Ahmedabad Chartered Accountants Journalcaa-ahm.org/Pdf/Journal/Journal-29.pdf · Ahmedabad...

Ahmedabad Chartered Accountants Journal August, 2013 253

Journal CommitteeCA. Rajni M. Shah CA. Ashok C. Kataria

Chairman ConvenorMembers

CA. Bharat C. Mehta CA. Hemant N. Shah CA. Jayesh C. SharedalalCA. Shailesh C. Shah CA. Yogi K. Upadhyaya

CA. Prakash B. Sheth [President (Ex-Officio)] CA. Chintan M. Doshi [Hon. Secretary (Ex-Officio)]

Volume : 37 Part : 05 August, 2013

In this issue

E-mail : [email protected] Website : www.caa-ahm.org

Contents Author's Name Page No.Editor's Views CA. Rajni M. Shah 255

President's Message CA. Prakash B. Sheth 257

Art ic les :Corporate Debt Restructuring CA. Nesal H. Shah 258

Estate Planning and Procedure CA. Helly Parikh 263

Controversies and Issues in Business Deductions under CA. Sunil H. Talati 267Chapter IV (Sections 30 to 36)

Columns :More Unknown Than Known CA. Jayraj Pandya & 276

Aatman Shah,Final C.A.Student

Procedures - Formation of Private Limited Company CA. Ajit C. Shah 279

Glimpses of Supreme Court Rulings Advocate Samir N. Divatia 281

From the Courts CA. C. R. Sharedalal & 283CA. J. C. Sharedalal

Tribunal News CA. Yogesh G. Shah & 286CA. Aparna Parelkar

FEMA & NRI Taxation CA. Rajesh H. Dhruva 290

Controversies CA. Kaushik D. Shah 293

Judicial Analysis Advocate Tushar P. Hemani 294

Sta t u te Up date(a) Service Tax Judgements CA. Ashwin H. Shah 299(b) Fema Update CA. Savan A. Godiawala 300(c) Value Added Tax CA. Bihari B. Shah 301(d) Corporate Laws CA. Naveen Mandovara 303(e) Circulars & Notifications CA. Kunal A. Shah 304

From Published Accounts CA. Pamil H. Shah 305

News Lounge CA. Arpit Shah 308

Association News CA. Chintan M. Doshi & 310CA. Abhishek J. Jain

Report on the 40th Residential Refresher Court at Banglore CA. Chandrakant Pamnani 311Interactive Session with CPC, Bangalore CA. Jignesh J. Shah 312Updates from ICAI CA. Uday I. Shah 278On the Website of CAA 266

Ahmedabad Chartered Accountants Journal

Ahmedabad Chartered Accountants Journal August, 2013254

AttentionMembers / Subscribers / Authors / Contributors

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Published ByCA. Rajni M. Shah,on behalf of Chartered Accountants Association, Ahmedabad, 1st Floor, C. U. Shah Chambers, Near GujaratVidhyapith, Ashram Road, Ahmedabad - 380 014.Phone : 91 79 27544232Fax : 91 79 27545442

No part of this Publication shall be reproduced or transmitted in any form or by any means without thepermission in writing from the Chartered Accountants Association, Ahmedabad.

While every effort has been made to ensure accuracy of information contained in this Journal, the Publisheris not responsible for any error that may have arisen.

Professional AwardsThe best articles published in this Journal in the categories of 'Direct Taxes', 'Company Law and Auditing' and'Allied Laws and Others' will be awarded the Trophies/ Certificates of Appreciation after being vetted byexperts in the profession.

Articles and reading literatures are invited from members as well as from other professional colleagues.

Printed : Pratiksha PrinterM-2 Hasubhai Chambers, Near Town Hall, Ellisbridge, Ahmedabad - 380 006.

Mobile : 98252 62512 E-mail : [email protected]


Objection, Your Honour!The two recent judgments delivered by the Supreme Court of India, one relating to the disqualification of tainted MPsand MLAs in contesting elections and the other relating to the ban of caste based rallies has caught many eyeballs.Many instances have been noticed in the recent times whereby the Apex Court or the High Court tried to step into theshoes of the executive and legislature, which include the CBI being called a ‘Caged Parrot’ or the ban on sale of Acidor the Supreme Court deciding the residence of ‘Lions’ or the High Court on its own motion instructing the CBDT toresolve the critical issues faced by the tax payers to name a few.

On a closer scrutiny of all the above judgments, a common thread that emerges in most of above cases is that the Courthas acted on its own motion. There are many evidences where the judiciary is commenting and passing strictureswhich may be many a times considered unwarranted.

The outgoing Chief Justice of India, Mr. Altamas Kabir recently opined that the SC steps in only when the legislaturefails to do the job. When someone does not work, the court has the power to tell him what to do and there happens tobe no case of overreaching.

Another botheration that is affecting India’s Judiciary system is the backlog of the cases. As per the website of theSupreme Court of India, there were 69,446 pending cases as on 30th June 2013 out of which 52,100 matters are morethan one year old. Vacationing may help to give a new life to oneself and give our sagging spirit a boost. However, itis still prima facie unreasonable for their Lordships of the Indian Judiciary to go on long vacations even as the numberof pending cases are rocket high.

The 230th Law Commission of India Report of Judicial Reforms, remarks that if the working hours are extended even byhalf – an – hour, a real impact could be seen on the rates of pending cases.

The words of Frank Tyger are worth noting in the Indian Scenario, “When you like your work, everyday is a holiday”.If everyone in the judiciary take Tyger’s words by heart, then surely the number of pending cases can be reduced to agreat extent.

The continual shifting of the judges of the Courts also adds to the backlog of cases. Even though the retiring judgesoften have a habit of wrapping up the cases and delivering judgments that may have been on their plate for a while,clearing the mountain and the handover period can add up to an administrative nightmare.

Every second phrase that we hear from a lawyer/advocate is that “Justice delayed is justice denied”. But the milliondollar question is whether the said phrase has religiously been followed by the judiciary? A trip through the Indian CourtSystem, is as close as experiencing eternity as a living soul can get.

Even if there are potholes, the commonality takes the matter to the Court and the judges entertain such cases. Inaddition they also make strong comments about the poor quality of administration. In the process, knowingly orunknowingly, the judiciary is causing a great damage to the reputation of the government and reducing the reverenceof the persons holding high and responsible positions, in the eyes of the citizens, even if the same are truth.

Even today, every Monday and Friday are called as ‘Miscellaneous Days’ or the days on which all the judges hear freshcases and decide which to admit for waiting in a queue or which ones should be dismissed forthright.

Many times it has been observed that the judgments delivered by the courts have a far reaching impact which mighthave not been taken into consideration at the time of delivering the judgments. Recently, the Delhi HC held in the caseof DLF Constructions Limited that trading in derivatives by companies is a speculative transaction in view of Explanationto Section 73 of the Act. The court overlooked the provisions of Section 43(5)(d) which has been inserted much afterexplanation to Section 73. As a result of the judgment, many AOs may rely upon the same, and take the matter to thecourt resulting in pending litigation for several years and in case of multiple tax payers. Intellectual arrogance orintellectual dishonesty is obvious when their Honours decide without being bound by principles of ‘stare decisis’ orprecedent.

In my concerned opinion, the legislature should make the Judiciary highly accountable and make them equipped withresources to discharge their functions and exercise their power.

Editor's Views


Editor's Views

The paradoxical situation is that a layman undergoes stress when receiving a routine government notice and the VIPsand celebrities get away with notices involving serious charges. One can not discuss the legal matters or any issuesrelated to judiciary saying it is sub judice or under threat of ‘Contempt of Court’.

Further, the cases of VIPs take almost 15-20 years to get disposed off. While one of the celebrities went behind the barsrecently, other has been convicted just while this piece is being penned down. No one knows when he would finallysuffer the punishment, if found guilty. Facts which illustrate the view are many, the ‘Chara Ghotala’, ‘Hansie Cronje –Match Fixing scandal’ are the ones to name a few.

To illustrate this, if we consider the case of Late LN Mishra, former CM of Bihar, murdered in 1975, the 27 year old manwho was accused of murder is now ailing at 65. Out of the 39 witnesses, 31 have already died. More than 20 differentjudges have heard the matter over years. And to top it all, the court declared that 38 years was by no means too long!Now if this happens to be the fate of a VIP case, we can imagine the plight of the mango people in this situation.

The long delayed judgments results in crushing of the honorable and the law abiding by those with muscle and money.The present Indian scenario is rightly described by the following phrase: “If law breakers are not in jail, they will be inthe legislature”

The new Chief Justice of India who joined the office thought it fit to give interview to the Television Media. Those whoare of the opinion that judges should keep themselves away from glare of the media would disappoint themselves.Those days seem to be fading away when the sitting judges at the lower courts scrupulously avoided such interaction sothat their personal views would not be made public and would not become a matter of debate. Judges should not onlyappear to be neutral but also have to be so. Judges today use the guest house of private companies or accept the landallocated from the discretionary quota of the Chief Minister. There is nothing which could tarnish the credibility of ajudge more than perception that he is close to certain parties or individuals.

The political system in India cannot be reformed until and unless the judicial system is amended or re-built. Even theSupreme Court has tried to promote faster justice by computerizing the cases, Lok Adalats and so on but Alas! The fateremains the same.

In other words, the need of the hour is a proactive and integrated approach to problem-solving, as against the currentstand-alone measures. What the nation needs today in addition to the electoral reforms is the judicial reforms. Theprocess needs to be more transparent.

Not only the judiciary, it is high time the legislature starts doing its job in an effective and transparent manner. Shouldthese complex and burdensome laws be simplified, we could reduce the pending litigation to a great extent. It is theinterpretation bubble that leads to all the legal battles. Every time, it has been observed that when the Apex Courtdecides something which might favour the ‘aam janta’, the unscrupulous law maker tend to amend the law and thattoo with a retrospective effect and thus leading the entire judicial process irrelevant and meaningless.

At the same time, the public at large can’t escape from its responsibility for turning ”a blind eye” on such criticalissues. Thanks to social media, we know what is happening in the Antarctic or Azerbaijan, but the irony is, we simplydon’t know what is happening next door. Whether one calls it blind eyes, escapism or intentional blindness, the factremains that it is making the victory of vices over virtues easy.

Further, we as the citizens of this nation should start accepting the system by developing a society where there areminimal disputes so that legal disputes are reduced and time of the courts are not wasted.

Afterthought: With so many wise men in the executive, the legislature and the bureaucracy, why do the simplest andmost obvious of solutions escape away or is it, once again, a question of political will – the lack thereof?

The blind–eyed approach of our politicians and bureaucrats, reminds me of famous lines in the Mahabharata narratedby Dhrutrashtra:

I know what dharma (virtue) is, yet I can’t follow it;

I know what is adharma (vice) and yet, I can’t leave it.

We are unsure, whether those who are in power are blindly following Dhrutrashtra’s but what is happening forces us toaccept this bitter truth.

CA. Rajni M. [email protected]

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Dear Professional Colleague,

As we will celebrate 67th Independence Day on 15th

August 2013, India has not been able to make itselffree from the clutches of the problems of anunderdeveloped country like poverty,unemployment, illiteracy and corruption. The social-economic backwardness with which this great Nationis f ighting is raising doubts on the electedgovernments as to the way they have functioned overthe years. The governance of various governmentsincluding major share of the period enjoyed by theCongress government, that played a major role inIndian Independence, has failed to ensure basicamenities to the citizens of this country. Last 9 yearsof the UPA government in the total span of 66 yearshave been the worst amongst all. The functionalparalysis of the government is visible from the utterindecisiveness in governance. The Prime Minister ofthe Nation who has proved himself as one of thefinest Economist in the past is failing miserably tocarry the nation forward economically.

The central government has been generally morereactive than being proactive in its approach. Afterthe Delhi gang rape case, the government went intothe statute books to make amendments for morestringent provisions rather than ensuring that everygirl on every street of the nation is ensured andempowered to walk freely with dignity and withouta slightest hesitation that any harm can be done toher.

Legislation is one of the most important functionsof the government but this government seems tofind the answers of all the socio-economic problemsincluding food security by enacting laws. The morereason for the concern has been the manner in whichthe Food Security law is being brought in by way ofan ordinance without routing it through thedemocratic process of discussion in the parliament.The times when the nation’s fiscal deficit is more than5% of the GDP, the government has not been ableto come out with any answer as to how the foodsecurity will be funded. As a concerned citizen onecould only hope that the government one dayconsiders financial implications over any policydecision made just to woo the voters.

President's Message CA. Prakash B. [email protected]

The activities at the Association are in full swing withregard to the preparations of RRC are concerned.By the time you receive the copy of journal for themonth of August 2013, the Association would havebeen through with one of the most important eventsduring the tenure of any president. If I can share myexperience, the first and the foremost thought thatarises after being appointed as the Vice President ofthe Association is, where would I arrange the RRCduring my tenure as a President? The RRC has beenthe most challenging job for any president of theAssociation but I would say that things have not beenso difficult for me because I have been fortunate tohave a dedicated team in the RRC committee, ledwith an example by the chairman of the committeeand with all the administrative assistance providedto me by the Convenor and Hon. Secretaries, Gettingthe paper book ready 15 days prior to the date ofRRC and ensuring its timely delivery to all thedelegates is just one example showing the dedicationof the entire team. I can say such a big event is notpossible without the team work. The way the thingsare in process, we are sure that we would be able toprovide the best of time to all the participants, atthe RRC amidst a fine blend on study and recreation.

Then we all wait for the entertainment evening ofthe Association. The event is scheduled on 14 th

August’2013. This year the form and the substanceof the talent evening have been changed in principleto involve maximum participation from the membersand their family members and make it more livelyand entertaining. The Institute has come out with anew guidance note on Tax Audits. As we begin thehectic schedule of Tax Audits assignments, 2nd BrainTrust meeting is arranged on the topic on 23rd August2013. The second knowledge clinic was held where4 queries were replied by the panelists of the clinic.It is hearting to note that members are taking goodadvantage of this new activity at the Association.

Results of Final CA have been announced.Congratulations to all the students who have beenable to taste the success. I invite newly passed CAs tobecome the members of this prestigious Association.

With best regards,CA. Prakash B. ShethPresident01.08.2013

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Introduction

During the recent past one has observed continuinginflation, high interest rates, volatile forex markets andbearish capital markets affecting the Indian Industry. Ineffect, incidence of corporate failures to achieve theirgrowth endeavor has increased and hence manycompanies especially those with highly leveraged balancesheet are required to restructure their business and aligncapital employed to their business. However, in thehindsight one of the fundamental reasons for performancefailures is lack of financial discipline which, has distortedfinancial results of various companies and now lookingfor options to reorganize or say restructure theirobligations.

Restructuring

The reorganization of a company’s outstanding financialobligations is generally achieved by reducing the burdenof the debts on the company, by reducing the rate ofinterest payable and increasing the time duration withinwhich the company is required to repay its debt. Thisallows a company to improve its ability to meet theobligations.

Also, some of the debt is sometimes foregone by thecreditors in exchange for an equity position in thecompany which is more commonly known as debt-equityswap.

The option of one time settlement (OTS) broadly dependson the quality of security and its realizable value,available to the lender which also is explored inrestructuring overall obligations.

Section 391 of Companies Act

The legal framework which provides support to a“Corporate Entity” in such difficult times is covered bySection 391 of the Companies Act, 1956. Here a schemeof Compromise or Arrangement having widest character,ranging from a simple composition or moratorium to anamalgamation of various companies with completereorganization of their share capital and loan capital ispossible.

Corporate DebtRestructuring CA. Nesal H. Shah

[email protected]

In fact, Section 391 is a complete code in itself, whereinSection 391(2) provides that if majority in numberrepresenting three fourths in value of the creditors orclass of creditors or members or class of members as thecase may be present and voting either in person or proxyat the meeting agree to a compromise or arrangementshall, if sanctioned by the Court, be binding on all thecreditors, all the creditors of the class, all the members,or all the members of the class, as the case may be, andalso on the company, or, in the case of a company whichis being wound up, on the liquidator and contributoriesof the company. The prerequisite of course is the Courtis satisfied that the company or any other person bywhom an application has been made has disclosed tothe Court, by affidavit or otherwise, all material factsrelating to the company, such as the latest financialposition of the company, the latest auditor’s report onthe accounts of the company, the pendency of anyinvestigation proceedings in relation to the companyunder sections 235 to 251, and the like.

Hence the dissenting creditors or class of creditors havingequal to or less than 25% exposure in value shall haveto accept the terms and conditions of the scheme ofarrangement vote in favor by majority of the creditors orclass of creditors, if it is proved, not to be prejudicial topublic interest.

Corporate Debt Restructuring Mechanism

A simpler mechanism of Corporate Debt Restructuring(CDR) is an option enunciated in a Scheme evolved byReserve Bank of India for a corporate entity which wantsto reorganize its loan capital only with banks and financialinstitutions. The CDR Mechanism is a voluntary non-statutory system based on Debtor-Creditor Agreement(DCA) and Inter-Creditor Agreement (ICA) and theprinciple of approvals by super-majority of 75% creditors(by value) which makes it binding on the remaining 25%creditors by value to fall in line with the majority decision.

Eligibility Criteria for CDR

The CDR Mechanism covers only multiple bankingaccounts, syndication/consortium accounts, where allbanks and institutions together have an outstandingaggregate exposure of Rs.10 crores and above. It covers


Corporate Debt Restructuring

all categories of assets in the books of member-creditorsclassified in terms of RBI’s prudential asset classificationstandards. Even cases filed in Debt Recovery Tribunals/Board of Industrial and Financial Reconstruction/and othersuit-filed cases are eligible for restructuring under CDR.

In case of loan capital with a single bank or multiplebanking accounts with exposure of less than Rs.10crores,for corporate or non-corporate entity including a smalland medium enterprise, bilateral restructuring with theindividual bank or multiple banks is possible based onguidelines prescribed by Reserve Bank of India (RBI),which are based on CDR restructuring framework exceptapplicability of prudential norms and the manner in whichthe diminution in value of the loan is computed andprovided for.

Reference to CDR Mechanism may be filed by any oneor more of the creditors having minimum 20% share ineither working capital or term finance (referred to asreferring institution), or by the concerned corporate, ifsupported by a bank/FI having minimum 20% share asabove.

The requests of any corporate indulging in fraud ormisfeasance, even in a single bank, cannot beconsidered for restructuring under CDR Mechanism.However, Core Group (part of the standing forum i.e.the top tier in CDR Mechanism), after reviewing thereasons for classification of the borrower as willfuldefaulter, may consider admission of exceptional casesfor restructuring after satisfying it-self that the borrowerwould be in a position to rectify the willful default providedhe is granted an opportunity under CDR. Willful defaulteris defined under the guidelines pronounced by RBI.

Admission of Reference

At the time of filing reference with CDR Cell, a FlashReport in prescribed format has to be filed with the Celland the Nodal Officers of all participating lenders at least10 days before the meeting of CDR Empowered Group(EG). Participating lenders would mean lending banks orfinancial institutions which are members to the CDRMechanism and have an exposure with the corporateapplying for restructuring under CDR mechanism.

The Flash Report provides the background details of theorganization, historical financial results, the reasons andjustification for restructuring and the broad contours ofrestructuring and the financial projections. Based on theFlash Report, the EG decides that restructuring of acompany’s debts is prima facie feasible and the concerned

enterprise is potentially viable in terms of the policiesand guidelines evolved by Standing Forum, the finalrestructuring package is worked out by the referringinstitution in conjunction with the CDR Cell.

The decision on admission of reference shall be takenby super majority vote of the lenders of the corporateentity who are members of CDR Cell. Hence the vote ofa lender to the corporate entity who is not the memberof the CDR cell is not considered for admission of thereference to the CDR Cell.

[“Super-Majority Vote” shall mean votes cast infavour of a proposal by not less than sixty percent (60%)of number of Lenders and holding not less than seventy-five percent (75%) of the aggregate Principal OutstandingFinancial Assistance.]

Time Lines for Processing of Package

The Final Package which provide relief and concessionsto the corporate entity is generally approved within aperiod of 60 days from the date of admission of referenceexcept for large and complicated cases which would bedecided by CDR EG, within 90 days. If the final decisionon a particular case is not taken within the stipulatedtime frame i.e. 60/90 days, as the case may be, therestructuring proposal would automatically be treated asclosed unless extension of time beyond 60/90 days isspecially sought by the Referring lending Institution (upto a maximum limit of 180 days) and the same ispermitted by the CDR Core Group. Such closed caseswould be considered for re-entry in the CDR system onlywith the permission of the Core Group. As per RBIguidelines the approved CDR package should beimplemented within 120 days from the date of approvalby CDR EG.

The restructuring package is formalized by signing aMaster Restructuring Agreement (MRA) by allparticipating lender with the borrower. Secondly, thebanking operations of the corporate entity need to becarried out from a common account known as TrustRetention Account (TRA) generally is opened with theMonitoring Institution (MI), post admission of referencewith CDR Cell. The MI shall transfer the necessary creditsto all the participating lenders as per the sanctionedpackage during the entire period of package.

Package and Viability Criteria

Generally before drafting the final package, a technoeconomic viability study (TEV) study from an independent


agency is conducted prima-facie to check the viability ofthe unit. Also, for working capital loans, an independentStock & Receivables Audit is conducted to verify theavailable drawing power based on the quality ofReceivables and value and quantity of Stocks. Theirregularity needs to be converted into Working CapitalTerm Loan (WCTL) because the security of current assetsfor that part of the loan is not available to the lenders.Wherever, necessary and especially in case of diversionof funds, forensic audit /special investigative audit mayalso be carried out under the supervision of the LeadBank/MI.

The final package should consider the following:

1. Determine the cut-off date for carving out theirregularity in working capital loans and convertingthem into WCTL and also for the tenure ofrescheduling loans.

2. Banks may reduce interest rates however rate ofinterest on all facilities including Funded Interest TermLoan (FITL) and WCTL should not be less than theBase Rate. Hence generally all interest rates chargedare linked to base rate of the bank having highestbase rate.

3. Banks may reschedule the loans and providemoratorium as per the needs and requirements ofthe unit. However, repayment period of therestructured advance including moratorium period,if any, should not exceed 15 years in the case ofinfrastructure advances and 10 years in the case ofother advances.

4. The unit should become viable in a time span of 5years in case of non-infrastructure projects and 8years for units engaged in infrastructure projects.

5. Reduction in the rate of interest and / or reschedulingof the repayment of loan, as part of the restructuring,will result in diminution in the fair value of theadvance. Such diminution in value is an economicloss for the bank and will have impact on its profits.It is termed as Bank’s Sacrifice. The benchmark forPromoter’s to bring in funds to make the unit viablehas to be at least 25% of Bank’s Sacrifice and needsto be brought up front. Previously it was 15% andcould partially be brought up front and balance aftersix months.

6. The RBI guidelines mention that conversion of debtinto preference shares is not desirable and shouldbe the last option. Instead instruments such as

convertible bonds having security may be acceptedas part of the package. When conversion is necessaryit should be in equity with a view to attainingmajority shareholding which can trigger change ofmanagement.

7. If the unit has non-core assets, the same should bemonetized in a time bound manner, and accordinglyincluded in the package.

8. The package would involve waivers, concessions andsacrifices on part of the lenders. These waivers andsacrifices need to be recouped whether fully orpartially, which is termed as “Right to Compense”.For the Right to Compense clause, the recompenseamount should be estimated and incorporated inthe package.

9. If necessary, the lenders should examine thepossibility of change of management where it hasbeen found that the unit was adversely affected dueto incompetent management or diversion/misuse offunds have taken place.

10. The lead bank/MI may if desire, nominate a directoron the Board of the company.

11. In case additional finance is required by the borrowerunit, firstly the end use of funds vis-à-vis source offinance needs to be ascertained. The TEV studywould generally throw light on the subject. Further,the amount which has to be shared by the lendersshall always be on pro-rata basis of the outstandingamount of the lenders. In case of lenders providingneed based working capital, they shall be givenpriority in the scheme to recover equivalent to FITL/WCTL as compared to TL.

12. The existing security sharing pattern among lendersshould not be altered as far as possible and theunsecured lenders, if any, should be given secondor subservient charge.

The Bench Marks financial viability parameters for thefinal package include the following:

1. Return on Capital Employed (ROCE): MinimumROCE equivalent to 5 year G-Sec plus 2% may beconsidered as adequate.

2. Debt Service Coverage Ratio (DSCR):. Since the unitis being restructured, adjusted DSCR as explainedbelow should be >1.25 within the 7 years period inwhich the unit should become viable and on year-to-year basis DSCR to be above 1. The normal DSCR



for 10 years repayment period should be around1.33:1.

Adjusted DSCR:

ACF + total interest excluding interest on WCL +lease rentals

Repayment of loans + interest excluding interest onWCL + lease rentals

*ACF means Actual Cash Flows and WCL meansWorking Capital Loans.

ACF will be net cash position during the year (totalgross profit plus outside funds if any available lesstotal requirement including build-up of inventory/debtor/normal capital expenditure etc. & repaymentof public deposits

3. Gap between Internal Rate of Return (IRR) and Costof Funds should be at least one percent.

4. Loan life ratio (LLR) is a concept, which is usedinternationally in project financing activity. The ratiois based on the available cash flow and present valueprinciple.

