - reversing CENVAT credit availed on the inputs to the extent used in the manufacture of exempted products; or

• Option 2 - pay an amount of 10 percent on the value of exempted products cleared.

Since the relevant data relating to CENVAT credit attributable to the inputs used in the exempted products were not readily available during the beginning of the financial year, the taxpayer paid an amount of 10 percent on the value of exempted goods under Option 2.

However, after being able to collate the required data during the middle of the same financial year, the taxpayer opted for Option 1 i.e. reversing CENVAT credit on the inputs to the extent used in the manufacture of the exempted products. However, the Central Excise authorities raised an objection to the proposed change in the option by contending that during the financial year, the option selected cannot be changed.

The Kolkata Tribunal held that mere discharging 10 percent of the price of the exempted goods due to

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non-availability of data at the beginning of the financial year, would not disentitle the taxpayer in exercising their option of reversing the CENVAT credit relating to inputs to the extent used in the exempted products, later during the same financial year.

TATA Steel Limited v. CCE [2013-TIOL-1287-CESTAT-KOL]

Customs

SAD Refund SAD refund may be claimed, even if the goods are processed after its importation, in case the identity of goods imported and subsequently sold can be established

Under Notification No. 102/2007-CUS dated 14 September 2007, the goods imported into India for subsequent sale are exempted from whole of the SAD levied under Section 3(5) of the Customs Tariff Act. The exemption is given by way of refund after the importer sells the goods in India on payment of applicable VAT/CST.

The taxpayer imported the coils and undertook the activity of cutting and slitting of the coils before they were sold. The taxpayer claimed refund of SAD paid, under the aforesaid Notification. The customs authorities rejected the refund claim on the ground that, the taxpayer had undertaken further work / processing of the imported goods before the goods were sold and the imported goods have completely lost their identity and co-relation between the goods imported and the goods sold cannot be established. Further, there is a change in the tariff heading after the said processing.

The Ahmedabad Tribunal held that just because after cutting and slitting the tariff heading changes, it cannot be said that the products do not remain the same. Also, the domestic manufacturer-importer can take CENVAT credit of SAD, whereas the importer who sells the goods as such does not get the benefit of credit and therefore is given refund. On this ground also, the taxpayer is eligible for the SAD refund.

Posco India Delhi Steel Processing Limited v. Comm. of Customs [2012-TIOL-1769-CESTAT-AHM] Valuation License fee/royalty paid to the licensor becomes a condition of sale and, therefore the amount is includable in the value of goods imported The taxpayer, engaged in the business of importing and selling of DVDs, entered into a licensing agreement with the licensor by which the taxpayer acquired a license/right to import and sell/distribute DVDs in respect of which the licensor held the copyright. Under the agreement, the taxpayer was given the right to import / procure DVDs from vendors (replicators) for the purpose of distribution / re-sale in India, as the licensor may from time to time designate. In consideration of the right granted to the taxpayer to distribute / re-sell the DVDs in India, the taxpayer was required to pay a license fee to the licensor and royalties upon the sale of the DVDs in India. Thus, there were two sets of transactions, first with the licensor under the license agreement and second with the replicators by means of purchase orders. The taxpayer paid customs duty on the value of CDs without including the amount of license fee / royalties paid to the licensor. The customs authorities demanded duty by way of adding the license fee / royalties paid to the licensor in the value of the CDs imported.

The Mumbai Tribunal held that the value for the purpose of levy of Customs duty is not only the cost of media but also the cost of matter contained in the media, that is, the content of the media. Since a replicated CD contains the artistic / intellectual inputs, its cost has to be considered while charging Customs duty. It is not the case that the cost of the contents has already been included in the value charged by the replicator. If that was so, there would be no need for separate payment of license fee/royalties to the Licensor. Therefore, the taxpayer is required to add the value of the license

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fee/royalties paid to the licensor for the purpose of payment of Customs duty.

Commissioner of Customs v. Excel Productions Audio Visuals Private Limited [2013-TIOL-647-CESTAT-MUM]

Service Tax

Valuation Reimbursement of expenses cannot be made liable to Service tax

The Delhi High Court considered the issue relating to validity of Rule 5(1) of the Service tax (Determination of Value) Rules, 2006 (Valuation Rules). In terms of this Rule, Service tax was levied on reimbursements.

