Volume : 40 | Part 9 | December, 2016 · 2017. 8. 4. · Ahmedabad Chartered Accountants Journal...

Volume : 40 | Part 9 | December, 2016

Swami Dayananda

Saraswati

Ahmedabad Chartered Accountants Journal December, 2016 557

Volume : 40 Part : 9 December, 2016

Ahmedabad Chartered Accountants JournalE-mail : [email protected] Website : www.caa-ahm.org

C O N T E N T S To Begin with

- Kuchh to Log Kahenge......................................................CA. Shailesh C. Shah................. 559

Editorial - Digital India..................................................................... CA. Ashok Kataria .................... 560

From the President.............................................................................CA. Raju Shah..............................561

Articles

Crowd Funding - A Mode of Risk Financing....................................... Prof. Dr. Hetal Jhaveri &CA. Anjali Choksi........................562

Direct Taxes

Glimpses of Supreme Court Rulings....................................................Adv. Samir N. Divatia...................567

From the Courts.................................................................................. CA. C.R. Sharedalal &CA. Jayesh Sharedalal............... 568

Tribunal News.....................................................................................CA. Yogesh G. Shah &CA. Aparna Parelkar.................. 572

Controversies.......................................................................................CA. Kaushik D. Shah....................577

Judicial Analysis..................................................................................Adv. Tushar P. Hemani................579

FEMA & International Taxation

Applicability of Transfer Pricing on Marketing Intangibles - Part 1... CA. Dhinal A. Shah &CA. Sagar Shah.............................584

FEMA Updates....................................................................................CA. Savan Godiawala................586

Indirect Taxes

Service Tax

Recent Judgements..............................................................................CA. Ashwin H. Shah.....................588

Value Added TaxJudgements and Updates ................................................................... CA. Bihari B. Shah.....................590

Corporate Law & Others

Mergers and Acquisition Corner..........................................................CA. Kush Desai.............................592

Corporate Law Update....................................................................... CA. Naveen Mandovara...............594

Allied Laws Corner..............................................................................Adv. Ankit Talsania.......................602

From Published Accounts .................................................................CA. Pamil H. Shah..................... 607

From the Government ......................................................................CA. Kunal A. Shah.......................608

Association News................................................................................CA. Dilip U. Jodhani &CA. Riken J Patel........................610

ACAJ Crossword Contest......................................................................................................................612

- caaahmedabad

Ahmedabad Chartered Accountants Journal December, 2016558

AttentionMembers / Subscribers / Authors / Contributors1. Journals are carefully posted. If not received, you are requested to write to the Association's

Office within one month. A copy of the Journal would be sent, if extra copies are available.2. You are requested to intimate change of address to the Association's Office.3. Please mention your membership number in all your correspondence.4. While sending Articles for this Journal, please confirm that the same are not published / not

even meant for publishing elsewhere. No correspondence will be made in respect of Articlesnot accepted for publication, nor will they be sent back.

5. The opinions, views, statements, results published in this Journal are of the respective authors/ contributors and Chartered Accountants Association, Ahmedabad is neither responsible for thesame nor does it necessarily concur with the authors / contributors.

Published ByCA. Ashok Kataria,on behalf of Chartered Accountants Association, Ahmedabad, 1st Floor, C. U. Shah Chambers, NearGujarat Vidhyapith, Ashram Road, Ahmedabad - 380 014.Phone : 91 79 27544232No part of this Publication shall be reproduced or transmitted in any form or by any meanswithout the permission in writing from the Chartered Accountants Association, Ahmedabad.While every effort has been made to ensure accuracy of information contained in this Journal,

Professional AwardsThe best articles published in this Journal in the categories of 'Direct Taxes', 'Company Law and

the Publisher is not responsible for any error that may have arisen.

Auditing' and 'Allied Laws and Others' will be awarded the Trophies/ Certificates of Appreciationafter being vetted by experts 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]

Journal CommitteeCA. Ashok Kataria CA. Pitamber Jagyasi

Chairman ConvenorMembers

CA. Gaurang Choksi CA. Jayesh SharedalalCA. Nalin Thakkar CA. Rajni Shah CA. Shailesh Shah

Executive CommitteeCA. Raju Shah CA. Dilip Jodhani

President Hon. SecretaryCA. Kunal A. Shah CA. Riken J. Patel

Vice - President Hon. SecretaryMembers

CA. Jayesh M.Shah CA. Jignesh J. Shah CA. Malav K. MehtaCA. Mihir H. Pujara CA. Nalin K. Thakkar CA. Naveen R. MandovaraCA. Pradeep G. Tulsian CA. Rakesh B. Lahoti CA. Umang B. Saraf

Imm. Past President - CA. Yamal A. Vyas


Kuchh to Log Kahengenothing if you think what other people will say aboutyou. At the end of the day, you are the one who hasto live with yourself. What other people think aboutyou is none of your business. You can please someof the people some of the time, but you can’t pleaseall the people all the time.

It takes a lifetime to learn that just because peoplecriticize you it doesn’t mean that they really careabout you and your choice to do something different.We should learn to safely ignore any negativeappearing comments and continue our workharnessing positivity with constructive ideas.However, there is also other side of the coin. Anycriticism that allows me to improve upon should bewelcomed. Kabirdas ji puts it beautifully

How to get over criticism? I found following to beuseful.

1. Do not criticize or condemn others. We shouldalways try to support and encourage the peoplewho display courage in coming up with newideas.

2. Do not surrender to the criticism. Instead takeit as tool to improve your work. It is said that“don’t let the wall keep you from seeing theroad. Focus on the path ahead”.

3. Do not respond to the criticism. If at all needed,be polite.

4. Make a choice that is right for you and keep onperforming your duty to reach your goal. Peoplewill criticize any way.

He who controlling the organs of sense andaction by the power of his will, and remainingunattached, undertakes the Yoga of selflessaction, he excels.

Bhagawad Gita, Ch. 3. V. 7

God has gifted all of us a beautiful life without anyconditions and restrictions to express our self in ourown way, do something uniquely, create somethingwe think useful for others. Working for the largergood is the most enchanting part of the human life.In today’s age any action of ours does not go withoutnotice of the world. When you put yourself out thereto accomplish any task and achieve your goal thereare people to judge you. They may appreciate youor criticize your work. Whether you carry on abusiness/profession; get married, have a family;travel the world or stay at home; go to the gym orsit back and relax on your sofa to watch a televisionprogram - whatever, whenever, wherever orhowsoever you act, someone will judge you. Onecannot escape this.

For every action there always is a reaction, be itpositive or negative. Any comment/criticism in itspure form is nothing but a thought of that individualas a reaction which is neither bad nor good. It is theperson who is criticized or appreciated then labelsit as good or bad using one’s own yardstick, largelyinfluenced by the inclination towards or against hisaction. This has been happening since ancient timeand is a way of life. We just can’t change it.

So irrespective of your like or dislike, people willhave a say on all your actions. In fact they are doingtheir business as human being gifted with thisinherent quality, take that.

However, there is always an inclination in the mindof some of the people to condemn our deeds evenif it is done for the larger good. This should not bea hindrance or create any road block for a personin the field of action. Any thought of fear or criticismprevents us from attaining our goals. Negativeemotions affect very strongly in our work. It serves

CA. Shailesh C. [email protected]


Since about last 10 years, the practise in the officeof a chartered accountant has gone through acomplete change as far as the proceduralcompliances are concerned. There were timesduring the due date of any return or compliancethe team of office assistants was busy to fill up theforms manually and then a second line of teamwould carry it to the government departments,spend difficult hours in long queues to ensure thedocuments are submitted and acknowledged withinthe prescribed time.

It was in the year 2006 when the electronic returnfiling in case of corporate assessees was mademandatory and from there by each passing yearalmost all assessees are now under the ambit ofcompulsory e-filing of return. Electronic filing,when first introduced, every chartered accountantor a tax practitioner wondered how a system canhelp manage law. Ten years down the line, wherean option is available to file a manual return we areunwilling to do it. This is one the greatest positivechange technology has brought in the functioning.The system driven procedural compliances forIncome Tax, VAT, ROC, Service Tax have broughtin a great level of comfort and ease of practisethough there were initial problems.

The idea of demonetization was to curb black moneybut somehow because of the innovative minds ofthe people of this country the objective got derailed.How successful will be the government to catchhold of tax evaders who have deposited large sumof money in their bank accounts or in dummyaccounts, only the time will tell. However, the cashcrunch post demonetization has created a greatopportunity for the government to create anenvironment of cashless economy. If the idea ofcashless transactions is accepted in the Indiansystem, it will be another path breaking change tocontrol the generation of black money in theeconomy.