Present value of total ACF during the loan life period (including int.+ prin.)LLR = ————————————————————

Maximum amount of loan

The discounting factor may be the average yieldexpected by the lenders on the total liabilities, oralternatively, the benchmark ROCE. This ratio issimilar to the DSCR based on the modified method(Actual Cash Flow method). In project financing,sometimes LLR is used to arrive at the amount ofloan that could be given to a corporate. On the sameanalogy, LLR can be used to arrive at sustainabledebt in a restructuring exercise as also the yield. Abenchmark LLR of 1.4, which would give a cushionof 40% to the amount of loan to be serviced, maybe considered adequate.

The above financial viability benchmarks levels canbe modified by the CDR-EG on a case to case basis.

Decision Making Process

CDR Empowered Group’s decision relating to prima faciefeasibility and/or final approval of a Restructuring Schemeshall be taken by a Super-Majority Vote at a dulyconvened meeting, after giving reasonable notice, to theLenders and to the Eligible Borrower. In case of anychange/alteration/modification to the ApprovedRestructuring Scheme is required, the Referring Lender/

CDR Cell shall refer the same to the CDR EmpoweredGroup and the decision of the CDR Empowered Grouprelating to such changes/alteration/modification shall betaken by a Super-Majority Vote at a duly convenedmeeting, after giving reasonable notice, to the Lendersand to the Eligible Borrower.

The lenders not having mandate at the time of CDR EGmeeting could furnish their stand shortly after the meetingbut not later than the next meeting and their stand ifreceived by then should be taken into account for voting,and Lenders not furnishing their stand before the nextCDR EG meeting shall be excluded from voting.

In cases, where additional funding is to be provided tothe restructured unit, once the MI presents therestructuring proposal and has established the need foradditional exposure and has been approved by CDR EG,the same must be accepted by all the participating lendersas per their share in lending without any deviation. Anymandate which is conditional or if mandates does notagree for need based additional exposures would betreated as negative votes in respect of approval of finalpackages. Hence it is important for the borrower unit,before finalizing the package to check with the lendingbanks/institutions on their agreement to providingadditional funds and also to the package before goingfor the super majority vote to ensure that the package isaccepted and Letter of Approval (LOA) is issued by CDREG.

Holding on Operations

The Holding on Operations (HOO) is basically a short termmeasure to accommodate the genuine and legitimatebusiness needs of potentially viable units from the dateof filing of reference till the implementation of schemeor opening of Pre-TRA Account.

Since the cash credit account or overdraft account of theborrower would be overdrawn with the lending bank, itwould adjust any credits received in the account and theborrower shall not be able to utilize such credits for itsbusiness operations. During HOO, the outstanding levelFund Based plus Non Fund Based Limits (FB+NFB) as onthe date of filing of reference would be maintained andall credits received after the date of filing shall be allowedto be withdrawn by the borrower for business operations.In many cases lenders also allow interchangeabilitybetween FB and NFB limits to the extent of theoutstanding level as on the date of reference.



Pre-Trust Retention Account (Pre-TRA)

On admission of the Flash Report the borrower needs to

open a current account with the MI to be designated“Pre-TRA” All credits thereafter shall be routed through

this account only. All operational accounts of the borrower

such as cash credit account / overdraft account are

immediately frozen for the purpose of credits. The lender

operating the pre-TRA account shall not have the right

of general or specific lien on account balances. Suchlender may only recover pre-determined charges for

operating such an account. The Pre-TRA account shall

be a credit account with no stipulation of minimum

balance.

Every lender while obtaining sanction for admission of

flash report shall also seek sanction to authorise opening

of Pre-TRA account with MI. Any debit on account of

critical payments required to maintain asset classificationas on date of reference may be paid through this account,

provided the same is clearly mentioned in the flash report.

After date of reference, all forced debits like interest,

instalments, devolved LCs and invoked BGs shall be

accounted for with respective lenders only. No amount

shall be debited to the new account and the borrowershall be allowed to carry out business operations smoothly.

The Pre-TRA account will be governed by way of a

common document to be executed by all the lenders.

The waterfall mechanism for a pre-TRA account would

be on similar lines as prescribed for regular TRA accounts.

In case restructuring is not approved by CDR EG, thebalance o/s in the Pre-TRA account shall be distributed

amongst all the lenders on pro rata basis. Waterfall

mechanism would mean that the payments to lenders

would be prioritized in which high tiered lenders receive

interest and principal payments while lower tiered lendersonly interest payments, if at all any payments are to be

made to the lenders during the interim period.

Monitoring Mechanism

A monitoring mechanism has been evolved as part of

CDR System. The Mechanism comprises Monitoring

Institution (MI), Monitoring Committee (MC) and externalagencies of repute to complement monitoring efforts and

also to carry out work of Lenders’ Engineer, Concurrent

Audit, Special Audit and Asset Valuations. MI isappointed by CDR EG for effective monitoring of

sanctioned scheme. MC is formed to oversee the

implementation of the approved Restructuring Scheme.

The MC shall generally comprise one term lender, one

working capital bank, one minority lender and the CDRCell. MC is a recommendatory body and does not have

authorization to accord any approval. All outstanding

matters should be brought by the Monitoring Institutions

to MC meetings for discussion/resolution so that at the

EG meetings, a final view/consensus may be arrived at

expeditiously. Further, in case of any difficulty inimplementation of the approved Restructuring Scheme,

MC may approach the CDR EG for necessary direction

and/or guidance. In case of any dispute between the

lenders, the MC and the Borrower in respect of

implementation of the approved Restructuring Scheme,

the decision of the CDR EG shall be final and binding onthe parties to that dispute. MC also is assigned the task

to reviews regularly, and examine the necessity of

continuing the concessions granted.

Finally, the CDR package could be treated as

implemented by a lender if the following conditions are

fulfilled:

1. The package was sanctioned by the lender(s)

concerned and effect had been given in the books

of account of the lender(s);

2. Promoters’ contribution to the extent envisaged in

the package had been brought in; and

3. MRA was executed binding the lender(s) and the

company for compliance of all terms and conditions

of the approved package.

4. There should not be any additional or irrelevant

conditions at the time signing MRA by the lenders,

apart from the conditions mentioned in the approved

CDR package.

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Estate planning forms an essential part in the process of

financial planning. Making a will and creation of trust

are few of the widely used tools for the purpose as the

preparation and execution of these tools is relativelysimple, easy and practical. A deeper understanding into

these matters is very much required and is discussed

hereunder.

The Role of Financial Planner is not limited to planning

finances for individuals and helping them meet their needs

and requirements during their lifetime but it also includes

managing and disposing the funds after the death of an

individual. ESTATE PLANNING is helpful in achieving this

objective.

The whole issue of estate management has become

complex mostly due to lack of clarity and peculiar internal

family equations. Such issues should be handled withspecial soft skills as it involves sensitive and legal matters.

It is very important for one to be clear about the exactmeaning and definition of Estate before carrying out

Estate planning. “Estate means the whole of one’s

possession, especially all the property and debt

by one at death.”

Objective of Financial Planning is to develop and

implement a series of financial plans in order to achieve

financial success. Estate planning plays a vital role in the

process. Main goal of estate planning is to ensure the

proper and smooth disposal of property after the deathof the person.

Estate Planning and ProcedureCA. Helly [email protected]

Estate Planning includes:

1) Estate Management

2) Estate Preservation

3) Estate Legacy

Estate Planning can be carried out taking any of thefollowing routes

A. Through a Will

B. Through setting up a trust

Majority of people have not put enough thoughts on thematters relating to management of estate. So, the first

step in Estate planning is to gather information and their

preferences regarding ways and choices of disposal of

the estate. Once a Planner is clear about what the person

wants relating the disposal of property after death, thevery next step is to prepare a Will. Making a will is a

great tool in Estate Planning.

A. Will:

Person making a Will is called Testator . The

intention of the testator with respect to his propertyto be effective is known as Will.

For a person to make a valid Will, he must be:

1) Mentally capable ( Sound mind)

2) 18 years or older in age

Normally, Wills are made for disposing of property afterthe death of testator. But it can also be used as a tool for

appointing the executor for creating a trust.


Estate Planning and Procedure

If a person dies without writing a Will, he is calledintestate. His property will be inherited by his legal heir/s as per the law of Inheritance.

Types of Will:

- Conditional Will - Will that is expressed to takeplace in the event of happening of some conditionis called as Conditional Will.

- Joint Will - Two or more persons make the willjointly. Joint Wills can be revoked at anytime byeither of the person during their lives.

- Holograph Wi l l - Such Wills are entirelyhandwritten by the testator himself.

- Concurrent Will - Normally testator should leaveonly one Will at the time of his death. However, forthe sake of convenience a testator may dispose ofproperties in one country by one will and otherproperties in another country by a separate will.

- Pr i v i leged Wil l and Unpr iv i leged Wi l l -Privileged Will is generally pronounced by the soldier,airman or a mariner as they are not in a position towrite the will. Such pronounced Will has legalrecognition. All other Wills prepared by individualsare called unprivileged Wills.

Testator may make Will in duplicate, keeping one withhimself and other with someone else or at some otherplace. If an original Will is destroyed by the testator, it isrevocation of both.

Certain Terms used in Will:

Bequest or Legacy: Act of giving property by Will. Infact it is a gift of personal property by Will.

Codicil: An instrument made in relation to Will andexplaining, altering or adding to its disposition and shallbe deemed to form part of Will. A codicil unlike a will isnot an independent document but it is appendage tomain document.

Probate: It signifies that copy of the will is given to theexecutor together with the certificate granted under theseal of the court and signed by one of the registrarscertifying that the will has been approved. On the deathof the testator, the executor of the Will or heir ofdeceased testator can apply for probate. The court will

ask the other heirs of the deceased if they have anyobjections to the Will. If there are no objections, thecourt will grant probate. A probate is a copy of a Willcertified by the court. A probate is to be treated as aconclusive evidence of genuineness of a Will. In case, ifany objections are raised by any of the heirs, a citationhas to be served calling upon them to consent. Thereafter,if no objection is received, the probate is granted.

Registration of a Will:

Though it is not mandatory but is advisable to registerWill. It should be registered at the office of sub-registrar.No stamp duty is payable on registration of the Will.

Revocation of Will:

A will is always revocable during the lifetime of thetestator, even when the will is stated to be irrevocable.If the testator wants to revoke the will, he can do so byburning or tearing or destroying it completely. It must bedone with the intention to revoke the will and meresymbolic destruction is not sufficient. There should be aclause that ‘the present will is the last Will of the testatorand any Will prior to this would stand revoked.’ Thetestator cannot revoke the Will by just striking off. Hemust sign it and have it attested by at least two witnesses.

Nomination v/s Will:

Normally, Will and Nomination are used interchangeably.However, here it must be clarified that nomination is nota will. The nominee merely acts as trustee. In someinstances, the nominee and beneficiary of the will is thesame person. However, at all times provisions of Willprevail over Nomination. It is advisable to have the sameperson as the nominee and beneficiary of the will in orderto prevent future disputes.

GENERAL DRAFT OF THE WILL

I ,…………. Aged……..Son/wife/daughter of………..Residing at……….Do hereby declare that this is my lastWill. I am holding a disposal power of all estate, propertymentioned below and I am making this Will with anintention of smooth succession of my all movable as wellas immovable property among all Beneficiaries as below.I also declare that I am making this Will without anypressure, being a sound health. I understand that in eventof my death there should not be any dispute among mylegal heirs mentioned below to succeed my property


Sr. No Name Age Relationship, if any

I own the following Moveable properties

Sr No Particular of property Registration No Remarks

On the basis of the above lists, I bequeath my propertyas below:

Sr No Property Details Type of property Beneficiary Name

In witness whereof , I the said ……have put my signatureto each sheet of this Will on the day……of……year…..

Signature of testator

Name and Signature of Witness

Conclusion:

Will is generally perceived to be only for wealthyindividuals who have enough valuables, cash and propertyto be left behind for their loved ones. But the fact is thatWill is essential for all individuals regardless of theireconomic standing. It is important for financial plannersto help their clients secure a peace of mind that theirfamilies would get their inheritance as per the wish ofthe clients. It is also important that the Will may beupdated periodically.

B. Trust:

A trust is an Estate planning solution that allows anindividual or a married couple to structure their wealtheffectively for the benefit of both current and futuregenerations and the same is governed by a trustdeed. Trust deed is a deed that sets out the terms oftrust agreed between the Settler and Trustees.

The law relating to private trusts is governed by theIndian Trusts Act (“Trust law”). A trust is basically a

vehicle under which property is transferred from theoriginal owner and held by the person to whom it istransferred for the benefit of another. The “authorof the trust”, the “trustee”, the “beneficiary”, the“trust-property”, the “beneficial interest” and the“instrument of trust” are the integral elements of atrust. A trust can be created for any lawful purpose.

A trust, in relation to an immovable property, mustbe in writing and registered. A trust is created whenthe author of the trust indicates an intention to createa trust along with its purpose, beneficiary and thetrust-property, and transfers the property to thetrustee. A trust is different from a gift.

A Trust comes with certain inherent advantages. Itprovides the flexibility to be set up in more than oneform or in hybrid forms as per the requirement. Atrust can be either private or public. As opposed toa public trust, a private trust is a trust generally forconvenience and support of individuals of families.Trust can be structured as revocable or irrevocable.

A revocable trust can enable the settler to exercisecontrol over the property but can be prone toclubbing provisions under the tax laws. An irrevocabletrust can provide safeguard against future creditorclaims on the assets in case of bankruptcy, sincethe settler ceases to have the title to the trustproperty, yet at the same time enable indirect controlover the property through terms of the trust deed.This is one of the prime benefits of a trust structurewhich allows ring fencing of wealth, the downside,however, being the settler losing ownership.

Further, while settling equity stake of a loss makingcompany in a trust to ensure asset protection, onemay need to be careful of tax provisions due to whichlosses could lapse in case of a substantial change instake. A trust can be further set up either asdiscretionary, where trustees can have the discretionas regards to distribution of benefits to one or morebeneficiaries and extent thereof which may beespecially useful if the settler is the trustee, or asdeterminate, where entitlement of beneficiaries isfixed by the settler through the trust deed.

Trusts can be set up inter vivo or by will. Both havetheir own characteristic advantages and purposesto serve. Multiple trusts can be set up to suit multiplepurposes or even hybrid trusts combining variousforms, thus, obviating the need to have multipletrusts.




Except for necessary governing provisions, the trustlaw provides enough flexibility in creating andmanaging a trust. Any person competent to contractcan create a trust and any person capable of holdingproperty can be a beneficiary including a minor. Anyperson capable of holding property can be a trustee.A trust can be an efficient tool for successionplanning without the need for probate processthrough Court, thereby protecting privacy bypreventing public disclosure.

Being governed largely by the terms of the trust deed,a trust structure can afford the necessary flexibilityto capture commercial or family arrangements andat the same time enable imposition of necessaryconditions by the settler for the entitlement tobenefits. Investment of trust moneys, apart fromsecurities prescribed under trust law, can also bemade in securities expressly authorised by trust deed.

The settler, even though not the legal owner, canthereby specify an investment mandate in respectof trust property and exercise implicit control throughthe various covenants. The settler can himself bethe trustee, thereby exercising a greater control. Atrust, therefore, can enable the settler to exercisevarious degrees of control over the property evenwhen divested of the legal title.

Further, it is feasible to transfer beneficial interestsin the property from generation to generation asalso realign family holdings inter-se, as perrequirements. A trust enables segregation ofownership and control. Management of propertiesthrough a trust creates a legal framework withinwhich assets can be protected and maintained

effectively while safeguarding the interests of familymembers.

Taxation of Revocable/ Irrevocable Trust:

When a person looks at options of Irrevocable Trustcreating a revocable or an irrevocable Trust it is importantto understand how income generated by these Trustswould be taxed

1) In case of a revocable trust, the income of the trustis taxed in the hands of the creator of the trust i.e.the Settler. The tax imposed would be at the ratesapplicable to the Settler.

2) In case of an irrevocable trust, the income of thetrust is taxed in the hands of the beneficiaries. Thetax imposed would be at the rates applicable to thebeneficiaries. However, if the beneficiaries are notdetermined at the time of executing the Trust Deedthen the Trust would become a discretionary trustand any income of such a Trust would be taxed atmaximum marginal rate.

How much does it cost?

If you have to just make a Will, it might cost you anythingbetween Rs 6,000 and Rs 10,000. Making of a Will,registration, other processes like safe-keeping andexecution will work out to about Rs 25,000.

If you are taking your bank’s help in setting up of a Trust,its management and execution, the bank will chargeyou 0.5-3% of total assets under management (AUM)as the estate planning fee. If you seek an independentprofessional the charges vary depending upon the service.The setting up of a trust, will work to a one time cost ofRs 2-3 lakh.

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Following latest information / judgements are availableon the website of the Association www.caa-ahm.org

High Court Judgements

1 . CIT v. Milton Laminates Ltd. (Guj.)

As per CBDT’s circular No.549 dated 31.10.1989,assessee’s assessed income cannot be less that thereturn income. This Circular was held not to beapplicable, in Gujarat Gas Co. Ltd v. JointCommissioner of Income tax reported in 245 ITR84. Similarly held by Gujarat High Court in Milton

On the Website of CAALaminates Ltd. Department’s SLP dismissed. [354ITR St. Pg. 101]

2 . Manoharlal Agarwal v. CIT (Guj)

When return was e-filed (beyond due date)and TDS was left to be claimed, but wasclaimed through revised return, credit wasto be given for TDS.

The July-2013 issue of ACA Journal is also available onthe website.

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What is Business?

The word ‘Business’ is defined in section 2(13) to includeany trade, commerce or manufacture or any adventureor concern in the nature of trade, commerce ormanufacture.

The expression ‘business’, though extensively used in tax-statutes, is a word of indefinite import. In tax statutes, itis used in the sense of occupation or profession whichoccupies the time, attention and labour of a person,normally with the object of making profit. To regard anactivity as a business, there must be a course of dealings,either actually continued or contemplated to be continuedwith a profit motive and not for sport or pleasure.

Essential characteristics of business:

1) Continuous and systematic exercise of activity.

2) Profit Motive

3) Transaction between two persons

4) Involves a twin activity

5) Business includes trade or commerce

6) Business includes manufacture

7) Business includes any adventure or concern in thenature of trade, commerce or manufacture

- Section 28 of the Income Tax Act deals with aninclusive definition so as to charge Income tax underthe head “Profits and gains of business orprofession”. This includes seven items so as to covercertain types of receipts to be specifically taxed underthis head.

- Thereafter section 29 deals with the provision so asto clarify as to how income referred to in section 28shall be computed in accordance with the provisionscontained in section 30 to 43D. It can be a book byitself if all the aspects dealing with these areconsidered in this presentation in this elite gatheringin this limited time period. However, it is importantto appreciate that on the basis of the provisions madein section 30 to 36 following expenses are allowable.I am making an attempt to deal with some of thecontroversies and issues arising during the course ofpracticing profession or conducting business as under:

Section 30: Rent, Rates, Taxes, Repairs &Insurance of Buildings used for the purposeof the Business

Controversies and Issues in BusinessDeductions under Chapter IV(Sections 30 to 36)

CA. Sunil [email protected]

Controversies :

i. Rent of the premises is allowed as deduction.However, notional rent paid by proprietor is notallowed as deduction. But rent paid by him tohis partner for using his premises is allowed asdeduction.

i. Current repairs if the assessee bears the cost ofrepairs are allowed as deduction. However,Capital repairs incurred by the assessee arenever allowed as deduction whether premisesis occupied as a tenant or as a owner. Insteadthe capital repairs incurred shall be deemed tobe a building and depreciation shall be claimed.

i. Any sum on account of Land Revenue, LocalTaxes or Municipal Taxes subject to section 43B.as per section 43B deduction shall be allowedonly if such sum is actually paid on or beforethe due date of furnishing or return ; and

i. Insurance charges against the risk of damageor destruction of building is allowed asdeduction

Issues :

Assessee-company was carrying on its businessin a building taken on rent - Consequently, anagreement was entered into between owners,tenant, other occupants and a developer, underwhich developer was to repair and reconstructbuilding at its own cost, and, after that certainarea was to be handed over to co-owners -Assessee was also given its equivalent portionon condition that it would contribute towardscost incurred on repair and reconstruction -Assessee’s share of cost was arrived at Rs. 1.50crores; said agreement also provided that therewould be no increase in rent payable by assessee- On above facts, Assessing Officer held thatassessee had secured rights over portion ofbuilding on payment of Rs. 1.50 crores whichconstituted deemed ownership of building -Accordingly, Assessing Officer held expenditureof Rs. 1.50 crores to be capital in nature anddisallowed it - Commissioner (Appeals) andTribunal reversed order of Assessing Officer -Whether since there was no acquisition of acapital asset and occupation of assesseecontinued in character of a tenancy,expenditure of Rs. 1.50 crores could not be


Controversies and Issues in Business Deductions under Chapter IV (Sections 30 to 36)

regarded as capital in nature but revenue to beallowable by way of deduction - Held, yes [CIT Vs. Talathi an[In favour of assessee]dPanthaky Associated (P.) Ltd. [2012] 18taxmann.com 367 (Bom. H.C.) ]

The expenditure on designing, layout and othertemporary constructions, to make officefunctional, was allowable as repairs andmaintenance, and was not capital in nature.[CIT Vs. Armour Consultants (P.) Ltd.[2013] 32 taxmann.com 172 (MadrasH.C.)] [In favour of assessee]

Section

31: Repairs & Insurance of Plant, Machinery& Furniture

Controversies :

i. Current repairs to the plant, machinery andfurniture is allowed as deduction. However,capital repairs incurred by the assessee arenever allowed as deduction whether plant isleased or is purchased. Instead the capitalrepairs incurred shall be deemed to be an asseteligible for depreciation.

i. Premium paid for insurance against the risk ofdamage or destruction of plant, machinery orfurniture is allowed as deduction.

Issues :

(A) Expenditure incurred by assessee towardscost of replacement of machinery couldnot be regarded as amount paid on accountof current repairs allowable under section31. [CIT VS. Sree Ayyanar Spinning& Weaving Mil ls L td. [2012] 28taxmann.com 106 (SC) ] [In favourof Revenue]

(B) Whether section 31(i) limits scope ofallowability of expenditure as deduction inrespect of repairs made to machinery, plantor furniture by restricting it to concept ofcurrent repairs and all repairs are notcurrent repairs - Held, yes - Whether todecide applicability of section 31(i) test isnot whether expenditure is revenue orcapital in nature, but whether expenditureis current repairs - Held, yes - Whetherbasic test to find out as to what wouldconstitute current repairs is that expendituremust have been incurred to preserve andmaintain an already existing asset, andobject of expenditure must not be to bringa new asset into existence or to obtain a

new advantage - Held, yes - Whether allrepairs do not attract section 31(i) eventhough expenditure is revenue in nature -Held, yes- Assessee manufacturer of yarnreplaced old 3 ring frames by new onesand claimed expenditure incurred in saidactivity as current repairs contending thatwhole textile mill was a ‘Plant’ and ringframes were one of 25 machines whichconstituted one single process…….

(C) Replacement of frames be treated asreplacement of part of plant/totalmachinery and not replacement of amachine - Assessing Officer held that eachmachine including ring frame was anindependent and separate machinecapable of independent and specificfunction and, therefore, expenditureincurred for replacement of entire machinewould not come within meaning of words‘current repairs’ - Whether AssessingOfficer was justified in holding so - Held,yes [Saravana Spg. Mills (P.) Ltd. Vs.CIT [2007] 163 TAXMAN 201 (SC) ][In favour of Revenue]

(D) Section 31 of the Income-tax Act, 1961 -Repair and insurance of machinery, plantand furniture - Assessment year 1995-96 -Whether each machine in a textile millshould be treated independently as suchand not as a mere part of entire compositemachinery of spinning mill - Held, yes -Whether, therefore, replacement of suchan old machine with a new one wouldconstitute bringing into existence a newasset in place of old one and not repair ofold and existing machine to be allowed asdeduction under section 31 - Held, yes [CIT Vs. Sri Mangayarkarasi Mills (P.)Ltd. [2009] 182 TAXMAN 141 (SC) ][In favour of Revenue]

(E) Assessee claimed expenditure of Rs.1,80,85,276 on account of repairs of40MVA transformer - Assessing Officerfound that book value of transformer hadbeen completely exhausted, and therefore,he held that it was a case of making newtransformer - He, therefore, held thatexpenditure was of capital nature andmade disallowance therefor - On appeal,Tribunal found that expenses were incurredon extensive repairs, consequent to severedamage to an existing business asset and,therefore, it was case of restoration of its


existing capabilities and not a case ofacquisition of new asset or obtaining anyadvantage of enduring nature - Tribunal,accordingly, allowed assessee’s claim -Whether findings recorded by Tribunalwere findings of fact and, therefore, noquestion of law did arise therefrom - Held,yes [ CIT Vs. Sunflag Iron & SteelCo. Ltd.* [2011] 15 taxmann.com124 (Bom. H.C.) ] [ In f avour ofassessee]

Section 32: Depreciation

(i) know-how, patents, copyrights, trademarks,licences, franchises or any other business orcommercial rights of similar nature, beingintangible assets acquired on or after the 1stday of April, 1998, owned, wholly or partly, bythe assessee and used for the purposes of thebusiness or profession the following deductionsshall be allowed.