It was held that in terms of Section 67 of the Service tax law, Service tax can be levied only on gross amount charged for services. Reimbursements are not part of gross amount charged for services and thus, Rule 5(1) of the Valuation Rules is ultra vires the Service tax law.

Intercontinental Consultants and Technorats Pvt. Ltd v. Union of India & ANR [2012-TIOL-966-HC-Del-ST] Service tax not leviable on cost material supplied free by service recipient to construction service provider In the instant case, the issue was whether the materials supplied free of cost (‘free supplies’) by the service recipient to the construction service provider should be considered as part of taxable value, to be eligible to claim the benefit of Notification No 18/2005-ST (‘abatement notification’, in terms of which Service tax was payable on 33 percent of contract value).

The Larger bench of the Delhi Tribunal held that the following essential elements should be present to include the value of the goods and materials supplied/provided/used by the service provider for determining the taxable value of a service:

• The goods should belong to the service provider;

• The service provider should have been charged towards value of such goods;

• The service provider should have accrued some benefit/profit by use of the goods.

The Delhi Tribunal held that in the absence of the above elements in the given case, the free supplies would not be includible in gross amount charged within the meaning of Section 67 of the Finance Act, 1994 and Notification No. 18/2005- ST and therefore, not liable to Service tax.

Bhayana Builders (P) Ltd v. CST [AIT-2013-155-CESTAT] Service tax abatement available on construction activities amended The Central Government issued a Notification amending the Service tax abatement percentage available on construction activities of a complex, building, civil structure or a part thereof. The abatement of 75 percent has now been restricted to the residential unit, which satisfies both of the following conditions:

i. The carpet area of the unit is less than 2,000 square feet; and

ii. The amount charged for the unit is less than INR 10 million

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The abatement percentage available for units not satisfying the aforesaid conditions remains unchanged at 70 percent. Prior to issuance of this notification, the abatement of 75 percent was available to residential units where the carpet area of the unit is less than 2000 square feet or amount charged is less than INR 10 million.

Notification No. 9/2013-ST, dated 8 May 2013 Export Service recipient would be the contractual recipient and not the third party to whom the service is rendered The taxpayer was a telecom service provider. The issue before the Mumbai Tribunal was whether telecom services provided by the taxpayer to international in-bound roamers (a third party) located in India, who are the subscribers of foreign telecom operators, would qualify as an export in terms of the Export of Service Rules, 2005 (Export Rules).

The Mumbai Tribunal observed that the contract for supply of service was between foreign telecom operators (contractual recipient) and the taxpayer and there was no contract between the taxpayer and a third party. The consideration for services rendered by the taxpayer was also being paid by the foreign telecom operators, as benefit of service accrued to them who would in turn bill their subscribers.

The Mumbai Tribunal, relying on its own decision in the case of Paul Merchants Ltd. vs. CCE Chandigarh (2012-TIOL-1877-CESTATDel), held that the service recipient in this case is a foreign telecom operator being the contractual recipient and not the third party roaming in India, and accordingly, services rendered by the taxpayer would qualify as export.

Vodafone Essar Cellular Ltd. v. CCE (2013-TIOL-566-CESTAT-MUM) For further details please refer to our Flash News dated 12 April 2013 available at this link

Levy of Service tax Statutory liability v. contractual liability to bear Service tax

In the instant case, the issue was whether liability to bear Service tax should be as per the legislative provision or as per contractual obligations between the parties to a contract. As per the terms of contract, the taxes and duties were to be borne by the respondent (viz. service provider) and accordingly, the appellant (viz. service recipient), who was liable to deposit Service tax with the Government (under ‘reverse charge mechanism’), deducted tax from the bills of the respondent thereby remitted the net amount to the service provider.

The Supreme Court commented that liability to bear the tax can be decided basis contractual arrangement and accordingly, held that the appellant was well within his rights for deducting Service tax from the bills of the respondent given the contractual arrangement.

Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran [2012-TIOL-37-SC-ST] Services provided by ‘Club’ or ‘Association’ is liable to Service tax In the instant case, the issue was whether service tax will be levied on services provided by ‘Club’ or Association’ or body of persons for a subscription or any other amount, to its members. It was contended by the petitioner club that, a members club, though provides services, facilities or advantages, but since members are collectively the club, the members themselves are providing services to them and, accordingly, there cannot be any concept of service tax leviable. The petitioner contested on the strength of judgement of The Honourable Supreme Court in the case of Joint Commercial Officer Harbour

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Division II, Madras versus Young Men’s Association, Madras and others. In this decision, the Court held that a members’ club is an agent of the members, and so the supply of preparations by a club to its members would not amount to a sale, as it would not involve transfer of property.