Looking at the scenario around when every personis getting acquainted to mobile phone, soon allfinancial transactions will be carried over these

[email protected] India

phones. Government sees great potential in theproposal where a track can be kept on each andevery spending of a person. Even though it mayappear to be somewhat difficult for a non-urbancitizen; the day is not far when everyone in thecounty would be equipped to do such type oftransactions. With this great idea in mind, thegovernment of the day is also coming up withvarious announcements to ensure India moves onthe “Digital Path”. Bharat Interface for Money(BHIM), a mobile application launched byGovernment of India is a special application totransfer money. Some interesting features of thisapplication are:

- BHIM is Aadhaar-based payments appdeveloped by the National PaymentCorporation of India (NPCI).

- The app allows easily transferring money ormaking a payment from your bank accountusing only phone number. It can work even onbasic phones as it supports USSD payments.

- It has mobile wallet facility in which moneycan be loaded. Using it anyone can directlyconnect their phone to bank account like a debitcard.

- The app also allows user to scan a QR code.The merchant can also generate his QR codethrough the app. Payment can be done throughscanning QR code.

- Merchants can also use the BHIM app to receivemoney from a smartphone or Aadhaar Pay ifcustomer has linked a bank account andAadhaar ID.

- Payments through this app are happeningdirectly from and to bank accounts, somerchants don’t have to worry abouttransferring wallet earnings to the bank account.

The day when every person in the country will beable to transfer his money over the mobile phone,we would proudly say we are a DIGITAL INDIA.

CA. Ashok Kataria


From the PresidentCA. Raju Shah

[email protected]

Respected seniors and dear professional colleagues,

Wishing you and your Family a Happy NewYear 2017

“Life is full of challenges, seen and unseen, so tolook and feel great, you must hold your head upeach day and project your innerconfidence.” ¯ Cindy Ann Peterson

The Indian Institute of Insolvency Professionals ofICAI (IIPI) has been designated as first InsolvencyAgency in India. IIIPI being a section 8 Companyformed by ICAI will enroll and regulate insolvencyprofessionals as its members in accordance with theInsolvency and Bankruptcy code, 2016 read withregulations. Please visit http://iiipicai.in/ to knowthe details in this regard. In a significant move inthe direction of economic reforms, the Insolvencyand Bankruptcy Code, 2016 has been passed byboth the houses of the Parliament in May 2016 andhas been notified too. This amendment has broughtin new avenues of professional opportunities, sinceinsolvency professionals will have to carry out awide range of functions including those in financeand accountancy. Chartered Accountants are bestsuited who can carry out insolvency and bankruptcyprocesses as liquidator’s, trustees, etc. at variousstages of the insolvency proceedings.

We celebrated the Chartered AccountantsthAssociation Foundation day on 15 December,

2016 in a unique way. We started with Talk onMind and Sound based Wellness – Holisticapproaches to wellness using body, mind andemotions by Ms. Ririi Trivedi & Mr. Gunjan Trivedifollowed by health check-ups, homeopath by DrNaitik Shah, eye check up by Dr. Tejal Dalal, dentalcheck up by Dr. Sachin Dalal and blood tests byGreen Cross Pathology and Molecular Lab, Dr.Dilip D. Shah. To commemorate the glorious 66years, we released a Table-calendar covering hostof past presidents of the Association.

As part of sports activity, we arranged a cricketstmatch on 31 December, 2016 with Rajkot Branch

of WIRC of ICAI. This was the first match everbetween the two teams. It was a very goodcompetitive match and I am happy to inform youthat CA Association won the match. I complimentboth teams for excellent sportsmanship on the field.The next match is to be played on 28/01/2017 withIT Bar Association. All are invited to join to cheerup the Association’s team.

We are in process of finalizing the Late C F PatelthMemorial Seminar on 10 February, 2017 covering

various subjects. We are also in process of finalizingtha full day Banking Seminar on 17 February, 2017

on subjects relevant to current scenario. The detailedcirculars will follow soon.

The present government is always ready to takebold and innovative steps. This year the Budget is

stbeing presented on 1 of February 2017 instead ofend of February. We also have to gear up for thebudget amendments as we are expecting manychanges in the coming budget. As per our regularpractice we have arranged budget meeting on 4-2-2017 – detailed circular will be mailed to youshortly. Likewise we have also planned to publishthe budget booklet in English and in Gujarati. Placeyour order in advance.

“Leadership is never an avenue to be self-servingbut, a platform to render great service to people.”

For us feedback is the most important guide toimprove our performance. Please send yourfeedback regularly.

With best regards,

CA. Raju ShahPresident


Crowd Funding -A Mode of Risk Financing

Introduction

Crowd funding is a process of funding through largegroups of people. It is the method of soliciting fundsfrom the general public to support an idea or createprojects or fund businesses. Crowd funding is anovel method for funding a variety of new ventures,allowing individual founders for profit, cultural, orsocial projects to request funding from manyindividuals, often in return for future products orequity. It directly connects people with money tothe people who need it. It is nothing else but thecrowd’s collective pocketbook. It allows largegroups of people to replace banks and otherinstitutions as a source of funds.

History of Crowd Funding

The concept of collective funding of a project by agroup of people is as old as time. The modern daycrowd funding is the modified, internet model ofthe same old concept. The Web has made the entireprocess of floating an idea and raising funds for thesame much easier and faster. Apart from gettingaccess to funds, another major advantage is togetting validation of the idea or concept. One ofthe first instances of using internet to raise fundsoccurred in 1997 when the British rock groupMarillion raised $60,000 from its fans to fund itsNorth American tour. Artist Share was the first US-based company to establish the crowd fundingwebsite in 2001.Over the past few years, crowdfunding has emerged as novel way forentrepreneurial ventures to secure funds withouthaving to look for venture capital or other traditionalsources of venture investment. Schwienbacher andLarralde (2010) define crowd funding as an opencall, essentially through the Internet, for theprovision of financial resources either in form ofdonation or in exchange for some form of rewardand/or voting rights in order to support initiativesfor specific purposes. Thus, the crowd generates

Crowdsourcing and Crowdfunding

Crowd funding draws inspiration from concepts like

financial support for already proposed initiatives.

micro-finance (Morduch, 1999) and crowdsourcing(Poetz and Schreier, 2012), but represents its ownunique category of fundraising, facilitated by agrowing number of internet sites devoted to thetopic. Crowd funding is based on the principle ofcrowdsourcing. It is an application of crowdsourcing. Jeff Howe, defines crowdsourcing as thepower of the many that can be leveraged toaccomplish feats that were once the responsibilityof a specialized few, in his book Crowdsourcing:How the Power of the Crowd Is Driving the Futureof Business. Wikipedia is one of the best knownexamples of a crowdsourcing model. It is an onlineencyclopaedia that is completely written by users,containing over 3 million articles in English. A largenumber of people, each one of whom putting a littleeffort in reaching a big goal together.

Features of Crowd funding

1. Crowd funding is a collective effort by peoplewho network and pool their money together,usually via the internet, in order to invest inand support efforts initiated by other people ororganizations (Ordanini, 2009).

2. It is more of an informal form of financingprojects – either commercial or non-commercial. Here, a large number of people(the crowd) fund small amounts of money toaccumulate into an investment large enough tofinance a project (or a startup company).

3. Crowd funding projects can range greatly inboth goal and magnitude, from small artisticprojects to entrepreneurs seeking hundreds ofthousands of dollars in seed capital as analternative to traditional venture capitalinvestment (Schwienbacher and Larralde,2010).

CA. Anjali [email protected]

Prof. Dr. Hetal [email protected]


Crowdfuning – How does it Work?

Figure 1-The working of Crowd funding

Models of Crowdfunding

There are 2 basic models of crowdfunding -

Fig. 2 – Models of Crowdfunding

With the increased penetration of technology, it has become easier to approach wider set of people throughthe internet. Thus, raising fund from large number of funders is possible using the internet. The onlineplatforms that facilitate bringing funders and fundraisers closer, are known as crowd funding platforms(CFPs). A CFP is an operator that facilitates monetary exchange between funders (investors) and fundraisers(project / start-up owner).Massolution (http://www.massolution.com), a leading firm in crowdsourcingsolutions, defines 4 categories of CFPs –

Crowd Funding - A Mode of Risk Financing


1Fig. 3 – Categories of Crowdfunding

According to the 2012 global crowd funding report about crowd funding models , equity based and lendingbased crowdfunding (i.e., for financial return) is the most effective for digital goods like software,film andmusic). These categories, on average, raised the largest sum of money per campaign. Donation-based andreward-based crowd funding for causebased campaigns that appeal to funders’ personal beliefs and passionsperform best (e.g., environment).The growth rates in 2014 also continued to be primarily driven by lending-based crowd funding, but significant annual growth in equity-based crowd funding and increased adoptionof newer hybrid and royalty-based models indicates that the allocation of funding volume across differentmodels will be more highly distributed over the comingyears.

