TaxSum Newsletter- May 2011

1

DIRECT TAXES Judicial pronouncements

SN K

Issue 05 May , 2011

Newsletter Website : www.snkca.com Email: [email protected]

� DIRECT TAXES …... 1 - 9

� OTHER LAWS ………... 13 -16

� IMPORTANT DUE DATES… 16

� INDIRECT TAXES ……. 9 - 13

Dl. V. Raghuvanshi Charitable Trust [(197 Taxman 170)

(Delhi)]

Trust can be allowed to carry forward the deficit of current

year and to set off against the income of subsequent years.

Adjustment of deficit of current year against income of sub-

sequent year would amount to application of income of trust

for charitable purposes in subsequent year within the mean-

ing of Sec. 11(1)(a).

CIT vs. Gujarat Power Corporation Ltd. (Gujarat High

Court) (2011-TIOL-219-HC-AHM-IT)

Disallowance u/s 14A is invalid when the assessee has

shown that there is no nexus between borrowed funds

and tax free investment.

The assessee borrowed Rs. 3.83 crores on which it paid

interest of Rs. 17.31 lakhs. As the assessee had made in-

vestments in tax-free bonds, the AO held that the entire in-

terest paid on the borrowings had to be disallowed u/s 14A

on the basis that the assessee had arranged its affairs so as

to reduce the tax liability. If the assessee had not invested its

own fund for earning tax-free income, it would not have re-

quired to borrow interest bearing funds for its business and

so there was a nexus between the borrowed funds and the

tax free income. This was reversed by the CIT (A) and Tribu-

nal on the basis that the assessee was justified in arranging

its affairs so as to reduce the tax liability and that it was the

prerogative of the assessee to use its own fund in the man-

ner in which it considers proper and the Revenue cannot

dictate how the funds should be used. On appeal by the de-

partment to the High Court, HELD dismissing the appeal:

The assessee has sufficiently explained that a majority of

the investment in the tax-free security was made before the

borrowing. The assessee had demonstrated that it had other

sources of investment and that no part of the borrowed fund

could be stated to have been diverted to earn tax free in-

come. As borrowed funds were not used for earning tax-free

income, applying s. 14A was not justified.

DCIT vs. M/s. Hewlett Packard India Sales P Ltd . (2011

TOIL-224 (ITAT) Bang)

Purchased Goodwill is eligible for depreciation u/s 32(1)(ii).

The true basis of depreciation allowance is the character of

the asset and not its description.

CIT v. Neelakanth Synthetics and Chemicals P. Ltd. [330

ITR 463 (Bom.)]

Interest on loans borrowed to settle liability of sister

concern to retain business premises of assessee is al-

lowable business expenditure

The assessee company had taken a business premises on

lease from its sister concern for a period of 12 years on a

lease rent of Rs. 20,000 per month.

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SNK DIRECT TAXES

Judicial pronouncements

The assessee company had sub-

leased the said business premises to a

bank for Rs. 2,26,800 per month, inclu-

sive of water charges and taxes. The

said business premise was offered as

collateral security for raising finance

from the bank by a sister concern. Due

to heavy losses incurred, the sister

concern could not repay that loan and

accordingly the premises was liable to

be disposed off by the bank for realiza-

tion of the loan amount. In such cir-

cumstances a settlement was reached

between the assessee company and

the bank whereby a loan was ad-

vanced by the bank in the name of the

assessee company and the same was

used to settle the liability of the sister

concern. The assessee did not charge

any interest from its sister concern. For

the A.Y.1997-98, the Assessing Officer

disallowed the amount of interest on

the said loan on the ground that the

said loan was not utilized for the pur-

poses of the business of the assessee

company. The Tribunal allowed the

assessee’s claim.

On appeal by the Revenue, the Bom-

bay High Court upheld the decision of

the Tribunal and held as under:

(i) Both the authorities below concur-

rently proceeded on the footing that

any expenditure incurred for protecting

the business asset held by an as-

sessee for its business or any expendi-

ture incurred for the protection and

maintenance of business premises

would be an allowable expenditure. It

was only to retain the business prem-

ises that the assessee had to borrow

the funds from the bank and as such,

interest payable on the borrowing for

retaining the premises would be an

allowable deduction u/s.36(1)(iii) of the

Income tax Act, 1961, because the

loan was used for the purpose of re-

taining the business premises which

was necessary to carry on the busi-

ness activities of the assessee.

(ii) The Assessing Officer accepted

the income received by the assessee

from the leased premises as rental

income and assessed it as income

from other sources. In such circum-

stances, the finding was that in order

to safeguard the interest of the lease

premises and also to bail out its sister

concern, the loan was obtained from

the bank. The findings were reason-

able and could not be said to be per-

verse.

CIT v. Rockman Cycle Industries (P)

Ltd. [(2011) 331 ITR 401 (P & H) (FB)]

AO can lift veil & determine legal

effect but cannot ignore legal effect

on ground of “substance”

The AO or the appellate authorities

and even the Courts can determine the

true legal relation resulting from a

transaction. If some device has been

used by the assessee to conceal true

nature of the transaction, it is the duty

of the taxing authority to unravel the

device and determine its true charac-

ter. However, the legal effect of the

transaction cannot be displaced by

probing into the "substance of the

transaction". The taxing authority must

not look at the matter from their own

viewpoint but that of a prudent busi-

nessman. Each case will depend on its

own facts. The exercise of jurisdiction

cannot be stretched to hold a roving

enquiry or deep probe.

Vinod K Nevatia (2011-TIOL-65-

ITAT-MUM)

While making the assessment, the AO

made disallowance u/s 40(a)(ia) for

non-deduction of tax on payment

made to NSE for lease line charges,

VSAT charges and transaction

charges.

AO stated that the services rendered

by the stock exchange are technical in

nature and therefore section 194J is

applicable.

In appeal, CIT (A) deleted the addition

applying the decision of Kotak Securi-

ties Private Limited and Angel Broking

observing that transaction fees paid to

the stock exchange could not be said

to be fees paid in consideration of

stock exchange rendering any techni-

cal services to the assessee. There-

fore, provisions of section 9(1)(vii) and

section 40(a)(ia) are not applicable.

CIT v. Siya Ram Garg (HUF) [237

CTR 321 (P&H)]

Disallowance u/s. 40A(2) of the In-

come Tax Act, 1961 on the ground that

the assessee paid higher rate to its

sister concerns is not warranted/

Justified if the said sister concerns are

paying tax at the same rate as the as-

sessee.

Praveen Gupta v. ACIT (ITAT, New

Delhi)( ITA No. 2558/Del./2010

The year of acquisition should be

the year when the assessee entered

into agreement to purchase the flat

and not the year when the convey-

ance deed was executed for calcu-

lating indexed cost of acquisition.

According to the Tribunal, the as-

sessee by entering into an agreement

to purchase a flat had identified a par-

ticular property which he was intending

to buy from the builder and the builder

was also bound to provide the appli-

cant with that property. According to

Tribunal, the assessee had acquired

right to get a particular flat from the

builder and that right itself was capital

asset of the assessee. Therefore, it

held that the benefit of indexation had

to be granted to the assessee from the

date he entered into agreement to pur-

chase the flat.

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SNK DIRECT TAXES


Parbodh Investment & Trading

Company Pvt. Ltd. v. ITO (ITAT,

Mumbai)(ITA No. 6557/Mum./2008)

Capital Gains arising on transfer of

a capital asset (Flat) on which de-

preciation was allowed for two

years but thereafter the assessee

stopped claiming deprecation and

also gave the flat on rent is charge-

able as long term capital gains after

allowing the benefit of indexation.

The Tribunal held that the moment the

assessee stopped claiming depreca-

tion in respect of the flat and even let

out the same for rent, it ceased to be a

business asset. It noted that the princi-

ple of the order, dated 31.01.2007 of

the Mumbai bench of ITAT in case of

glaxo Laboratories (I) Ltd., though laid

down in a different context, would sup-

port the assessee in the sense that it is

possible for a business asset to

change its character into that of a fixed

asset or investment. The Tribunal di-

rected that the capital gains be as-

sessed as long term capital gain after

allowing the benefit of cost indexation

as claimed by the assessee.