The High Court held that in this case, the issue involved is on service, facilities and advantages and not sale of goods. In the absence of definition of services, facilities or advantages in the Act, one is required to take the grammatical meaning of those words. It cannot be contended that an agent cannot provide services or facilities or advantages as known in the common parlance to its principle. Therefore, the High Court rejected the contention of the writ petitioner that the petitioner is incapable of providing services or facilities or advantages to its members.

Dehradun Club Ltd. v. UOI and others (W.P. No. 873 of 2008, Uttarakhand High Court) Revenue sharing between film distributors and exhibitors is a joint venture subject to Service tax In the instant case, the issue was whether Circular No. 148/17/2011-ST dated 13 December 2011 which clarified the levy of Service tax on transactions relating to film distributors/sub-distributors/exhibitors is valid in law or not.

The Madras High Court held that the Central Board for Excise and Customs (CBEC) is justified in issuing the Circular which states that the transactions between the distributor/sub-distributor and owners of the theatres shall attract Service tax levy and hence, such transactions do not violate the Service tax provisions. The High Court also held that the types of arrangements referred in the Circular are only illustrative and therefore, the observations contained in the Circular should be seen as a sample arrangement (as the Circular clearly mentions that the nature of the transaction is a determinative factor and a decision on each type of transaction would be taken on a case to case basis).

Further, the High Court held that variants of the transactions (which are contemplated in the Circular) between distributors/ sub-distributors of films and exhibitors of movie (including revenue sharing arrangements) are neither covered under the Negative List nor exempted under the Mega-Exemption notification as per the new Service tax law which is effective from 1 July 2012.

Mediaone Global Entertainment Ltd v. Chief Commissioner of Central Excise [2013-TIOL-516-HC-MADST] Kerala High Court holds the levy of Service tax on air-conditioned restaurants and hotels as invalid and unconstitutional In the instant case, the issue was whether levy of Service tax on restaurants and hotels (under the taxable categories of ‘Services by air-conditioned restaurants having license to serve liquor’ and ‘Hotel accommodation services’) is within the legislative powers of the Central Government.

The Kerala High Court held that in terms of Article 366(29A) of the Constitution of India, the State Governments alone are empowered to impose tax on the supply of any goods by way of or as part of any service. Accordingly, the Central Government does not have legislative competence to impose Service tax separately on the component of service involved in the supply of food or alcoholic beverages by air-conditioned restaurants having a license to serve liquor. Hence, it is invalid and unconstitutional.

The Court further held that the levy of Service tax on hotels by the Central Government encroaches upon legislative functions of the State Government, who are empowered to levy Luxury Tax on hotels, inns, guest houses, etc. in terms of the Constitution of India.

Kerala Classified Hotels and Resorts Association and Others v. Union of India and Others (2013-TIOL-533-HC-KERALA-ST)

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Circular pertaining to restaurant services With respect to services provided by restaurants, CBEC has clarified as follows:

• In a complex, if there is more than one restaurant, which are clearly demarcated and separately named, but food is sourced from a common kitchen, only the services provided in the air-conditioned restaurant will be liable to service tax and the services provided in a non air-conditioned restaurant will not be liable to service tax and will be treated as exempt service.

• In a hotel, if services are provided by a specified restaurant in other areas for example swimming pool or an open area attached to the restaurant, the same would also be liable to Service tax.

• If goods are sold on MRP basis, its value has to be excluded from the total amount for the purpose of determining the value of the service portion.

Circular No. 173/8/2013-ST, dated 7 October 2013

Exemption to services provided in relation to serving of food or beverages by a canteen maintained in factory From April 2013, services provided by any air-conditioned restaurant, eating joint or a mess including services provided by air-conditioned canteens in factory or office attracted Service tax.

Now, the Government has exempted Service tax, on services provided in relation to serving of food or beverages by a canteen maintained in a factory (as defined under the Factories Act, 1948) having the facility of air-conditioning or central air-heating at any time during the year.