Issues :

(A) Goodwill is an asset under Explanation 3(b)to section 32(1) and, thus, it is eligible fordepreciation & Stock exchangemembership card is an asset eligible fordepreciation under section 32 of the Act..[CIT Vs. Smifs Securities Ltd. [2012] 24taxmann.com 222 (SC)] [In favour ofassessee]

(B) Whether right of membership conferredupon a member under BSE membershipcard in terms of rules and Bye-laws of BSE,as they stood during relevant assessmentyears, was a ‘business or commercial right’which gave a non-defaulting continuingmember a right to access exchange andto participate therein and, in that sense, itwas a licence or akin to a licence in termsof section 32(1)(ii) - Held, yes - Whether,therefore, for relevant assessment years,depreciation was allowable on cost of BSEmembership card under section 32(1)(ii) -Held, yes. [Techno Shares & StocksLtd. vs. CIT [2010] 193TAXMAN 248(SC) ] [In favour of assessee

(C) Assessee was engaged in business of hire-purchase and leasing finance - It leasedout positive film rolls purchased by it to afirm and claimed depreciation on those filmrolls - Assessing Officer allowed such claim- Subsequently, on account of strike in filmindustry, lessee returned film rolls toassessee and requested for cancellation of

lease agreement - Assessee accounted forlease rent as income but same being notrecovered were claimed as bad debt -Assessing Officer reopened assessmentand disallowed depreciation originallyallowed to assessee on ground thatassessee had claimed lease rent as baddebt in subsequent assessment year andthat assessment had become final -Whether film rolls which were kept underforced idleness, were to be deemed to bein use during entire period of year and,therefore, assessee, even though a passiveuser, was to be deemed to be an activeuser within meaning of word ‘used’, as filmrolls were kept ready for use - Held, yes -Whether, therefore, assessee was entitledto claim depreciation on said film rolls -Held, yes [ CIT vs. Heera FinancialServices Ltd. [2008] 169 TAXMAN192 (MAD. H.C.) ] [ In f avour ofassessee]

(D) Assessee-company claimed depreciationon Tetrapack machine - Assessing Officerdisallowed its claim on ground that saidmachine was lying idle - Commissioner(Appeals) upheld order of Assessing Officer- However, Tribunal accepted assessee’sclaim on ground that machine was not sold,discarded or demolished and was keptready for use - Whether since keeping ofmachine in readiness was a finding of fact,machine would be deemed to have beenused within meaning of expressioncontained in section 32 and, therefore,Tribunal was justified in allowing assessee’sclaim - Held, yes [ CIT Vs. PremierIndustr ies ( India ) Ltd.2008] 170TAXMAN 407 (MP H.C.) ] [In favourof assessee]

(E) Non-registration of asset in assessee’sname is no bar for allowing depreciation.Whether even in absence of registered saledeed in respect of car parking space,assessee is entitled to claim depreciationon same - Held, yes.[CIT VS. IndianSugar Exim Corpn. Ltd. [2012] 26taxmann.com 323 (Delhi H.C.) ] [Infavour of assessee]

(F) Trial run of plant constitutes ‘use’ thereofentitling assessee for depreciation inrelevant assessment year. The trial run ofthe plant by the assessee constitutes ‘use’thereof entitling the assessee for



depreciation in the relevant assessmentyear. [C IT Vs. Mentha & Al l i edProducts [2010] 326 ITR 297 (ALL.H.C.)] [In favour of assessee]

(G) Allowance/Rate of - Non-compete fee -Assessment year 2001-02 - Whether sincein case of non-competition agreement,advantage is a restricted one in point oftime and it does not confer any exclusiveright to carry on primary business activity,amount paid as non-compete fee does notquality for depreciation under section32(1)(ii) - Held, yes [Sharp BusinessSys tem Vs. C IT [2012] 27taxmann.com 50 (Delhi H.C.) ] [Infavour of revenue]

Section 36(1)(i) : Insurance of Stock

Controversies :

• The amount of any Insurance premium paid inrespect of insurance against risk of damage ordestruction of stocks or stores used for the purposesof the business is allowed as discount.

Section 36(1)(ib) Insurance premium on thehealth of employees

Controversies :

It is allowed as deduction if following conditionsare satisfied :

a) The Premium is paid by Cheque by the employer;and

b) Premium is paid under the Scheme framed in thisbehalf by the General Insurance Corporation ofIndia and approved by the Central Government.

Issues :

Section 36(1)(i) of the Income-tax Act, 1961 -Insurance premium qua insurance of stocks orstores - Assessee, a partnership firm, insuredthe lives of its partners to provide for liquid cashto pay off outgoing partner or legal heirs ofdeceased partner to enable surviving partnersto continue business without interruption -Assessee paid insurance premia and was entitledto sum assured on maturity of policy or in eventof death of partner - Whether it could be saidlife insurance policies were taken out againstrisk of damage or destruction to the stocks sothat insurance premium paid could be allowedunder section 36(1)(i) -Held, on facts, No.[Khodidas Mot iram Pancha l VS . CIT[1986] 27 TAXMAN 208 (GUJ. H.C.) ][In favour of revenue

Section 36(1)(ii) Bonus or commission paid toemployees

Controversies :

• Bonus or Commission paid to an employee isallowable as deduction subject to certain conditions:

1 ) Admissible only if not payable as profitor dividend : One of the conditions is thatthe amount payable to employees as Bonus orCommission should not otherwise have beenpayable to them as profit or dividend. This isprovided to check an employer from avoidingtax by distributing his / its profit by way of bonusamong the member employees of his/itsconcern, instead of distributing the sum asdividend or profits.

2 ) Deductible on payment basis : Bonus orCommission is allowed as deduction only wherepayment is made during the previous year oron or before the due date of furnishing returnof income u/s 139.

Issues :

(A) Assessee-company was a share broker - Duringrelevant assessment year, it had paidcommission to tune of Rs. 40 lakhs each to threeworking directors who were only shareholdersof company and owned entire share capital ofRs. 6.5 crores of company - Assessing Officerheld that such payment of commission was inlieu of dividend and was not eligible fordeduction under section 36(1)(ii) - Assesseeclaimed that payment of commission was notin lieu of profit or dividend as payment hadbeen made to directors for hard work they hadput in improving profits of company - However,facts revealed that steady rise in performanceof company was due to improved marketconditions and not because of any extra servicerendered by directors as no evidence had beenproduced for rendering of extra services -Assessee had not given any convincing reasonfor not declaring dividend in spite of substantialprofit - Moreover, no commission was paid toany employee other than three shareholderdirectors who were also family members -Whether, on facts, payment of commission ofRs. 1.20 crores to three working directors wasin lieu of dividend and same was not allowableas deduction under section 36(1)(ii) - Held, yes.[ Dalal Broacha Stock Broking (P.) Ltd.vs. ACIT [2011] 11 taxmann.com 426(Mum. ITAT) (SB) ] [In favour of revenue]



(B) Whether ex gratia payment made by assessee-company to its employees over and above limitof 8.33 per cent prescribed under Payment ofBonus Act was allowable as deduction undersection 36(1)(ii) - Held, yes. [CIT VS. MainaOre Transport (P . ) Ltd . [2008] 175TAXMAN 494 (BOM. H.C.) ] [In favourof Assessee]

(C) Bonus or commission - Assessment years 1979-80 and 1980-81 - Assessing Officer disallowedcertain sum claimed by assessee-companytowards bonus paid to senior staff members -Whether in view of decision of Allahabad HighCourt in CIT v. Champaran Sugar Co. Ltd. [ITReference No. 20 of 1990, dated 14-2-2005],Tribunal was correct in holding that paymentto senior members of employees who were notentitled to receive bonus under Payment ofBonus Act, was an admissible expenditure -Held, no [ CIT VS. Champaran Sugar Co.Ltd. (2006) 154 TAXMAN 177 (H.C.ALL.)] [In favour of revenue]

(D) Assessee paid certain amounts as bonus toemployees, who were also shareholders andpromoters of company. The bonus was mainlypaid for services rendered by working Directors,who happened to hold a few shares in company- Whether in view of aforesaid legal position,assessee’s claim for bonus could not bedisallowed by invoking provisions of section36(1)(ii) - Held, yes [ACIT VS. MandoviMotors (P.) Ltd [2010] 8 taxmann.com225 (Bang. ITAT) ] [In favour of Assessee]

(E) Bonus or Commission - Tribunal allowed claimof assessee for deduction of ex gratia paymentas additional bonus on ground that saidpayment was made on account of agreementbetween mills owner’s association andemployee’s union - Whether in absence of anyevidence to show that agreement was bindingon assessee or to show that ex gratia paymentwas reasonable or in accordance with anypractice prevailing at relevant time, assesseewas not entitled to deduction of bonus, whichwas paid over and above bonus payable underPayment of Bonus Act - Held, yes [CIT VS.Mafat lal F ine Spg. & Mfg. Co. Ltd. [[2004] 138 TAXMAN 143 (BOM. H.C.) ][In favour of revenue]

(F) Section 36 (1)(ii) of the Income-tax Act, 1961 -Bonus or commission - Assessment year 1977-78 - Assessee paid certain sum to its executivestaff as commission over and above salarypayable to them - Assessing Officer disallowed

said commission - On appeal, Tribunal deletedaddition holding that payment was clearly forcommercial expediency - Whether on facts,Tribunal was justified in its action - Held, yes .[Porri tts & Spencer (Asia) Ltd. VS CIT[2008] 175 TAXMAN 533 (PUNJ. & HAR.H.C.) ] [In favour of Assessee]

Sect ion 36(1)( i i i ) Interest pa id on borrowedcapital for the purpose of business or profession

Controversies :

CONDITIONS :

As per Supreme Court judgment :

1. The sum of money should be borrowed from anotherassessee. The loan may be borrowed from any Bank,Financial Institution, Govt., Public, friends or relatives.Loan may be in the form of debentures or depositsetc. Interest on capital or loan to proprietor is notallowed as deduction since the loan is not borrowedfrom another person. However, interest paid by firmto its partner on their capital contribution is allowedas deduction.

2. Such borrowed money should be used for the purposeof business or profession. But where the amount ofloan is used for personal purpose it is not allowed asdeduction. E.g. the loan is borrowed for the paymentof income tax not allowed as deduction. However,loan is borrowed for payment of dividend or salestax is allowed as deduction

3. The Interest has accrued during the relevant previousyear. However, where the interest falls u/s 43B, i.e.where interest is payable to banks or financialinstitutions, then for claiming deduction such interestshould actually be paid on or before the due date offurnishing of return.

Controversies :

PROVISO 1 TO 36 (1)( i i i ) . INTEREST ON BORROWING FOR ACQUIRING NEW ASSETS :

1. Interest accrued before the commencement ofbusiness not allowed ad deduction but has to becapitalized and added to the actual cost of fixedassets acquired out of borrowed capital.

2. Similarly interest accrued after the commencementof business but before the asset is put to use is notallowed as deduction but has to be capitalized andadded to the actual cost of the fixed assets acquiredout of borrowed capital.

3. Interest accrued after the asset is put to use isallowed as deduction u/s 36(1)(iii) irrespective of thetreatment in books of account.



Other Points :

Where interest is paid outside India without deduction oftax at source can not be allowed as deduction.

1. Income tax department cannot question the needfor borrowing and the rate of interest.

2. Interest other than interest on borrowing is allowedas deduction u/s 37 and not under this clause. E.g.Interest on late payment of sales tax etc.

Issues :

(A) Interest paid on borrowed fund for mereextension of existing business, is allowable asdeduction under section 36(1)(iii). [CIT Vs.Monnet Indust r ies L td. [2012] 25taxmann.com 236 (SC) ] [In favour ofAssessee]

(B) Interest paid in respect of borrowings on capitalassets not put to use in concerned financial yearis allowable as deduction under section36(1)(iii ). [ ACIT VS. Arvind Polycot Ltd.(2008] 299 ITR 12 (SC)] [In favour ofAssessee]

(C) Assessee had a running business ofmanufacturing and selling of intravenoussolutions - It installed new machineries on whichproduction was not started during relevant year- Assessee claimed deduction of interest onborrowings made for purchasing thesemachineries - Whether assessee’s claim was tobe allowed u/s 36 (I)(iii)- Held, yes. [ DCITVS. Core Health Care Ltd. [2008] 167TAXMAN 206 (SC) ] [ In f avour ofAssessee]

(D) Interest paid in respect of borrowings foracquisition of capital assets not put to use inconcerned financial year can, be allowed asdeduction under section 36(1)(iii). [VardhmanPolytex Ltd. vs. CIT [2012] 25taxmann.com 281 (SC) ] [In favour ofAssessee]

(E) Section 36(1)(iii) of the Income-tax Act, 1961,read with Article 7 of DTAA between India andBelgium (Business Profit) - Interest on borrowedcapital - Assessee-non-resident company hadborrowed money from its shareholders in sameratio as equity shareholding resulting in abnormaldebt-equity ratio of 248:1 - Revenue’s case wasthat debt was to be re-characterised as equityand interest payment thereon disallowed -Whether since there are no thin capitalizationrules in force, interest payment on debt capitalto shareholders could not be disallowed - Held,

yes [Para 8] [ DCIT Vs. Besix Kier DabholSA [2012] 26 taxmann.com 169 (Bom.H.C.)] [In favour of Assessee]

(F) Interest paid on bank loan which has beenutilized for margin deposits with stock brokersfor investment in shares is not an allowablededuction under section 36(1)(iii). Assessee firmengaged in animal feed had sufficient currentassets from which it advanced loan to variouspeople and family members without charginginterest - On other hand assessee took bankloans and claimed to have employed same forpurpose of business - Assessee claimeddeduction of interest paid on bank loan -However, a part of bank loan was found tohave been utilised for margin deposit with stockbroker companies to make investment in shares- Whether interest can be disallowed on amountutilised for margin deposit and not whole ofamount taken from bank - Held, yes [Para 5][Prakash Narottam Das Gupta Vs. I.T.O.[2013] 33 taxmann.com 48 (Mumbai -Trib.) ] [Partly favour of assessee]

(G) Where assessee had sufficient funds in shapeof share capital and share application moneyout of which it could advance loan to its sisterconcern, interest paid on borrowed capitalwould be allowed under section 36(1)(iii).[Venus Records & Tapes (P.) Ltd. vs. ACIT[2013] 33 taxmann.com 49 (Mumbai -Trib.)] [In favour of assessee]

(H) The Legislature has made no distinction insection 36(1)(iii ) between the capital borrowedfor a revenue purpose and the capital borrowedfor a capital purpose. The assessee is entitledto claim the interest paid on borrowed capitalprovided that the capital is used for businesspurpose irrespective of what may be the resultof using the capital which the assessee hasborrowed. Actual cost of an asset has norelevancy in relation to section 36(1)(iii).[Gujarat State Fertilizer & Chemicals Ltd.v. Asstt. CIT [2009] 313 ITR 244 (Guj.H.C.) ] [ In favour of assessee]

(I) Interest on borrowed capital - Assessment years1998-99 and 1999-2000 - Whether interest paidby assessee on money borrowed for expansionof its business was to be allowed as a deduction- Held, yes [ CIT VS . CarborandumUniversal Ltd. [2009] 177 TAXMAN 347(MAD. H.C.)] [ In favour of assessee]

(J) Section 36(1)(iii) of the Income-tax Act, 1961 -If the total interest-free advances including debit



balances of partners do not exceed the totalinterest-free funds available with the assessee,no interest is disallowable on account ofutilisation of fund for non-business purposes andif it so exceeds, the proportionate disallowancecan be made. [Torrent Financiers Vs. ACIT[2001] 73 TTJ 624 (AHD. ITAT) ] [ Infavour of assessee]

Section 36(1)(iv) Employer’s contribution towardsrecognized Provident Fund or an Approved SuperAnnuation Fund.

Controversies :

Employer’s contribution paid towards recognizedprovident fund or an approved superannuationfund is a llowed as deduct ion subject to Sec.43B. However, contr ibution to Non-StatutoryFund or Unapproved Fund is not a llowed addeduct ion. In case of contr ibut ion towa rdssuperannuation fund is allowed as deduction u/s 37

Issues :

(A) Provident fund, contributions towardsrecognized - Certain deductions to be allowedonly on actual payment’, it could be said thatemployer’s contribution to provident fund, etc.,paid after expiry of due date under section36(1)(iv) and (v) but before filing of return undersection 139(1), would be allowed as deductionin view of second proviso to section 43B - Held,yes. [ ACIT VS. Viraj Forgings Ltd. [2008]20 SOT 129 (MUM. ITAT) ] [ In favourof assessee]

(B) Payment made to unrecognized PF is prohibitedby section 40(A)(9) and, consequently, notdeductible under section 37(1). [ Wipro Ltd.VS. ACIT [2012] 28 taxmann.com 188(Bang. ITAT)] [ In favour of Revenue]

(C) Section 40A(9), read with sections 36(1)(iv) and36(1)(v), of the Income-tax Act, 1961 - Businessdisallowance - Contribution to employeeswelfare trust, etc. [Contribution to non-statutoryfunds] - Whether, where contribution to variousnon-statutory funds were claimed to have beenmade as per agreement with workers’ unionunder Industrial Disputes Act, 1947, but therewas no evidence of such agreement, amountof contributions were allowable - Held, no[Para 12] [Greaves Cotton Ltd. Vs. ITO[2013] 32 taxmann.com 86 (Mumbai -Trib.) ] [In favour of revenue]

Controversies :

Any sum paid by the assessee as an employer byway of contribution towards an approved gratuityfund created by him for the exclusive benefit of hisemployees under an irrevocable trust is allowed asdeduction subject to section 43B.

Issues :

(A) Gratuity fund, contributions towards an approved- Assessee had formulated an employees’gratuity fund, which was duly approved byCommissioner - For relevant assessment year,assessee claimed deduction for incrementalliability towards payment of gratuity - Amountwas paid by assessee to fund after end ofprevious year but before due date prescribedfor filing return - Lower authorities denieddeduction - Whether claim of assessee fordeduction was hit by section 36(1)(v) asimpugned liability was not incurred, accordingto assessee itself, during previous year as alsoby section 43B as amount in question was notpaid during previous year - Held, yes. [ ACITVS ASEA BROWN BOVERI LTD. [2007]14 SOT 18 (MUM. ITAT) ] [In favour ofAssessee ]

(B) Section 36(1)(v) of the Income-tax Act, 1961 -Gratuity fund, contribution to - Assessee claimeddeduction of an amount which was paid to LICtowards group gratuity fund - Whether merelybecause payment was made directly to LIC,company could be denied benefit under section36(1)(v) - Held, no [ CIT VS. Textool Co.Ltd. [2002] 122 TAXMAN 668 (MAD.H.C.)] [In favour of Assessee]

(C) Section 36(1)(v) of the Income-tax Act, 1961,read with rule 103 of the Income-tax Rules, 1962- Gratuity fund, contribution to an approved fund- Assessment year 1974-75 - Whether actualpayment made to an approved gratuity fund isallowable as deduction under section 36(1)(v) -Held, yes - Whether if entire amount is notallowed under section 36(1)(v), balance amountwould be allowable as business expenditureunder section 37(1) - Held, yes. [ CIT VS.Premier Cotton Spg. Mil ls Ltd. [2003]131 TAXMAN 79 (MAD. H.C.) ] [ Infavour of Assessee]

Sect ion 36(1) (va ) Employee’s Cont r ibut iontowards Staff Welfare Scheme

Controversies :

Any sum received by the assessee from his employeesas contributions :



1. to any provident fund or

2. superannuation fund or

3. any fund set up under the provisions of theEmployee’s State Insurance Act, or

4. any other fund for the welfare of such employee istreated as income in the hands of assessee unlesssuch employee’s contribution is credited inemployee’s account on or before the ‘due date’specified under the provisions of any law or termsof contract of service or otherwise.

However employer’s contribution (not employee’scontribution) towards such fund is allowed asdeduction subject to section 43B i.e. suchcontribution is paid on or before the due date offurnishing return.

Issues :

(A) Section 36(1)(va) of the Income-tax Act, 1961- Employee’s contributions - Assessment year2002-03 - Whether employees’ contributiontowards provident fund and ESI would qualifyfor deduction even if paid after due dateprescribed under Provident Fund Act/ESI Act butbefore due date of filing of return - Held, yes.[CIT VS AIMIL Ltd. [2010] 188 TAXMAN265 (DELHI H.C.)] [In favour of Assessee]

(B) Section 36(1)(va) of the Income-tax Act, 1961- Employee’s contributions - Assessment year2005-06 - Contribution to Employees’ StateInsurance is allowable as deduction if same ispaid before due date of filing return. [ ACITVs. Ranbaxy Laboratories Ltd. [2012] 20taxmann.com 334 (Delhi) ] [In favour ofAssessee]

(C) Employees’ PF/ ESI Contribution is not coveredby Sec. 43B & is only allowable as a deductionu/s36(1)(va) if paid by the “due date” prescribedtherein. [ITO Vs. LKP Securities Ltd. ( ITA638/MUM/2012) (2013) (ITAT MUM.) ][Thi s decis ion is overru led a l l abovedecis ions u/s 36(1)(va) ] [ In favour ofRevenue]

(D ) Due date” in s. 36(1)(va) for paymentof employees’ Provident Fund, ESIC etccontr ibu t ion should be read with s .43B(b) to mean “due date” for fil ingROI - The High Court dismissing the appealfiled by the Department stating that “ S. 2(24)(x)provides that the amounts of employees’contribution to PF etc collected by the employershall be assessed as his income. S. 36(1)(va)provides that the said employees’ contribution

shall be allowed as a deduction if paid withinthe “due date” specified in the relevantlegislation. S. 43(B)(b) provides that any sumpayable by the assessee as an employer by wayof contribution to any provident fund etc shallbe allowed if paid before the due date of filingthe ROI. The “due date” referred to in s.36(1)(va) must be read in conjunction with s.43B(b) to mean the “due date” of filing theROI. The AO wrongly proceeded on the basisthat the “due date” in s. 36(1)(va) is the duedate fixed by the Provident Fund authority,whereas read in the context of s. 43B(b) it isthe “due date” fixed for filing the ROI.” [ CITVs. M/s Kichha Sugar Company Ltd. (ITA No. 50 of 2009) (UTTARAKHANDH.C.) (2013) ] [In favour of Assessee]

Controversies :

Conditions :

• A deduction will be allowed in respect of anyBad Debt which is written off as irrecoverablein the account of the assessee for the previousyear subject to the conditions specified in Sec.36(2) as follows :

i . No such deduction shall be allowed unless suchdebt or part thereof has been taken intoaccount in computing the income of theassessee of the previous year in which theamount of such debt or part thereof is writtenoff or of an earlier previous year, or

e.g. Credit Sale made Rs.50,000 not realized.Rs.50,000 shall be allowed as deduction sincesale is treated as income.

Advance made for purchase of stocks. Advanceforfeited not allowed as deduction sinceadvance money not a part of income. However,deduction can be claimed u/s 37.

i. Represents money lent in the ordinary courseof the business of banking or money lendingwhich is carried on by the assesses.

Notes :

i. Bad Debt can be claimed as deduction by thesuccessor of the business , e.g. conversion offirm into a company.

ii. However Provision for Bad Debt is not alloweddeduction.

Section 36(1)(vii) Bad Debts

Controversies :

Section 41(4). Recovery of Bad Debt :



Where a deduction has been allowed in respect ofa bad debt or part of debt, then, if the amountsubsequently recovered on any such debt or part isgreater than the difference between the debt orpart of debt and the amount so allowed, the excessshall be deemed to be profits and gains of businessor profession, and accordingly chargeable to income-tax as the income of the previous year in which it isrecovered, whether the business or profession inrespect of which the deduction has been allowed isin existence in that year or not.