Crowd funding’s popularity as a way to fund creative, philanthropic, and social endeavours still prevails butcrowd funding’s application for entrepreneurial ventures began to gain significant traction over the last fewyears. Business and Entrepreneurship had become the lead category by 2012 at 27.4% of total crowdfunding volume globally and in 2014 had increased in importance, accounting for over 40% of worldwidefunding volume. In 2014, the share of lead categories’ funding volume globally was:

- Business and Entrepreneurship - 41.3% / $6.7bn

- Social Causes - 18.9% / $3.06bn

- Films & Performing Arts - 12.13% / $1.97bn

- Real Estate - 6.25% / $1.01bn

- Music and Recording Arts - 4.54%/ $736m

Global Scenario

They collectively helped raise $2.7 billion in 2012 across more than 1 million individual campaigns globally.The 2015 crowd funding report revealed that CFPs raised $16.2 billion in 2014, a 167% increase over the$6.1 billion raised in 2013. North America still accounts for the largest market but 2014 saw Asia overtakeEurope, by a small margin.

2There are 1,250+ active CFPs worldwide. Following are the leading global players

- www.gofundme.com

- www.kickstarter.com

- www.indiegogo.com



Realising the importance and the span ofcrowdfunding, as a source of entrepreneurialfinance, the Federal Government of the US hasdesigned special regulations, Jobs Act, 2012. TheAct governs the fundraising by various CFPs.

Indian Scenario

Crowdfunding is relatively a new concept in Indiaand the usage of Internet for raising funds is evenless. There are 15+ crowdfunding platformsoperating in India.

Following are few of the well-known CFPs in India-- Catapooolt - http://www.crowdfundinsider.com/- Ignite Intent – http://www.igniteintent.com/- Ketto - http://ketto.org/- Pick A Venture - http://signup.pikaventure.com/- Start 51 - http://www.start51.com/- Wishberry - https://www.wishberry.in/- Fundlined-www.fundlined.com

Apart from the local players, many global CFPshave also launched their local platforms for Indiae.g. Grow VC - http://india.growvc.com/ andIndiegogo- http://www.indiegogo.com.This means,the initiator has various options for launching his/her idea and same way the investor has various

options to select the right idea and the CFP basedon his/her preferences.

CFPs - A Fund raising route for start-ups

With increasing exposure and ideas, severalinnovations led by Gen-Y are being talked aboutthese days. But very few of these innovativeconcepts / prototypes actually turn into real product/ service. The present young generation is not onlydexterous in understanding problems faced in day-to-day lives but is also consciously trying to findsolutions for these problems using their techno-managerial abilities. Many of these innovations donot turn into reality due to lack of idea validation orlow market reach. A large number of them do notmaterialise due to the insufficient availability offunds. In response to this, many universities andhigher education institutions, abroad as well as inIndia, have started looking at crowd funding aspossible solution.

What would a Crowd Funding CampaignInclude?

The idea initiator (young entrepreneur) has to letpeople know about his/her idea / concept througha campaign. Most crowdfunding campaigns have



similar components: a detailed description of theproduct/service idea or business, funding goals, avideo, and a social media campaign designed toengage supporters and attract funders. Each of thesecomponents is a microcosm for an essentialentrepreneurial skill: planning, pitching, financing,marketing, sales, and more.What is the Benefits Offered by a Crowd FundingCampaign?First of all, younger entrepreneurs are at adisadvantage—in addition to lacking sufficientresources to seed-fund their own ideas, they lackexperience in specific markets or domains and havenot yet developed a network of advocates andsupporters. Beyond offering a viable path to fundingfor early stage ideas, it allows entrepreneurs anenvironment where they can sharpen their pitches,refine their ideas, and learn how to engage advocatesand supporters.For educators, CFPs can be a powerful new trainingtool. By requiring students / young entrepreneursto transform their ideas into a live crowdfundingcampaign, Gen-Y get the opportunity to sharpentheir vital entrepreneurial skill sets such as businessplanning, product planning, pitching, marketingand sales on and above seed funding —all whilegetting valuable feedback from the market.Crowdfunding is as essential a new teaching toolas it is an essential new skill set for entrepreneurs.What should a Crowd Funding Enthusiast beCareful about?The issue of concern with crowdfunding in Indiais so far there are no regulations. Almost every othermonth a new CFP is launched. A buddingentrepreneur needs to be very careful while selectingthe CFP at the same time a funder (an investor) alsoneeds to check the genuineness of a project.Crowdfunding is not a fundraising method thatreplaces all the traditional funding techniques but itis best to think it as simply a new method ofobtaining funds and should be evaluated in light ofother alternatives that are available to the buddingentrepreneur. While looking forward, crowdfundinghas a bright future as internet penetration and e-commerce success will pave the way forcrowdfunding. To make this a safer platform of fund

References:-

raising, what we require is regulations.

Howe, Jeff, Crowdsourcing : How the powerof the crowd is driving the future of business,Random House Business Books, 2008

- Young, Thomas, The Everything Guide toCrowdfunding, Aadams Media, 2013

- Agrawal, Ajay, et. al., The geography ofcrowdfunding, NBER working paper series

- Douglas Cumming, Sofia Johan, DemandDriven Securities Regulation: Evidence fromCrowdfunding, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2328347

- Jhaveri, Hetal, Choksi, Anjali, Crowdfundingat India: A Study of Indian OnlineCrowdfunding Platforms, IFRSA BusinessReview, Vol 4, Issue 4, December 2014.

- Mollick, Ethan, The dynamics of crowdfunding:An exploratory study, Journal of BusinessVenturing.

- Ordanini, Andrea, et. al., Crowdfunding:transforming customers into investors throughinnovative service platforms, http://w w w . e m e r a l d i n s i g h t . c o m /journals.htm?articleid=1944376

- http://www.crowdfunding.nl/wp-content/uploads/2012/05/92834651-Massolution-a b r i dge d - C r o w d- F u nd i ng - I n du s t r y -Report1.pdf

- http://crowdfunding.org/- http://www.crowdsourcing.org/document/

crowdfunding-industry-report-abridged-version-market-trends-composition-and-crowdfunding-platforms/14277

- http://www.forbes.com/sites/katetaylor/2013/08/06/6-top-crowdfunding-websites-which-one-is-right-for-your-project/

- http://www.marketwired.com/press-release/crowdfunding-market-grows-167-2014-crowdfunding-platforms-raise-162-billion-finds-research-2005299.htm

(Footnotes)1 ht tp:/ /www.crowdfunding.nl /wp-content/

uploads /2012/05/92834651-Massolut ion-abridged-Crowd-Funding-Industry-Report1.pdf

2 http://www.crowdfunding.com/❉ ❉ ❉



Family and Personal Laws:

There is no provision of law requiring familysettlements to be reduced to writing and registered,though when reduced to writing the question ofregistration may arise. Binding family arrangementsdealing with immovable property worth more thanrupees hundred can be made orally and when somade, no question of registration arises. If, however,it is reduced to the form of writing with the purposethat the terms should be evidenced by it, it requiresregistration and without registration it isinadmissible in view of section 17 and 49 of theRegistration Act. But the said family arrangementcan be used as corroborative piece of evidence forshowing or explaining the conduct of the parties.

[Subraya M. N. Vs. Vittala M. N. And Others(2016) (8 SCC 705) ]

Tribunals – Constitution andfunctioning:

Considering the nature of disputes adjudicated uponby tribunals, their Constitution, tenure of members,venue / location of tribunals, bypassing of HighCourts and the pendency of litigation before theSupreme Court; Law commission directed toexamine: (i) necessity to bring changes in thestatutory framework constituting various tribunalswith regard to persons appointed, manner ofappointment, duration of appointment, etc (ii)providing of appeals routinely to Supreme Courton a question of law or substantial question of lawwhich is not of national or public importance (iii)bypassing of the High Courts from the orders ofTribunal (iv) exclusion of jurisdiction of all thecourts in the absence of equally effective alternativemechanism for access to justice at grass root level.

[Gujarat UrjaVikas Nigam Ltd. Vs. Essar PowerLtd. (2061) (9 SCC 103) ]

Glimpses of SupremeCourt Rulings

Advocate Samir N. [email protected].