Vipul A. Shah v. ACIT [(ITA No 3190/

Mum/2010) Mumbai ITAT, dated 8

April 2011]

The provisions of section 48 to 55 of

the Income-tax Act (“ITA”) refer to the

mode of computation of capital gains.

The provisions of section 70(3) of the

ITA refers to setting of long term capi-

tal loss against the long term capital

gains arrived at under a similar compu-

tation. The Tribunal observed that the

above provisions relating to set off of

long term capital loss against the long

term capital gains existed much prior

to the mode of computation of capital

gain without applying the benefit of

indexation.

A plain reading of the provisions of

section 70(3) of the ITA shows that the

first part of the provision refers to a

loss as computed under sections 48 to

55 of the ITA in respect of any capital

asset.

The second part of the provisions of

section 70(3) of the ITA refers to in-

come if any as arrived at under “similar

computation”. Thus, the second part

refers only to the mode of computation

under sections 48 to 55 of the ITA and

that would be the correct interpretation.

It cannot be said that the second part

of the provisions by using the expres-

sion “similar computation”, refers to a

similar computation under either the

second proviso to section 48 relating to

indexed capital gains or proviso to sec-

tion 112(1) relating to non-indexed

capital gains.

The Tribunal accordingly held that in-

dexed long term capital loss can be set

off against non-indexed long term capi-

tal gains.

Richter Holding Ltd. Vs. ADIT

(Karnataka High Court)

Corporate Veil can be lifted to tax

sale of Foreign Co shares by one

Non-Resident to another Non-

Resident if Foreign Co holds shares

in Indian Co

The assessee, a company based in

Cyprus, bought shares (100% together

with another company) of a UK com-

pany called Finsider International, from

another UK company. Finsider, UK,

held 51% shares of Sesa Goa Ltd, In-

dia. The AO took the view that the 51%

shares in Sesa Goa held by Finsider,

UK, constituted a capital asset u/s 2

(14) and that the transfer of the shares

of Finsider amounted to a transfer of

the said 51% shares of Sesa Goa and

that the assessee was liable to deduct

tax at source u/s 195 when it bought

the shares of Finsider, UK. He accord-

ingly issued a show-cause notice u/s

201 seeking to treat the assessee as a

defaulter. The assessee filed a Writ

Petition to challenge the notice on the

ground that as one non-resident had

sold shares of a foreign company to

another non-resident, there was no

liability under Indian law. HELD not

accepting the assessee’s contention:

What is under challenge is only the

show-cause notice issued u/s 195 … it

may be necessary for the fact finding

authority to lift the corporate veil to

look into the real nature of transaction

to ascertain virtual facts. It is also to be

ascertained whether the assessee, as

a majority shareholder, enjoys the

power by way of interest and capital

gains in the assets of Sesa Goa and

whether transfer of shares in the case

on hand includes indirect transfer of

assets and interest in Sesa Goa.

ITO vs. Hemandas J. Pariyani [(ITAT

Mumbai) ITA No. 2508/Mum/2010

A.Y. 1997-98]

No Tax on Redevelopment Gains for

Society and Members

Issue in dispute was covered by the

decision of ITAT in the case of Jethalal

Vs. DCIT wherein the ITAT held that

“transferable development rights

granted by the Development Control

Regulations for Greater Mumbai, 1991,

qualifying for equivalent floor space

index having no cost of acquisition,

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SNK DIRECT TAXES


sale thereof does not give rise to tax-

able capital gains”. Since the facts of

the case under consideration is identi-

cal to that of the decision of the ITAT in

the said case, ITAT respectfully fol-

lowed the same and in the light of that

ITAT uphold the order of the CIT(A) in

directing the AO not to charge capital

gains tax on the compensation re-

ceived by the assessee even on pro-

tective basis. Accordingly, the ground

raised by the revenue on this count is

hereby dismissed.

Shantilal M. Jain v. ACIT (ITAT Mum-

bai) [ITA No. 2690/Mum/2010 (Asst

Year 2006-07)]

Despite large volume etc of share

transactions, AO bound by Rule of

Consistency to treat share gains as

STCG.

The assessee, engaged in the busi-

ness of trading/investment in shares

and securities offered STCG of Rs.

1.54 crores and LTCG of Rs. 2.91

crores. The assessee also traded in

intra-day stocks without delivery and in

derivatives, the gain or loss from which

was offered as business income. While

the LTCG was accepted, the AO & CIT

(A) held that the STCG was assessable

as business profits on the ground that

(a) the purchases of Rs. 1098 lakhs

and sale of Rs. 1241 lakhs during the

year showed that the transactions were

on a regular basis and on a substan-

tially high scale, (b) The assessee had

traded in as many as 85 scrips in 188

transactions and in as many as

1631852 shares during the year with

frequency and regularity, (c) only in 21

scrips there have been some opening

balances. The rest of the scrips had all

been purchased and sold during the

year, (d) the holding period in several

shares has been merely a few days

and in a few cases the purchase and

sale had been on the same day and

there is even one instance of forward

sales, (e) there were no details regard-

ing delivery of shares, (f) the assessee

had not proved that the purchases

were not out of borrowed funds and (g)

there were no separate bank accounts.

On appeal to the Tribunal allowing the

appeal held that though it is the case of

the revenue that due to volume, magni-

tude, frequency, continuity, regularity,

the ratio between purchase and sale

clearly indicate that income on account

of purchase and sale of shares should

be treated as income from business

and not as income from STCG, the AO

has, from AY 2003-04 to 2008-09

(except for the impugned year 2006-

07), consistently accepted the income

as being STCG. In these circum-

stances, the Rule of consistency as

propounded by the Bombay High Court

in Gopal Purohit 228 CTR 582 (Bom) is

squarely applicable and the income

has to be treated as STCG.

ITO v. United Marine Academy (ITAT

Mumbai)(ITA No. 968/Mum./2007)

There are two deeming fictions cre-

ated in s. 50 and s. 50C for comput-

ing capital gains on building. While

s. 50 modifies the “cost of acquisi-

tion” for purposes of s. 48, s. 50C

modifies the term “full value of the

consideration received or accruing

as a result of transfer of the capital

asset”. The two deeming fictions

operate in different fields and there

is no conflict between them. As s.

50C was inserted to prevent as-

sessee’s indulging in under-

valuation, there is no logic why it

should not be applied to a deprecia-

ble building;

On interpretation of the relevant provi-

sions of sections 48, 50 and 50C, the

tribunal was of the view that there are

two deeming fictions created in section

50 and section 50C. The first deeming

fiction modifies the term ‘cost of acqui-

sition’ used in section 48 for the pur-

pose of computing the capital gains

arising from transfer of depreciable as-

sets whereas the deeming fiction cre-

ated in section 50C modifies the term

“full value of the consideration received

or accruing as a result of transfer of the

capital asset” used in section 48 for the

purpose of computing the capital gains

arising from the transfer of capital asset

being land or building or both. The

deeming fiction created in section 50-C

thus operates in a specific field which is

different from the field in which section

50 is applicable. It is thus not a case

where any supposition has been

sought to be imposed on other suppo-

sition of law. On the other hand, there

are two different fictions created into

two different provisions and going by

the legislative intentions to create the

said fictions, the same operate in differ-

ent fields. The harmonious interpreta-

tion of the relevant provisions makes it

clear that there is no exclusion of appli-

cability of one fiction in a case where

other fiction is applicable. As a matter

of fact, there is no conflict between

these two legal fictions which operate

in different fields and their application

in a given case simultaneously does

not result in imposition of supposition

on other supposition of law. The As-

sessing Officer thus was right in apply-

ing the provision of section 50C to the

transfer of depreciable capital assets

covered by section 50 and in comput-

ing the capital gain arising from the

said transfer by adopting the stamp

duty valuation. ITAT, therefore, answer

the question referred to this special

bench in the affirmative i.e. in favour of

the Revenue and against the as-

sessee.