Issues :

(A) Where in case of scheduled bank, deductionunder section 36(1)(vii) is allowableindependently and irrespective of provision forbad and doubtful debts created by it in relationto advances made by its rural branches, subjectto limitation that an amount should not bededucted twice under section 36(1)(vii) and36(1)(viia) simultaneously - Held, yes [DCITVS. Karnataka Bank Ltd. [ (2012) 25taxmann.com 235 (SC) ] [In favour ofAssessee]

(B) Section 36(1)(vii) of the Income-tax Act, 1961 -Bad debts - Whether after amendment to section36(1)(vii) it is neither obligatory nor is there anyburden on assessee to prove that debt writtenoff by him is indeed a bad debt as long as it isbona fide and is based on commercial wisdomor expediency - Held, yes [DIT Vs. OmanInternat iona l Bank SAOG (2009) 184TAXMAN 314 (BOM. H.C.) ] [In favourof Assessee]

(C) Bad debts - Inter corporate deposits - Assessee,engaged in promotion of telecom services,earned interest income by way of inter-corporate deposit - Due to non-recoverabilityof some amounts, it treated same as bad debt- Whether since business of assessee was notthat of money lending, sum in question couldnot represent money lent in ordinary course ofbusiness and, therefore, claim of assessee didnot fall within parameters of provisions of section36(1)(vii) - Held, yes [Para 13] [Bhart iTe leventures Ltd. VS. ACIT [2013] 29taxmann .com 326 (De lh i H.C.)] [ Infavour of revenue]

(D) The assessee is not required to establish thatdebt has become bad; it is enough if bad debtis written off as irrecoverable in accounts ofassessee - Held, yes - where amounts receivablefrom debtors were taken into account as incomein earlier years and were written off as

irrecoverable, such amount would be allowedas bad debt - Held, yes - Whether in stockbroking business amounts payable to clients isalso considered as taken into account underprovisions of section 36(2) and any non-recoverycan be claimed as bad debt - Held, yes [ HSBCSecurities & Capital Markets (India) (P.)Ltd. vs . ACIT [2013] 32 taxmann.com328 (Mumbai - Tr ib .) [ In f avour ofAssessee]

(E) Once interest income has been offered onaccrual basis, which has been debited in profitand loss account as business income and samehas been written off as irrecoverable in accountsin this year, same has to be allowed as baddebt. [Jindal Iron & Steel Company Ltd.Vs. DCIT [2013] 33 taxmann.com 96(Mumbai - Trib.)] [In favour of Assessee]

(F) Whether after amendment made in section36(1)(vii) with effect from 1-4-1989, it is notnecessary for assessee to establish thatconcerned debts in fact have becomeirrecoverable and it is sufficient if said debtsare written off as irrecoverable in accounts ofassessee - Held, yes. [KPMG India (P.) Ltd.Vs. ACIT [2013] 33 taxmann.com 251(Mumbai - Trib.)] [In favour of Assessee]

(G) Claim for bad debts cannot be disallowed onground that debts in question have not beenestablished to have become bad. Followingdeletion of word ‘established’ in section36(1)(vii) with effect from 1-4-1989, it is notnecessary for assessee to establish that debt,in fact, has become irrecoverable. [DCIT Vs.Ray + Keshavan Design Associates (P.)Ltd . [2013] 33 ta xmann .com 40(Bangalo re - Tr ib. ) ] [ In f avour ofAssessee]

Controversies :

Deduction in respect of Revenue Expenditure forpromoting family planning amongst its employeesis allowed as deduction and in case of Capitalexpenditure , 1/5 of expenditure incurred is allowedas deduction in 5 equal installment.

Any amount of Banking Cash Transaction Tax (BCTT)paid by the assessee during the previous year onthe taxable banking transactions entered into by him.

Explanation.- For the purposes of this clause, theexpressions “banking cash transaction tax” and“taxable banking transaction” shall have the samemeanings respectively assigned to them.

❉ ❉ ❉



Pulse News.

Pulse News brings all your favourite newspapers,magazines, social networks in one place. Just tap on anarticle to see a clean and elegant view of the news story.Save stories for reading later. It might be worth notingthat this app garnered praise from Steve Jobs. Worth adownload !

Platform – Android, iOs.

Google Play Books, iTunesU

We all know Google’s Android and iOS platforms providemore than million applications for our use but there isone such Application on each platform which virtually

AppWorld

In today’s world, most of us use smart phones. Or rather,they use us. This column features some applications whichwill be useful to you all and are somehow unheard of.

Taxmann

We all must have used various publications from thisreputed publishing house at one point of time or theother. Taxmann has come up with distinguished booksand documents on the application platform with adedicated APP. Here, we can get all the books andreference material at our disposal. Now no need to carrybulky books, just download the APP!


More UnknownThan Known Aatman Shah

Final C.A. StudentCA. Jayraj Pandya


opens up the world library on our smart phones andtablets. One can study the entire curriculum of worldclass institutions such as Oxford, Cambridge etc andvarious lectures given by their distinguished faculties oniTunesU and find a plethora of books on Google PlayBooks to learn so much more about the world.

Platform: Google Play Books- Android, iOs.

iTunesU- iOS

Feedly, Pocket.

Many a times we feel we have so much to read whilebrowsing the net but due to lack of time, we aren’t ableto do so. No worries anymore, there are available thebest set of applications for you to do the task. The abovementioned applications help you to save articles and readit later at your convenience.


Paytm.

Recharge facilities made simpler and easier. Justdownload Paytm on your smart phone, and recharge yourphone, set top boxes whenever you want. Also, this appoffers you many more features like booking your bustickets, making your bill payments and also filing yourIncome Tax Returns! And yes, it is as secured as it canget. Download right away.

Platform – Android, iOs, Blackberry.

Tax India

TAX INDIA is a free and offline application which providesready reference to all rates, penalties, compliances,ceiling limits, due dates, etc covering taxation and auditaspects. It’s developed by a student from Ahmedabad,Param Patel and authoured by CA Amish Khandhar.


Service Tax India Act.

Now who all of you knew such an app existed? Downloadthis app and stay in touch with all the provisions of ServiceTax. It provides the full text of the Act in an easilyreadable and searchable format on your phone.

Platform – Android.

Income Tax Act 1961.

One of the most complex laws in the world now availablein your smart phone. Relevant cases have also beenprovided in the app. Whether you’re a lawperson, lawstudent, chartered accountant, a corporate lawyer or ataxpayer, this is an invaluable reference.


Companies Act 1956.

Another convenient app which you might not be awareof. Read the entire Companies Act. Search at will. Youcan search any keyword and the app will give you therelevant information.


More Unknown Than Known

contd. on page no. 300


1 . Announcement relating to passing criteria inCA examinations

It has been brought to our notice that the NotificationNo. 13-CA (EXAM)/N//2013 dated 5th July, 2013(hosted on the Institute’s website on 5th July, 2013)relating to the date schedule, l ist of centres,examination timings, etc of November, 2013examinations is being presented in a distorted mannerby interpolating the following clause in social mediaand other fora to create panic amongst the studentsof the Institute:

“Passing Criteria Passing criteria at all level of the CAexamination i.e. CPT, IPC and Final has been changedto 55% marks in aggregate and 45% for individualsubjects w.e.f. May, 2015 Examinations.”

It is clarified for wider information of the students andother stakeholders as also the public at large that thereis no change in the passing requirements nor is theInstitute contemplating to effect any changes in thepassing requirements. In other words, the existingpassing requirements, i.e., securing at one sitting aminimum of 40% marks in each paper and minimumof 50% marks in the aggregate of the paperscomprised in a group in respect of Intermediate (IPC)and Final examinations remain unchanged, while thepassing requirements for CPT remain the same i.e.securing at one sitting a minimum of 30% marks ineach section and minimum of 50% marks in theaggregate of all sections comprised in CPTexamination.

It is our fervent appeal to the students, otherstakeholders and the public at large not to pay anyheed to such unscrupulous emails/messages beingcirculated in public domain.

2 . Exposure Draft: Leases issued by IASB

On 16 May 2013 the International AccountingStandards Board (IASB) and the Financial AccountingStandards Board (FASB) published for public commenta revised Exposure Draft outlining proposed changeto the accounting for leases. The proposal aims toimprove the quality and comparability of financialreporting by providing greater transparency aboutleverage, the assets an organization uses in itsoperations and the risks to which it is exposed fromentering into leasing transactions.

ASB invites comments on the Exposure Draft from thepublic. The downloadable version of the draft isavailable at:http : / /www.ifrs .o rg /C urrent-Projects/IASB-Pro jects/Leases/Exposure-Draft-Ma y-2 013 /Do cum ent s/ED -Le ase s-S tan dard-May-2013.pdf

Basis fo r Conclus ions is ava ilable at : http :/ /www.ifrs.org/Current-Projects/IASB-Projects/Leases/Exposure -Draft-May-2013/Documents/E D - L e a s e s - B a s i s - f o r - C o n c l u s i o n s - M a y -2013.pdf.

Updates from ICAII l lustrat ive Examples are available at : http: //www.ifrs.org/Current-P ro jects/IASB-Projects/Leases/Exposure-Draft-May-2013/Documents/E D - L e a s e s - I l l u s t r a t i v e - E x a m p l e s - M a y -2013.pdf.

Comments would be most helpful if they indicate thespecific paragraph or group of paragraphs to whichthey relate, contain a clear rationale and, whereapplicable, provide a suggestion for alternativewording.

Comments should be submitted in writing to theSecretary, Accounting Standards Board, The Instituteof Chartered Accountants of India, ICAI Bhawan, PostBox No. 7100, Indraprastha Marg, New Delhi-110002,so as to be received not later than August 12, 2013.Comments can also be sent by e-mail at [email protected]

3 . Exposure Draft: Insurance Contracts

The International Accounting Standards Board(IASB) published for public comment a revisedExposure Draft of proposals for the accountingfor Insurance Contracts.

The revised proposals aim to provide a consistent basisfor accounting for insurance contracts and to make iteasier for users of financial statements to understandhow insurance contracts affect an entity’s financialposition, financial performance and cash flows. Therevised Exposure Draft sets out in full the proposalsfor the accounting for insurance contracts.

ASB invites comments on the Exposure Draft from thepublic. The downloadable version of the draft isavailable at: http : / /www.ifrs .o rg /C urrent-P ro ject s/ IA SB-P ro je cts/ I nsurance -Con trac ts/E xpo su re -D ra f t- Ju n e-2 0 1 3/D o cu me n t s /E D -Insurance-Contracts-June-2013.pdf.

Basis fo r Conclus ions is ava ilable at : http :/ /www.ifrs.org/Current-P ro jects/IASB-Projects/I n su ra n ce -C o n t ra c t s / E xp o su re -Dra f t - Ju n e -2 0 1 3 /D o cu me n t s / E D - In su ra n ce -C o n t ra c t s -Basis-fo r-Conclus ions-June-2013.pdf.

I l lu stra t ive Examples i s ava i lab le a t : http : / /www.ifrs.org/Current-P ro jects/IASB-Projects/I n su ra n ce -C o n t ra c t s / E xp o su re -Dra f t - Ju n e -2 0 1 3 /D o cu me n t s / E D - In su ra n ce -C o n t ra c t s -Il lu stra tive -Examples-June-2013.pdf.

Comments would be most helpful if they indicate thespecific paragraph or group of paragraphs to whichthey relate, contain a clear rationale and, whereapplicable, provide a suggestion for alternative wording.

Comments should be submitted in writing to theSecretary, Accounting Standards Board, The Instituteof Chartered Accountants of India, ICAI Bhawan, PostBox No. 7100, Indraprastha Marg, New Delhi-110002,so as to be received not later than September 24,2013 . Comments can also be sent by e-mailat asb@icai .in

❉ ❉ ❉

Compiled by CA. Uday I. Shah


Procedure of Formation of Private LimitedCompany

Introduction:

Normally any person, who would like to start his new

business has many questions in his mind, whether to gofor Proprietorship, Partnership, Limited Liability

Partnership, Private Limited Company or Public Limited

Company. The guidance from a professional would help

in the matter who advices on the basis of nature of

business and other factors like finance ownership etc. I

have tried to elaborate the procedure of formation of aPrivate Limited Company.

01. To form a Private Limited Company, it requires

minimum two persons, who will be called Promotersof the Company. Promoters may be individual or

body corporate. Generally, the same promoters can

become the Directors of the Company, but Director

should be individual only and not any Body

Corporate/ HUF or Partnership Firm. The promoterswho wish to be the directors in any company have

to apply for DIN (Director Identification Number), in

Form DIN 1, along with an affidavit on non judicial

stamp paper of Rs. 10/-. Stamp duty may vary from

State to State. Along with DIN application, he has

to attach a proof each with regard to identity andaddress like PAN card copy / Driving License /

Passport Copy / Voter ID Card / Electricity Bill,

Telephone Bill which should either be self attested

by the individual or by a notary. This DIN 1 has to

be certified by the Professionals like CA / CS / CWA

after verifying the attached documents in original.After applying for DIN it will get approved through

STP on the basis of Certification of Professional.

02. After applying for DIN, one of such directors must

have DIGITAL SIGNATURE who can apply with

any of vendor who is authorized by the office of the

Controller of Certification Agencies. There are total

seven Certification Agencies authorized by the CCA

to issue Digital Signature Certificate. The details of

these Certification Agencies are available on the

portal of the Ministry www.mca.gov.in. This Digital

Signature has to be affixed over all the E Forms i.e.

Form 1A, Form 1, Form 32 and Form 18 required for

incorporation of Company.

03. After completing the above procedure, the

Promoters should apply for the name of the

company to the concerned Registrar of Companiesof the State where the company has to be formed

in E From 1A by Payment of Rs. 1,000 through Credit

Card or Net Banking. In Form 1A one has to provide

the details like capital of company, main objects

and 6 proposed names in the descending

order. The form is to be digitally signed bythe applicant. Out of 6 proposed names ROC will

approve only one name. If ROC rejects all the

names, the applicant has two chances to apply for

the name again without paying any fee.

04. After the name is approved by the ROC, the Directors

/ Promoters are required to draft Memorandum

Of Association and Articles Of Association.

In Memorandum of Association following five mainclauses are to be considered.

· Name Clause

· Registered Office Clause

· Main Object Clause

· Capital Clause

· Subscribers Clause

In Articles of Association all the bye laws of the

company corresponding to Companies Act 1956

have to be considered. Names of the First Directors

are mandatory to be given in Articles of Association.

05. The Memorandum of Association and Articles of

Association should be followed by the tables of

the subscribers to be signed by subscribers in their

own handwriting along with the shares to be

CA. Ajit C. [email protected]

Procedures


subscribed by them, their address and occupation.

This is to be written and signed in presence of any

person who will act as witness and will sign in the

witness column. The subscribers will contribute the

amount by way of Cash or Cheques when the

company gets incorporated and shares will be

allotted to them..

06. After the Memorandum of Association and Articles

of Association are drafted, Director shall have to

take the Professional Service of a Chartered

Accountant / Company Secretary / Cost Accountant

to incorporate the company. Please remember that

Professional Service is mandatory because for

incorporation, E Forms 1,18 and 32 are to be filed

and are to be digitally signed by one director along

with the digital Signature of such Professional who

certifies that all the documents and information

contained therein is correct one.

07. After the Memorandum of Association and Articles

of Association are drafted Form 1, 18 and 32

are to be filed online. The detail to be filled up

in the E Forms are as under:

E Form 1: This is a simple form wherein the details

of the Authorized and Paid-up Share Capital of the

company, particulars of the promoters along with

information of at least 2 Directors, the information

about the companies in which such promoters are

already acting as directors is contained. The Director

is to give declaration that he is going to incorporate

the company and the information provided above

are true and correct according to his knowledge and

belief. The Stamp Duty is to be paid on the basis of

authorized capital of the company and scanned copy

of Memorandum and Articles, duly signed by all the

directors is to be attached with Form No. 1.

E Form 18 :

The applicant is to give here the office and nearby

police station address. If the office premise is rented,

rent agreement or rent paid receipt is to be attached.

If the office is not rented, then “no objection

certificate” from the owner of the premise is to be

Procedures

submitted. The proof of registered office address is

mandatory which can be electricity bill / telephone

bill. This documents are to be digitally signed by the

director and also by a Professional certifying that he

has visited at the address and verified the same.

This requirement is to ensure that there is an

existence of the premises and company is not having

a fake address..

E Form 32 : In this E Form the applicant is to give

information about the first Directors of the company.

· Designation i.e. Director / Additional Director /

Managing Director

· Category i.e. Promoter/Professional/Independent

/Chairman / Executive Director / Non Executive

Director

This E Form 32 is then digitally signed by one

Director and also by a Professional who will give his

certificate that the appointed directors have given

declaration to company that he/she is not

disqualified and not declared as an offender by any

court.

After completing the above procedure, the applicant

will pay the Registration fees as well as Stamp Duty

Fees through Credit Card or Net Banking if the fee

is less than Rs. 50,000 and can pay by way of challan

to be deposited in bank if the fee is more than Rs.

50,000. The E Forms will be checked by the office

of the ROC and if they find something is missing or

needs to be corrected, they will call and get it

corrected.

If the E Forms are found to be in order and they get

approved by the Registrar of Companies. Certificate

of Incorporation will be generated and will be

issued online at the email id of the person given the

e forms. After getting Certificate of Incorporation,

the company can start its business operations.

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Glimpses of SupremeCourt Rulings

Advocate Samir N. [email protected].

Public Prosecutor Role and function

Public prosecutor is an officer of the court. Public

Prosecutor has very important role to play in

administration of criminal justice system. He must ensure

that accursed is tried fairly and should consider views,

legitimate interests and possible concerns of witnesses

and victims. He should refuse to use evidence obtainedby wrongful means and must always serve and protect

public interest. He is nota mouthpiece of material

investigating agency and should scrupulously avoid

suppression of material capable of establishing innocence

of accused. Even though Public Prosecutor/Assistant PublicProsecutor control of the employers, but once he appears

in court for conduct of a case or prosecution, he must be

guided by the norms consistent with the public interest.

He has to discharge his functions fairly, objectively and

within framework of legal provisions.

Though Public Prosecutor is a holder of “public office”and holds “post”, yet he is not in government service.

Public Prosecutor is an officer of the court.

An advocate has a twofold duty (1) to act as an officer

of the court, and (2) to protect the interest of his client

and pursue case briefed to him to the best of his ability.

The expression “advocate or “pleader” occurring in

Article 233(2) refers to legal practitioner and, thus, it

means a person who has a right to act and/or plead in

court on behalf of his client i.e. it refers to the members

of the Bar practicing law

What Rule 49 of the BCI Rules provides is that an advocate

shall not be a full-time salaries employee of any person,

Government, firm, corporation or concern so long as he

continues to practice. The “employment” spoken of in

Rule 49 does not cover the employment of an advocatewho has been solely or, in any case, predominantly

employed to act and/or plead on behalf of his client in

courts of law. If a person has been engaged to act and/

or plead in court of law as an advocate although by way

of employment on terms of salary and other service

conditions, such employment is not what is covered byRule 49 as he continues to practice law but, on the other

hand, if he is employed not mainly to act and/or plead in

a court of law, but to do other kinds of legal work, the

prohibition in Rule 49 immediately comes into play and

then he becomes a mere employee and ceases to be an

advocate. The bar contained in Rule 49 applies to anemployment for work other than conduct of cases in

courts as an advocate.

Deepak Aggarwal vs. Keshav Kaushik & Others

(2013) 5 SCC 277

Maintainability Locus standi/Standing –

Person aggrieved.

A stranger cannot be permitted to meddle in any

proceeding unless he satisfies the authority/court that he

falls within the category of aggrieved persons. Only a

person who has suffered, or suffers from legal injury can

challenge the act/action/order, etc. in a course of law. A

writ petition under Article 226 of the Constitution ismaintainable either for the purpose of enforcing a

statutory or legal right, or when there is a complaint by

the writ petitioner that there has been a breach of statutory

duty on the part of the authorities. Therefore, there must

be a judicially enforceable right available for enforcementon the basis of which writ jurisdiction is resorted to. It is

implicit in the exercise of such extraordinary jurisdiction

that the relief prayed for must be one to enforce a legal

right. In fact, the existence of such right, is the foundation

of the exercise of the said jurisdiction by the Court. The

legal right that can be enforce must ordinarily be theright of the writ petitioner himself, who complains of

infraction of such right and approaches the Court for relief

as regards the same. Even as regards the filing of a

habeas corpus petition, the expression “next friend”

means a person who is not a total stranger. Such a petition

cannot be filed by one who is a complete stranger to theperson who is in alleged illegal custody.

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A “Legal right”, means an entitlement arising out of legal

rules. Thus, it may be defined as an advantage, or a

benefit conferred upon a person by the rule of law. The

expression “person aggrieved” does not include a person

who suffers from a psychological or an imaginary injury,

a “person aggrieved” must, therefore, necessarily be4

one whose right or interest has been adversely affected

or jeopardized. Hence, a person who raises a grievance,

must show how he has suffered legal injury. Generally,

a stranger having no right whatsoever to any post or

property, cannot be permitted to intervene in the affairs

of others.

The right of cross-examination is an integral part of the

principles of natural justice. The meaning of providing a

reasonable opportunity to show cause against an action

proposed to be taken by the Government is that the

Government servant is afforded a reasonable opportunity

to defend himself against the charges, on the basis of

which an inquiry is held. He can therefore, do so by

cross examining the witnesses produced against him. The

object of supplying statement is that, the certificate holder

will be able to refer to the previous statements of the

witnesses proposed to be examined against him. Unless

the said statements are provided to the certificate holder,

he will not be able to conduct an effective and useful

cross-examination,. Not only should be opportunity of

cross-examination be made available, but it should be

one of effective cross-examination, so as to meet the

requirement of the principles of natural justice. In absence

of such an opportunity, it cannot be held that the matter

has been decided in accordance with law, as cross-

examination is an integral part and parcel of the principles

of natural justice.

Ayaaubkhan Noorkhan Pathan vs. State of

Maharashtra (2013) 4 SCC 467

Employees Gratuity Fund-Deduction u/s

36(1)(v)

The assessee set up a gratuity fund which was duly

approved by the CIT. However, instead of making

payment to the fund directly, the assessee paid an

amount of Rs. 50 lakhs as initial contribution and an

amount of Rs. 5 lakhs as annual premium to the Life

Insurance Corporation (“LIC”) pursuant to the group Life

Assurance Scheme framed by the LIC for the benefit of

the employees of the assessee. The AO disallowed the

claim for deduction on the ground that payment towards

the gratuity fund was not made to an approved gratuity

fund and was not allowable u/s 36(1)(v). The CIT(A),

Tribunal and High Court (257 ITR 39 (Mad)) upheld

the assessee’s claim on the basis that the payment to

LIC under the Group Life Assurance Scheme was for the

exclusive benefit of the employees of the assessee under

the policy issued by it and that the conditions stipulated

in s. 36(1)(v) had not been violated. On appeal by the

department to the Supreme Court, HELD dismissing the

appeal:

While it is true that a fiscal statute has to be construed

strictly and nothing should be added to or subtracted

from it, yet a strict construction of a provision does not

rule out the application of the principles of reasonable

construction to give effect to the purpose and intention

of any particular provision of the Act. From a bare reading

of s. 36(1)(v), it is manifest that the real intention behind

the provision is that the employer should not have any

control over the funds of the irrevocable trust created

exclusively for the benefit of the employees. On facts, it

is evident that the assessee had absolutely no control

over the fund created by the LIC for the benefit of the

employees of the assessee and further all the contribution

made by the assessee in the said fund ultimately came

back to the Textool Employees Gratuity Fund, approved

by the CIT. Thus, the conditions stipulated in s. 36(1)(v)

were satisfied.

CIT V. M/s Textool Co. Ltd

Civil Appeal No. 447 of 2003 Dt.09-09-2009

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17

Glimpses of Supreme Court Rulings


Set off of brought forward depreciation againstincome under the head other sources :-CIT v/s. SPEL Semi Conductor Ltd.(2013) 212 Taxman 506 (Madras)

Issue:-

Whether brought forward unabsorbed depreciation canbe set off against income under the head other sources?

Held:-

In the case when the assessee has income both frombusiness as well as from other sources, that after havingset off of the business loss as against the current yearincome from business, there existed no further business,income the carried forward business loss remainingunabsorbed could only be carried forward for the nextyear. However, given the fact that the assessee hasincome under the other heads, sec. 32(2) provides therelief.

Thus, as far as the income from other sources isconcerned, given the fact that Sec. 32(2), there is aprovision for setoff of unabsorbed depreciation allowanceas against the income from other sources, it is notnecessary that one should wait for the assessee to earnincome from business so as to exhaust the carried forwardloss to be set off as against the business income andthen apply the unabsorbed depreciation.

The language of Sec. 32(2) is very clear and there ishardly anything contained in Sec. 72(2) to prevent suchset off of carried forward depreciation being given toassessee under the head income from business or incomefrom other sources.

Sec.12AA Registration: Requirements: Activitynot started can be a ground for rejection?CIT v/s. Kutchi Dasa Oswal Moto PariwarAmbama Trust(2013) 212 Taxman 435 (Guj.)

Issue:-

What are the requirements to be verified for grant ofRegistration u/s 12AA to a Charitable Trust? Activity notstarted can be a ground for rejection?

CA. C. R. [email protected].

Held:-

Assessee applied for registration u/s 12AA of the Act.Said application was rejected on the ground that noactivity was started by the Trust.

On appeal High Court has held as under:-

Under Sec. 12AA the CIT has to satisfy himself aboutthe objects of the Trust and the genuineness of theactivities. For such purpose he has power to call suchdocuments or information from the trustee as he thinks,are necessary. However, this does not mean that if theactivities of this Trust have not commenced, the CIT hasauthority to reject the application for registration on theground that the trust failed to convince about thegenuineness of the activities.