17 Penalty u/s 271(1)(c):

Section 274, read with section 271(1)(c) of theIncome tax Act 1961. Procedure for imposition of(conditions precedent) – Tribunal, relying on thedecision of division bench of Karnataka High Courtrendered in case of CIT vs. Manjunatha Cotton &Ginning factory (2013)(359 ITR 565), allowedappeal of the assessee holding that notice issued byassessing officer under section 274 r.w.s. 271(1)(c)was bad in law, as it did not specify under whichlimb of section 271(1)(c) penalty proceedings hadbeen initiated, i.e. whether for concealment ofparticulars of income or furnishing of inaccurateparticulars of income. High Court held that matterwas covered by aforesaid decision of Divisionbench and, therefore, there was no question of lawarising for determination. Whether since there wasno merit in SLP filed by revenue, same was liableto be dismissed.

[CIT vs. SSA’s Emerald Meadows (2016) (242Taxman 180) ]

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18

19

The easiest way to makeourselves happy is to see thatothers are happy.

- Swami Vivekananda


Bogus Job WorkCIT v/s. Jawahar International(Decided by Hon. Gujarat High Courtin Tax Appeal No. 1342 of 2010 and No.1344 of 2010 decided on 22/06/2016).

Issue :

Why the assessing authority cannot disallow thejob work expenses by holding the same as bogus?

Held :

Hon. Gujarat High Court has approved the decisionof the Tribunal in the following words.

“We find that the assessee’s case is covered bydecision of Hon’ble Gujarat High Court in the caseof CIT v/s. M.K. Brothers 163 ITR 249 (Guj). Inthe assessment order, the A.O. has presumed thatthe payments made by the appellant for job workexpenses might have been back interest form ofcross cheques, etc. This is just a presumptionwithout any finding. The A.O. could have very wellchecked the payments made by job parties. Thereis no finding at all that any portions of thesepayments have come back to the assessee. Merelyby arbitrary presumptions it cannot be said that theamounts might have come back to the assessee.There is no such finding at all. There is no basis atall for this presumption. The A.O. must havechecked the payments made by this job party andif at all there was any finding against assessee thenhe could have clearly brought out the same onrecord. But there is no such finding at all. Thisrenders the arbitrary presumption of the AO to becompletely baseless and unsustainable. In theabsence of any such finding, the genuineexpenditure incurred by the assessee for valueaddition job work paid by A/c. Payee cheque cannotbe disallowed. This issue is clearly covered by thejudgment of Hon’ble High Court of Gujarat in

CA. C. R. [email protected]

above case law”.

Reopening of Assessment : Change ofopinionPriya Desh Gupta v/s. Dy. CIT (Delhi)(2016) 385 ITR 452 (Delhi)

Issue :

In case of change of opinion, notice u/s 147 isvalid?

Held :

Assessing Officer did not refer to any material, otherthan what was examined in the initial round ofassessment proceedings, for forming his belief thatthe assessee’s income had escaped assessment. TheAssessing Officer’s belief was based solely on thebasis of material already examined by him duringthe first round of assessment proceedings. A perusalof the reasons recorded by the Assessing Officeralso indicated that he had initiated the proceedingsfor reassessment pursuant to a letter sent by theCommissioner (Appeals) who had opined that therevised agreement was void and the considerationof Rs. 38 per share should be attributed to the noncompete clauses. This was a matter of opinionregarding agreement and the revised agreement,which were duly considered by the AssessingOfficer at the time of initial assessment.

Thus, it was apparent that the issuance of the noticeswas occasioned by a change of opinion, which wasimpermissible under section 147 read with section148 of the Act and therefore, the notices were to bequashed.

C.B.D.T. Circulars : How far bindingto Department and Assessee.Vodafone Essar Mobile Services Ltd.V/s. Union of India and Ors.(2016) 385 ITR 436 (Delhi)

Issue:

Binding nature of CBDT circulars to (1)

From the Courts

CA. Jayesh C. [email protected]

Department and (2) Assessees.

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Held :

Section 201 of the Income Tax Act, 1961, as it stoodprior to the amendment which introduced subsection (3) with effect from April 1, 2010 did notcontain a provision stipulating a time limit forinitiation of the proceedings there under. CircularNo. 5 of 2010 of the Central Board of Direct Taxeswas issued clarifying that the proviso to section201(3) of the Act was meant to expand the timelimit for completing the proceedings and passingorders in relation to “pending cases”. The provisocannot be interpreted to enable the Department toinitiate proceedings for declaring an assessee to bean assessee in default under section 201 of the Actfor a period earlier than four years prior to March31, 2011.

It is well settled that if a circular issued by theDepartment favours an assessee then it should beso done even where such interpretation goescontrary to the legislative intent.

Cash System v/s. Mercantile System ofAccountingCIT v/s. Bijoy Kumar Jain(2016) 385 ITR 339 (Cal)

Issue :

How the accounting treatment to certain entries isto be interpreted vis-a-vis Cash/Mercantile Systemof accounting?

Held :

Section 145 of the Income Tax Act, 1961 providesthat an assessee has the choice to compute hisincome arising out of profits and gains of businessor profession or income from other sources eitherin accordance with the cash system or in accordancewith the mercantile system. The section is a meremandate that the assessee has to follow either ofthe two systems of accounting. Therefore, section145 neither militates against a deposit being treatedas a capital receipt nor does it favour the propositionthat a deposit should be treated as a revenue receiptwhere the assessee follows the cash system.Whether the receipt is a revenue receipt or a capital

From the Courts

receipt would depend essentially on the nature ofthe receipt.

The deposits were treated by the assessee as acapital receipt and the deposits were adjusted in thesubsequent years against the expenditure incurredfor or on behalf of the client from whom the depositwas received. Such expenditure also included thefees of the assessee himself. It was at that stage thatthe money was earned by him. Before that, he washolding the money as an agent or as a fiduciary ofhis client. The Appellate Tribunal was right in takingthe view that it did.

Special Audit u/s 142(2A) andreasonable opportunity of being heardIsolux Corsan India Engineering andConstruction (P) Ltd. V/s. Dy.CIT(2016) 287 CTR 92 (P & H)

Issue:

Whether giving opportunity of being heard is acondition precedent before passing order u/s 142(2A) for special audit?

Held :

Sec. 142(2A) confers power upon the AO, wherethe nature and complexity of accounts etc. and theinterest of the Revenue so requires to record anopinion that it is necessary to call upon the assesseeto get his accounts audited by an accountantnominated by the AO. The first proviso to S.142(2A), however prohibits an AO from directingsuch an audit unless the assessee has been affordeda “reasonable opportunity of being heard”. Theexpression “reasonable opportunity of being heard”inhers an obligation to afford a reasonableopportunity of being heard. The mere calling uponthe assessee to file a reply would not fulfill the pre-emptory condition set out in the first proviso to S.142(2A). The grant of a reasonable opportunity ofbeing heard, is a statutory pre-condition to theexercise of power under s. 142(2A), and if an AOfails to afford a reasonable opportunity of beingheard, before passing an order under s. 142(2A),such an order would be null and void.

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Reopening : On instructions of superiorauthority : Instruction of CBDT.Pharmaceutical Industries Ltd. v/s. Dy.C.I.T. (2016) 287 CTR 621 (Del)

Issue :

(1) Any superior or administrative authority hasauthority to instruct Assessing Officer to reopenthe assessment.

(2) What is the binding force of CBDT instructionson this subject?

Held:

That a quasi judicial authority, which is expectedto exercise statutory functions on an objectivecriteria, cannot act on the dictates of any superiorauthority, or on any instruction that may be issuedby an authority that may have administrative controlover such quasi judicial authority, is fairly well

thsettled. Reasons 3 to 7 of the order dt. 30 March,2011, based as they are on audit objections, in termsof which the AO felt constrained as a result of theCBDT Instruction No. 9 of 2006, to reopen theassessment for the asst. yr. 2004-05, areunsustainable in law. Instruction No. 9 of the CBDT

thdt. 7 Nov, 2006 cannot possibly override thestatutory powers to be exercised by an AO in termsof S. 147. In other words the said instruction has tobe read consistent with proviso(a) to S. 119(1) andcannot, as was erroneously understood by therespondent, compel the AO to issue the notice dt.

th30 March, 2011. If the CBDT instruction No. 9of 2006 is read to the contrary it would fall foul ofS. 119.

Application for approval of GroupGratuity Scheme pending for 25 years :Deduction allowed:Pr. CIT v/s. Rajasthan State SeedCorporation Ltd.(2016) 386 ITR 267 (Raj)

Issue:

Is contribution allowable to group gratuity schemewhen application for approval is pending for 25

Held:

In so far as disallowance of claim of Rs.

years?