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SNK DIRECT TAXES


Chiranjeev Lal Khanna v. ITO (ITA

No. 6170/Mum/2008)

ITAT Mumbai held that considering the

facts of the case and clauses in the

agreement, the taxpayer has trans-

ferred land and building to the devel-

oper would be chargeable to tax as

capital gains. Accordingly, Section 50C

of the Income-tax Act, 1961(the Act)

would be applicable.

On perusal of the various clauses of

the agreement and including the sub-

mission of the taxpayer before the AO,

the Tribunal held that there is transfer

of land and building. Therefore, the

provisions of Section 50C of the Act

are clearly applicable to the facts of the

present case.

The Tribunal also distinguished the

decision in case of New Shailaja Co-

op. Hsg. Soc. Ltd. relied on the tax-

payer, on the basis in that case the

taxpayer transferred his entitlement for

consideration to the builder. In that

case the Mumbai tribunal held that the

taxpayer has not incurred any cost of

acquisition in respect of the right which

emanated from the 1991 rules making

the taxpayer eligible for additional FSI.

Since there was no cost of acquisition

for additional FSI, the Tribunal, relying

on a couple of decisions including de-

cision of Supreme Court in case of CIT

v. B C Srinivasa Shetty [1981] 128 ITR

294 held that no capital gain charge-

able to tax has arisen.

However, in the instant case, there is a

transfer of existing land and building.

Considering the totality of the facts of

the present case and certain clauses

of the agreement and submission

made by the taxpayer before the AO,

in the instant case the taxpayer has

transferred the land and building to the

developer through a document, which

has been registered through State

Registration Authorities. Therefore,

there is transfer of a capital asset i.e.

land and building, the capital gain on

which is chargeable to income tax.

Accordingly, provisions of Section 50C

of the Act are applicable to the facts of

the instant case.

Digital Electronics Ltd. v. Addl. CIT

(ITA No. 1658 (Mum.) of 2009)

[(2011) 135 TTJ 419 (Mumbai)]

Income earned by the assessee in the

relevant year on sale of factory build-

ing, plant and machinery, although not

taxable as profits and gains of busi-

ness or profession, is an income in

nature of income of business though

assessed as capital gain u/s. 50 and

therefore assessee is entitled to set off

brought forward business losses

against the said capital gain.

Tamilnadu Petroproducts Ltd. v. CIT

(328 CTR 454 (Mad.)

Dealing with the scope of Sec. 80-IA(4)

(iv) of the Income tax Act, 1961, the

Madras High Court held that the as-

sessee, which is in the business of

generation of electricity is entitled to

deduction u/s. 80-IA in respect of no-

tional income from generation of elec-

tricity which was captively consumed

by itself.

Ahmedabad Urban Development

Authority vs. ACIT (ITAT Ahmeda-

bad) [ITA No.1 837/Ahd./ 2010 (A. Y.:

2009-10)]

Section 194C defines “work” to include

“carriage of goods and passengers by

any mode of transport other than rail-

ways” while Section 194-I defines

“rent” to mean payment for use of

“plant” (which is defined in Section 43

to include vehicles). As the cars were

owned and maintained by the contrac-

tor and all expenditure was borne by

the contractor, the contract was for

“carriage of passengers” for which the

assessee paid a fixed amount. There-

fore, the payment of vehicle hire

charges fell within the scope of Section

194C and was not “rent” for Section

194-I.

RMC Readymix India Pvt. Ltd. (2011-

TIOL-81-ITAT-MUM)

The assessee claimed a deduction in

respect of TDS paid on foreign remit-

tance.

The amount represented the demands

raised by the ITO under section 201, in

respect of alleged non deduction of tax

at source from remittances made by

the assessee to Hansons Pacific (S)

Pte Ltd, Singapore.

The assessee claimed deduction of

this amount, which was an additional

payment by the assessee in respect of

remittances to Hansons, as expenses

in the AY 2004-05. The assessee

claimed that “the aforesaid payment is

not a payment of tax liability of the ap-

pellant but a payment to avail services

from Hansons which, as per the under-

standing with Hanson, the appellant

was liable to bear”

It is well settled law that a tax withhold-

ing liability raised under section 201, in

respect of remittances made abroad,

cannot be allowed as a deduction.

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SNK DIRECT TAXES


Reliance placed on the decision of the

Supreme Court in the case of India

Aluminium Co Ltd Vs CIT (79 ITR

514) where it was held that whether a

payment made under statutory obliga-

tion because assessee was in default

could not constitute expenditure laid

out for purposes of its business and

hence, same was not allowable under

that section.

Dy. CIT v. Dr. Satish B. Gupta (ITA

No. 1482 (Ahd.) of 2010) [(2010) 42

SOT 48 (Ahd.)]

Penalty u/s. 271(1)(c) would arise only

when return of income is scrutinized

by the Assessing Officer and he finds

some more items of income or addi-

tional income over and above what is

declared in return. Merely carrying out

a survey u/s. 133A does not create

any liability against the assessee

which is created only through assess-

ment proceeding or through penalty

proceedings.

Renu Hingorani v. ACIT (ITAT,

Mumbai)(ITA No. 2210/Mum./2010

Penalty u/s. 271(1)(c) of I. T. Act is

not leviable on addition arising u/s.

50C.

The Tribunal having noted that – (i)

the AO had not questioned the actual

consideration received by the as-

sessee, but the addition was purely on

the basis of deeming provisions of

Sec. 50C of the Act; (ii) the AO had

not given any finding that the actual

sale consideration was more than the

sale consideration admitted and men-

tioned in the sale agreement; and (iii)

the assessee had furnished all the

relevant facts, documents/ material

including the sale agreement, the

genuineness and validity whereof was

not doubted by the AO, observed that

the assessee’s agreement to an addi-

tion on the basis of valuation by the

Stamp Valuation Authority would not

be a conclusive proof that the sale

consideration as per agreement was

incorrect and wrong. It held that the

addition because of the deeming pro-

visions does not ipso facto attract the

penalty u/s. 271(1)(c). In view of the

decision of the Apex Court in the case

of CIT v. Reliance Petroproducts Pvt.

Ltd. (322 ITR 158)(SC), the penalty

levied was held to be not sustainable.

Dy. Commissioner of Income Tax,

Versus M/s Tecpro System Ltd.,

[(2011) TMI 203082, ITAT New Delhi]

No penalty u/s 271(1)(c) for disallow-

ance of Rs. 5,00,000/- against the to-

tal professional charges claim of Rs.

90,74,652/- and additional deprecia-

tion on plant and machinery can be

levied. Section 271(1)(c) mandates for

levy of penalty for concealment or fur-

nishing of inaccurate particulars, but

this is not the case that Assessing

Officer had found any mistake, but the

case is that the assessee had himself

while preparing the details found the

mistake and pointed out the same to

the Assessing Officer. Hence this can

not be said to be a case of conceal-

ment or furnishing of inaccurate par-

ticulars. The revenue’s appeal is dis-

missed.

DIT v. Maersk Co Ltd as agent of

Mr. Henning Skov (Utt High Court—

Full Bench) (ITA No. 26, 27, 28 & 29

of 2009)

Employee not liable to pay s. 234B

interest for failure to pay advance

tax on salary

The assessee, a foreign company,

entered into a contract with ONGC

pursuant to which it supplied techni-

cians. The AO treated the assessee

as an agent of the technician – em-

ployees and assessed their income

under the head “salaries”. Interest u/s

234B was levied on the ground that

the employees had not paid advance

tax. The CIT (A) & Tribunal upheld the

claim of the assessee that the employ-

ees were not liable to pay advance tax

as the tax was “deductible” at source

u/s 192. On appeal by the department,

the issue was referred to a Full Bench.