Notification No. 14/2013-ST, dated 22 October 2013

Foreign Trade Policy

Annual supplement to foreign trade policy The Annual Supplement (the Supplement) to Foreign Trade Policy 2009-14 (the FTP) has been released on 18 April 2013 by the Government of India. Highlights of the Supplement are summarised below.

Amendments in existing schemes Export Promotion of Capital Goods (EPCG)

• Zero duty EPCG Scheme and 3 percent EPCG Scheme harmonized into ‘Zero Duty EPCG Scheme’ covering all sectors.

• Benefit of this scheme extended to exporters availing benefit under Technology Upgradation Fund Scheme (TUFS).

• Import of motor cars, Sport Utility Vehicles (SUVs), all purpose vehicles for hotels, travel agents, or tour transport operators and companies owning/ operating golf resorts not allowed under the new Scheme.

• Benefit of reduced Export Obligation (EO) (25 percent of the normal EO) extended to exporters located in Jammu and Kashmir.

• In order to promote domestic manufacturing of capital goods, quantum of specific EO in case of domestic sourcing of capital goods reduced by 10 percent.

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Served from India Scheme (SFIS)

• Entitlement now to be computed on the basis of net free foreign exchange earned, i.e., foreign exchange earned less foreign exchange spent during the financial year.

• Service exporters also engaged in manufacturing activities can use the scrips for import/ indigenous procurement of capital goods and spares required for manufacturing.

• Import of motor cars, SUVs, all purpose vehicles for hotels, travel agents, or tour transport operators and companies owning/ operating golf resorts is allowed provided such vehicles are registered for ‘tourist purpose’ only.

Vishesh Krishi Gram Udyog Yojna (VKGUY) Scheme

• Benefit under VKGUY scheme was available at the rate of 5 percent. However, the benefit was restricted to 3 percent on availing drawback at the rate higher than 1 percent. The above restriction has now been dispensed with.

SEZ Scheme

• Minimum Land Area Requirement has been reduced by half as under:

- For multi-product SEZ : from 1000 hectares to 500 hectares

- For sector-specific SEZ : from 100 hectares to 50 hectares

• Minimum land area requirement of 10 hectares for IT/ ITeS SEZ has been dispensed with.

• Introduction of Graded Scale for Minimum Land Criteria introduced which will permit a SEZ, additional sector for each contiguous 50 hectare parcel of land.

• Additions to pre-existing structures after notification of SEZ now eligible for duty benefits.

• Minimum built up area requirement has been relaxed with a requirement of 100,000 square meters to be applicable to Delhi (NCR), Mumbai, Chennai, Hyderabad, Bangalore, Pune and Kolkata. For Category B cities, requirement is 50,000 square meters and for remaining cities only 25,000 square meters.

Miscellaneous

• Market Linked Focus Products Scheme (MLFPS) further extended upto 31 March 2014 for exports to USA and European Union for textile products. Further, the scheme is expanded to include 47 new items and two new countries.

• Focus Product Scheme (FPS) is expanded to include 126 new products and Focus Market Scheme (FMS) and Special FMS have been expanded to include Norway and Venezuela respectively.

• Duty credit scrips under FMS, FPS and VKGUY Scheme now can be used for payment of:

− Service tax

− Application fee for obtaining any authorisation (benefit is limited to original scrip holder only)

− Composition fee and value shortfalls in EO

• Amnesty scheme was introduced for closure of cases of default in export obligation pertaining to advance authorisations and EPCG authorizations on payment of required duty along with applicable interest. The total payment not to exceed two times the duty saved on default in export obligation.

• Status Holder Incentive Scheme (SHIS) is not available for 2013-14. However, limited transferability of scrip is allowed within group companies engaged in manufacturer.

• Utilisation of re-credited 4 percent Additional Duty of Customs (ADC) is allowed up to 30 September 2013.

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• Facility of work from home extended to Software Technology Park unit, IT related Export Oriented unit, Electronic Hardware Technology Park unit, Bio Technology Park unit.