1,92,82,605/- is concerned, admittedly, the assesseerespondent has claimed to have applied foraccording approval of the Group Gratuity Schemeto the concerned Commissioner on March 31, 1981.Once the assessee files an application for approvalof the scheme, it was for the Commissioner to havetaken recourse of disposing of the said applicationeither to approve or to reject the same. The samehaving not been done for the last more than almost25 years, the assesssee could not have been blamedfor the same. There is no denial by the AssessingOfficer that application for approval has not beenfiled by the assessee on March 31, 1981. Even theAssessing Officer admits that the application forapproval was submitted on March 31, 1981 andboth the appellate authorities have come to a definitefinding of fact that once an application has beenmoved for approval and having not been rejectedthen the claim could not have been disallowed orthe claim could not have been rejected merelybecause the Commissioner did not accord approvalof the same. The assessee cannot be made to sufferfor inaction of the Revenue.

Sec. 245: Adjustment of Refund : Rightof Assessee.CIT(TDS) v/s. State Bank of India(2016) 384 ITR 227 (Uttarakhand)

Issue:

Has Assessing Officer unfettered right to adjustrefund against demand?

Held:

Section 245 states that the adjustment should bemade “after giving prior intimation in writing ofthe proposal to adjust the refund”. A quasi judicialauthority is obliged to comply with the principlesof natural justice. Rights cannot be adjudicatedwithout opportunity of either making arepresentation or, if the situation so warrants, anopportunity of personal hearing. Even if the orderis an administrative order, as long as theadministrative order has the effect of affecting legal

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rights of parties, the authority is not immune fromthe operation of the principles of natural justice.When the competent authority, mentioned in section245, decides not to pay the amount due by way ofrefund and seeks to invoke section 245 and set offthe amount against any amount remaining payable,it cannot be said it does not affect the right of theparty.

Sec. 115JB and Powers of AssessingOfficer,CIT v/s. Jajodia Engineering P. Ltd.(2016) 384 ITR 364 (Gauhati)

Issue:

Whether Assessing Officer has any power toembark upon a fresh inquiry in respect of Accountsprepared as per the provisions of Companies Act?

Held:

When the accounts produced by an assessee arefound to be maintained in accordance with therequirements of the Companies Act, it is not opento the Assessing Officer to embark upon a freshinquiry in regard to the entries made in the booksof account of the company. The Assessing Officerhas limited power of making appropriate correctionin accordance with the Explanation to section115JB. To put it differently the Assessing Officerdoes not have the jurisdiction to go behind the netprofit reflected in the profit and loss account exceptto the limited extent permitted by the Explanationto section 115JB.

Sec. 54F : House not complete withinthree years.Pr. CIT. v/s. C. Gopalswamy(2016) 384 ITR 307 (Karn)

Issue:

Is relief u/s 54F available, when the new house is

Held:

The assessee effected sale of equity shares on July

not complete with three years?

7, 2007, which gave rise to long term capital gains.The assessee invested part of the gains inconstruction of a residential house and claimedexemption thereof under section 54F of the IncomeTax Act, 1961. The assessing authority disallowedthe claim on the ground that the construction wasnot completed within the three year period stipulatedin the section. The Commissioner (Appeals)dismissed the assessee’s appeal. The Tribunal foundthat though the agreement for construction enteredinto by the assessee with the builder gave an outerdate which went beyond the three year period fromthe date of sale of the shares the assessee had doneall that he could do for acquiring the villa by payingthe whole of the price on July 28, 2007 itself.Following CIT v/s. Sambandam Udaykumar (2012)345 ITR 389 (Karn) the Tribunal held that the factthat the builder had not handed over possessionwould not disentitle the assessee from claiming thebenefit under section 54F and that the assessee wasentitled to the exemption under section 54F becausehe had re-invested the entire capital gains by makingpayment in full to the builder.

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From the Courts

81It is the greatest privilege in ourlife that we are allowed to servethe Lord in all these shapes.

- Swami Vivekananda


ACIT Vs. Liva Healthcare [2016] 73Taxmann.com 171 (Mumbai)Assessment Year: 2009-10 Order

thDated: 12 September 2016

Basic Facts

The assessee was engaged in the manufacturing ofdrugs and pharmaceuticals. During the year underconsideration, it incurred expenditure forsponsoring Doctors overseas Tour and stated thatsuch expenses are allowable u/s 37 of the Act, beingwholly and exclusively for the purpose of business.The assessee claimed to have organized seminars,group visits for the doctors. However, nothing wasplaced on record with the AO as an evidence as tothe fact that seminars were conducted on these visits.The AO thus concluded that these trips wereorganized to lure the doctors to buy/prescribe themedicines and to allure the Doctor the assesseecompany is trying to sponsor their travel program.Thus, it is observed by the AO that neither thedoctor, nor the tour operator nor the expenses arerelated to the business of the assessee. The AOdisallowed the said expenses. Aggrieved, theassessee preferred an appeal with the CIT (A). TheCIT(A) observed that the assesseee’s contentionthat the trips increased the sales of the assessee isgeneral in nature and thus the expenditure cannotbe said to have been incurred for the purpose ofbusiness. The CIT (A) thus dismissed the assessee’sappeal.

Issue

Whether expenses incurred by assessee couldnot be allowed as business expenditure undersection 37(1) as they were clearly hit byExplanation to section 37 being against publicpolicy as unethical, prohibited by law and byregulation 6.4.1 of IMC regulations, 2002.

Held

The expenditure has been admittedly incurred bythe assessee with an objective to keep doctors ingood humour to seek favours from them by way ofrecommending the pharmaceutical products dealtwith by the assessee to the patients so that salesand profitability of the assessee company increaseswhich clearly reflects that these are illegalgratification against public policy being unethicalprohibited by law. As per Explanation to Section37 inserted vide Finance Act, 1998 with effect from

st1 April 1962, if the expenses are incurred for anypurpose which is an offence or which is prohibitedby law then the same shall not be deemed to havebeen incurred for the purposes of business orprofession and no deduction on account of businessexpenditure shall be allowed with respect to suchexpenditure. The Indian Medical Council(Professional conduct, Etiquette and Ethics)Regulations, 2002 prohibits vide regulation 6.4.1the physician to receive any gifts, gratuity,commission or bonus in consideration or return forreferring the patients for medical, surgical or othertreatment. Further, CBDT vide circular no. 5 of

st2012 dated 1 August 2012 clarified that anyexpenses incurred in violation of the provisions ofIndian Medical Council (Professional Conduct,Etiquette and Ethics) Regulations, 2002 shall beinadmissible under section 37(1) being an expenseprohibited by the law. Further, No details of theseminars conducted abroad are brought on recordas also spouses of the Doctors had also travelledoverseas along with Doctors and the expenses ofthe spouse on air ticket as well stay abroad arecharged as an business expenditure under section37 which cannot be called as being incurred whollyand exclusively for the purposes of business of theassessee. Thus, the order of the CIT (A) was upheld

Tribunal News

CA. Yogesh G. Shah CA. Aparna [email protected] [email protected]

and the appeal of the assessee was dismissed.

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International Management Group (UK)Ltd vs. ACIT 182 TTJ 1/75taxmann.com 250(Delhi)Assessment Year: 2010-11 Order Dated:

th4 October, 2016

Basic Facts

The assessee a UK based company was engagedin the business of event management and talentrepresentation activities in sports events such asgolf, tennis, football etc. The assessee was toprovide services in relation to IPL 2009 to BCCIwhich was scheduled to be held in India in April -May 2009, however, later the event was organizedin South Africa. As the length of the stay of suchstaff etc. exceeded 90 days in a 12 months period,according to the assessee, it created a servicepermanent establishment of appellant in India interms of article 5(2)(k) of the Indo-UK DTAA.Therefore, income of the assessee was chargeableto tax in India as attributable to that permanentestablishment. The assesse offered only incomeattributable to PE for taxation. But did not offer totax balance income which was not attributable toPE, considering the same to be Fees for Technicalservices covered under Article 13(4) of the DTAAon the ground that technology was not madeavailable. During assessment proceedings the AOaccepted the business income shown in return ofincome as attributable to the PE but made anaddition of balance receipt as FTS. The DRP heldthat the balance receipts were chargeable to taxunder section 9(1)(vii)(b) and also FTS underDTAA. The DRP further directed that such receiptshould be attributed to the PE and be taxed on netbasis. It gave direction for taxing the sum as FTSon protective basis and considering the above sumas business income on substantive basis.

Issue

Payment to Event Management Company forIPL hosted in South Africa was FTS underIndia-UK treaty?