In that view of the matter, there was no error in theTribunal’s impugned order reverting the order of the CIT.It is of course true that even if the activities of the Trusthave not commenced, if the CIT has sufficient materialin his command he may still come to the conclusion thathe is not satisfied about the objectives of the trust or thegenuineness of the activities.

In the present case, however, merely on the ground thatthe activity of the trust had not commenced, the CITwas precluded to reject its application for registration,which was not appropriate and, therefore, rightlyinterfered by the Tribunal.

[Also see: Hardayal Charitable and Education Trust v/sCIT (2013) 214 Taxman 655 (Allahabad)].

Sec. 54 and Purchase of two flatsCIT v/s Raman Kumar Suri(2013) 255 CTR 257 (Bom) ; (2013) 81 DTR (Bom) 33.

Issue :-

Purchase of two flats can be allowed as deduction forthe purpose of Sec. 54?

Held :-

No fault can be found with the order of the Tribunalwhich has upheld that finding of the fact of the CIT(A) to

From the CourtsCA. Jayesh C. [email protected].

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From the Courts

the effect though the assessee had purchased flat Nos.416A and 516A, it is only purchase of one residentialhouse. Further, the Tribunal held that two flats were joinedtogether before the assessee became the owner of twoflats. The certificate from the society also establishedthe fact that two flats Nos. 416A and 516A were joinedtogether and were considered as one residential house.These concurrent findings of fact by the CIT(A) and theTribunal have not been shown to be perverse or arbitrary.Further, Sec. 54 exempts capital gain to the extent theconsideration is paid for the purpose of a residentialhouse. Consequently, where the assessee has acquiredone residential house consisting of two flats, it cannotbe said the assessee had purchased two residentialhouses.

Sec. 271(1)(c) : Intention and satisfaction of A.O.:-CIT v/s Ashok Kumar Jain(2013) 255 CTR 189 (Jharkhand)

[This decision is not available in CTR DVD.]

Issue :-

Is intention and satisfaction a prerequisite for issue ofnotice u/s 271(1)(c)?

Held :-

It appears from re-computation of the income that thetotal income of the assessee has been accepted as perthe order u/s 143(3)/251.

In the assessment order there is no finding of the AOthat the assessee was guilty of concealing the incomewhich he could have recorded as provided u/s 271(1)(c).Section 271(1)(c) requires satisfaction of AO in the courseof any proceeding with respect to the concealment orfurnishing inaccurate particulars of the income. It appearsthat the A.O., in the proceeding for the first time, u/s271(1)(c) may have initially understood that the“intention” of the A.O. was to initiate the penaltyproceeding then he has further made it obvious that suchintention has been recorded in the assessment order and,therefore accordingly notice u/s 271(1)(c) was issued tothe assessee. There is neither intention of the AO norrecording of satisfaction of the A.O. that the assesseehas concealed some income or has furnished inaccurateparticulars.

Initiation of proceedings u/s 271(1)(c) was not justified.

Filing of Appeals by Department : Monetary limitapplies to pending cases also:-CIT v/s Smt. Vijaya V. Kavekar(2013) 350 ITR 237 (Bom) ; (2012) 253 CTR (Bom)481.

Issue :-

Fixing monetary limits for Appeals before Courts appliesto pending cases also?

Held :-

Circulars or instructions issued under Sec. 268A of theIncome Tax Act, 1961 by the Central Board of DirectTaxes are applicable not only to new cases but to pendingcases as well. Therefore, the instructions would beapplicable to pending cases as well.

Instruction No. 5 of 2008 dated May 5, 2008 andInstruction No. 3 of 2011 dated February 9, 2011 are inpari materia. The main objective of such instruction is toreduce pending litigations when the tax effect isconsiderably small.

Held accordingly, that the tax appeals filed by therevenue were required to be dismissed as they were notmaintainable in view of the provisions of Section 268Aand Instruction No. 3 of 2011.

Special audit u/s 142(2A) : Requirement :-Delhi Development Authority v/s. Union of India(2013) 350 ITR 432 (Delhi)

Issue :-

What are the requirements which should be satisfiedbefore order of Special Audit ? .

Held :-

In order to direct special audit u/s 142(2A) of the I. T.

Act 1961, the A.O. must form an opinion with regard to

the twin conditions viz nature and complexity of accounts

and the interest of the revenue. Additionally, special audit

requires approval of the Cheif CIT or the CIT. Further,

the power u/s 142 (2A) is not to be lightly exercised and

it is to be based on the foundation of available material.

A genuine and honest attempt must be made to

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understand the accounts since an order under the

provisions not only entails a heavy monetary burden but

it also causes a lot of inconvenience to the assesses.

Section 142(2A) is not a provision by which the A.O.

delegates his powers and functions, which he can perform

to the special auditor. The provision has been enacted

to enable the AO to take the help of a specialist, who

understands accounts and accounting practices to

examine the accounts when they are complex and the

AO finds that he cannot understand them and comprehend

them fully, till he has help and assistance of a special

auditor. Interest of the revenue is the other consideration.

An order u/s 142(2A) directing special audit entails civil

consequences and, therefore, the principle of natural

justice in the form of hearing have to be complied with.

Albeit this does not require an elaborate hearing. The

notice under the section may contain briefly the issues

that the Assessing Officer thinks to be necessary and

need not be detailed ones. An order of approval by the

CIT / Director should not be granted or passed

mechanically but should be done having regard to the

materials on record. Questions should be raised with

regard to the accounts and entries and only when the

explanation offered is not satisfactory, or verification is

not possible without the help and assistance of a special

auditor, action under Sec. 142(2A) is required.

Repairs and renovation of leased premises isrevenue expenditure :-Thiro Arooran Sagars Pvt. Ltd v/s Deputy CIT(2013) 350 ITR 324 (Mad).

[This decision is not available in CTR DVD.]

Issue:-

Whether repairs and renovation expenses to leased

premises is revenue or capital expenditure?

Held:-

The assessee was in occupation of leased premises,carried out renovation work by providing false ceiling

and furniture modification spending Rs. 1.71 lacs and

Rs. 9.19 lacs. The assessee claimed that the sums were

eligible for depreciation @ 100 percent. However, this

34

expenditure was treated as capital expenditure eligiblefor depreciation at 10 percent. This was upheld by the

Tribunal.

On appeal to the High Court it is held that:-

The temporary structure by means of a false ceiling and

office renovation had not resulted in any capitalexpenditure.

High Court followed its own decision in CIT u/s Ayesha

Hospitals P. Ltd. (2007) 292 ITR 200 (Mad). High Courtalso considered the following decision of Supreme Court.

CIT v/s Madras Auto Services P. Ltd.

(1998) 233 ITR 468 (SC)

Depreciation: Meaning of “User”I.C.D.S. Ltd. v/s CIT(2013) 350 ITR 527 (SC) ; (2013) 255 CTR 449(SC); 82 DTR (SC) 33.

Issue:-

For the purpose of claiming depreciation ‘user’ is a must.

What is the meaning of “user”.

Held:-

The provision on depreciation in the I. T. Act, 1961 needs

that the asset must be “owned, wholly or partly, by the

assessee and used for the purpose of business”.

Therefore, it imposes a twin requirement of “ownership”

and “usage for business” for a successful claim u/s 32 of

the Act.

The section requires that assessee must use the asset

for the “purpose of business”. It does not mandate usage

of the asset by the assessee itself. As long as the asset is

utilised for the purpose of business of the assessee, the

requirement of section 32 will stand satisfied for,

notwithstanding non-usage of the asset itself by the

assessee.

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From the Courts

35


Mahatma Gandhi Charitable Society Vs.CIT 142ITD 565(COC)Asst.Year2011-12, Order Dated: 16th November,2012

Basic Facts

The assessee was a public charitable society. One of the

objects of assessee-society was to provide employmentto needy and deserving citizens. The assessee-society

had been granted registration under section 12AA.During

the relevant assessment year, the Commissioner in

exercise of his power under section 12AA(3) passed an

order withdrawing registration granted to assessee-

society. The reason for withdrawing registration was thatthe assessee had participated in an auction with Indian

Railway and became a successful bidder. The total receipt

from the contract with Indian Railway exceeded Rs. 4

crores. Therefore, in view of the First Proviso to section

2(15), the assessee could not be considered to be a

charitable institution any longer.

Issue

Whethe r the reg ist rat ion u/s 12AA can be

cancel led or withdrawn after introduct ion of

Proviso to section 2(15) of the Act?

Held

Section 12AA(3) was introduced by Finance Act, 2004

with effect from 1-10-2004. This section empowers the

Commissioner to cancel the registration granted under

sections 12A and 12AA on satisfaction of two conditions,

viz. (1) when the activity of the trust or institution is not

genuine; (2) when the activity is not carried out inaccordance with the object of the trust/institution.If the

aggregate contract receipts exceed Rs.10 lakhs in any of

the years, at the best, the AO may deny exemption at

the time of assessment proceedings. In view of the above,

it was held that the subsequent amendment in section2(15) by introducing Proviso fixing the monetary limit in

respect of public utility services could not be a reason to

cancel the registration. In view of the above, the order

of the lower authority is set aside and the appeal of theassessee was allowed.

KPMG vs. JCIT 142 ITD 323 (Mum)Asst. Year 2004-05, Order Dated: 22ndFebruary,2013

Basic Facts

The assessee paid professional fees to various persons in

the U.S.A., UK and Malaysia in respect of training and

professional services without deduction of tax. Theassessee claimed that the professionals did not have any

fixed base or permanent establishment in India and had

stayed in India for less than 90 days. Also, the remittances

could not be treated as royalty or fees for included/

professional services as there was no make-available of

Technical knowledge, experience, skill, know-how orprocess. Therefore, in view of Article 15 of Indo-USA

DTAA and Article 7 of Indo-UK, Treaty, the services were

not taxable in India. However, the AO disallowed the

amounts under section 40(a)(i) for non-deduction of

tax.The CIT(A) allowed the assessee’s appeal. Hencethe Department is in appeal before the Tribunal.

Issue

When income is not taxable as per DTAA whether

provisions of section 40(a)(i) would be attracted

to disallow the expenses for non deduction of

tax at source?

According to the nature of services rendered by all the

persons, none of these services fall in the nature of make-

available of any technical knowledge, experience, skill,know-how or process. The provisions of Indo-U.S. and

U.K. treaties are absolutely clear that in case of fees for

technical services, it is essential that technical knowledge,

skill, know-how should be made available to the assessee

and the assessee should be at liberty to use them in itsown right. If the service does not result in making available

of any such thing, then the same would not fall within

CA. Yogesh G. [email protected]

Tribunal News CA. Aparna [email protected]

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Tribunal News

the ambit of fees for technical service. These paymentsalso cannot be taxed under Article 7 as none of them

were having any P.E. or fixed base in India and the

duration of their visit in India was also for a very less

period. Therefore, such a payment does not attract the

provisions of TDS under section 195. Provisions of section195(1) uses the expression “chargeable under the

provisions of the Act”. The payer is bound to deduct tax

at source only if the sum paid is assessable to tax in

India.

Therefore the Revenue’s appeal was dismissed.

ACIT vs. SREI Infrastructure Finance Ltd 154 TTJ111 (DEL)Asst. Year 2006-07 & 2007-08, Order Dated: 14th

December, 2013

Basic Facts

Assessee, a non-banking finance company in the businessof leasing commercial vehicles, infrastructure construction

machinery and financing infrastructural projects filed e-

return for AY 2006-07 & 2007-08. The assessments were

completed under section 143(3) of the Act for both the

years and there were certain additions in computation

under normal provisions of the Act as well as in BookProfit. The AO had initiated penalty proceedings. The

CIT(A) confirmed the additions made by AO in appeal

filed before it against the assessment order. Thereafter

the AO passed penalty order under section 271(1)(c ) of

the Act for furnishing inaccurate particulars of income

and levied 100% penalty on the additions confirmed bythe CIT(A). In appeal filed before CIT(A) against penalty

order, the CIT(A) deleted the penalty . Aggrieved by the

same revenue is in appeal before the tribunal.

Issue

Whether penalty was rightly deleted by the CIT(A)in the given circumstances?

Held

The disallowances under the normal provisions were

upheld by the CIT(A) and accordingly the AO had levied

penalty on these issues. But the Tribunal restored the

issues to the file of the AO in the quantum appeal. TheTribunal held that since the very basis upon which the

penalty has been imposed does not exist in view of the

Tribunal’s order in quantum appeal, the penalty leviedin relation to the additions does not survive.

As regards additions in terms of provisions of section 115JBof the Act, the issues in quantum appeal have been

admitted for adjudication by the High Court. Accordingly

the Tribunal held that when the dispute between the

Revenue and the assesse is on a legal issue and question

of law is admitted by the High Court then there cannot

be an allegation of furnishing of inaccurate particularsand concealment and therefore in such cases penalty

cannot be justified.

Further in both the assessment years, book profits alonehave been assessed as income hence based on the Delhi

High court decision in case of Nalwa Sons Investments

limited, SLP against which is dismissed by the Supreme

Court it was held that if tax is paid on income assessed

under section 115JB of the Act, concealment of incomehad no role to pay and is totally irrelevant.

Welspun Zucchi Textiles Ltd. V. ACIT (Mum) 56SOT 444/30 Taxmann.com 251Asst. Year 2005-06 Order Dated: 11thJanuary,2013

Basic Facts

The assessee-company exported bathrobes to its

associated enterprises in Italy and also to non-AEs in USA.

The transactions with AEs were benchmarked by theassessee using CUP method as the most appropriate

method. Reference under section 92CA(1) was made by

the AO to the TPO. The TPO held that the exports to AEs

in Italy could not be compared with exports to non-AE in

USA as those two markets were entirely different withone in Europe and the other in America. He also held

that the price of bathrobe was likely to be varied

depending upon size, fabric, design, style etc. He further

held that there was no point in comparing the average

price of bathrobes supplied by the assessee to AEs in

Italy with average price of bathrobes supplied to AEs inUSA as the average price was dependent on the type

and quantity of bathrobes which varied in wide range.

Thus, CUP method used by the assessee was not the

most appropriate method and the TNM method should

be considered as the most appropriate method for

benchmarking. Accordingly, the net margin of 13.05 per

30

29


Tribunal News

cent was taken as against 5.04 per cent shown by theassessee as arms length margin for the export of bathrobes

by the assessee to its AEs. The Assessing Officer followed

the order of the TPO and accordingly made transfer pricing

adjustment. The CIT(A) upheld the action of the Assessing

Officer in rejecting CUP method and applying TNMmethod for benchmarking.

Issue

Whether where there were different types of

bathrobes manufactured and exported by the

assessee to AEs as well as non-AEs and moreover

there was difference in geographical locationand size of markets TNM method was rightly

app l ied instead of CUP method as most

appropriate method for the purpose of transfer

pricing exercise?

The adoption of most appropriate method for

benchmarking the international transactions with AEs in

the assessee’s case, it is observed that CUP no doubt is

the most appropriate method for such benchmarkingprovided the comparable prices of similar products or

almost similar products in case of uncontrolled

transactions are available. The assessee in this regard

has contended that similar products as supplied to

associated enterprises viz. bathrobes were also supplied

by the assessee to non-AEs and, therefore, internal CUPwas very much available. It is, however, observed that a

wide variety of bathrobes were manufactured and

exported by the assessee to AEs as well as non-AEs and

the information obtained by the revenue from the website

of the assessee shows that there were different types of

bathrobes manufactured and exported by the assessee.In the comparable analysis done by applying CUP

method, the assessee had not done the comparison

between the price of each type of bathrobes but the

average price of all the bathrobes supplied to the AEs

and non-AEs was taken. Such average price which islikely to be varied depending on the type of bathrobes

supplied as well as product mix of different types of

bathrobes cannot be taken as comparable uncontrolled

price (CUP) for the purpose of transfer pricing exercise

since the said price cannot be taken as price of the similar

products supplied by the assessee to AEs and non-AEsfor transfer pricing. Moreover, there was also a difference

in geographical location and sizes of the markets also inas much as the AEs of the assessee were in Italy whereas

the non-AEs were based in USA having much bigger

market than Italy. Therefore, there is no infirmity in the

impugned order of the Commissioner (Appeals)

confirming the action of the Assessing Officer in rejectingthe CUP method for benchmarking and applying the

TNMM and upholding the same, the appeal of the

assessee is to be dismissed.

C.U. Inspection (I) (P.) Ltd V. DCIT (Mum) 142 ITD761/ 34 Taxmann.Com 75Asst. Year 2006-07 Order Dated: 6thMarch, 2013

Basic Facts

The assessee claimed deduction towards training

expenses of its employees. The training was, in fact,imparted to the employees of the assessee by two trainers

who were arranged by the assessee’s holding

company.The Assessing Officer invoking the provisions

of section 40(a)(ia), made the disallowance for the failure

of the assessee to deduct tax at source from suchpayment. The Commissioner (Appeals) upheld the

disallowance.

Issue

Whether when Indian subsidiary company incurs

expenses or makes purchases or ava i ls any

ser vice f rom some third par ty ab road andpayment to such third party is routed through its

holding or related company abroad, provision

for deduction of tax at source apply as if assessee

has made payment to such independent party

de hors rout ing of payment through holdingcompany?

Held

It an undisputed fact that the amount was paid by the

assessee to its holding company, which amount was in

turn paid by the holding company to some outside

trainers. The assessee was fair enough to concede thatthe training was imparted solely to assessee’s employees

by some trainers independent of the assessee’s holding

company. The remission of amount to the holding or

related company for finally making payment to the third

person will be considered as payment to third party. It

31


cannot be termed as reimbursement of expenses to theholding company.It, therefore, follows that the payment

made to the related party for paying eventually to some

third party cannot be construed as reimbursement of

expenses to the related party. The disallowance under

section 40(a)(ia) is activated when there is failure on thepart of the assessee to deduct/pay tax at source from

the payment on which tax is otherwise deductible as per

law. Patently the payment cannot be considered as

having been made to the holding company at cost. But,

in order to invoke the provisions of section 40(a)(ia) it is

of paramount importance to ascertain the chargeabilityof the amount to tax in the hands of such two trainers

who were eventual receivers. Therefore the matter was

set aside to the file of AO to determine if the payments

were chargeable to tax in India & thereafter to apply

provisions of section 40(a)(ia).

IHI Corporation V. ADIT (International Taxation)155 TTJ 4 (Mum)Asst. Year 2009-10, Order Dated: 13th March,2013

Basic Facts

The assessee was a company incorporated in and tax

resident of Japan and engaged in providing technology

oriented products and services. The assessee was

awarded three engineering and procurement contractsby ‘P’ in India. The contract consideration under these

agreements is segregated into offshore portion and

onshore portion. The assesse did not offer to tax income

from offshore supply and offshore services by claiming

that it did not accrue or arise in India. The AO accepted

assesses’ claim and did not tax the offshore supply. ButAO as well as DRP did not find force in the assessee’s

contention qua taxability of income from offshore services

both under the domestic law and also treaty in view of

the retrospective amendment to section 9(1)(vii) by means

of substitution of explanation below section 9(2) of theAct. Accordingly the income in respect of offshore services

was taxed under Indo- Japan DTAA as fees for Technical

Services.

Issue

Whether the income from offshore servicesrendered by assessee u t i l ized in India is i t

chargeable under Income Tax Act?

Tribunal News

Held

Under section 9(2) the income from fees for technical

services shall be deemed to accrue or arise in India to a

non-resident whether or not, inter alia, the non-resident

has rendered services in India. The substitution of this

Explanation has diluted the twin conditions formulated

by the Supreme Court in the assessee’s own case, being

the rendering of services and utilization of such services

in India as a pre-requisite for the attractability of section

9(1)(vii). With this substitution, the rendering of services

even outside India would be a good case for bringing

the income of non-resident from fees for technical services

within the purview of section 9(1)(vii) if such services are

utilized in India. Admittedly, there is no dispute on the

fact that the instant payment received by the assessee is

in the nature of fees for technical services and the services

were rendered outside India. As services were utilized in

India, the rendition of such services outside India can

now no more be claimed as a relevant criteria to push

such income outside the ambit of section 9(1)(vii). In view

of the amendment to the relevant provisions by means

of the substitution of Explanation to section 9(2)

governing the year under consideration also, the income

from offshore services rendered outside India would fall

within the domain of section 9(1)(vii) of the Act.

The Hon’ble Supreme Court as well as the Jurisdictional

High court have held in unequivocal terms in the

assessee’s own case for the earlier years that the income

on account of offshore services is not chargeable to tax

as per Article 7 of the DTAA since the entire services are

rendered outside India and have nothing to do with the

PE, and thus not attributable to the PE and therefore not

taxable in India.

Accordingly it was held that the income from offshore

services, albeit chargeable under section 9(1)(vii) but

exempt under the DTAA, cannot be chargeable to tax in

the light of section 90(2).

❉ ❉ ❉

32


CA. Rajesh H. [email protected]

FEMA & NRI TaxationUS Tax Laws at our Door-Step

[ Acknowldgement : This article is co-authored by CADarshita Sanghvi)

Editor’s Note:

The authors have submitt ed the art ic le forpub l ish ing at othe r profess iona l journa lpreviously. However there after few changes onfacts have taken place and on specific request,the article is re-written for the benefit of thereaders.

A. INTRODUCTION:

In India we study and practice Indian Tax Laws andonce in a while Forex Laws. Few also venture intoIndia’s Double Tax Avoidance Agreements but mostof the readers would for sure ask what the heckUSA’s Internal Revenue Code [IRC] got to do withus. As of today not much but come January 2014and the most of the world will have much to dowith the IRC and its implementing authority theInternal Revenue Service [IRS] as USA Treasury isentering into agreements with about 50 countrieswhereby each country’s Banks, InsuranceCompanies, Mutual Funds, Depositories andBrokerage Firms etc will be reporting accounts ofUS Citizens or USA addressees directly to the InternalRevenue Service (IRS).

US Treasury has already entered into agreementswith the Government of UK, Denmark, Switzerland,Norway, Mexico, Ireland, Spain and Germany andinitiatives for said Agreements with about 40 othercountries including India are in advance stage.

As for India we had the IRS literally at our door withUS Treasury Secretary Timothy Geithner and USFederal Reserve Chairman Ben Bernanke meetingFinance Minister P Chidambaram in New Delhi todiscuss ways to prevent offshore tax evasionbetween the two countries. [http://www.financialexpress.com/news/india-reforms-agenda-tim-geithner-ben-bernanke-to-meet-pm-manmohan-singh-today/1014166

Indian Government has sought suggestions of variousconcerned parties and Reserve Bank of India and

Securities and Exchange Board of India are inadvanced stage of finalising the draft of India-USAagreement.

With the IRS at our doorstep its worth-while to studythe basics of US tax laws; reporting requirements offinancial assets and the structure of tax laws. In USA,taxation is not based only on Residential Status butalso related to the Citizenship, immigration rightsgranted and ofcourse the tax residency based onthe stay in USA during the relevant financial yearwhich is the calendar year beginning on the 1st

January and ending on the 31st December every year.And all are taxed on their world wide incomeirrespective of their physical presence or stay in USAor outside.

Irrespective of the place of stay being in USA orabroad U.S. Citizens [USC] are always treated as aTax Residents of USA under the IRC whereas theGreen Card Holders [GC] are also treated as a TaxResidents and for all others residing in USA otherthan students , diplomats and the like the commoncriteria of stay is quite uncommon being 31 days inrelevant year and 183 days in current and earlier 2years being total of the current year ; 1/3rd of previousyear and 1/6the of stay of the preceding year thereto.

Reporting requirements include submission of detailsof foreign financial accounts held outside USA underthe regulation of Report of Foreign Bank andFinancial Accounts (FBAR) and Foreign Account TaxCompliance Act (FATCA); taxation of Global incomeof US citizens and resident aliens and opportunityfor voluntary disclosure of overseas assets and incomethereon under the Offshore Voluntary DisclosureProgramme(OVDP) and Pass ive Fore ignInvestment Company.(PFIC).

B. USA TAX & REPORTING REQUIREMENTS :

I . GLOBAL INCOME OF US PERSONS BEINGTAXED IN USA : IRC requires a US citizen ,GC or other resident of USA to declare andpay income tax on worldwide incomeirrespective of his place of residence. Of coursetaxpayers having income in India can choose


NRI - Definition under I. T. Act and FEMA

between the IRC and the regulations of IndiaUSA Double Tax Treaty for income arising inIndia and opt to be governed by the provisionsof either as is found more beneficial to him,subject to conditions as may be applicable.[http://www.irs.gov/Individuals/International-Taxpayers/U.S.-Citizens-and-Resident-Aliens-Abroad]

II. REPORT OF FOREIGN BANK AND FINANCIALACCOUNTS (FBAR):-

It is a simple information return wherein UScitizens, GC and US residents have to declareoverseas financial accounts held in their namesor wherein they have signing authority or control.No tax is required to be paid under FBAR.

1. Since Non-Resident Indian (NRI) Dr. ArvindAhuja’s ; Mr. Ashwin Desai’s and othersindictments for conspiracy to defraud the IRS andnot filing Report of Foreign Bank and FinancialAccounts (FBARs) for non-disclosure of incomearising from deposits held with HSBC Bank, Indiaand also non-filing of Form TD-F90-22.1 of FBAR for said investments, the issue of non-filing ofFBAR has been hovering on almost every NRI’smind and attention.