The bench held that u/s 208, an em-

ployee is not liable to pay advance tax

on salary because u/s 192 there is an

obligation on the employer to

deduct tax at source. The employee

cannot foresee that the tax deductible

under a statutory duty imposed upon

the employer would not be so de-

ducted. The employee proceeds on

the assumption that the deduction of

tax at source has statutorily been

made or would be made and a certifi-

cate to that effect would be issued to

him. If the employer fails to deduct tax

at source, the employee becomes li-

able to pay the tax directly. However,

the liability to pay interest remains

upon the person responsible to deduct

tax at source. The department is enti-

tled to proceed against the employer

u/s 201(1A). (Sedco Forex 264 ITR

320 (Utt) & other judgements fol-

lowed).

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SNK DIRECT TAXES

Judicial pronouncements (International Taxation)

Goodyear Tire and Rubber Com-

pany [2011] 11 taxmann.com 43

(AAR)

Recently, the Authority for Advance

Ruling (AAR) relying upon the principle

laid down in Dana Corporation [2010]

186 Taxman 187 (AAR) and Amiantit

International Holding Ltd [2010] 189

Taxman 149 (AAR)., held that capital

gains provisions are not attracted in

case of transfer of shares without con-

sideration.

Further, the AAR held that the transfer

pricing provisions in an international

transaction can be applied only when

income is chargeable to tax in India

and since in the present case no in-

come was chargeable to tax in India

the question of applicability of Transfer

Pricing provisions and withholding tax

under Section 195 of the Income-tax

Act, 1961 (the Act) does not arise.

DIT v SNC Lavalin International Inc.

[ITA NO 326/09, ITA NO 529/09, ITA

NO 1026/09, ITA NO 1027/09]

Mere use of technical design or plan

without absolute transfer of right of

ownership is taxable as fees for in-

cluded services under Article 12 of

the Indo-Canadian Treaty and not as

fees for technical services as per

the provisions of s 9(1)(vii) read

with s 115A.

The brief facts in this case are that the

assessee is a non-resident company

engaged in the business of providing

consultancy for infrastructure projects.

It had entered into an agreement with

the National Highway Authority of India

(NHAI) and under the said agreement

the assessee was to provide technical

drawings and reports to NHAI to en-

able them to use the said technology

for its infrastructure projects,

which was funded by the World Bank.

The scope of the work was to carry out

detailed project report as a consultant.

The assessee had to investigate the

availability and viability of various

modern technologies to ensure most

economical cost estimate without af-

fecting the quality of work. The scope

of services included preparation of the

detailed project report, which covered

the entire design for rehabilitation and

strengthening of the existing carriage

ways and required structures. It also

included the study of environmental

resettlement and rehabilitation needs

as per the guidelines of the Govern-

ment of India.

The assessee was receiving charging

fees for providing the aforesaid ser-

vices. The contention of the assessee

was that the fee received from NHAI is

to be treated as “fees for included ser-

vices” as prescribed in article 12(4) of

the Double Taxation Avoidance Agree-

ment (DTAA) between India and Can-

ada. In terms of this article, the tax

chargeable is at 15 per cent. The As-

sessing Officer, however, was of the

opinion that the fee charged for the

aforesaid project did not include “fee

for included services”. He accordingly

was of the opinion, that the income

which was derived as fee for technical

services was chargeable to tax as per

the provisions of section 9(1)(vii) read

with section 115A of the Act. As per

this section, the tax chargeable is at 20

per cent. The Tribunal has however,

accepted the contention of the as-

sessee and has held that the tax pay-

able by the assessee on the aforesaid

fee would be at 15 per cent.

The question, in these circumstances,

that, arises for consideration is as to

whether the services provided by the

assessee would be covered by para-

graph (4) of article 12. This provision

reads as under ([1998] 229 ITR (St.)

44, 58) :

“(4) For the purposes of this article,

`fees for included services’ means pay-

ments of any kind to any person in

consideration for the rendering of any

technical or consultancy services

(including through the provision

of services of technical or other per-

sonnel) if such services :

(a) are ancillary and subsidiary to the

application or enjoyment of the

right, property or information for

which a payment described in

paragraph (3) is received ; or

(b) make available techni-

cal knowledge, experience, skill,

know- how, or processes or con-

sist of the development and trans-

fer of a technical plan or technical

design.”

It is not in dispute that the assessee

has rendered technical or consultancy

services. However, in order to get cov-

ered under this paragraph, it is also to

be proved, that the services were such

which would fall under clauses (a) and

(b) in the said paragraph. The case of

the assessee was that it falls in clause

(b). As per clause (b) of paragraph (4),

the services had to be of the following

nature, namely, (i) making available

technical knowledge, experience, skill,

know-how or processes or; (ii) services

consisting of development and transfer

of a technical plan or technical design.

It cannot be disputed that these techni-

cal/consultancy services provided by

the assessee falls under the second

category, i.e., development and trans-

fer of technical plan or technical de-

sign.

The Tribunal has relied upon the afore-

said Treaty in support of its conclusion

and rightly said so. The Delhi High

Court, thus, hold that the term

“transfer” as used in article 12(4) does

not refer to absolute transfer of right of

8

SNK DIRECT TAXES

Judicial pronouncements (International Taxation) / / Circulars / Notification

ownership. It refers to transfer of tech-

nical drawings or designs by the resi-

dent of one State to the resident of the

other state, which is to be used by or

for the benefit of the resident of the

other state. The said article 12(4)(b)

does not contemplate transfer of all

rights totally or interest in such techni-

cal design or plan. Even where the

technical design or plan is transferred

for the purpose of mere use of such

design or plan by the person of the

other contracting State and for which

the payment is to be made, article 12

(4)(b) would be attracted.

Sapient Corporation Pvt. Ltd. V.

DCIT (ITAT Delhi) (ITA No. 5263/

Del./2010)

The assessee claimed that its interna-

tional transactions of software develop-

ment was at arms length under TNMM

on the basis that its average operating

profit ratio (OP/TC) was higher than

that of 10 comparable companies. The

TPO & DRP rejected a few compara-

bles on the ground that they were loss-

making and recomputed the OP/OC of

the other comparables at a higher rate.

Before the Tribunal, the assessee

claimed that if loss making companies

were excluded, a super profit earning

company should also be removed from

the comparables. The Tribunal uphold-

ing the plea held that when loss mak-

ing companies have been taken out

from the list of comparables by the

TPO, Zenith Infotech Ltd. which

showed super profits should also be

excluded. The fact that assessee has

himself included in the list of compara-

bles, initially cannot act of estoppel

particularly in light of the fact that the

AO had only chosen the companies

which are showing profits and had re-

jected the other companies which

showed loss (Quark System vs. DCIT

38 SOT 307 (SB) followed).

ACIT v. Clough Engineering Ltd.

(ITAT Delhi - SB) [I.T.A No. 4771

(Del)/2007 Assessment year: 2003-

04; I.T.A No. 4986(Del)/2007 Assess-

ment year: 2003-04]

The assessee, an Australian company,

had a PE in India from which it carried

on business in India. The assessee

received interest on income-tax refund

of TDS. While the assessee claimed

that the interest was taxable on gross

basis at 15% under Article XI(2) of the

DTAA, the AO & CIT(A) claimed that

the interest was “directly connected

with the PE” and so assessable under

Article VII. On appeal, the issue was

referred to the Special Bench. The

Special Bench, deciding in favour of

the assessee and held that under Arti-

cle 11(4) of the DTAA, interest from

indebtedness “effectively connected”

with a PE of the recipient is taxable

under Article 7 and not under Article

11. Though the interest was connected

with the PE in the sense that it has

arisen on account of TDS from the re-

ceipts of the PE, it was not “effectively

connected” with the PE either on the

basis of asset-test or activity-test. The

payment of tax was the responsibility

of the foreign company and the fact

that it was discharged by way of TDS

did not establish effective connection

of the indebtedness with the PE. In

order to be “effectively connected”, it is

not necessary that the interest income

has to be necessarily business income

in nature. Even interest assessable

under “other sources” can qualify.

Circulars / Notifications

Circular no. 1/2011 dated 6th April,

2011:-

Vide circular no. 1/2011 the CBDT has

provided the explanatory notes to the

provision of Finance Act, 2010

Circular no. 2/2011 dated 27th April,

2011:-

In supersession of the circular No.