Held

Before the Tribunal the assessee took the plea thatthe agreement entered into with BCCI was

effectively connected with the PE. Accordinglywhole of the income received under the agreementwas effectively connected with the PE in India, butsince the balance income was for services renderedoutside India the same was not taxable in India.The Tribunal held that the in order to consider anyincome to be income of PE , it should arise throughthe PE and the right of property or contract in respectof which the Technical fees are received should beeffectively connected with the PE. The assessee inthis case could not establish that the activities inrespect of balance income were carried out by thePE since the same were carried out by the Headoffice outside India. Therefore, according to theTribunal balance income was not attributable to thePE and hence was not taxable as PE income sincethe activity test for PE failed. Accordingly thebalance income was to be considered as Fees forTechnical services. The Tribunal found that theassessee was required to provide the Constitutionof the IPL, the authority of the governing Council,the structure of IPL, tournament rules andregulation, the franchisee tender document, thefranchisee agreement, necessary franchiseeregulation and the IPL implementation budget.Further according to the agreement the intellectualproperty rights remains with the board of controlfor Cricket in India. Accordingly as per tribunalwhen all documentation and material is providedto the BCCI it is able to use such know-how anddocumentation generated from provision of theservices of the assessee independent of the servicesof the assessee. The Technology can be said to bemade available to BCCI. Accordingly the Tribunalrejected assessee’s claim that no technology wasmade available to BCCI & the income was nottaxable as per Article 13. The tribunal also rejectedthe assessee claim that the amount was covered byexception to section 9(1)(vii) of the Act since BCCIhas used services rendered by the assessee forcarrying out events outside India. As per theTribunal it was an established fact that BCCI iscarrying on business in India and not outside India.Further the source of income of the BCCI is in Indiaand not outside India. Merely because the event isperformed outside India it cannot be said that source

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of income of the BCCI is not in India. Therefore,the income of the appellant of was held chargeableto tax even under section 9(1) (vii) as Fees fortechnical services.

Fibres and Fabrics International Pvt.Ltd. Vs. DCIT [2016] 182 TTJ 374(Bangalore)Assessment Year: 2008-09 and 2009-10

thOrder Dated: 13 July, 2016

Basic Facts

The assessee-company is a company engaged inthe business of manufacture and export ofreadymade garments. The company acquired‘Fibres and Fabrics International’, a soleproprietorship concern on slump sale basis and asa going concern in the F.Y: 2002-03. As a part ofthe business acquisition, a number of intangibleassets including customer/supplier contracts, exportquotas and assembled workforce (employee base)were acquired and the consideration for the samewas settled by way of issuance of shares. The saidintangible assets were classified as ‘goodwill’ andassessee claimed depreciation u/s 32(1) (ii) of theAct on the said intangible asset classified asgoodwill. While completing the assessment, the AOdenied the depreciation claimed on goodwill ofRs.2,76,85,547 holding that goodwill does notquality for depreciation. Aggrieved by this order ofassessment, appeal was preferred before theCIT(A). The CIT (A) upheld the denial ofdepreciation on goodwill.

Issue

Whether disallowance of depreciation ofgoodwill can be made on the ground that sinceno commercial rights have been acquired, nodepreciation was admissible on the goodwill?

Held

The Hon’ble ITAT relied on the recent decision ofHon’ble Delhi High Court in the case of TriuneEnergy Services (P.) Ltd. (65taxman.com 288) heldthat the excess of the amount paid over net value ofassets constitutes ‘goodwill’. The ITAT relying onthe decision of Hon’ble Apex Court in the case ofCIT v. Mugneeram Bangur & Co. (57 ITR 299)

held that when the company was taken over as agoing concern with all the assets & liabilities for aslump consideration, it is neither permissible norpossible to apportion the consideration paid againstdifferent assets. Further, the ITAT held that goodwillis an asset within the meaning of section 32 of theIncome-tax Act, 1961 and depreciation on goodwillis allowable as held by the Hon’ble Apex Court inthe case of CIT v. Smifs Securities Ltd. Accordinglythe ITAT directed the AO to allow the same.Assessee’s appeal was allowed.

ADDIT Vs. Taj TV Ltd. [2016] 72Taxmann.com 143 (Mumbai)Assessment Year: 2003-04 to 2005-06

thOrder Dated: 5 July, 2016

Basic Facts

The assessee-company, was registered under thelaws of Mauritius and was a tax resident ofMauritius. It was engaged in the business ofbroadcasting of sports channel namely, ‘Ten Sports’all across the globe including India. Since assesseedid not have any branch or business premises inIndia, it formed a subsidiary, as its advertising salesagent to sell commercial advertisement slot toprospective advertisers and other parties in India,in connection with the business of programmingand telecasting sports events and programs on TenSports Channel. The assessee entered intoagreement with its subsidiary for collection ofadvertising revenue in India for which a commission@ 10% was paid to the subsidiary. A Distributionagreement was also entered into with the subsidiaryunder which distribution revenue was shared in theratio of 60:40. For the assessment year 2003-04,the assessee had filed its return of income at ‘Nil’on the basis that advertising and distributionrevenue earned by it was not taxable in Indiabecause it did not have any PermanentEstablishment (PE) in India. The AO took a viewthat in relation to the advertising income, subsidiarywas a ‘dependent agent’ of the assessee and,therefore, assessee had PE in India in the form ofits subsidiary within the scope and meaning of article5(4) of India-Mauritius DTAA. Secondly, inrelation to distribution income, AO held that the

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assessee-company allowed the cable operators touse or access the encrypted signal for commercialexploitation by allowing them to distribute it to theviewers. The encrypted signal was the property ofthe assessee-company and by allowing it to becommercially exploited; it was partially transferringthe rights to the cable operators. Therefore,distribution income was taxable as ‘Royalty’ undersection 9(1) (vi). In appeal before the CIT (A), theCIT (A) held that there was agency PE as far as theadvertisement agreement is concerned but in respectof Distribution agreement it was held that there wasno agency PE.

Issue

Whether in view of fact that entire relationshipqua distribution revenue was that of principalto principal basis and subsidiary was actingindependently, it did not constitute an agencyPE in terms of article 5(4) of DTAA? Whether,therefore, distribution income of assessee couldnot be taxed in India?

Held

The character of an agent, who can be said to be adependent only if, firstly, the commercial activityfor the enterprise is subject to instructions orcomprehensive control and secondly, it does notbear the entrepreneur risk. It is sufficient for theestablishment of an agency PE that the agent hassufficient authority to bind the enterprise’sparticipation in the business activity. Here in thiscase, none of the conditions as stipulated in article5(4) is applicable because subsidiary was actingindependently qua its distribution rights and theentire agreement ostensibly is on principal toprincipal basis. When the entire relationship quathe distribution revenue was that of principal toprincipal basis and the subsidiary was actingindependently, then it moves out from theconditions laid down in article 5(4). Thus, thedistribution income of the assessee could not betaxed in India, because the subsidiary does notconstitute an agency PE under the terms of article

Smt. Madhu Mehta Vs. DCIT [2016]

5(4).

181 TTJ 768 (Mumbai)Assessment Year: 2008-09 Order Dated:

th11 April, 2016

Basic Facts

The assessee’s sources of income during the yearare from house property income, business and othersources. The A.O. observed from the detailsfurnished by the assessee that she has made paymentto the C & F agent but the assessee has not deductedtax at source on the payment made to C & F agentwhich is covered under section 194C. In view ofnon-deduction of tax at source in view of provisionsof section 194C of the Act, the expenditure on thepayment made to C & F agent was disallowed bythe A.O. u/s.40(a)(ia) of the Act and added to thetotal income of the assessee. The assesseecontended that out of the total amount there was areimbursement of expenses towards air freight,insurance charges and postage charges and balancewas paid towards agency charges of the clearingand forwarding agent M/s. S. Natesa Iyer & Co.The CIT (A) confirmed the AO’s action.

Issue

Whether disallowance under section 40(a) (ia)can be done?

Held

The ITAT held that reimbursement of expenses paidby the assessee to S. Natesa Iyer & company forreimbursement of air freight, insurance charges andpostal charges in connection with exportconsignment shipped from India to Lusaka(Zambia) cannot be disallowed by invokingprovisions of Section 40(a)(ia) of the Act as thereis no liability on the assessee to deduct tax at sourceu/s 194C of the Act on these reimbursement ofexpenses. However, payment which was paid toM/s S. Natesa Iyer & Co. for work performed bythem for handling custom clearance etc. was subjectto deduction of tax at source u/s 194C of the Actbut the same was below the threshold exemptionlimit provided u/s 194C of the Act as per the factsemerging from the records, hence, the same stood

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out of the applicability of provisions of Section194C of the Act. Assessee’s appeal was allowed.

Note: Similar issue has been decided in favour ofassessee by Hon’ble Gujarat High court in case ofCIT V Gujarat Narmada Valley Fertilizer Co. Ltd.361 ITR 192.