2. Brief details and link of IRS website as regardsFBARs are :-

01 Applicability: A US citizen, resident alienof USA, a USA partnership firm, a LimitedLiability Company (LLC) or trust which arecovered under United States Person whohas financial interest or signing authorityin overseas financial investment exceedingUS $ 10,000 during a calendar year.

02 Foreign Financial Account: It includes allaccounts maintained with a financialinstitution and also includes:

• Securities ; brokerage account; Bankaccounts; Commodity Futures &Options Accounts; insurance policy andany annuity with cash value;

Mutual fund or similar pooled fundand any account maintained with aforeign financial institution or otherperson performing the services of afinancial institution.

It may be noted that investment in apartnership or proprietorship firm,private limited company, personal loansand personal assets like jewellery arenot included and hence not required tobe reported. Immovable properties arealso not covered under FBAR but bankbalances generated by funds remittedfor purchase of Immovable property inIndia need to be reported.

03 Financial Interests: A United States personis said to have a financial interest in aforeign financial account if:

He is the owner of record or holder of legaltitle which includes:

· an agent, nominee, attorney or aperson acting in on behalf of the USperson with respect to the account;

· the US person which owns directly orindirectly more than 50 percent of thetotal value of shares or voting power ina corporation / company; more than 50percent interest in profits or capital ofpartnership ; more than 50 percentbeneficial interest in the assets orincome of the trust or more than 50percent of the voting power or totalvalue of equity interest or total assetsor interest in profits in any other entity.

· a trust of which the US person is thetrust grantor and has an ownershipinterest in the trust for US federal taxpurposes;

04 Joint Owners: A husband and wife owninga joint account need not file separatereports. But if either spouse has a financialinterest in any other account not held jointlythen such a person should file a separatereport for all accounts including thoseowned jointly with the spouse.

05 Form and Filing: The report is to besubmitted in form TD F 90-22.1 with theU.S. Department of the Treasury, Detroitby June 30 of the following year.

06 Penalty: Improper filing of FBAR attractspenalty of $10,000 whereas willful failure


NRI - Definition under I. T. Act and FEMA

to file FBAR is liable to penalty of greaterof $100,000 or 50% of the balance at thetime of violation and also is subjected tocriminal penalties.

07 Details can be viewed on IRS website at[http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-%28FBAR%29

III. FOREIGN ACCOUNT TAX COMPLIANCE ACT(FATCA) :-

FATCA is introduced from calendar year 2011 withan intention to improve tax compliance by gaininginformation of US person and requiring to declareforeign income and financial assets to IRS.

1. Applicability: US citizen ; resident alien and aNon-Resident alien who elects to be treated asresident alien if his interest having foreignfinancial assets above US$50,000 to US$4,00,000.

2. Foreign Financial Assets: It includes overseasbank accounts ; deposit accounts ; mutual fundinvestments ; investments in stocks andsecurities; brokerage accounts ; bonds anddebenture issued by Foreign person; interestrate , currency , equity , index , commodityand swaps of all kinds, interest rate cap or flooror similar agreements with a foreigncounterparty and all other overseas assets heldfor investments not being trade or business.

02 This will also include investment in shares ofprivate limited company ; insurance policies ;interest in partnership firms and / or trusts;

FATCA is over and above FBAR and not areplacement thereof. Like FBAR , FATCA tooexcludes immovable properties from reportingrequirements and includes erstwhileinvestments in India and inherited or partitionedfamily assets.

03 Reporting Threshold : Individuals are coveredby FATCA if value of foreign financial assetsexceeds US$50,000 as on 31st December orUS$75,000 during the tax year. In case of marriedcouple tax-payers, these limits are raised toUS$100,000 and US$150,000 respectively ;whereas for tax-payers living abroad, these limits

are raised to US$200,000 and US$ 300,000respectively for individuals and US$400,000 andUS$600,000 for joint returns.

04 Joint Owners : As the report is filed with IRS taxreturn married couple returns will report theassets of both the spouses.

05 Form & Filing : The report is to be submitted inform 8938 with the IRS tax return and the duedates for filing tax returns with the IRS includingextension will be applicable.

06 Penalty : Failure to file Form 8938 by the duedate or filing an incomplete form attracts penaltyof $10,000. Additional penalty of $10,000 permonth up to a maximum penalty of $50,000 ispayable for failure to file inspite of IRS notice.

07 Details can be viewed on IRS website at [http://www.irs.gov/Businesses/Corporations/Do-I-n e e d - t o - f i l e - F o r m - 8 9 3 8 , -%E2%80%9CStatement-of-Specified-Foreign-Financial-Assets%E2%80%9D%3F].

IV . U.S . OFFSHORE VOLUNTARY DISCLOSUREPROGRAMME (OVDP):-

1. The IRS having offered Offshore VoluntaryDisclosure Initiatives (OVDI) in 2009 and 2011has once again given an opportunity forvoluntary disclosure of overseas assets andincome thereon under the Offshore VoluntaryDisclosure Programme (OVDP).

2. The OVDP is quite similar to the OVDI.

02 Under the OVDP, tax-payers are requiredto pay tax on hitherto undisclosed incomeof earlier 8 full tax years together with interest thereon.

03 Tax-payers are also required to pay penaltyof 27.5% of the highest balance over last8 years of hitherto undisclosed foreignbank accounts and / or value of foreignassets. For balance upto $ 75,000 reducedpenalties of 12.5% will apply.

04 If the tax payer has disclosed and paid taxon foreign income but only failed to fileFBAR returns he can file delinquent reportsand possibly save penal provisions.

[http://www.irs.gov/uac/2012-Offshore-Voluntary-Disclosure-Program]

❉ ❉ ❉


Issue:

Whether pooja expenditure incurred byan assessee i s deduct ible bus inessexpenditure?

Proposition:

When assesseeincures expenditure towards pooja theexpenditure has to be allowed as deductible businessexpenditure. If pooja expenditure is incurred at thebusiness premises for the purpose of business the samehas to be considered as business expenditure.

It is proposed that when expenditure is incurred towardspooja at the business premises of the assessee then it isbusiness expenditure which has to be allowed asdeduction.

View Against the proposition:

Let me refer to Section 37(1) of the Income Tax Act; anyexpenditure of the nature described in sections 30 to 36and not being in the nature of capital expenditure orpersonal expenses of the assessee, expended wholly andexclusively for the purpose of business and professionshall be allowed in computing the income chargeableunder the head “Profits and Gains of Business orProfession”.

Conditions for allowance under Sec 37(1):

· Such expenditure should not be covered under thespecific sections i.e. sections 30 to 36.

· The expenditure should not be of capital nature

· The expenditure should be incurred during the previousyear.

· The expenditure should not be of personal nature.

· The expenditure should have been incurred wholly orexclusively for the purpose of the Business orprofession.

· The business should be commenced.

Let me refer to the case of Hira Ferro Alloys Ltd. v. DeputyCIT(Chhattisgarh High Court) wherein the appellantclaimed Rs. 9,097 as expenditure incurred towardsperforming pooja during the financial year, including

expenditure of Rs. 6,181 incurred towards VishwakarmaPooja, which was disallowed by the Assessing Officer onthe ground that the appellant being a company cannotprofess any religion, and therefore, performance of poojacannot be said to be need of the business; theexpenditure might be the personal expenses of thedirector.

When the matter came up before the Chhattisgarh HighCourt, it was argued on behalf of the assessee that it iscommon knowledge that Vishwakarma Puja is performedby the workers/labourers of every industrial house; theexpenditure was, in fact, in respect of labourers’ welfare;the Assessing Officer was not correct in holding that theassessee was a company and, therefore, not a real personand as such, cannot profess any religion and performanceof puja cannot be said to be the need of the business ofthe company. The company is run by the managementand labourers - skilled or unskilled. The expenditure onpuja acts as a morale booster for the employees andlabourers associated with the company and thus, it isclearly associated with the assessee’s business. The pujaexpenditure was not directly or indirectly connected withthe personal expenditure of the director and the samewas purely connected with the business of the companyand as such, deductible under section 37 of the Act.

In the case of Sanghameshwar Coffee Estates Ltd. V.State of Karnataka [1986] 160 ITR 203(Karnataka HighCourt) and Kolhapur Sugar Mill Ltd. V. CIT [1979] 119ITR 387(Bombay High Court), it was argued that pooja isperformed by the followers of a particular religion or faith.A company, which is only a juristic person, cannot claimto profess, practice or follow any religion or faith. It washeld that a company, which is a creation by legal fictionand not a real person made up of flesh and blood, cannotprofess any religion and, therefore, performance of poojacannot be said to be the need of business and disallowedthe deduction towards pooja expenditure.

Also, Nagpur Bench of Tribunal in the case ofPatrakarPrakashan P. ltd. In I.T.A. No. 490/Nag/97, heldthat the performance of Pooja cannot be considered asan expenditure related to the conduct of the business ofthe assessee.

CA. Kaushik D. [email protected].

Controversies

contd. on page no. 309


CIT vs. Kamal Wahal [351 ITR 4 (Del.)]

xxx…

7. We have no hesitation in agreeing with the viewtaken by the Tribunal. Apart from the fact that thejudgments of the Madras and Karnataka High Courts(supra) are in favour of the assessee, the revenuefairly brought to our notice a similar view of thisCourt in CIT v. Ravinder Kumar Arora [2012] 342 ITR38/[2011] 203 Taxman 289/15 taxmann.com 307.That was also a case which arose under Section 54Fof the Act. The new residential property was acquiredin the joint names of the assessee and his wife. Theincome tax authorities restricted the deduction underSection 54F to 50% on the footing that the deductionwas not available on the portion of the investmentwhich stands in the name of the assessee’s wife.This view was disapproved by this Court. It notedthat the entire purchase consideration was paid onlyby the assessee and not a single penny wascontributed by the assessee’s wife. It also noted thata purposive construction is to be preferred as againsta literal construction, more so when even applyingthe literal construction, there is nothing in the sectionto show that the house should be purchased in thename of the assessee only. As a matter of fact,Section 54F in terms does not require that the newresidential property shall be purchased in the nameof the assessee; it merely says that the assesseeshould have purchased/constructed “a residentialhouse”.

8. This Court in the decision cited alone also noticedthe judgment of the Madras High Court (supra) andagreed with the same, observing that though theMadras case was decided in relation to Section 54of the Act, that Section was in parimateria withSection 54F. The judgment of the Punjab andHaryana High Court in the case of CIT v. GurnamSingh [2010] 327 ITR 278/[2008] 170 Taxman 160 in

which the same view was taken with reference toSection 54F was also noticed by this Court.

9. It thus appears to us that the predominant judicialview, including that of this Court, is that for thepurposes of Section 54F, the new residential houseneed not be purchased by the assessee in his ownname nor is it necessary that it should be purchasedexclusively in his name. It is moreover to be notedthat the assessee in the present case has notpurchased the new house in the name of a strangeror somebody who is unconnected with him. He haspurchased it only in the name of his wife. There isalso no dispute that the entire investment has comeout of the sale proceeds and that there was nocontribution from the assessee’s wife.

10. Having regard to the rule of purposive constructionand the object which Section 54F seeks to achieveand respectfully agreeing with the judgment of thisCourt, we answer the substantial question of lawframed by us in the affirmative, in favour of theassessee and against the revenue.

xxx…

Smt. SaraswatiRamanathan [116 ITD 234(Del)SMC)]

xxx…

3. The department is in appeal. I have heard the rivalcontentions and perused the section, but I find thatthere is no requirement in the section that theinvestment should be in the name of the assessee.The requirement, as I see it, having regard to theobject of the section to exempt capital gains if thesale proceeds find their way into certain specifiedassets, is that the sale proceeds of the capital assetmust be invested certain specified assets such asbonds of NABARD, National Highways Authority ofIndia, Rural Electrification Corporation Ltd., NationalHousing Bank etc. These are corporationsestablished by the Government of India fordevelopment of infrastructure in the country and tomuster funds for the purpose an incentive to investin these corporations carrying out infrastructure

Advocate Tushar [email protected]

Judicial Analysis

1

2

No requirement that investments u/s 54, 54F,54EC etc. should be in the name of thetransferor(s) alone or at all.


development activities was given in the form ofexemption from capital gains tax if the sale proceedsare invested in the bonds issued by thesecorporations. Section 54EC was inserted with effectfrom 1-4-2001 by the Finance Act, 2000. In theCircular No. 794, dated 9-8-2000 (see 245 ITR St./21), in para 30.1 thereof it was observed that theobject of sections 54EA and 54EC, which were beingreplaced by section 54EC, was ‘to give an incentiveto the development of infrastructure’. In para 30.2,it was stated that section 54EC is being introducedin the place of sections 54EA and 54EB which werebeing terminated and that section 54EC ‘will allowexemption from tax on long-term capital gains, ifinvested in bonds, targeted exclusively on agri-cultural finance and highway infrastructure’. In 2001the section was widened to include bonds issued byRural Electrifi- cation Corporation Ltd. and whileexplaining the amendment made by the FinanceAct, 2001 by Circular No. 14/2001, dated 12-12-2001 (252 ITR St. 65) the Board stated in paragraph39.2 that ‘since rural electrification, includingelectrification of villages and energisation of pumpsets in rural areas is a matter of priority for theGovernment’ the Act was being amended to includethe said bonds. If development of infrastructure isthe object, it would hardly matter whether theinvestment is made in the name of the assesseeexclusively or in the joint names of the assessee andsomebody else. The only condition is that the fundsused for the investment must be traceable to thesale proceeds of the capital asset……”

xxx…

Jt. CIT v. Smt. Armeda K. Bhaya [2005]95 ITD 313

xxx…

5. We have heard the rival submissions and perusedthe material available on record. The facts of thecase have been elaborately discussed above. Theterm ‘purchase’ is not defined in the Income-taxAct. Therefore the same is to be understood as incommon parlance. It is evident that the assesseepaid the entire purchase consideration together withall the expenses. The mother and father havedeposed that they have no right, title or interest inthe impugned flat and that their names have beenadded for various legal conveniences mentionedabove. Section 45 of the Transfer of Property Act is

discussed above, which gives importance to the ratioof payment made by respective owners and refersto any contract to the contrary, which may be inexistence. As the facts emerge, it is implicitly clearfrom the conduct of the parties that there was anagreement in existence that the flat will be theproperty of the assessee and mother and father willhave no right, title or interest therein and thepurchase consideration with expenses will be borneby the assessee. Under these circumstances, we areof the view that the assessee can be treated aspurchaser of the property in terms of section 54.Our view is further fortified by the Hon’ble SupremeCourt judgment in the case of Podar Cement (P.)Ltd. ( supra) for the proposition that the concept of“constructive ownership” to be applied to income-tax proceedings. The issue before Hon’ble SupremeCourt was of depreciation. Nevertheless, it lays downa general proposition of law that in income-taxproceedings the concept of “constructive ownership”can be applied considering the facts of the case.We are of the view that the facts of the presentcase conform to be seen from the gloss of the Hon’bleSupreme Court judgment in the case of PodarCement (P.) Ltd. (supra), which also helps the caseof the assessee. In consideration of all the abovefacts, observations and case laws, we hold that theassessee is purchaser of the flat and the entireamount spent by her has to be considered towardsthe purchase price paid by her for the new flatentitled to be computed while allowing deductionunder section 54.”

xxx…

N. Ramkumar vs. ACIT 138 ITD 317 (Hyd.)

xxx…

6. We have heard rival submissions and perused thematerials on record and also gone through thedecisions relied upon by both the parties.Undisputedly, the assessee has made investmentsin purchasing the flat out of the consideration received from sale of shares. The AO has disallowedexemption claimed u/s 54F solely on the ground thatthe flat has been registered in the name of his minordaughter. The AO on interpreting section 54F cameto hold that for claiming exemption u/s 54F, thehouse has to be purchased in the name of theassessee only. At this stage, it is necessary to look

3

Judicial Analysis


into the provisions of section 54F(1) of the Act whichare quoted hereunder.

“ ..... The assessee has within a period of one yearbefore or after the date on which the transfer tookplace purchased, or has within a period of threeyears after that date constructed a residentialhouse.......”

A bare reading of section 54F(1) makes it clear thatthere is no requirement that the house has to bepurchased in the name of the assessee only. Theonly requirement of the provision is the assesseemust have purchased the house. In the presentappeal, the fact remains that the minor daughterhas no ostensible source to make such investmentin purchase of flat. It is the assessee who had actuallymade the investment out of the considerationreceived towards sale of shares. The assessee hasalso explained the reason behind registration of thehouse in the name of his minor daughter. In theaforesaid factual backdrop, the decisions cited atthe Bar are found to be expressing divergent view.The A P High Court in the case of Late Mir GulamAli Khan (supra) while examining he allow ability ofexemption u/s 54 of the Act held that the word‘assessee’ must be given a wide and liberalinterpretation so as to include his legal heirs also.The Honourable AP High Court further held theprovision contained u/s 54 of the Act also must begiven a liberal interpretation……

xxx…

7. The Hon’ble Delhi High Court in the case of RavinderKumar Arora (supra) following the principles laiddown by the Hon’ble Andhra Pradesh High Court inthe case of Late Mir Gulam Ali Khan ( supra) heldthat the language of section 54F does not mandatethat the house property should be purchased in thename of the assessee alone. The Honourable DelhiHigh Court held that the word “assessee” must begiven wide and liberal interpretation as held by theHon’ble AP High Court in the case of Late Mir GulamAli Khan (supra). The Hon’ble Delhi High Courtfurther held that language contained u/s 54F(1) isparimateria with section 54 of the Act. Similar isalso the view in the case of CIT v. GurnamSingh [2010] 327 ITR 278 /[2008] 170 Taxman 16(Punj. &Har.) and Hon’ble Madras High court in thecase of CITv. V. Natarajan [2006] 287 ITR 271 / 154Taxman 399. The ITAT, Madras Bench in the case

reported in 33 TTJ 466 while considering a case ofidentical nature where the assessee purchased theproperty in the name of his wife and claimedexemption u/s 54 held that the assessee is entitledto exemption u/s 54 of the Act. However, it is seenthat the Hon’ble Punjab & Haryana High Court inthe case ofJainarayan (supra) and in the caseof Prakash (supra ) and ITAT in the caseof PrakashTimajiDhanjode (supra) have held adifferent view to the effect that for getting exemptionu/s 54F, the property has to be purchased inassessee’s name. The intention of the legislature inintroducing sec. 54F as explained in Board’s CircularNo.346 dated 30th June, 1982 is for encouraginghouse construction. It is an encouragement given tothe assessee to exchange one of the residentialhouses for another or where he has none to convertany of his long term assets into a residential house.The object behind such a provision is to encouragelarge scale house building activity or investment inhouse property to meet acute housing shortage inthe country. Therefore, looking at the legislativeintent, a liberal interpretation has to be given tosection 54F which is a beneficial provision. TheHon’ble Supreme Court in case of K.P.Verghese v. ITO [1981] 131 ITR 597/ 7 Taxman13 has observed in the following manner:-

xxx…

DIT, International Taxation vs. Mrs. JenniferBhide [349 ITR 80(Kar.)]

xxx…

8. In the instant case the assessee has purchased theproperty jointly with her husband. She has investedthe money in rural bonds jointly with her husband. Itis nobody’s case that her husband contributed anyportion of the consideration for acquisition of theproperty as well as bonds. The source for acquisitionof the property and the bonds is the saleconsideration. It is not in dispute. Once the saleconsideration is utilized for the purpose mentionedunder sections 54 and 54EC, the assessee is entitledto the benefit of those provision. As the entireconsideration has flown from the assessee and noconsideration has flown from her husband, merelybecause either in the sale deed or in the bond herhusband’s name is also mentioned, in law he wouldnot have any right.

Judicial Analysis


In that view of the matter, the assessee cannot bedenied the benefit of deduction of the aforesaidamount. The Tribunal on proper appreciation of thematerial on record has rightly allowed the appealand set aside the order passed by the assessingauthority as well as the Appellate Commissioner.We do not see any infirmity in the order which callsfor interference. Accordingly, the appeal is dismissed.

xxx..

CIT vs. Ravindra Kumar Arora 342 ITR 38(De l)

xxx…

10. Even when we look into the matter from anotherangle, facts remain that the assessee is the actualand constructive owner of the house. In CIT v. PodarCement (P.) Ltd. [1997] 92 Taxman 541 / 226 ITR625 (SC), the Supreme Court has also accepted thetheory of constructive ownership. Moreover, Section54F mandates that the house should be purchasedby the assessee and it does not stipulate that thehouse should be purchased in the name of theassessee only. Here is a case where the house waspurchased by the assessee and that too in his nameand wife’s name was also included additionally. Suchinclusion of the name of the wife for the above-stated peculiar factual reason should not stand inthe way of the deduction legitimately accruing tothe assessee. Objective of Section 54F and the likeprovision such as Section 54 is to provide impetus tothe house construction and so long as the purposeof house construction is achieved, such hypertechnicality should not impede the way of deductionwhich the legislature has allowed. Purposive

construction is to be preferred as against the literalconstruction, more so when even literal constructionalso does not say that the house should be purchasedin the name of the assessee only. Section 54F of theAct is the beneficial provision which should beinterpreted liberally in favour of the exemption/deduction to the taxpayer and deduction should notbe denied on hyper technical ground. AndhraPradesh High Court in the case of Mir Gulam AliKhan v. CIT [1987] 165 ITR 228 /[1986] 28 Taxman572 has held that the object of granting exemptionunder Section 54 of the Act is that an assessee whosells a residential house for purchasing another housemust be given exemption so far as capital gains areconcerned. The word “assessee” must be given wideand liberal interpretation so as to include his legalheirs also. There is no warrant for giving too strictan interpretation to the word “assessee” as thatwould frustrate the object of granting exemption.

11. We also find judgments of other High Courts givingbenefit of Section 54F(1) of the Act when the houseof the assessee is purchased jointly with his wife. Inthe case of CIT v. Natarajan [2006] 287 ITR 271/ 154Taxman 399 (Mad.), though this case was decidedin relation to Section 54 of the Act, the said Sectionis parimateria of Section 54F(1) of the Act. Likewise,the Punjab & Haryana High Court in the caseof CIT v. Gurnam Singh [2010] 327 ITR 278/[2008] 170 Taxman 160 took the same view whilediscussing the provisions of Section 54 of the Actwhich is again parimateria of Section 54F(1) of theAct.

xxx…

❉ ❉ ❉

Tickle the Funny BoneAn accountant is having a hard time sleeping and goes to see his doctor:

“Doctor, I just can’t get to sleep at night.” “Have you tried counting sheep?”

“That’s the problem - I make a mistake and then spend three hours trying to find

it.”

A businessman tells his friend that his company is looking for a new accountant.

His friend asks: “Didn’t your company hire a new accountant a few weeks ago?”

The businessman replies, “That’s the accountant we’re looking for.”

Judicial Analysis


CA. Ashwin H. [email protected]

Statute Updates(A) Service Tax Judgements

In this issue, judgement on definition of service,cenvat credit and valuation rules are reproducedbelow for the benefit of Members.

1) Whether Activity of assessee-company involvingoffer of plots for sale to its customers/memberswith an assurance of development of infrastructure/amenities, lay out approvals etc. amounts to‘service’ ?

[2013] 30 taxmann.com 42 (SC) Narne Construction(P.) Ltd. v. Union of India*

Facts:-

Assessee company is engaged in the business ofoffering plots for sale to its customers/members withan assurance of development of infrastructure/amenities, lay-out approvals, etc. Transactionbetween assessee and its customers involved muchmore than a simple transfer of a piece of immovableproperty.

Held:-

Assessee was not selling given property with alladvantages and/or disadvantages on ‘as is whereis’ basis, hence, it could not be regarded astransaction involving mere transfer of title ofimmovable property. Therefore, said transactionamounted to service .

Further it was held that the activities of the appellant-company in the present case involving offer of plotsfor sale to its customers/members with an assuranceof development of infrastructure/amenities, lay-outapprovals etc. was a ‘service’ within the meaningof clause (o) of Section 2(1) of the Act . Havingregard to the nature of the transaction between theappellant-company and its customers which involvedmuch more than a simple transfer of a piece ofimmovable property it is clear that the sameconstituted ‘service’ within the meaning of the Act.

2) Whether Cenvat credit of basic excise duty / servicetax may be utilized for payment of education cess ?

[2013] 32 taxmann.com 64 (Gujarat) High Court ofGujarat Commissioner of Central Excise, Customs &Service Tax, Vapi v. Madura Industries Textiles

Facts:-

Assessee utilized credit of basic excise duty forpayment of education cess . Department denied suchutilization and demanded payment in cash alongwith interest and penalty.

Held:-

It was held that Rule 3(4) allows payment of anyduty out of any duty and restriction thereon arecontained in Rule 3(7) of the CENVAT Credit Rules,2004. Since there is no restriction on payment ofeducation cess out of basic excise duty credit,Tribunal had rightly allowed benefit of utilization ofbasic excise duty for payment of education cess .No substantial question of law arose and finally theappeal was liable to be dismissed.The very sameissue had come up before the Tribunal in case ofCCE Vapi v. M/s Balaji Industries as reported in 2008(232) ELT 693 (Tri - Ahmd.)