285, dated 21-10-1980, the Board

prescribed the procedure for regu-

lating refund of amount paid in ex-

cess of tax deducted and/or de-

ductible in respect of TDS on resi-

dents covered under sections 192 to

194LA of the Income-tax Act, 1961.

The excess payment to be refunded

would be the difference between:

(i) the actual payment made by the

deductor to the credit of the Cen-

tral Government; and

(ii) the tax deductible at source.

In case such excess payment is dis-

covered by the deductor during the

financial year concerned, the present

system permits credit of the excess

payment in the quarterly statement of

TDS of the next quarter during the fi-

nancial year. However, in case, the

detection of such excess amount is

made beyond the financial year con-

cerned, such claim can be made to the

Assessing Officer (TDS) concerned.

However no claim of refund can be

made after two years from the end of

financial year in which tax was deducti-

ble at source.

However, to avoid double claim of TDS

by the deductor as well as by the de-

ductee, the applicant deductor shall

establish before the Assessing Officer

that:

9

SNK DIRECT TAXES / INDRECT TAXES

Circulars / Notification / Judicial Pronouncements

(i) it is a case of genuine error and

that the error had occurred inad-

vertently;

(ii) that the TDS certificate for the re-

fund amount requested has not

been issued to the deductee(s);

and

(iii) that the credit for the excess

amount has not been claimed by

the deductee(s) in the return of

income or the deductee(s) under-

takes not to claim such credit.

Further prior administrative approval of

the Additional Commissioner or the

Commissioner (TDS) concerned shall

be obtained, depending upon the

quantum of refund claimed in excess

of Rupees One Lakh and Rupees Ten

Lakh respectively.

Note:

This circular will not be applicable to

TDS on non-residents falling under

sections 192, 194E and 195 which are

covered by circular No. 7/2007 issued

by the Board.

Notification No. 18 dated 5th April,

2011:-

Vide notification No. 18, CBDT had

made necessary changes in Income

tax Rules, 1962 for incorporating new

forms SAHAJ (ITR-1), ITR-2, ITR-3,

SUGAM (ITR-4S), ITR-4, ITR-5, ITR-6,

ITR-7 and ITR-V relevant to A.Y. 2011-

12.

INDIRECT TAXES

Judicial Pronouncements

Union Of India v. Ind. Swift Labora-

tories Ltd. [(2011) 265 ELT 3 (SC)]

Cenvat Credit taken wrongly and

utilized attracts interest from the

date of availment and not from the

date of utilization. Rule 14 of Cen-

vat Credit Rules being unambigu-

ous does not require to be read

down.

Rule 14 specially provides for recovery

of interest where Cenvat Credit is

taken or utilized wrongly by the manu-

facturer or the service provider or re-

funded erroneously to either of them.

The High Court misunderstood this

provision and wrongly read it down as

statutory provision in generally read

down only when the same is capable

of being declared unconstitutional or

illegal. No harmonious construction is

required to be given to the aforesaid

provision which is unambiguous and

exits all by itself. It is not permissible

to import provisions of taxing statute so

as to supply any assumed deficiency.

JMC Educational Charitable Trust v.

CC Ex., Trichy [(2011) 21 STR 421

(Tri – Chennai)

Distant education programme by an

institution analogical to a parallel

college is not in the nature of com-

mercial coaching or training ser-

vice.

Since the kerala High Court had held

that the provisions of service tax laws

for levy of service tax on parallel col-

leges are ultra virus Article 14 of the

Constitution of India, the appeal was

allowed.

CCEX., Nagpur v. Ultratech Cement

Ltd. [(2011) 21 STR 297 (Tri. Mum-

bai)]

Input services used outside factory

eligible for Cenvat Credit if nexus

with ‘manufacture’ is established.

A manufacturer of cement claimed

Cenvat credit on repairs and mainte-

nance service of river pump used for

generation of electricity outside the

factory. Such electricity was used in

the manufacture of final product. Cen-

vat Credit was denied on the basis that

the services are received outside the

factory premises and did not have

nexus with the manufacture of final

products.

The definition of “Input Services” does

not deny credit if services are utilized

outside the factory premises. The

nexus in this case with the manufac-

ture of final product is established indi-

rectly. In the case of the appellant for

the similar issue, the Tribunal had al-

lowed Cenvat credit. Input services

used outside factory premises were

eligible.

Somaiya Organo Chemicals v.

Commr. Of C.Ex. & Cus. Auran-

gabad [2011 (21) STR 114 (Tri-

Mumbai)]

In case of export, Cenvat Credit of

input service used for outward

transportation is eligible.

The appellant paid service tax on the

insurance policy in respect of goods

transported from the factory to the port

of export.

In case of export of goods, it has been

held that input service includes ser-

vices rendered for outward transporta-

tion upto place of removal of goods

and service tax paid to facilitate goods

to reach the place of removal has to be

eligible for benefit of CENVAT credit.

10

SNK INDIRECT TAXES

Judicial Pronouncements / Circular / Notifications

Insurance service was taken by the

factory to the port of export. Thus, in-

put service was used for the business

activity undertaken up to the place of

removal of goods. The Tribunal held

that the appellant was entitled to take

input service credit.

Cenvat credit is available on air-

ticket booking service for paying

excise duty on manufacture of final

products.

The respondent was engaged in the

activity of manufacture. Various air

journeys were undertaken by employ-

ees for business purpose.

Revenue in appeal claimed that air-

ticket booking service was not an input

service as there was on nexus be-

tween air-ticket booking service and

manufacturing activity. The respondent

contended that ‘the object of CENVAT

scheme is to allow credit on inputs

used in or in relation to manufacture of

final product and to allow credit on in-

put services used in or in relation to

manufacture of final product as well as

in relation to business of manufacture’.

Business activity cannot be restricted

to mere manufacturing activity and it

covers all activities that are related to

business. The term ‘ in relation to busi-

ness’ cannot be given a restricted

meaning and expenses incurred as a

result of commercial expediency are

covered by the said term. The appeal

was allowed.

Manubhai & Co. v. CST, Ahmedabad

[(2011) 21 STR 65 (Tri.Ahmd.)]

Non filing of prior declaration does

not lead to rejection of rebate claim.

Failure to file declaration is not suffi-

cient to hold that the assessee did not

pay service tax on input services. Non

observance of a procedural condition

was of a technical nature and cannot

be used to deny the substantive con-

cession.


Notification No. 26/2011-ST dated

25th April, 2011

CBDT vide notification no. 26/2011

appointed 1st day of May, 2011 as the

date on which the provisions of Fi-

nance Act, 2011 shall come in force.

Thus all new services which were in-

troduced in the Finance Act, 2011 will

become taxable service from 1st day of

May, 2011.


25th April, 2011:-

Vide the above notification 100% ex-

emption from service tax has been

provided to any hospital, nursing home

or multi-speciality clinic with effect from

01.05.2011 providing service to —

(i) to an employee of any business

entity, in relation to health check-

up or preventive care, where the

payment for such check-up or pre-

ventive care is made by such busi-

ness entity directly to such hospi-

tal, nursing home or multi-specialty

clinic; or

(ii) to a person covered by health in-

surance scheme, for any health

check-up or treatment, where the

payment for such health check-up

or treatment is made by the insur-

ance company directly to such

hospital, nursing home or multi-

specialty clinic.


25th April, 2011:-

Vide the above notification exemption

from Service tax has been provided in

case of taxable service provided by a

hotel, inn, guest house, club or camp-

site, by whatever name called, for pro-

viding of accommodation for a continu-

ous period of less than three months

when the declared tariff for providing of

such accommodation is less than ru-

pees 1,000/- per day from the whole of

the service tax leviable thereon.


25th April, 2011 :-

Vide the above notification, the exemp-

tion provided vide no. 25/2006 dated

13th July, 2006 has been withdrawn.

Thus the taxable service provide by a

practicing chartered accountant, a

practicing cost accountant and a prac-

ticing company secretary respectively,

in his professional capacity, to a client,

relating to representing the client be-

fore any statutory authority in the

course of proceedings initiated under

any law for the time being in force, by

way of issue of notice would be liable

to service tax with effect from 1st May,

2011.