Syngenta India Ltd. Vs. DCIT [TS-988-ITAT-2016(Mum)-TP]Assessment Year: 2009-10, 2010-11 and2011-12Order Dated: 30 November, 2016

Basic Facts

The assessee is a public limited company engagedin the business of manufacturing and trading ofagro-chemical products/crop protection chemicalsand multiplication and trading of seeds. The TransferPricing Officer (‘TPO’) has made transfer pricingadjustment on account of ‘location savings’. TheTPO has proceeded on the premise that due to highcost of production in the developed countries, themultinational companies are setting up new plantsin the developing countries having low cost ofproduction and accordingly generate locationsaving. In the given case, the TPO observed thatthe Associated Enterprise (‘AE’) has received theadvantage of cost saving since the manufacturingfacility are in low cost jurisdiction viz. Indiahowever, the AE has not attributed such locationcost saving to the assessee. The TPO’s specific focuson location saving was in respect of lower labourcost in India. The assessee had raised its objectionsagainst the action of the TPO/AO before the DisputeResolution Panel (‘DRP’). The DRP upheld thecontention of the TPO, however, gave part reliefby restricting the adjustment of locational savingonly to the Goa Plant of the assessee and thusmarginally reducing the adjustment.

Issue

Whether location saving was to be regarded asseparate international transaction whichrequires separate benchmarking especiallywhen the overall profit margin of the entireinternational transaction meets arm’s lengthrequirement?

Held

The Hon’ble ITAT held that there are no specificprovisions or guidelines in existing TP provisionsprescribing adjustment for location saving. TheHon’ble ITAT further held that the TPO madeadjustments on the ground that assessee had notreceived any compensation from AE on account oflocation saving advantage because of lower cost oflabour of its Indian manufacturing facility. Notingthat assessee’s international transactions have beenanalyzed under Transactional Net Margin Method(‘TNMM’) and its margin found to be higher thanaverage profit margin of comparables, the Hon’bleITAT observes that any kind of return or advantagetowards location savings would be embedded inthe margin of comparables and thus separateadjustment is not warranted. Further, the Hon’bleITAT, relying on BEPS Action-8 guidelines andIndia Chapter in Draft UN Transfer Pricing Manual,observes that no location savings adjustment isrequired to be made separately if reliable localmarket comparables are available, however,Hon’ble ITAT observes that nothing was broughton record to demonstrate that Action 8 has beencaptured in our current TP laws /provisions. Further,the Hon’ble ITAT observed that it is not clear ifTPO treated the adjustments as separateinternational transactions or as adjustment ondetermination of assessee’s profits. In this regard,the Hon’ble ITAT states that in respect of separateinternational transactions, benchmarking needs tobe done carrying out comparability analysis withuncontrolled transaction under prescribed methodswhile in case of adjustment on profits, TPO needsto justify that due to such factors, comparabilitywith local comparables failed to yield arm’s lengthresult, none of which had been done by TPO. TheHon’ble ITAT concluded that such an arbitraryadhocism for making such huge adjustment in theprofit sans any Transfer Pricing analysis under theprescribed provisions cannot be sustained. TheHon’ble ITAT relying on Delhi High Court decisionin case of Li & Fung held that the Transfer Pricingadjustment cannot be on vague generalities.

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(2), where the capital gain arises from the transferby way of compulsory acquisition under any lawof a capital asset, being land or building or any rightin land or building, forming part of an industrialundertaking..” it is palpable from section 54D that“land or building” is distinct from “any right in landor building”. Similar position prevails under theW.T. Act, 1957 also. Section 5(1) at the materialtime provided for exemption in respect of certainassets. Clause (xxxii) of section 5(1) provided that“the value, as determined in the prescribed manner,of the interest of the assessee in the assets (not beingany land or building or any rights in land or buildingor any asset referred to in any other clauses of thissub-section) forming part of an industrialundertaking” shall be exempt from tax. Here also itis worth noting that a distinction has been drawnbetween land or building on one hand and or anyrights in land or building on the other.

It is very well settled that lease hold rights andtenancy rights are capital assets and liable to capitalgains. When capital gain is to be computed section50C applied and if the stamp valuation is more thanthe sale consideration than capital gain liabilityarises. Section 50C of the Act is a special provisionfor computing capital gains in certain cases andwould include not only land as such but also leasehold rights in land. The assessee cannot claimexemption on the bases of the ground that section50C specifically does not cover rights in land orbuilding. Section 50C is applicable for the purposeof computing capital gain and capital gain as perthis section has to be computed on the basis of stampduty value. Thus, stamp duty value has to besubstituted for the sale consideration if the saleconsideration is less than the stamp duty value. Thus,since the lease hold rights as well as tenancy rightsare also capital assets capital gains have to be

ControversiesCA. Kaushik D. Shah

[email protected].

worked out.

Whether provisions of Section .50C of the Actare applicable on transfer of tenancy rights/leasehold rights?

Issue:

When assessee assigns lease hold rights/tenancyrights for a consideration whether provisions ofsection 50C is applicable?

Proposition:

A perusal of Section 50C suggests that it is onlyfor the limited purpose of computing capital gainin respect of sale of land and building, only whensuch sale takes place stamp duty value has to besubstituted for the sale consideration, if the saleconsideration is less than the stamp duty value. It isproposed that in case of the surrender of tenancyright/assignment of lease hold rights, provisions ofsec. 50C would not apply.

View in against of proposition:

Let me refer to provision of Section 50C, wherethe consideration received or accruing as a resultof the transfer by an assessee of a capital asset, beingland or building or both, is less than the valueadopted or assessed by any authority of a stategovernment (hereafter in this section referred to asthe “stamp valuation authority) for the purpose ofpayment of stamp duty in respect of such transfer,the value so adopted or assessed shall, for thepurposes of section 48, be deemed to be the fullvalue of the consideration received or accruing asa result of such transfer.

The distinction between a capital asset being “landor building or both” and any right in “land orbuilding or both” is well recognized under the I.T.Act. Section 54D deals with certain cases in whichcapital gain on compulsory acquisition of land andbuilding is charged. Sub-section (1) of sec. 54Dopens with: “Subject to the provisions of sub-section


Controversies

View in favour of the proposition:

A question arises whether the words “land orbuilding or both” shall also cover any right in landor building or bith. Section 54D of the Act refers to“capital asset, being land or building or any right inland or building..” section 269UA(d) definesimmovable property. Explanation to sub-clause (i)of clause (d) of section 269UA provides that “Forthe purposes of this sub-clause, “land, building, partof a building, machinery, plant, furniture, fittingsand other things” include any rights therein”. Thus,from the wordings used in section 54D and269UA(d), it is clear that:

(i) Wherever Parliament intended to cover “anyright in land or building within the ambit ofany provision, it has done so by using clearand express words.

(ii) The need to specifically cover rights in land orbuilding in section 54D and 269UA(d) arosebecause the expression land and building willnot cover any rights therein.

In Atul G. Puranik V. ITO (2011) 132 ITD 499(Mum.), the Tribunal held that lease rights for 60years in a plot of land is not capital asset being landor building or both and section 50C is not attractedin a transaction for assignment of lease rights in aplot of land to a builder.

In Dy. CIT V. Tejinder Singh (2012) 19taxmann.com 4(Kol.), the Tribunal held that:

Section 50C does not apply to transfer or surrenderof tenancy rights as it will not apply to transfers ofcapital assets other than land or building or both.

Section 50C can only be applied in respect of“transfer by an assessee of a capital asset, beingland or building or both”. These provisions will notcome into play in a case where only tenancy rightsare transferred or surrendered.

A lease hold right in capital asset being land orbuilding or both cannot be equated with the capitalasset per se.

The Tribunal observed as under:

“revenue’s contentions that the provisions of section50C also apply to the transfer of leasehold rights is

devoid of legally sustainable merits and is notsupported by the plain words of the statue. It is sinequa non for application of section 50C that thetransfer must be of a “capital asset, being land orbuilding or both”, but when a leasehold right insuch a capital asset cannot be equated with thecapital asset per se. We are, therefore, unable to seeany merits in revenue’s contention that even whena leasehold right in land or building or both istransferred, the provisions of section 50C can beinvoked.

[Fleurette Marine Novelle Hatam Vs. ITO(International Taxation)-61 taxmann.com 362(Mum. Tri.)]

The Tribunal held that undisputedly tenancy rightis a capital asset but whether transfer of such capitalasset has to be looked upon in the light of theprovisions of Sec. 50C of the Act. A perusal of sec.50C suggests that it is only for the limited purposeof computing capital gain in respect of sale of landand building, only when such sale take place stampduty value has to be substituted for the saleconsideration, if the sale consideration is less thanstamp duty value. The Tribunal further held that incase of the surrender of tenancy right, provisionsof sec. 50C would not apply. Dismissing Revenue’sappeal, the Tribunal held that provisions of sec. 50Care not applicable on the transfer of tenancy rightinasmuch as there was no reason for referring thematter to the DVO and adopting DVO’s valuationfor the computation of long term capital gains.