Introduction of new Export Scheme Introduction of scheme to incentivise incremental exports With an objective to incentivize incremental exports, a scheme was launched, whereunder an IEC holder would be entitled to duty credit scrip at the rate of 2 percent on the incremental growth during the period 1 January 2013 to 31 March 2013 compared to the period from 1 January 2012 to 31 March 2012 on the FOB value of exports. The benefit under this scheme will not be allowed to an exporter who had made no exports between 01 Jan 2012 to 31 Mar 2012. The scheme is region specific and will cover exports to USA, Europe and Asian countries only. The duty credit scrip will be freely transferable. Such scrips shall also be eligible for domestic sourcing. This benefit will be over and above any benefit being claimed by the exporter under any of the Chapter 3 Schemes. The following exports shall not be taken into account for calculation of export performance under the scheme:

• Export of imported goods or exports made through transhipment

• Export from SEZ/EOU/EHTP/STPI/BTP/FTWZ

• Deemed exports

• Service exports

• Third party exports

• Export performance made by one exporter on behalf of

• Supplies made to SEZ units

• Items, export of which requires an export authorization (except SCOMET)

• Other specified goods

Notification No. 27/(RE – 2012)/2009-2014 dated 28 Dec 2012 read with Public Notice No. 41/(RE-2012)/2009-2014 dated 28 Dec 2012 The Incremental Exports Incentivisation Scheme has been notified The Government has introduced the Incremental Exports Incentivisation Scheme (IEIS), with the objective of incentivising the incremental exports. An exporter would be entitled for duty credit scrip at the rate of 2 percent on the incremental growth during the current year compared to the previous year. However, a certain category of exports will not be taken into account for calculation of the export performance, which includes:

• Export from SEZ/EOU/EHTP/STPI/BTP/FTWZ;

• Service Exports;

• Supplies made to SEZ units

The scheme is region specific and will cover exports to USA, Europe, Asian countries and 53 countries in Latin America and Africa. This benefit will be over and above any benefit being claimed by the exporter under any of the ‘Chapter 3’ Schemes. The duty credit scrip will be freely transferable. Such scrips shall also be eligible for domestic sourcing and for payment of Service Tax.

Notification No. 3/(RE-2013)/ 2009-2014 dated 18 April 2013

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SEZ Revamp of Special Economic Zone exemptions under Service tax The GoI has issued a Notification relating to Service tax exemptions available to a unit located in Special Economic Zone (SEZ) or SEZ developer, superseding the erstwhile Notification No. 40/2012-ST, dated 20 June 2012.

The said Notification grants up-front exemption of Service tax levied on specified services received by a SEZ unit or SEZ developer, which are used exclusively for the authorized operations (earlier the condition for claiming up-front exemption was that the services should have been wholly consumed within the SEZ in terms of the Place of Provision of Services Rules, 2012). For the rest of the services, exemption by way of refund of Service tax paid would continue to be available.

The Notification further provides that Service tax pertaining to common services used for authorized operations as well as domestic tariff area (DTA) operations shall be distributed as per the provisions relating to Input Service Distributor. Certain additional procedural requirements such as obtaining Service tax registration, furnishing specified details in quarterly statement, etc. have also been mandated vide this notification.

Notification No. 12/2013-ST, dated 1 July 2013 For further details please refer to our Flash News dated 8 July 2013 available at this link

VAT

Composition Scheme Composition scheme is not ultra vires in imposing a condition to the effect that it shall cover all agreements registered after 1 April 2010

A Notification was issued by the State Government on 9 July 2010 providing composition scheme for registered dealers who undertake the construction of flats, dwellings, buildings or premises and transfer them in pursuance of an agreement along with land or interest underlying the land. The composition amount was 1 percent of the amount specified in the agreement or of the value specified for the purpose

of stamp duty in respect to the agreement under the Bombay Stamp Act, 1958 which is higher. The notification was applicable for all agreements entered on or after 1 April 2010.

Against the said notification, a writ petition was filed seeking that the composition scheme should be extended with effect from 20 June 2006 since the application of the same with effect from 1 April 2010 is discriminatory and violative of Article 14 of the Constitution.

The Bombay High Court held that a scheme of composition essentially seeks to provide an option under which a registered dealer can pay a composition amount in discharge of tax liability. A scheme of composition is, therefore, in nature of concession granted to specified class of dealers who fulfill the conditions spelt out in the scheme. It would not be proper for the court to strike down the provision by which the option of composition has been given to agreements which were registered after 1 April 2010. The date of 1 April 2010 which has been prescribed for composition is not an act of inadvertence on the part of the delegate of the legislature. In framing a scheme of composition it is open to the legislature and its delegate to determine a cut-off date with effect from which an option of composition is available. The composition scheme is not ultra vires in imposing a condition to the effect that is shall cover all agreements registered after 1 April 2010.