25th April, 2011 :-

Vide the above notification, exemption

has been provided to -

(i) any preschool coaching and train-

ing;

(ii) any coaching or training leading to

grant of a certificate or diploma or

degree or any educational qualifi-

cation which is recognized by any

law for the time being in force;

when provided by any commercial

coaching or training centre from the

whole of the service tax leviable

thereon.


25th April, 2011 :-

Vide the above notification, exemption

has been provided from so much of the

service tax leviable thereon, as is in

excess of the service tax calculated on

a value which is equivalent to a

11

SNK INDIRECT TAXES

Circular / Notifications

percentage as mentioned here under

of the gross amount charged by such

service provider.

Provided that this notification shall not

apply in cases where, -

(i) the CENVAT credit of duty on in-

puts or capital goods or the CEN-

VAT credit of service tax on input

services, used for providing such

taxable service, has been taken

under the provisions of the CEN-

VAT Credit Rules, 2004; or

(ii) the service provider has availed

the benefit under the notification of

the Government of India in the

Ministry of Finance (Department of

Revenue), No. 12/2003-Service

Tax, dated the 20th June, 2003.


25th April, 2011 :-

An option has been given to a life in-

surance company to pay service tax

either

(i) on the gross premium charged to

a policy holder after deducting the

amount allocated for investment or

savings on behalf of the policy

holder, if such amount has been

intimated to the policy holder; or

(ii) 1.5 % of the gross premium

charged by the life insurance com-

pany to the policy holder.

Note :

The said options will not be available

where the entire premium paid by the

policy holder to the life insurance com-

pany is towards only risk cover in life

insurance.


25th April, 2011 :-

An amendment has been made in Ex-

port of Service Rules, 2005 whereby

the taxable service provided by a res-

taurant having facility of air-

conditioning and has license to serve

alcoholic beverages and accommoda-

tion services provided by a hotel, inn,

guest house etc, shall be treated as

export in case such restaurant or hotel

is situated outside India.


25th April, 2011 :-

An amendment has been made in

Taxation of Services (Provided from

Outside India and Received in India)

Rules 2006 whereby the taxable ser-

vice provided by a restaurant having

facility of air-conditioning and has li-

cense to serve alcoholic beverages

and accommodation services provided

by a hotel, inn, guest house etc, shall

be treated as received in India in case

the restaurant or hotel is situated in

India.

Circular No. 134/2011-ST dated 8th

April, 2011 :-

The said circular provides clarification

regarding applicability of service tax

exemption to Education Cess and

Secondary and Higher Education

Cess under notifications where ‘whole

of service tax' stands exempted.

According to section 95(1) of Finance

(No.2) Act, 2004 and section 140(1) of

Finance Act, 2007, Education Cess

and Secondary and Higher Education

Cess are leviable and collected as

service tax, and when whole of service

tax is exempt, the same applies to

education cess as well. Since Educa-

tion Cess is levied and collected as

percentage of service tax, when and

wherever service tax is nil by virtue of

exemption, Education Cess would also

be nil.

Circular No. 136/2011-ST dated 20th

April, 2011 :-

The said circular provided the ac-

counting Codes for the taxable ser-

vices introduced vide the Finance Act,

2011.

Service %

Services provided or to be provided, to any per-son, by a restaurant, by whatever name called, having the facility of air-conditioning in any part of the establishment, at any time during the finan-cial year, which has li-cence to serve alcoholic beverages, in relation to serving of food or bever-age, including alcoholic beverages or both, in its premises;

30

Services provided or to be provided, to any per-son, by a hotel, inn, guest house, club or campsite, by whatever name called, in relation to providing of accommo-dation for a continuous period of less than three months;

50

Service Account-

ing Code

Service provided by a

restaurant having air-

conditioning and li-

cense to serve alco-

holic beverages in rela-

tion to serving of food

or beverage, including

alcoholic beverages or

both, in its premises

[Finance Act 1994,

Section 65(105)

(zzzzv)]

Tax Collection 00441067

Other Receipts 00441068

Deduct Refunds 00441069

12

SNK INDIRECT TAXES


Circular No. 943/04/2011 dated 29th

April, 2011:-

The purpose of the said circular is to

summarize some of the key clarifica-

tions issued vide the Circular and pos-

sible action points on the part of the

companies pursuant to these clarifica-

tions.

Clarification – Negative list

The list of goods and services for

which credit has been disallowed (such

as catering, club services, etc.) is only

illustrative and not exhaustive. The

principle is that Cenvat credit is not

allowed when any goods and services

are used primarily for personal use or

consumption of employees.

Key Action Points

• Expense list needs to be analyzed

not only to carve out those ex-

penses which are specifically ex-

cluded in the definition but also

those expenses, which though not

specifically covered, satisfy the

principle mentioned in the preced-

ing para.

• It needs to be analyzed whether

expenses incurred by employees

during business/ official visits

would get covered under the nega-

tive list.

• Credit of ineligible expenses

should be denied upfront to avoid

any interest exposure.

Clarification – Scope of the term

‘inputs’

In respect of ‘inputs’, it has been clari-

fied that goods such as furniture and

stationary used in an office within the

factory would be construed to be

goods used in the factory. Thus, the

same would be deemed to be used in

relation to the manufacturing business

and hence credit of the same shall be

allowed.

Key Action Points

• Re-evaluate expenses incurred in

the factory from credit eligibility

perspective with special emphasis

on expenses with respect to which

credit has been forgone till now.

• Ensure that goods in respect of

which credit is intended to be

taken in terms of the amended pro-

visions (e.g. furniture, stationary

items, etc.) are purchased against

Excise invoice.

Clarification – Treatment of credit of

common inputs and input services

used in trading before 1 April 2011

It has been clarified that the same

could be availed subject to prescribed

restrictions as were applicable during

the relevant period. This clarification

seems to suggest that trading was all

along an ‘exempt service’ (i.e. the re-

cent amendment clarifying that trading

is an exempt service will have retro-

spective effect).

Key Action Points

• Analyse whether this would neces-

sitate reversal/re-instatement of

credit pertaining to the past period

(depending upon the position

taken earlier with respect to credit

reversal pertaining to trading activi-

ties)

• Formulate the strategy accordingly

and consequently, revise the tax

returns.

Clarification – Availability of credit on

services received before 1 April 2011

on which credit is not allowed now –

e.g. rent-a-cab service

It has been clarified that the credit on

such services shall be available if their

provision had been completed before 1

April 2011.

Key Action Points

• Review the status of credit with

respect to services that have been

completed before 1 April 2011.

• Avail credit even if the booking/

payment/ billing in respect of these

services have been done on or

after 1 April 2011.

• Analyse whether credit of Service

tax incurred on advance payments

made before 1 April 2011 would be

available.

Clarification – Manner of determining

‘value’ of trading activities

It has been clarified that for calculating

the value of trading:

• As regards application of specific

principle of LIFO, FIFO, etc. – the

method normally followed by the

concern for its accounting pur-

poses as per generally accepted

accounting principles should be

used.

Service Account-

ing Code

Service provided by

a hotel, inn, guest

house, club or

campsite in relation

to providing of ac-

commodation for a

continuous period of

less than three

months[Finance Act

1994, Section 65

Tax Collection 00441070

Other Receipts 00441071

Deduct Refunds 00441072

13

SNK INDIRECT TAXES / OTHERS


• With respect to the taxes and year

end discounts – generally ac-

cepted accounting principles need

to be followed in this regard. All

taxes for which set off or credit is

available or are refundable/ re-

funded may not be included. Dis-

counts are to be included.

Key Action Points

• Ascertain the accounting policy

adopted by the Company and

compute ‘sale price’ and ‘cost of

goods sold’ accordingly.