3) Whether free materials supplied by service recipientare, prima facie, includible in value of taxable servicesin view of Service Tax (Determination of Value) Rules,2006 ?

[2012] 27 taxmann.com 330 (Ahd. - CESTAT) CESTAT,Ahmedabad Bench P.C. Snehal Construction Co. v.Commissioner of Service Tax, Ahmedabad

Facts:-

Here the issue involved is regarding non-inclusion ofcost of free material supplied to the appellant bythe service recipient during the period October 2005to March 2008.

Held:-

It was held that the period involved in this case iscovering the period in which the Service Tax liabilitywas not in question and in part of the period postService Tax valuation rules which came into statute.The Bench has taken a view that post service taxvaluation rules, the said rules provide for inclusionof free material supplied by service recipients andhas been directing the assessee in other cases todeposit some amount of the Service Tax liability forthe period post service Tax valuation rules as acondition to hear and dispose the appeal.

❉ ❉ ❉


CA. Savan [email protected]

External Commercial Borrowings (ECB) for thelow cost affordable housing projects – A.P.(DIRSeries) Circular No.113 dtd. June 24, 2013

Policy regarding ECB for the low cost affordable housingprojects has been reviewed, excerpts as under, for· minimum experience of 3 years for the developers/

builders with track record and· withdrawal of minimum paid-up capital requirement

for HFCs.· Aggregate limit for ECB under the low cost affordable

housing scheme is extended for FY13-14 & 14-15with a ceiling of USD 1 billion.

· The ECB availed of by developers and builders shallbe swapped into Rupees for the entire maturity onfully hedged basis.

· HFCs shall ensure that cost and loan amount ofindividual units does not exceed Rs. 30 lakh and Rs.25 lakh respectively; units financed are havingmaximum carpet area of 60 square metres; and theinterest rate spread is reasonable.

For full text, refer:

h t t p : / / w w w . r b i . o r g . i n / S c r i p t s /NotificationUser.aspx?Id=8053&Mode=0

Buyback / prepayment o f Fore ign CurrencyConvert ib le Bonds (FCCBs) A.P . (DIR Ser ies)Circular No. 115 dtd. June 25, 2013

Considering the developments in the global financialmarkets and on a review of the aforesaid scheme, it hasbeen decided that the existing scheme of Buyback /Prepayment of FCCBs under the approval route whichexpired on March 31, 2013 may be continued tillDecember 31, 2013 and shall stand discontinuedthereafter.

For full text, refer: http://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=8058&Mode=0

Export of Goods and Services – Project Exports–

A.P.(DIR Series) Circular No.118 dtd. June 26, 2013

Policy regarding export of goods and services – Projectexports has been updated :The exporter undertakingProject Exports and Service contracts abroad shouldsubmit form DPX1, PEX-1 and TCS-1 to the ApprovingAuthority (AA) i. e. AD Bank / Exim Bank / WorkingGroup, within 30 days(15 days as of earlier) of enteringinto contract for grant of post-award approval.for full textrefer:

h t t p : / / w w w . r b i . o r g . i n / S c r i p t s /NotificationUser.aspx?Id=8062&Mode=0

❉ ❉ ❉

Statute Updates(B) Foreign Exchange Management Act (FEMA)

contd. from page 277 More Unknown Than Known

IRCTC Application.

We all travel in trains but booking tickets is prettycumbersome especially when it has to be done as oftenas for regular audit visits. The IRCTC app is at your disposalwhere the entire procedure of booking a ticket issimplified and made much more convenient for anyoneto book tickets faster.


Bombay Chartered Accountants Society(BCAS) Referencer

The BCAS has been one of the oldest and the mostdefinitive CA consortiums in India with a seminal collectionof knowledgeable material that is unparalleled. TheBCAS, for the perusal of students and professionals alike,

has come up with the application which would assistthem to go through the distinguished collection of articles,judgments and all the reference materials published bythem.


❉ ❉ ❉


CA. Bihari B. [email protected].

Statute Updates(C) Value Added Tax (VAT)

[I] Important Judgments Regarding Entries:

[A] Schedule Entry – Green House:

Under the Determination Order, the Ld. Officer has

determined that Green House falls under the residual

entry and therefore tax is applicable at the rate of15%. However in case of M/s. Neel Agrotech

Pvt. Ltd., the Hon. GVAT Tribunal has decided

that Green House is an agriculture implement and

should fall under the Entry 1 of Schedule II and tax

is applicable at the rate of 5%.

At the time of giving the decision, the Hon. Tribunal

has taken into consideration the following facts.

(i) Green House is the modern technology of

agriculture through which anything can begrown in any season.

(ii) Green House creates and controls the entire

atmosphere artificially suitable for the particular

crop including fruits, vegetables, flowers etc.

(iii) Green House is a complete set of machine

through which requirements of particular

proportion of sunlight, water, pesticides etc. can

be provided to the plant and crops together

with necessary protection.

So, according to the submission of the appellant,

Green House is nothing but machinery through which

agricultural operations are carried out and hence it

is required to be classified as Agricultural Machinery.

Advantages of green houses are:

[a] The yield may be 10-12 times higher than that

of outdoor cultivation depending upon the type

of green house, type of crop, environmental

control facilities;

[b] Reliability of crop increases under green house

cultivation;

[c] Ideally suited for vegetables and flower crops;

[d] Year round production of floricultural crops;

[e] Off-season production of vegetable and fruit

crops;

[f] Disease-free and genetically superior transplants

can be produced continuously;

[g] Efficient utilization of chemicals, pesticides to

control pest and diseases;

[h] Water requirement of crops very limited and

easy to control;

[i] Maintenance of stock plants, cultivating graftedplant-lets and micro propagated plant-lets;

[j] Hardening of tissue cultured plants;

[k] Production of quality produce free of blemishes;

[l] Most useful in monitoring and controlling the

instability of various ecological system;

[m] Modern techniques of Hydroponic (soil less

culture), aeroponics and nutrient film techniques

are possible under green house cultivation;

[B] M C B (Miniature Circuit Breakers):

The appellant is dealing in MCB and as per view of

the appellant MCB is nothing but switch gears andapplicable rate should be 5% as covered by Entry

78 of Sch. II. However, the C.T.O. has not accepted

the product under Entry 78 and held that it falls

under residual entry. The appellant has preferred

an appeal before the GVAT Tribunal and it has beenheld in the case of Schneider Electric India Pvt.

Ltd. that the goods sold is nothing but switch gears.

The Hon. Tribunal has relied on the following facts.

The appellant submitted that under Gujarat Sales

Tax Act, the goods in question was classified as switch

gear under Entry 113 or Entry 60 of Part A of

Schedule II to GCST Act which reads – “

Transformers, Switch Gears, Switch Boards and Spare


Parts and Accessories thereof “. In support of thatcontention, the appellant has relied upon the Tribunal

decisions and determination orders referred to in

the said judgment.

It is the case of the appellant that all manufacturers

/ traders in Gujarat have treated MCBs as goods

falling under Entry 78 and the same was never

disputed by the Sales Tax Authorities. The appellant

also submitted that the process of manufacture ofMCBs has not undergone any change under the Vat

Act. The Ld. Advocate for the appellant further

submitted that there is no basis whatsoever to classify

the MCBs differently. Entry No. 78 of Schedule II to

the Vat Act is pari materia to Entry 113 under the

Gujarat Sales Tax Act as amended. In as much asboth the taxing status specifically mention Switch

Gear in the relevant entry.

[C] Drugs & Medicine:

[a] Bhrungraj Hair Oil, Brahmi Hair Oil, Bhallatak

Duntmanjan & Ayurvedic Dantmanjan arecovered by Entry 28A(i) of Schedule II of Vat

Act as drugs and medicines.

M/s. Shree SwamiAtmanand Saraswati Co.op.Pharmacy Appeal No. 6 of 2010 2012 – GSTB

– I - 451

[b] Mahabhringraj Oil is a drug and medicinecovered by entry 28A(i) of Vat, 2003.

M/s. Ramkrishna Vidyut Ayurvedic Pharmacy

Appeal No. 28 of 2010 2012 – GSTB – I – 517

[c] Medicated soap are not toilet article but drugs

and medicines covered by entry 28A(ii) of Vat

Act.

M/s. Halsten Pharmaceuticals


[d] Healwell Arnicare & Healwell Softskin Cream

are covered by entry 28A(i) of Vat Act, 2003.

M/s. Sintex International Ltd


(C) Value Added Tax (VAT)

[e] Halls – Ayurvedic Medicine:

Item taxed as covered by Entry II-195 n- Extract

from Ayurvedic tex book referred – Excise

chapter headings also discussed – Decision of

Maharashtra Sales Tax Tribunal and otherdecisions discussed – Decision of Dandwala &

Co. 88 STC 459, B. Shah & Co. 38 STC 5,

Shalibhadra & Co. (SA No. 692 of 2011) Jyoti

Lab. Dt. 23.7.2007 discussed – Various other

related decisions also discussed – Held that

“Halls” covered by Entry II-94 of GST Act, 1969.

M/s. Warner Lambert (India) Pvt. Ltd.

S.A. No. 488 of 2005 2012 – GSTB – I – 70.

[II] Other Important Judgments:

[A] The Hon. Tribunal has quashed and set aside

the provisional assessment order as well as

appellate order in case where no assessment

order is passed.

In case of M/s. Khatau Chatrabhuj Thakkar,

the Hon. Tribunal has held that if no assessment

order is passed by the officer, and on the provisional

assessment, the appeal is filed by the appellant, the

provisional assessment order as well as appellate

order is not legal under the circumstance ofassessment order not passed.

The Hon. Tribunal has relied on the judgment of

this Tribunal in case of Ambica Oil Industries v/s.

State of Gujarat decided in the year 2001.

[B] ITC refused on the ground of cross checks

were not received is not legal if the reasons

are not given by the A. O.

In case of M/s. Heubac Colour Pvt. Ltd., TheHon. Tribunal has held that if in case, cross checks

were not received and in the Assessment Order the

A. O. has not given any reasons and ITC is disallowed,

is not legal and the case was remanded to the

Assessing Authority for considering the contention ofthe assessee in respect of non-receipt of cross check.

The Hon. Tribunal has relied on the view of the

judgment of this Tribunal in case of Sri Sai Trading

Co. V/s. State of Gujarat S.A. No. 139 of 2010.

❉ ❉ ❉


CA. Naveen [email protected]

Statute Updates(D) Corporate Laws

(A ) TRAI Updates:

1 . The Te le communicat ion ConsumersEducation and Protection Fund (SecondAmendment) Regulations, 2013.

TRAI has specifies the period for re-appointmentof the auditor and accordingly the maximumperiod for re-appointment of the auditor forauditing the “TCEPF” has been fixed as threeyears in the amendment. The period for re-appointment was not specified in the earlierregulations.

(P r ess Re lea se No . 49 /2013 da ted10thJuly, 2013)

2 . New guidelines for activation and de-activation of Value added Services:

Through this circular, TRAI has issued directionsto the service providers to implement a uniformprocedure for taking explicit consent of theconsumer for activation of value added serviceand for deactivation of value added service.

(P r ess Re lea se No . 50 /2013 da ted10thJuly, 2013)

(B ) SEBI Updates:

1 . Securities and Exchange Board of India(Issue and Listing of Non-Convert ib leRedeemab le P reference Shares)Regulations, 2013.

These regulations shall come into force fromthe date of their publication in the officialgazette and shall apply to:

a. public issue of non-convertible redeemablepreference shares;

b. listing of non-convertible redeemablepreference shares on a recognized stockexchange which are issued by a publiccompany through public issue or on privateplacement basis; and

c. issue and listing of Perpetual Non-Cumulative Preference Shares and PerpetualDebt Instrument, issued by banks on privateplacement basis in compliance withGuidelines issued by Reserve Bank of India.

(Notification dated 12 th June, 2013)

2 . Arb it rat ion Mechanism in StockExchanges:

Through this circular SEBI has specified thePlace of Arbitration. According to the circular,

The Stock Exchanges (SEs) having nationwideterminals, shall provide arbitration facility (i.e.arbitration as well as appellate arbitration) atleast at all centres specified by SEBI from timeto time. However, the SEs having nationwideterminals may provide arbitration facility atadditional centres, if SEs so desire. Thearbitration and appellate arbitration shall beconducted at the centre nearest to the addressprovided by Client in the KYC form.

(CIR/MRD/ICC/20/2013 dated 05 th July,2013)

3 . Revised Position Limits for ExchangeTraded Currency Derivatives:

Due to extreme volatility in USD-INR exchangerate, SEBI has decided to curtail position limitsand increase margin requirements for ExchangeTraded Currency Derivatives. Revised limits madeeffective from 11th July, 2013 are as under:

a. Margins:Initial and extreme loss margins shall beincreased by 100% of the present ratesfor USD-INR contracts in CurrencyDerivatives.

b. Client level position limits:The gross open position of a client acrossall contracts shall not exceed 6% of thetotal open interest or 10 million USD,whichever is lower.

c. Non-bank Trading Member positionl imits :The gross open position of a TradingMember, who is not a bank, across allcontracts shall not exceed 15% of the totalopen interest or 50 million USD, whicheveris lower.

(CIR/MRD/DP/ 22 /2013 dated 08 th

July, 2013)

4 . FII/QFI investments in Security Receipts:

To protect the interests of investors in securitiesand to promote the development of, and toregulate the securities market, the SEBI hasissued this circular stating that FII investmentsin Security Receipts issued by AssetReconstruction Companies should be within theFII limit on corporate bonds prescribed by theRBI from time to time.

(CIR/IMD/FIIC/9/2013 dated July 09, 2013)

❉ ❉ ❉


INCOME TAX

1 ) Pre ss Re lease regarding Gu ide l ines for

weighted deduct ion @150% of the

expenditure incurred on skill development

under sect ion 35CCD of the Income-tax

Act,1961.

The newly inserted Section 35CCD in the Income

tax Act, 1961(‘the Act’) provides that

for computing business income, a company shall

be allowed a weighted deduction of 150%

of expenses (other than land or building) incurred

on skill development project notified by the

Board in accordance with the guidelines prescribed.

(For full text refer Press Release dated 18-

07-2013)

2 ) Notification regarding new rules r.w.s 35CCD

– Expenditure on skill development project

and new forms i.e. 3CQ and 3CR

In pursuance of sub section (1) of section 35CCD of

the Income tax Act, 1961 (43 of 1961),the CBDT

hereby makes the following rules further to amend

the Income tax Rules, 1962, namely:

1) Insertion of rule 6AAF :- It prescribes the

guidelines for approval of skill development

project under section 35 CCD,

2) Insertion of rule 6AAG :- It prescribes the

conditions subject to which a skill development

project is to be notified under section 35CCD,

3) Insertion of rule 6AAH :- It prescribes the

meaning of the terms like ‘Eligible Company’,

‘Training Institute’, ‘ National Council for

Vocational Training’ and ‘State Council for

Vocational Training’.

4) Insertion of form 3CQ (rule 6AAF) regarding

application form for approval under sub section

(1) of sec 35CCD and form 3CR (rule 6AAF)

regarding notification of skill development

project under sub section (1) of section 35CCD

of the Income tax Act, 1961.

(For full text refer notification no- 54

dated 15-07-2013)

3 ) Notification regarding new rule 6DDC and

clause (e) proviso to clause (5) of section 43

– Speculative transaction and new form 3BC

CBDT has inserted rule 6DDC regarding the

conditions that a recognised association is required

to fulfil to be notified as a recognised association

for the purposes of clause (e) of the proviso to clause

(5) of section 43.

Insertion of new form 3BC regarding monthly

statement to be furnished by a recognised association

in respect of transactions in which client codes have

been modified after registering in the system .

(For full text refer notification no 51, dated

4-7-2013)

SERVICE TAX

1 ) Notification regarding exemption on services

provided to SEZ authorised operations

The Central Government hereby exempts the

services on which service tax is leviable under section

66B of the said Act, received by a unit located in a

Special Economic Zone or Developer of SEZ and

used for the authorised operation from the whole

of the service tax, education cess, and secondary

and higher education cess leviable thereon.

(Fo r fu l l te xt and re levant forms re fer

notification no 12, dated 01/07/2013)

❉ ❉ ❉

CA. Kunal A. [email protected]

Statute Updates(E) Circulars and Notifications

(Income Tax and Service Tax)


AS-22 Accounting for Taxes on Income

RELIANCE INDUSTRIES LIMITED ANNUAL REPORT2012-2013.

Financial Statements & Notes

Significant accounting policies

R . Provision for Current and Deferred Tax:

Provision for current tax is made after taking intoconsideration benefits admissible under the provisionsof the Income-tax Act, 1961. Deferred tax resultingfrom “timing difference” between taxable andaccounting income is accounted for using the taxrates and laws that are enacted or substantivelyenacted as on the balance sheet date. Deferred taxasset is recognised and carried forward only to theextent that there is a virtual certainty that the assetwill be realised in future.

CMC LIMITED ANNUAL REPORT 2012-2013.

Notes forming part of financial statements

2 . Significant accounting policies

r . Taxes on income:

Current tax is the amount of tax payable onthe taxable income for the year as determinedin accordance with the provisions of the IncomeTax Act, 1961.

Minimum Alternate Tax (MAT) paid inaccordance with the tax laws, which gives futureeconomic benefits in the form of adjustment tofuture income tax liability, is considered as anasset if there is convincing evidence that theCompany will pay normal income tax.Accordingly, MAT is recognised as an asset inthe Balance Sheet when it is probable thatfuture economic benefit associated with it willflow to the Company.

Deferred tax is recognised on timing differences,being the differences between the taxableincome and the accounting income thatoriginate in one period and are capable ofreversal in one or more subsequent periods.

Deferred tax is measured using the tax ratesand the tax laws enacted or substantiallyenacted as at the reporting date. Deferred taxliabilities are recognised for all t imingdifferences. Deferred tax assets in respect ofunabsorbed depreciation and carry forward oflosses are recognised only if there is virtualcertainty that there will be sufficient futuretaxable income available to realise such assets.Deferred tax assets are recognised for timingdifferences of other items only to the extentthat reasonable certainty exists that sufficientfuture taxable income will be available againstwhich these can be realised. Deferred tax assetsand liabilities are offset if such items relate totaxes on income levied by the same governingtax laws and the Company has a legallyenforceable right for such set off. Deferred taxassets are reviewed at each Balance Sheet datefor their realisability.

ASHOK LEYLAND ANNUAL REPORT 2012-13

Statement on Significant Accounting Pol iciesforming part of the Financial Statements for theyear ended March 31, 2013

14. Income taxes:

14.1 Income tax expenses comprise current anddeferred taxes. Current tax is determined onincome for the year chargeable to tax inaccordance with the Income Tax Act, 1961and after considering credit for MinimumAlternate Tax available under the said Act.

14.2 Deferred tax is recognised on timing differences,being the difference between taxable incomeand accounting income that originate in oneperiod and are capable of reversing in one ormore subsequent periods.

Deferred tax asset pertaining to unabsorbeddepreciation and carry forward of losses arerecognised only to the extent there is a virtualcertainty of its realisation.

CA. Pamil H. [email protected]

From Published Accounts


TATA CONSULTANCY SERV ICES LIMITEDANNUAL REPORT 2012-2013.

Notes forming part of financial statements

2 . Significant accounting policies

j ) Taxat ion:

Current income tax expense comprises taxeson income from operations in India and inforeign jurisdictions. Income tax payable in Indiais determined in accordance with the provisionsof the Income Tax Act, 1961. Tax expenserelating to foreign operations is determined inaccordance with tax laws applicable in countrieswhere such operations are domiciled.

Minimum Alternative Tax (MAT) paid inaccordance with the tax laws in India, whichgives rise to future economic beneûts in theform of adjustment of future income tax liability,is considered as an asset if there is convincingevidence that the Company will pay normalincome tax after the tax holiday period.Accordingly, MAT is recognised as an asset inthe balance sheet when the asset can bemeasured reliably and it is probable that thefuture economic beneût associated with theasset will fructify.

Deferred tax expense or beneût is recognisedon timing differences being the differencebetween taxable income and accountingincome that originate in one period and is likelyto reverse in one or more subsequent periods.Deferred tax assets and liabilities are measuredusing the tax rates and tax laws that have beenenacted or substantively enacted by thebalance sheet date.

In the event of unabsorbed depreciation andcarry forward of losses, deferred tax assets arerecognised only to the extent that there is virtualcertainty that sufficient future taxable incomewill be available to realise such assets. In othersituations, deferred tax assets are recognisedonly to the extent that there is reasonablecertainty that sufficient future taxable incomewill be available to realise these assets.

Advance taxes and provisions for currentincome taxes are presented in the balance sheetafter off-setting advance taxes paid and incometax provisions arising in the same tax jurisdictionfor relevant tax paying units and where the

Company is able to and intends to settle theasset and liability on a net basis.

The Company offsets deferred tax assets anddeferred tax liabilities if it has a legallyenforceable right and these relate to taxes onincome levied by the same governing taxationlaws.

EXCEL INDUSTRIES LIMITED ANNUAL REPORT2012-2013.

Notes to Financia l st atements For The YearEnded March 31,2013

2.1 Summary of Significant Accounting policies

o ) Income Taxes:

Tax expense comprises current and deferredtax. Current income-tax is measured at theamount expected to be paid to the taxauthorities in accordance with the Income-taxAct, 1961 enacted in India and tax lawsprevailing in the respective tax jurisdictionswhere the Company operates. The tax ratesand tax laws used to compute the amount arethose that are enacted or substantively enacted,at the reporting date. Current income taxrelating to items recognised directly in equity isrecognised in equity and not in the statementof profit and loss.

Deferred income taxes reflect the impact oftiming differences between taxable income andaccounting income originating during thecurrent year and reversal of timing differencesfor the earlier years. Deferred tax is measuredusing the tax rates and the tax laws enacted orsubstantively enacted at the reporting date.Deferred income tax relating to items recogniseddirectly in equity is recognised in equity andnot in the statement of profit and loss.

Deferred tax liabilities are recognised for alltaxable timing differences. Deferred tax assetsare recognised for deductible timing differencesonly to the extent that there is reasonablecertainty that sufficient future taxable incomewill be available against which such deferredtax assets can be realised. In situations wherethe Company has unabsorbed depreciation orcarry forward tax losses, all deferred tax assetsare recognised only if there is virtual certaintysupported by convincing evidence that they canbe realised against future taxable profits.



At each reporting date, the Company re-assesses unrecognised deferred tax assets. Itrecognises unrecognised deferred tax asset tothe extent that it has become reasonably certainor virtually certain, as the case may be, thatsufficient future taxable income will beavailable against which such deferred tax assetscan be realised.

The carrying amount of deferred tax assets arereviewed at each reporting date. The Companywrites-down the carrying amount of deferredtax asset to the extent that it is no longerreasonably certain or virtually certain, as thecase may be, that sufficient future taxableincome will be available against which deferredtax asset can be realised. Any such write-downis reversed to the extent that it becomesreasonably certain or virtually certain, as thecase may be, that sufficient future taxableincome will be available.

Deferred tax assets and deferred tax liabilitiesare offset, if a legally enforceable right existsto set-off current tax assets against current taxliabilities and the deferred tax assets and

deferred taxes relate to the same taxable entityand the same taxation authority.

Minimum alternate tax (MAT) paid in a year ischarged to the statement of profit and loss ascurrent tax. The Company recognises MATcredit available as an asset only to the extentthat there is convincing evidence that theCompany will pay normal income tax duringthe specified period, i.e., the period for whichMAT credit is allowed to be carried forward. Inthe year in which the Company recognises MATcredit as an asset in accordance with theGuidance Note on Accounting for CreditAvailable in respect of Minimum AlternativeTax under the Income-tax Act, 1961, the saidasset is created by way of credit to the statementof profit and loss and shown as “MAT CreditEntitlement.” The Company reviews the “MATcredit entitlement” asset at each reporting dateand writes down the asset to the extent theCompany does not have convincing evidencethat it will pay normal tax during the specifiedperiod.

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Jewellery ValuationJewellery Valuation for

Income Tax & Wealth Tax Purpose to

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SHRI PARSHAV NATHAY NAM:



RBI may not hint at when it will roll back rupeemeasures

It is fairly certain that Tuesday’s monetary policy review,the last before the Reserve Bank of India (RBI) governor D.Subbarao steps down in September, is unlikely to haveany action. The Indian central bank has reviewed its policytwice this month through measures to stamp out liquidityfrom the system and make money more expensive toprotect a fast-depreciating local currency.

The market will, however, keenly watch RBI’s statementon Tuesday, and if bond dealers are expecting any hintof a rollback of the rupee protection measures, they willbe probably disappointed. Subbarao may not commit toany time frame for reversing the liquidity-tighteningmeasures even though the currency market is showingsome signs of stability. While a stable rupee, over a periodof time, will encourage the rollback of liquidity-tighteningmeasures, RBI can only renew its monetary easingmeasures as and when retail inflation comes down.Wholesale inflation is well within its comfort zone, butretail inflation continues to remain high.