Builders Association of India v. State of Maharashtra and Others, Maharashtra Chamber of Housing and Industry and Others v. State of Maharashtra and Others [2012] 55 VST 504 (Bom)

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Levy of VAT Provision of access to Passive Infrastructure facility to mobile telecom operators for operation of their active infrastructure is not a transfer of right to use but merely a license to access The petitioner dealer owned telecommunication sites, infrastructure and equipment which it provided to telecommunication service providers through a master services agreements and charged passive infrastructure fee for site access availability i.e. access granted to the telecom operators to the passive infrastructure, owned and possessed by the dealer. The dealer was assessed under the Finance Act, 1994 and accordingly paid service tax. A notice was issued to the dealer to reassess the tax liability on the consideration received from the telecom operators based on the grounds that the same is a deemed sale.

Allowing the appeal, the Karnataka High Court held that the MSA was an agreement to share equipment and such sharing was by way of permission and not by way of transfer. Possession of the site was not handed over to the mobile operator; they were only given permission to keep its equipment. The right, title and interest in and to the passive infrastructure including any enhancements carried out by the dealer was vested with the dealer. Therefore, the intention of the parties was not to transfer at any point of time, any right, title or interest in the infrastructure to the mobile operator under the terms of the contract. The dealer retained the right to lease, license, the passive infrastructure to any advertising agency, the only limitation being that the advertising act should not hinder the right of the mobile operator to have uninterrupted access of the infrastructure. The entire infrastructure was in the physical control and possession of the dealer at all times and there was neither physical transfer of such goods nor transfer of right to use such equipment or apparatus. The right conferred on the mobile operator was a permission to have access to the passive infrastructure in the site belonging to the dealer, to mount the antennae on the tower erected by the dealer and to have benefit of a particular temperature so as to operate the equipment belonging to the mobile operator. No sale of goods or transfer was involved in the transaction and it cannot be treated as deemed sale leviable to VAT. It was also held that providing access does not amount to right to use goods.

Indus Towers Ltd. v. Deputy Commissioner of Commercial Taxes [2012) 56 VST 369 (Kar)

Franchise services are liable to service tax. VAT cannot be demanded on the same transaction considering it as the ‘right to use trade mark’ The taxpayer is engaged in marketing, trading, export and import of jewellery, gold ornaments, diamonds, etc. under the name of Malabar Gold (‘the company’). The taxpayer had entered into a Franchisee Agreement with various franchisees for use of trademark and received royalty of 10 percent of net profit on monthly basis. The company is registered under the taxable service category of Franchisee Services and discharged required Service tax on the royalty.

The VAT officer alleged that the company was liable to discharge VAT on the royalty amount received from the franchisee for use of trademark, as the franchise was specifically covered under Third Schedule of the Kerala VAT law and also the franchise agreement did not contain any service element. The company contended that the transaction is merely a license to use a trademark as the franchisee has no legal right to use the same to the exclusion of the franchisor.

It was held by the Kerala High Court that the rights of the Franchisee are limited and they do not have effective control of the trademark. The agreement states that the company is providing various services, including feasibility studies for the showroom, project plan for setting up the showroom, selection of site, design of interiors. Further, the franchisee has no right to sublet, sub-lease, or in any way sell, transfer, discharge or distribute or delegate or assign the rights under the agreement in favour of any third party. Hence, VAT cannot be demanded on such transactions.

Malabar Gold Private Limited v. Commercial Tax Officer (2013-TIOL-512-HC-KERALA-ST)]

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Any agreement entered into by the builder / promoter before the completion of construction tantamounts to works contract and hence, liable to Value Added Tax (VAT) / sales tax. In the case of K Raheja Development Corporation v. State of Karnataka; (2005) 5 SCC 162 (the Raheja case), it was held by Supreme Court (two-judge bench) that any agreement entered into by the builder / promoter before the completion of construction tantamounts to works contract and hence, liable to Value Added Tax (VAT) / sales tax. However, the correctness of the view taken in the said Raheja case was doubted by the Supreme Court in the case of Larsen & Toubro case (L& T case) and accordingly, it was referred for re-consideration to the Larger bench.