Further it has been clarified that as per

Rule 6(4) no credit can be availed on

capital goods used exclusively in

manufacture of exempted goods or in

providing exempted service. Goods in

respect of which the benefit of an ex-

emption under notification No. 1/2011-

CE, dated the 1st March, 2011 is

availed are exempted goods [Rule 2

(d)]. Taxable services, whose part of

value is exempted on the condition

that no credit of inputs and input ser-

vices, used for providing such taxable

service, shall be taken, are exempted

services [Rule 2(e)]. Hence credit of

capital goods used exclusively in

manufacture of such goods or in pro-

viding such service is not allowed.

The Circular should be seen as a

timely step on the part of the authori-

ties to clarify various issues arising out

of the amendments. Further, most of

these clarifications should be wel-

comed by the industry.

OTHERS

COMPANY LAW

S.E. Investment Limited (CO. APPL.

(M) 38/2011 & CO. APPL. 293/2011)

Delhi High Court in the said case held

that increase in authorised Capital is

not liable to stamp duty under Indian

Stamp Act, 1899 as applicable in

Delhi.

The High Court observed that there is

no express provision for charging

stamp duty on the increase in author-

ized share capital in Schedule IA of

the Delhi Stamp Act.

A statute authorizing the levy of stamp

duty is in the nature of fiscal statute,

therefore Stamp duty cannot be levied

except by the authority of law. The

provisions of a fiscal statute admit of

strict construction.

The High Court also relied on the Su-

preme Court judgment in the case of

AV Fernandez v. State of Kerala (AIR

1957 SC 657) and Commissioner of

Wealth Tax v. Ellis Bridge Gymkhana

[1998] 1 SCC 384 (SC), where it was

held that the rule of construction of a

charging section is that before taxing

any person, it must be shown that he

falls within the ambit of the charging

section by clear words used in the

section. No one can be taxed by impli-

cation.

In the absence of any specific provi-

sion in the Act for levy of stamp duty

on the increase in authorized share

capital it is not possible to legally sus-

tain the demand raised by the Collec-

tor of Stamps.

A mere fact that the Petitioner earlier

paid stamp duty on increase in author-

ized share capital cannot act as estop-

pel against the Petitioner.

However, court has clarified that the

decision will not enable the Petitioner

to claim refund of any stamp duty paid

earlier.

OTHER

Hafeeza Bibi & Ors. Versus Shaikh

Farid (Dead) by LRs. & Ors. [Civil

Appeal No. 1714 of 2005]

The Supreme Court held that a gift of

immovable property made by a Muslim

is valid even if it is not registered un-

der the Transfer of Property Act or the

Stamps and Registration Act. The

apex court said though the TP Act

mandates registration of a gift, the

same would not apply to a Muslim do-

nor as the community has been ex-

empted from the provision.

A bench of justices R M Lodha and S

S Nijjar in a judgment quashed a ruling

of the Andhra Pradesh High Court that

the property gifted by late Shaik Da-

wood to one of his sons Mohammed

Yakub was not valid as it was not reg-

istered under the law.

The bench said the three essentials of

a gift under Mohammadan Law are (i)

declaration of the gift by the donor (2)

acceptance of the gift by the donee

and (3) delivery of possession.

“Though the rules of Mohammadan

Law do not make writing essential to

the validity of a gift, an oral gift fulfilling

all the three essentials makes the gift

complete and irrevocable. However,

the donor may record the transaction

of gift in writing.


RBI

Notification No. RBI/2010-11/511

dated 04.05.2011

As per the current instructions, mobile

banking transactions up to Rs. 1000/-

are permitted without insisting on end-

to-end encryption. As per the above

notification, RBI has decided to in-

crease the limit of such transactions

without end-to-end encryption to Rs.

5000/- with effect from the date of this

circular. Banks are instructed to en-

sure & place adequate security meas-

ures and velocity limits based on their

own risk perception.

14

SNK OTHER LAWS

Circular / Notifications `

Notification No. RBI/2010-11/512

dated 04.05.2011

Relaxing the norms for making pay-

ments using mobile phones, known as

m-wallet, the Reserve Bank vide the

above notification decided to increase

the limit of money-loading to Rs

50,000 from the existing limit of Rs

5,000.

In the semi-closed mobile wallet,

money can be loaded into your cell

phone from a licensed company which

can be used to make payments. But it

can”t be used to withdraw money.

The Semi-Closed System Payment

Instruments are redeemable at a

group of clearly identified merchant

locations or establishments. These

instruments do not permit cash with-

drawal or redemption by the holder.

Company Law

General Circular No. 11/2011, dated

7th April, 2011:-

As another step towards simplification

in allotment of DIN, the Ministry is con-

sidering to allot all DIN application

online. To examine the DIN – 4 eform

through the system, it has been de-

cided that the following fields in the

DIN – 1 eform will be mandatory :-

(i) Name of Applicant

(ii) Father’s name of Applicant

(iii) Date of birth

(iv) PAN in case of all Indian Nationals

(v) Passport in case of all Foreign

Nationals

Further at present, PAN of the appli-

cant is not a mandatory field in DIN

eform – 1. In order to examine DIN –

4 eform through the system and to

avoid the duplicate DIN, it has been

decided that all existing DIN holders

who have not furnished their PAN ear-

lier at the time of obtaining DIN, are

required to furnished their PAN by fil-

ing DIN – 4 from by 31st May, 2011.


11th April, 2011:-

Ministry vide the above general circu-

lar has prescribed the revised proce-

dure for the appointment of Cost Audi-

tor under Sec. 233B(2) of the Compa-

nies Act, 1956.

Please visit the MCA Website for com-

plete text of the said circular.


29th April, 2011:-

The Ministry of Corporate Affairs has

taken a Green Initiative in the Corpo-

rate Governance by allowing paper-

less compliance by the Companies

through electronic mode.

Keeping in view, it has been clarified

that a company would have complied

with Sec. 53 of the Companies Act, if

the service of documents has been

made through electronic mode pro-

vided the company has obtained the

e-mail addresses of the members for

sending the notice / documents

through e-mail by giving advance op-

portunity to every member to register

their e-mail address and change

therein from time to time with the com-

pany. In cases where any members

has not registered their e-mail address

the said documents will be sent by

other modes of services as provided in

Sec. 53 of the Companies Act, 1956.


29th April, 2011:-

As another step towards Green Initia-

tive in the Corporate Governance, it

has been clarified that the companies

which are required to send physical

Annual Report of a Company compris-

ing of Balance Sheet, Profit and Loss

Account, Director’s Report, Auditor’s

Report etc. to its Members as per Sec.

219(1) of the Companies Act, shall be

shall to complied the said compliance

if the said copy of Annual Report has

been sent by electronic mail to its

member subject to the fact that the

company has obtained-

(a) E-mail address of its members for

sending the notice with Annual

reports thorough e-mail, after giv-

ing an advance opportunity to the

members to register his e-mail

address and changes therein from

time to time with the Company or

with the concerned depository.

(b) Company’s website display full

text of these documents well in

advance prior to mandatory period

and issue advertisement in promi-

nent newspapers in both vernacu-

lar and English Newspapers

(c) In cases where any members has

not registered their e-mail address

the said documents will be sent by

other modes of services as pro-

vided in Sec. 53 of the Companies

Act, 1956.

(d) In case members insist for physi-

cal copies, the same should be

sent to him physically by post free

of cost.


2nd May, 2011:-

The Registrar of Companies shall

mark a company as having manage-

ment dispute in only those cases

where the court or Company Law

Board has directed to maintain the

status-quo with reference to any e-

forms including status of Directors in

the company or The Court or Com-

pany Law Board has granted any in-

junction or stay in taking the document

on record and Registrar of Companies

is a party in such court cases and/or

the directions have been issued to the

Registrar of Companies.

15

SNK OTHER LAWS


Circular No.21 /2011, dated 2nd May,

2011:-

The government has authorized the

National Securities Depository Ltd

(NSDL) and Central Securities Deposi-

tory Ltd (CDSL) to facilitate electronic

voting by shareholders of companies.

Keeping with its ”Green Initiative for

Corporate Governance” campaign, the

Ministry of Corporate Affairs (MCA)

has appointed the two agencies for

“capturing accurate electronic voting

processes”.