Till the April policy, Subbarao was balancing his prioritiesbetween injecting a growth impulse into a slowingeconomy and taming inflation. A depreciating localcurrency has opened up a new front for him.

Subbarao took up the assignment in the thick of a globalcredit crunch in September 2008, which followed thecollapse of US investment bank Lehman Brothers HoldingsInc. An ultra-loose monetary policy accompanied a seriesof fiscal sops to put back Asia’s third largest economy onthe rails even as the credit crisis threatened to overshadowthe Great Depression of 1930s in enormity. Thatpredictably led to the rise in inflation and Subbarao hadto tighten the monetary policy through a series of ratehikes. As a result of this, both wholesale inflation andso-called core inflation, or the non-food, non-oilmanufacturing inflation, dropped, and when corporationsstarted betting on a series of rate cuts to kick-startinvestments, the rupee played spoilsport. The currency’sdepreciation started with the flight of capital and aworldwide sell-off in bonds and equities after US FederalReserve chairman Ben Bernanke on 22 May first hinted

at slowing bond buying under the so-called quantitativeeasing programme.

(Source: Live mint)

New investments put on hold in India ’smanufacturing sector says FICCI survey

New investments in the country’s manufacturing sectorare virtually on hold, with half of the companies indicatingthat they have no plans for major investments in thefiscal year 2013-14, says a survey.

According to a survey jointly conducted by PwC and FICCItitled — “India Manufacturing Barometer”, sluggisheconomic growth and deceleration in production havemade manufacturing companies tread cautiously.

“In an environment of sluggish economic growth, it isnot surprising that the mood exhibited by companies iscautious,” PwC India Leader Industrial Products BimalTanna said.

The manufacturing sector, however, is using this periodto realign the business models and prepare for the future,he added.

The survey said that companies appear confident abouttheir own prospects for growth and expect profit marginsto improve over the next 12 months. Companies believethat the market may have bottomed out and more than50 per cent expect their own revenues to grow at higherthan 10 per cent over the next year and profit margins toinch up.

Of the companies surveyed by the survey, 73 per centbelieve that customer requirements and expectationshave changed due to the global economic environmentas well as the domestic slowdown. Around 42 per centare planning service additions to their products in orderto respond to frequently shifting and disparate customerpreferences, while, 76 per cent surveyed companiesstated that they are resorting to cost efficiencies to meetcustomer requirements.

The survey finds that the major growth barriers expectedare higher interest rates, lack of domestic demand andother concerns like pressure for increased wages,

Compiled by :CA. Arpit T. ShahNews Lounge


legislative or regulatory pressures, decreasing profitabilityand increased competition from foreign markets.

As slow demand has resulted in lower sales, finishedinventories have gone up for 43 per cent of companiessurveyed. Also, the gross margins of half of therespondents have declined over the last six months.

The India Manufacturing Barometer has covered seniorexecutives from a sample of manufacturing industrysectors which are auto ancillary, building and constructionmaterials, capital goods, chemicals, engineering andmetals.

(Source: The Hindu)

Zero Import Duty on natural gas and LNG imports

In a move that could give a boost to the power plantsrunning onnatural gas, the government has exemptedall importers of liquefied natural gas ( LNG) and naturalgas from paying import duty.

Earlier, this zero import duty was only extended to jointventure company of Gas authority of India Ltd ( GAIL)-National Thermal power Corporation ( NTPC) andPetronet LNG engaged in import of LNG and natural gas.Now this facility will be available for any entity importingnatural gas and LNG for electricity generation. Suchentities were earlier required to pay five per cent importduty on the value of the total imports.

However it has been clarified that import of LNG andnatural gas for captive generating plants used by entities

for their own industrial use will continue to pay five percent import duty.

In order to make gas pricing attractive, the governmentrecently took a decision to hike the price of Natural gasfor all supplies from 2014 to $ 8 per mmbtu from $ 4mmbtu currently. India aims to import up to 20 milliontons a year of liquefied natural gas and has alreadysecured deals to import about 14 million tons of LNG ayear. It is currently in discussion with suppliers for anadditional 20 million ton of supply, reports said.

There are three LNG import terminals operating in India:Shell’s Hazira terminal, which is being expanded to 5million mt/year capacity from 3.6 million mt/year; a 10million mt/year terminal at Dahej, owned and operatedby Petronet India and the 5 million mt/year-capacityDabhol terminal, partly owned and operated by GAIL,India’s largest state-owned natural gas processing anddistribution company.

India is the fifth largest importer of LNG after Japan,South Korea, the United Kingdom and Spain and accountsfor 5.5 percent of the total trade. Incidentally, naturalgas production in India declined to 5.58 billion cubicmeters from 6.03 bcm a year earlier due to fall in outputby KG basins.

(Source: The Business Standard)

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News Lounge

View in Favour of the proposition:

Reliance is placed on the judgement of Brijramandas and

Sons v. CIT [1983] 142 ITR 509 (All) in which the High

Court of Allahabad held that Ganeshjiki pooja expenses,

which Hindu traders do in a customary way at the time

of Mahurat or opening of their account books on the

auspicious occasion of Diwali, are to be treated as

expenditure laid out wholly and exclusively for the

purpose of assessee’s business and is therefore allowable

under section 37(1) of the Income Tax Act, 1961.

contd. from page 293 Controversies

In the case of Atlas Cycle Industries Ltd. V. CIT [1982]

134 ITR 458(P&H High Court), it was held that (headnote)

“no curbs can be placed on the discretion of the assessee

to provide the type of recreation, which, according to it,

would best advance the interest of the business. If the

recreation provided, even if it is in the nature of the

religious activity, has a direct nexus with the welfare of

a class of workers engaged by the assessee, it is wholly

immaterial if the recreation provided is directly or

indirectly connected with the religious tenets of a section

of the society.”

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CA. Chintan M. DoshiHon. Secretary

Association News CA. Abhishek J. JainHon. Secretary

Glimpses of events gone by:

On 16.07.2013, 4th Study Circle Meeting was held on the topic of “Limited Liability Partnerships”. The Speakerfor the meeting was CA. Vikas Jain.

( L to R CA. Kunal A. Shah, CA. Gaurang M. Choksi , Faculty CA. Vikas Jain CA. Prakash B. Sheth )

Forthcoming Programmes

Date/Day T ime Programmes Speaker Venue

14.08.2013 07.00 pm Entertainment Evening Fire & Flames, Alpha One Mall,Wednesday Vastrapur, Ahmedabad.

23.08.2013 03.30 pm to 2nd Brain Trust cum Workshop CA. Himanshu Shantinath Hall,Friday 07.00 pm on “Issues under Tax Audit” Kishnadwala ICAI Bhawan, Ahmedabad

Past Events

Date/Day Time Programmes Speaker Venue

16.07.2013 05.00 pm to 4th Study Circle Meeting on CA. Vikas Jain H. K. CollegeThursday 07.00 pm the topic of “LLP” Conference Room.

02.08.2013 40th Residential Refresher Various Speakers Golden Palms Hotel & Spa,to Course Banglore.05.08.2013

3rd Knowledge Clinic3rd Knowledge Clinic is to be held on Friday, 30th August 2013 at the Association’s office from 4.00 pm to 5.00 pm.Members may send queries by email or by hand delivery on or before 23rd August 2013 at the Association’s office.

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The 40th Residential Refresher Course (RRC) of theAssociation was held from 2nd August to 5th August, 2013,at The Golden Palms Hotel and Spa, Bangalore. Thecourse was attended by 97 participants including 34couple participants and 29 singles. Central CouncilMember CA. Dhinal Shah also attended the RRC as adelegate. Past President CA. Dhirubhai Shah attendedthe 40th consecutive RRC. Amidst beautiful location anda pleasant atmosphere various topics of professionalinterest were discussed. Following are the details of varioussessions held at the RRC.

(L to R – CA. Dhinal Shah, Central Council Member,CA. Chintan Doshi, Hon. Secretary, CA. K.Raghu, Guestof Honor, CA. Prakash Sheth, President, CA. GaneshAyyar, Chief Guest, CA. Ashok Kataria, Convenor andCA. Chandrakant Pamnani, Chairman)

1. The 40th RRC was inaugurated by Mr. Ganesh Ayyar,CEO and Executive Director of Mphasis Ltd as theChief Guest and CA. K.Raghu, Vice President, ICAI,as the Guest of Honor. Both the guests addressedthe participants.

2. Interactive Session with Central Processing Centre(CPC), Bangalore was held to discuss and deliberateupon the various issues arising out of the processingof returns by the CPC. Mr. R.K.Mishra CIT (CPC)addressed the participants and replied to variousqueries received from the members pertaining tothe topic including new e-filing of tax audit reports.The session was moderated by the chairman of Legaland Representation Committee CA. Jignesh Shah.

3. Paper on the topic of “Domestic Transfer Pricing”was led by Mr. K.K.Chythanya, Bangalore wherehe explained in detail the various aspects ofDomestic Transfer Pricing including the transactionscovered and excluded from the provisions of theamended law.

Report on the 40th Residential Refresher Course at Banglore

CA. Chandrakant PamnaniChairman, RRC Committee

4. The technical session on the topic of “Wealth Taxand Section 56 of the Income Tax Act” was led byCA. Jayesh C. Sharedalal as the faculty. A fruitfulgroup discussion was also held in three groups onthe topic before the address by the faculty.

5. The paper on “CARO” was dealt with by CA. SunilBhumralkar where he deliberated on variousreporting requirements for the companies whereCARO is applicable.

6. The last technical session was on the topic of“Revision and Reassessment” led by Mr. SaurabhSoparkar where he discussed latest developmentson the basis of the numerous judgements of variouscourts on the subject.

7. The valedictory session was held to sum up the eventand to get an opinion and feedback from theparticipants. The session was chaired by CA. Ajit C.Shah. Many first time participants shared theirexperience at the RRC and many senior membersgave their suggestions for further improvement.

(Group Photo of the Participants at the 40th RRC)

Congratulation

CA. Zalak Jintanwala, daughter of our memberCA. Umesh Jintanwala has secured 3rd rank all

over India in ISA postqualification course of ICAI.


Interactive Session with CPC, Bangalore

CA. Jignesh J. ShahChairman,

L & R Committee (Direct Taxes)

At 40th RRC at Bangalore an interactive session was arranged with CIT Shri R. K. Mishra and otherofficers on 02.08.13

The issues raised by C.A. Association, Ahmedabad and responses by the CIT and Income TaxOfficers are provided hereunder.

The session was cha ired by CA. Ashutosh Nanavaty and moderated by CA. J ignesh Shah andCA. Rajni Shah

Sr . A.Y. Issue CPC CommentsNo.

1 2010-11 There has been a rule change subsequently andthis loss is being allowed currently.However inthe present case rectification rights for the returnis transferred to Local AO as subesquentproceeding were initiated, preventing therectification at CPC.

2 2012-13 Schedule MAT C year wise breakup is not givenwith details of AY in which MAT was paid. If inrectification the details are given CPC will allowthe same.

3 2011-12 MAT Credit U/S 115JAA is Correctly Allowed.Surcharge & Education Cess Calculated beforeMAT Credit by CPC, while assessee calculatingafter credit.

4 2012-13 MAT Credit U/S 115JAA is Correctly Allowed,Assessee Claimed after education cess whileCPC computed before Education cess.

5 2012-13 If two or more persons own a property and iftheir shares are definite and ascertainable, thenthe income from such property cannot be taxedas income of AOP. The share of income of eachco-owner should be determined and included inhis individual assessment as per section 26. Thesame should not be shown in schedule HP ofthe AOP return, hence the AOP return should berevised.

Assessee filed return of income claiming set off b/f normal business loss against current yearsspeculation income which is correct as per theprovisions of the Income Tax Act. The said claimof the assessee was not allowed in processing ofreturn. Assessee filed rectification applicationagainst the intimation u/s 143(1). 143(1) intimationreference no. CPC/1011/I4/1009937517.Assessee’s application u/s 154 has been rejected.There are various similar cases where such set offis not allowed of brought forward normal businessloss against speculation income.

Assessee filed return of income with adjustment ofMAT credit. While processing the return the creditof MAT u/s 115JB is not allowed. 143(1) IntimationReference No. CPC/1213/P6/1218307227.

Assessee filed return of income with adjustment ofMAT credit. While processing the return the MATcredit u/s 115JAA is not allowed. 143(1) IntimationReference No. CPC/1112/I6/1111761988

Assessee filed return of income with adjustment ofMAT credit .While processing the return MAT creditu/s 115JAA is allowed partial .143(1) IntimationReference No. CPC/1213/P6/1219541370Assessee is AOP receiving rental income fromHouse property. Such property is owned by morethan two persons and their respective individualshares are definite and ascertainable. In such casesSec. 26 of Income tax Act, 1961 comes intopicture. The said section says that in a given case,“the share of each such person in the income fromproperty as computed in accordance with Sec. 22to 25 shall be included in his total income and notbe taxable in the hands of AOP”. In the instantcase, assessee is wrongly asked to pay huge tax.There is no place in Schedule HP to show detailsof co-owners as well as mechanism for applicationof Section 26 may not have been captured indepartment’s software for giving effect to claim u/s 26.


6 2009-10 In Schedule BP Assessee has given Exemptincome details directly in total column insteadof giving the bifurcation details which is notpermitted. Correct filing of return will avoid thiskind of grievance.In these cases the agricultureincome claimed to be exempt should bereduced in Sl. 5 of Schedule BP to avoid taxationof exempt income.

7 2012-13 The problem has been recognised and thenecessary rule changes are being made in CPCto provide for 30th September due date for LLP.The efiling utility will undergo a change toaccommodate this factor.

8 2010-11 The rectification return is processed on 30/04/2013 where as TDS Amount of Rs. 15076/- isinwarded on 21/05/2013 after processing. Wewill Initiate for Sumoto rectification to give creditto this TDS.

9 2012-13 Claim is entered only in Part BTTI . ScheduleTDS-2 is not Filled with relevant TAN details,hence disallowed, can be corrected throughrectification.

Assessee has agriculture income from its Business,which is totally exempt in the hands of all personsu/s 10(1) of Income Tax Act,1961. Assessee hasfiled return on 26/09/2009 for AY 2009-10 havingacknowledgement no. 91831491260909. In thereturn assessee has shown business loss of Rs.2,89,957/- after exempting agriculture income ofRs. 16,94,542/-. But IT department has consideredand added it in business income and issued noticeu/s 143(1) having reference no. CPC/0910/T6/1005086860. In this response assessee has filedrectification request dated 29/08/2011 bearingreference no. 278792890290811. Till today, thisrectification request is not disposed off.

Assessee, a LLP filed return of income on 15-09-2012 stating the due date of filing of return ofincome as 30-9-2012 as the assessee is required toget its accounted as per the provisions of LLP Act.There is no such field in ITR 5 requiring to statewhether the books of account are audited underany other law. In such cases the due date ischanged as applicable to non audit assessee andin the instant case it is changed to 31-08-2012 inthe intimation u/s 143(1) vide reference no. CPC/1213/P5/1219024710, unnecessary levying interestu/s 234A and additional interest u/s 234B.

Assessee filed return of income on 18-09-2010 withRs. 35941 as refundable on account of TDS. Theentire TDS credit as claimed by the assessee wasnot allowed while processing the return u/s 143(1)despite the fact that the said credit is reflected inForm No. 26AS. 143(1) intimation reference no.CPC/1011/I4/1010096691 dated 12-03-2011. Theassessee filed a rectification application. In responseto the rectification application other credits of TDShave been allowed except one TDS of Rs. 15076/- The assessee is informed by the CPC vide letterref. no. CPC/1011/M5/1221449581 dated 13-06-2013 that there is mis match of this TDS of Rs.15076 as claimed in return. It is important to notethat the said figure of TDS of Rs. 15076 is alsoreflected in form no. 26AS. Thereafter the demandraised on account of not allowing credit of Rs. 15076has been adjusted by the department against therefund of the subsequent years.

Similar case reported above where tax credit notallowed despite same is reflected in form no. 26AS.143(1) Intimation reference No. CPC/1213/P4/1214661933.



10 2012-13 The M1 communications are sent from CPC incases where the tax credit mismatch is greaterthan Rs.100/- for the purpose of facilitating theassessee to get necessary corrections done sothat when the return taken for processing, theentire tax credit claims are allowed.

11 2012-13 For company assessee there is a statutoryobligation to maintain books of Accounts. ForITR 6, both Part BS and Part P&L are mandatoryand assessee can claim the expenditure incurredin ROC filing fees, audit fees, etc. in P&L andclaim it as deduction in Schedule BP.

12 2012-13 As per Section 44 AD Assessee has to offerminimum 8% Income on Gross receipts. If hehas to Claim loss he should maintain books ofAccounts. He is not required to show loss in P&L A/c for the same income if he is claiming44AD.

13 2011-12 Refund of AY-2011 Adjusted against ASTDemand of AY-2009 & 2010 After Processingthe return, AST Demand of Rs. 35680 for AY -2010 is Cancelled. The assessee can get therefund adjusted for AY2010 from theJurisdictional AO.

14 2012-13 As per Sec 244A No interest will be payable ifthe amount of refund is less than 10% of taxdetermined U/S 143 or on regular assement.

15 2011-12 Assessee wrongly entered Status as LLP whilefiling the return and in rectification changedthe status it is correctly taken as AOP

16 2012-13 Revising of belated return is not permissibleunder section 139(5) when the original returnis belated. Any revised return is invalid.However a facility has been created to allowthe assessee to efile the belated return andfurther revise the belated return, based onpractical difficulty faced by assessee’s.

Assessee received a letter having reference No.CPC/1213/M1/1223282448, which shows detailsof unmatched Tax Payment Claims and unmatchedTDS claims. On verification, it is found that all Taxpayment claims are proper except one unmatchedentry of TDS. Why in such cases entire tax credit isdenied?

The assessee filed return of income where therewere no items to be reported in profit and lossaccount as there was no business activity. Noticeu/s 139(9), defective return, issued vide referenceno. CPC/1213/G5/1218669973 dated 24-05-2013as the profit and loss account did not contain anyfigures. There have been numerous cases wheresuch notices have been issued.

Assessee incurred loss in business but went forshowing income u/s 44AD and reported amountof loss in figures of Schedule PL(FA FeedingModule). Against this, notice u/s 139(9) is receivedhaving reference No. CPC/1213/G5/ 1221358231,where error of entering negative P&L amount isshown.

Assessee has filed return as on 23/09/2011. Hereceived order u/s 143(1) dated 27/12/2011 havingreference No. CPC/1112/P1/1111991342confirming the claimed refund of Rs.22505/-.Refund of Rs. 3130/- is adjusted against demandof AY 09-10. The balance refund of Rs. 19375/- isnot allowed to the assessee till today. On incometax site, refund status inquiry shows “ No demandNo refund”.

Return filed on 18-09-2012 with Rs. 12542 asrefundable. Refund arising on account of taxdeducted at source. While processing the return,interest u/s 244A not allowed to the assessee.143(1) intimation reference no. CPC/1213/P6/121896346 dated 18-05-2013.

Assessee an AOP filed return of income on 11-06-2011. While processing the return, the status ofthe assessee was changed to LLP. Intimation u/s143(1) reference No. CPC/1112/I5/1108645896dated 28-01-2012.

Assessee has filed return of AY 12-13 on 31/01/2013 but ITR-V could not be sent to CPC- Bangalorewithin 120 days and therefore ITR-V is rejected.The Income tax site will not accept the originalreturn again, what is the recourse available to theassessee?



17 2009-10 In sl. No. 36 and 37 of schedule BP, assesseehas shown income from business of Rs.1652028, the same has been adopted in PartBTI. The assessee can file rectification makingnecessary corrections in schedule BP and PartA- OI.

18 2011-12 MAT Schedule is not properly filled by theassessee. The assessee itself has entered profitbefore tax in schedule MAT.

19 2012-13 No confirmation is received from AO for the2012-13 245 Notice issued in AINPSXXXX for demand

of AY 2008. Awaiting 245 compliance from AO.Contact Local AO. Same reason forABCPXXXXXX- Arrear demand for AY2008-09and 2009-10. Contact local AO.

20 0-1 - As Intimation resent by email on 30/7/2013 videstated in CR No.13023327294 toIntimation [email protected]

21 2013-14 At CPC we have received the ITR V on ……….which is of Poor quality leading to thecommunication.Subsequently a valid ITR V hasbeen received on …………..

22 - The assessee should upload the return in ITR 5under the status of “AOP” in which the PAN ofTrust is accepted.

23 - The assessee is not required to file 2 returns assuggested. The legal heir has to file a singlereturn for the whole year.

Assessee filed return of income ,having gross totalincome @ Rs 11,63,238 but the same is taken asRs 16,52,208 in intimation u/s 143(1) [At aninflated amount of Rs 488970].At the time ofprocessing of return the amount as reported inschedule BP by the assessee as “Profit after Tax”has not been considered and instead the amountof “Profit before tax” is taken and the amount ofincome tax is once again added to the profit. Wehave e-filed rectification application u/s 154 dated13/02/2013.143(1) Intimation Reference No. CPC/0910/I5/1004444564 and Rectification referenceno. 60072610013022013

Assessee filed return of income dated 28/09/2011.While processing the return deemed totalincome u/s 115JB is shown at an inflated amountof Rs. 36,04,654 and thus tax liability has increased.As stated in Sr. No. 17, here also the amount ofincome tax is added to the figure of “profit beforetax”. 143(1) Intimation reference no. CPC/1112/I6/ 1110606724

The returns are filed on 31-08-2012 and 01-06-2012 respectively however not processed till date.

The entire intimation issued u/s 143(1) videreference no. CPC/1213/P4/1213322128 dated —is blank / Zero figures, including Assessmet year,date of filing of return due date and computationdetails.

Return of income filed on 18-06-2013 and ITR Vnot sent.Email received from CPC rejecting ITR Vbecause of poor quality on 01-07-2013. ITR V wasnot even sent by the Assessee up to 1-7-2013.

In cases of Family Trust assessee, they are assessedas Individuals. In most of the cases PAN cards havebeen issued as status of the Trust. Accordingly, whena family trust returns are filed the only option shownin the portal is of ITR 7, the form which is notapplicable for such family trusts.

In cases where an Assessee dies during the year,two returns are to be filed, one individual’s ownreturn and another individual’s estate return. In suchcases, how to file two returns in one AssessmentYear having same PAN No.?



24 - In Unabsorbed Depreciation schedule assesseecan mention any previous assessment yearsdepreciation loss. Further, assessee can insertany number of rows. In Schedule BFLA assesseecan set off 8 years back depreciation loss also.

25 The Utility changes will be done for utilities inall ITRs, where Name and PAN of Assesseewill be prepopulated in veification part whichwill be editable.

26 - Legal heir certificate or the Probate in case ofWill is issued by the Court.

27 2013-14 We have tested in our environement and findthat there is no such error for entering thesevalues. Please check with the latestversion.Please use the current utility in JAVAversion.Please share the xml with the errorstated for further examination from our side.

28 2013-14 These comments can be entered under point 3of Form 3CA where the qualification can bemade.Please share the xml with the error statedfor further examination from our side.

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In schedule ‘Unabsorbed Losses’, there are fieldsto state data of last 8 years only. How to showunabsorbed depreciation pertaining to a periodearlier than 8 years, and how to set off suchunabsorbed depreciation loss as there is no suchfield / place provided in the return form. How canbe such claim be shown in return of income?

In many cases Returns of NRI are to be signed byPower of Attorney Holder. In Schedule ‘Verification’the name of POA holder is to be written alongwith PAN No. of the POA holder, however suchreturns cannot be uploaded as the PAN number ofthe assessee and declarant are different. What isthe remedy in such cases?

In case of deceased assessee, the return is to befiled by the legal heir for which registration isrequired to be done at the website of thedepartment. For such registration four documentsare to be submitted, 1) PAN of deceased assessee,2) PAN of legal heir, 3) Copy of Death Certificateand 4) Legal heir certificate. What is legal heircertificate and issued by which department?

From the AY 2013-2014, Chartered Accountantsare required to e-file 3CB & 3CD report. In excelutility of this report provided by Income taxdepartment, when we enter amount admissible u/s 33AB, 33AC, 35, 35AC, etc. there comes errormessage showing “ Amount allowable must notbe more than total amount debited”. But in suchsections, weighted deductions are allowed. Howreporting is to be done under these sections / clausesof form no. 3CD?

Further adding to what is stated above in excelutility provided by Income tax department, Auditorreports by way of a note that assessee has notprovided for diminution in value of Investments asrequired by AS-13”Accounting for Investments”.In such reporting’s when an XML file is generated,an error is reported stating “ No provision fordiminution in value of Investments as required byAS-13”. So how to remove this error to generateXML and where to show our observations ordiscrepancies?


Ahmedabad Chartered Accountants Journalcaa-ahm.org/Pdf/Journal/Journal-29.pdf · Ahmedabad...

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