The petitioners argued that the activity of construction undertaken by the promoter/developer cannot be said to be works contract for the following reasons:

• The developer does not undertake construction at the behest of the flat purchaser since on various occasions the flat is being constructed without any pre-booking of the same;

• The primary intention of the agreement between the developer and the flat purchaser is sale of the flat and not to appoint the developer as the contractor of the flat purchaser;

• The flat purchaser does not have any role in conceptualizing the project of construction nor in the designing and lay-out of the building to be constructed. Also, the flat purchaser does not have any control over the quality and standard of the materials to be used in the construction of the building. He does not have any right to monitor or supervise the construction activity;

• The ownership in the material used in the construction remains with the promoter/developer and the said ownership passes to the flat purchaser only on the eventual conveyance of the flat;

• The accretion to the goods happens in the hands of the promoter/developer and not when the flat is conveyed to the flat purchaser; and

• The construction linked payment schedule is nothing but a method of payment in installments.

The Apex Court (Larger bench) held that when an agreement is entered into between the promoter/developer and the flat purchaser to construct a flat and eventually sell the flat with the fraction of land, it is obvious that such transaction involves the activity of construction in as much as it is only when the flat is constructed then it can be conveyed. The said activity will be covered by the term ‘works contract’. The term ‘works contract’ is nothing but a contract in which one of the parties is obliged to undertake or to execute works. The term encompasses a wide range and many varieties of contracts. Thus, even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract. Once the characteristics or elements of works contract are satisfied in a contract then irrespective of additional obligations, such contract would be covered by the term ‘works contract’.

For execution of a works contract, the following three conditions must be fulfilled:

- there must be a works contract;

- the goods should have been involved in the execution of a works contract; and

- the property in those goods must be transferred to a third party either as goods or in some other form. Goods which have by incorporation become part of immovable property are deemed as goods.

The dominant nature test has no application. Even if the dominant intention of the contract is not to transfer the property in goods and rather it is the rendering of service or if the ultimate transaction is transfer of immovable property, then also it is open to the States to levy sales tax on the materials used in such contract if such contract otherwise has elements of works contract.

In tripartite agreement between the owner of the land, the developer and the flat purchaser, there is nothing wrong if the transaction is treated as a composite contract comprising of both a works contract

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and a transfer of immovable property and levy sales tax on the value of the material involved in execution of the works contract. If the developer has undertaken to build for the prospective purchaser, then to that extent, the contract is works contract and there is deemed sale of material (goods) used in the construction of building and merely because the builder has a right of lien in the event due monies are not paid, it does not alter the character of the contract being works contract.

The activity of construction undertaken by the developer would be works contract only from the stage the developer enters into a contract with the flat purchaser. The value addition made to the goods transferred, after the agreement is entered into with the flat purchaser, can only be made chargeable to tax by the State Government. Taxing the sale of goods element in a works contract is permissible even after incorporation of goods provided tax is directed to the value of goods at the time of incorporation and does not purport to tax the transfer of immovable property.

Larsen & Toubro Limited & Anr. v. State of Karnataka & Anr (Civil Appeal No. 8672 of 2013) For further details please refer to our Flash News dated 27 September 2013 available at this link

Notifications / Circulars Maharashtra New Rule 55B has been inserted with retrospective effect from 15 October 2011 to allow set-off to the developers of SEZ and to units therein. As per the said rule, the restrictions under Rule 53(6) and Rule 54(g) and (h) will not be applicable to developers and units in the processing area of SEZ. Accordingly, SEZ developers and units therein are entitled to claim set-off with retrospective effect on various procurements relating to immovable property, material used in the construction/erection of immovable property, capital assets and other miscellaneous purchases.

Notification No. VAT 1512/CR 115/taxation-l, dated 16 May 2013

Introduction of Local Body Tax Local Body Tax (LBT) is a tax on entry of goods within municipal limits and introduced in lieu of Octroi. LBT was already operational in few cities like Nanded, Aurangabad, Kolhapur and Jalgaon. From 1 April 2013, LBT was introduced in all other Municipal Areas (other than Mumbai), which includes Pune, Pimpri-Chinchwad, Thane, New Mumbai, Nagpur, etc. LBT was announced to be introduced in Mumbai on 1 October 2013, which was subsequently differed.

For further details please refer to our Flash News dated 27 May 2013 available at this link

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

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