Further for the above purpose, NSDL

and CDSL are being approved subject

to the condition that they obtain a cer-

tificate from Standardization Testing

and Quality Certification Directorate.


3rd May, 2011:-

Ministry had notified Companies

(Particulars of Employees) Amend-

ment Rules, 2011 vide GSR 289 (E)

dated 31.03.2011 raising the limit of

employee’s salary to be disclosed in

Directors Report. In this regard, it is

clarified that the said notification shall

be applicable to all Director’s Reports

under section 217 of the Companies

Act, 1956 approved by the Board of

Directors on or after 1.4.2011, irre-

spective of the accounting year of the

annual account, being approved by the

Board.

Restructured TUF Scheme

The Government has restructured the

Technology Upgradation Fund

Scheme (TUFS) – the flagship scheme

of Ministry of Textiles for upgradation

of technology in the textile and jute

sectors. Ministry of Textiles has issued

the Government Resolution on Re-

structured Technology Upgradation

Fund Scheme for the period

28.04.2011 to 31.03.2012 (both the

days inclusive) with an overall subsidy

cap of Rs.1972 crore during the period.

The Government Resolution lays down

the financial and operational parame-

ters and implementation mechanism

for the Restructured TUFS.

The objective of the present Scheme is

to leverage investments in technology

upgradation in the Textiles and Jute

Industry, with a special emphasis on

balanced development across the

value chain. The major objectives of

the present restructured TUFS scheme

are as follows:-

1. Address the issues of fragmenta-

tion and promote forward integra-

tion by providing 5% IR for spin-

ning units with matching capacity

in weaving/knitting/processing/

garmenting;

2. promoting investments in sectors

with low investment like process-

ing;

3. reducing the repayment period to 7

years with 2 years moratorium to

promote financial efficiency;

4. Technology upgradation in weav-

ing by providing higher capital sub-

sidy for establishment of new shut-

tle less looms. This would help to

reduce and eventually phase out

secondhand looms

5. Ensuring greater participation of

SSI units by increasing the limits

under this category;

6. The eligibility of restructured/ re-

scheduled cases to be restricted to

initial loan repayment schedule

and ballooning of subsidy in re-

scheduled cases to be avoided

7. Revamped scheme to be struc-

tured in such a way that the sub-

sidy out go is not open ended and

has a definite cap of Rs. 1972

crores.;

8. Greater administrative and moni-

toring controls to be introduced

with pre-authorization of all eligible

claims by the Textiles Commis-

sioner Mumbai, before approvals

and intensive monitoring by the

Inter Ministerial Steering Commit-

tee chaired by Secretary Textiles.

For loans sanctioned during

01.04.1999 to 28.06.2010, the then

existing parameters and guidelines of

TUFS would continue to apply. The

Government has made provision of

Rs.5432 crore towards committed li-

abilities for the cases sanctioned dur-

ing the aforesaid period for the 11th

Five Year Plan.

The financial and operational parame-

ters of the Restructured TUFS in re-

spect of loans sanctioned under the

scheme would be as follows:

1. A reimbursement of 5% on the in-

terest charged by the lending

agency on a project of technology

upgradation in conformity with the

Scheme. However, for spinning

machinery the scheme will provide

4% for new stand alone / replace-

ment / modernisation of spinning

machinery; and 5% for spinning

units with matching capacity in

weaving / knitting / processing /

garmenting.

2. Cover for foreign exchange rate

fluctuation / forward cover pre-

mium not exceeding 5% for all

segments except for new stand

alone / replacement / modernisa-

tion of spinning machinery, the

foreign exchange rate fluctuation /

forward cover premium will be 4%.

16

SNK

3. Additional option to the power-

looms units and independent pre-

paratory units to avail of 20% Mar-

gin Money subsidy under Restruc-

tured TUFS in lieu of 5% interest

reimbursement on investment in

TUF compatible specified machin-

ery subject to a capital ceiling of

Rs. 500 lakh and ceiling on margin

money subsidy of Rs.60 lakh. How-

ever, for brand new shuttleless

looms the ceiling on margin money

subsidy will be Rs.1 crore. A mini-

mum of 15% equity contribution

from beneficiaries will be ensured.

4. An option to SSI textile and jute

sector to avail of 15% Margin

Money subsidy in lieu of 5% inter-

est reimbursement on investment

in TUF compatible specified ma-

chinery subject to a capital ceiling

of Rs. 500 lakh and ceiling on mar-

gin money subsidy of Rs.45 lakh. A

minimum of 15% equity contribu-

tion from beneficiaries will be en-

sured.

5. 5% interest reimbursement plus

10% capital subsidy for specified

processing, garmenting and techni-

cal textile machinery.

6. The Common Effluent Treatment

Plants (CETPs) will not be covered

under Restructured TUFS.

7. 5% interest reimbursement plus

10% capital subsidy for brand new

shuttleless looms.

8. Interest subsidy/capital subsidy/

Margin Money subsidy on the basic

value of the machineries excluding

the tax component for the purpose

of valuation.

9. 25% capital subsidy in lieu of 5%

interest reimbursement on pur-

chase of the new machinery and

equipments for the pre-loom &

post-loom operations, handlooms/

up-gradation of handlooms and

testing & Quality Control equip-

ments, for handloom production

units.

10. 25% capital subsidy in lieu of 5%

interest reimbursement on bench-

marked machinery of silk sector as

applicable for Handloom sector.

11. The Scheme will cover only auto-

matic shuttleless looms of 10

years’ vintage and with a residual

life of minimum 10 years. The

value cap of the automatic shuttle-

less looms will be decided by the

Technical Advisory-cum-Monitoring

Committee (TAMC).

12. Investments like factory building,

pre-operative expenses and margin

money for working capital will be

eligible for benefit of reimburse-

ment under the scheme meant for

apparel sector and handloom with

50% cap. In case apparel unit /

handloom unit is engaged in any

other activity, the eligible invest-

ment under this head will only be

related to plant & machinery eligi-

ble for manufacturing of apparel /

handlooms.

13. Interest reimbursement will be for a

period of 7 years including 2 years

implementation / moratorium pe-

riod.

14. The subsidy in restructured cases

will be restricted to the quantum

approved in the initial loan repay-

ment schedule by the lending

agency and submitted to the Office

of the Textile Commissioner in the

prescribed format.

15. Common Effluent Treatment Plant

(CETP) and other investments like,

energy saving devices, in-house

R&D, IT including ERP, TQM in-

cluding adoption of ISO / BIS stan-

dards, CPP and electrical installa-

tions etc. will not be eligible under

Restructured TUFS.

16. There will be an overall subsidy

cap of Rs. 1972 crores from the

date of this Resolution to

31.03.2012, which is expected to

leverage an investment of

Rs.46900 crore, with sectoral in-

vestment shares of 26% for spin-

ning, 13% for weaving, 21% for

processing, 8% for garmenting and

32% for others.

17. The Scheme will be administered

with a two stage monitoring mecha-

nism. The sectoral caps shall be

reviewed for modification by the

IMSC (Inter Ministerial Steering

Committee), based on the recom-

mendations of TAMC.

OTHER LAWS


The information contained in this newsletter is of a general nature and it is not intended to address specific facts, merits and circumstances of any individ-ual or entity. We have tried to provide accurate and timely information in a condensed form however, no one should act upon the information presented herein, before seeking detailed professional advice and thorough examination of specific facts and merits of the case while formulating business deci-sions. This newsletter is prepared exclusively for the information of clients, staff, professional colleagues and friends of SNK.

5th May Payment of Service Tax

& Excise duty for April

6th May Payment of Excise

duty paid electronically

through internet bank-

ing

7th May TDS/TCS Payment for

April

10th May Excise Return ER1 /

ER2 /ER6

15th May PF Contribution for

April , Filing of TDS

return for the 4th Quar-

ter ended 31-3-2011

21st May ESIC Payment for April

Due Dates of key compliances:

Economy & Finance

TaxSum Newsletter- May 2011