Summation:

It is submitted that the rights in land cannot beequated with the land or building. Therefore, it isconcluded that section 50C is applicable to transferof capital asset only in respect of land or buildingor both and is not applicable to right in land.

Let me now refer to the decision of ITAT benchMumbai in the case of Shri Farid Gulmohamed C/o. M/s. B.C. Dastur and Co. Vs. ITO (InternationalTax) 3(1). ITA No. 5136/Mum/2014, Asst. 2010-11, decided on 16 March, 2016. The Hon. Tribunalheld as under:

contd. to page 587


Recent decisions of Hon’ble Gujarat HighCourt on validity of reopening based on

“borrowed satisfaction”.

Harikishan Sunderlal Virmanivs DCIT [SpecialCivil Application No. 16204 of 2016] (GujaratHigh Court)xxx…

5.00. Heard the learned advocates appearing onbehalf of the respective parties at length.

5.01. At the outset, it is required to be noted thatthe impugned notice under section 148 of theAct to reopen the assessment in exercise ofthe power under section 147 of the Act, hasbeen issued beyond the period of four years.Therefore, considering the proviso to section147 of the act, unless and until it is foundthat there was a failure on the part of theassessee in not disclosing truly and fullyrelevant material for assessment, reopeningbeyond four years is not permissible. It alsocannot be disputed that even to reopen theproceedings, there must be satisfaction of theA.O. and the A.O. himself, on the basis ofthe material before him is required to forman opinion that the income has escapedassessment due to failure on the part of theassessee in not disclosing truly and fullymaterial necessary for the assessment.

5.02. The reasons recorded to reopen theassessment are as under :-

“2. Reasons for reopening of the assessment– A.Y. 2009 reg.

Assessee had e-filed his return of incomefor the Asstt. Year 2009-2010 on30.09.2010 declaring therein total incomeof Rs.2,09,39,600/-. Subsequently, thecase was selected in CASS within themeaning of section 143(3) of the act.Assessment proceedings was completed

Advocate Tushar [email protected]

Judicial Analysis

u/s. 143(3) of the Act on 30/11/2010determining the assessed income atRs.2,09,60,910/-.

2. Thereafter, information has beenreceived from the Principal Director ofIncome Tax (Investigation), Ahmedabadvide confidential letter No. PDIT (Inv)/AHD/CCM/Dissemination/15-16 dated08.03.2016.

On perusal of the data supplied by theoffice of the Pr. Director of Income Tax(Investigation), Ahmedabad it is noticedthat assessee carried out share tradingthrough the broker, Guiness securitiesLimited. And as per the guidelines of theSEBI the client code of the assessee withthe aforesaid broker was WW/2647. Inorder to verify the genuineness of themodification of client code in the caseof the assessee, by applying LavenshteinDistance Analysis or digit edit analysisutility, in those cases where the assesseeis original client and transactions werecarried out from assessee’s client codethen subsequently client code wasmodified to other client the details ofsuch case are as under:-

xxx…

In order to verify the genuineness of theerror, the Lavenshtein Distance analysisor digit edit analysis utility is alsoprovided by the investigation Wing. Thisutility gives a clear indication as towhether the code is wrongly typed or iscompletely replaced. If the number ofdigits changed from original code tomodified code is 1, then it can bereasonably argued that the OCC(Original Client Code) may have beentyped wrongly by mistake. Similarly, if


the number of digits changed is more say4 or 5,it cannot be genuine mistake buta deliberate change. To this extent,Levenshtein Distance Analysis or digitedit analysis act as a clear indicator forgenuineness in client code modification.In short, the longer the distance (i.e.number of digits changed), the lesser thechance of genuineness.

3. Hence, the editing of client code aboveit is termed as deliberate change andestablishes the non-genuineness andcontrived nature of the code change.

4. In view of the above facts, I have reasonto believe that the income to the extentof Rs.1,19,848/- has escapedassessment, which required to broughtunder tax. Therefore, this case is a fitcase for initiating the proceeding u/s. 147of the Act.”

5.03. Thus from the reasons recorded, thereopening of the assessment is on theinformation / data supplied by the office ofthe Principal Director of Income Tax(Investigation), Ahmedabad and theinformation received from the PrincipalDirector of Income Tax (Investigation),Ahmedabad vide his confidential letter dated8/3/2016. From the information received, itappears that though the client code of theassessee with the broker - Guinness SecuritiesLimited was WW/2647, modified client codewas found to be WW/2108 and therefore, toverify the genuineness of the modification ofthe client code, by applying LavenshteinDistance Analysis or digit edit analysis utility,distance was found to be 3 and therefore, itis believed that the code is not wrongly typedand it is termed as deliberate change andestablishing no genuineness and contrivednature of the code change. From the reasonsrecorded, it does not appear that verificationof the material on record there is independentformation of opinion by the A.O. and thatany income has escaped assessment due toany failure on the part of the assessee in notdisclosing truly and correct facts / material

necessary for assessment. From the reasonsrecorded, it appears that the impugnedreopening proceedings are on the borrowedsatisfaction. No independent opinion isformed. On the plain reading of the reasonsrecorded what emerges is that the A.O. onconsidering the information received from thePrincipal Director of Income Tax(Investigation), Ahmedabad, reassessmentproceedings have been initiated on the groundthat the income escaped assessment.However, there is no assertion regarding thebasis on which material on record, he hascome to such conclusion. Therefore, thematerial on the basis of which the A.O. seeksto assume the jurisdiction under section 147if the Act is the information received fromthe external source viz. the Principal Directorof Income Tax (Investigation), Ahmedabad.It cannot be disputed that on the basis of theinformation received from another agency,there cannot be any reassessmentproceedings. However, after considering theinformation / material received from othersource, A.O. is required to consider thematerial on record in case of the assessee andthereafter is required to form an independentopinion on the basis of the material on recordthat the income has escaped assessment.Without forming such an opinion, solely andmechanically relying upon the informationreceived from other source, there cannot beany reassessment for the verification.

5.04. At this stage it is required to be noted thateven in the reasons recorded, there is noallegation that there was any failure on thepart of the assessee in not disclosing truly andfully material facts necessary for assessment.Under the circumstances, the assumption ofthe jurisdiction to reopen the assessmentbeyond the period of four years in exerciseof powers under section 147 of the Act is badin law and contrary to the provisions ofsection 147 of the Act. Under thecircumstances, on the aforesaid ground alone,the impugned reassessment proceedingsdeserve to be quashed and set aside.

Judicial Analysis


5.05. In view of the above and for the reasonsstated above, present petition succeeds. Theimpugned notice issued under section 148 ofthe Income Tax Act, 1961 and reopening ofthe proceedings for A.Y. 2009-2010 cannotsustain and the same deserves to be quashedand set aside and are hereby quashed and setaside. Rule is made absolute accordingly. Inthe facts and circumstances of the case, thereshall be no order as to costs.

Shree Chalthan Vibhag Khand v. DCIT [2015]376 ITR 419 (Gujarat)xxx…

8. Heard learned Advocates appearing forrespective parties at length.

In all these petitions under Article 226 of theConstitution of India, the respectivepetitioners - cooperative societies havechallenged the impugned notices underSection 148 of the Act reopening theassessment for respective assessment yearsand the assumption of jurisdiction underSection 147 of the Act.

8.1 As observed hereinabove as such this groupof petitions can be bifurcated into two groups.One group in which the reopening of theassessment for respective AYs is beyond theperiod of 4 years and second group in whichthe reopening of the assessment is within theperiod of 4 years.

xxx…

9. Now, so far as the initiation of impugnedreassessment proceedings and the impugnednotices under Section 148 of the Act within 4years is concerned, it appears that the reopeninghas taken place only on one ground that theassessee has paid price of sugarcane more thanthe SMP. It is required to be noted that in allthese cases the assessments were completedunder Section 143(3) of the Act after holdingnecessary inquiry by the Assessing Officer. Italso appears that the inquiry was made andthe issue was gone into detail. It is also requiredto be noted that in some of the cases thepractice of paying more prices to the cane

growers than the SMP declared by theGovernment has been consistently followedsince many years and the same has beenaccepted and no objection has been raised atany point of time earlier. It appears that thereason to believe and/or formation of theopinion by the Assessing Officer that theincome chargeable to tax has escapedassessment is on the ground that the assesseehas paid more price than the price determined/declared by the Government and therefore, thesame is nothing but distribution of profits and/or passing of profits on the basis of the decisionof the Hon’ble Supreme Court in the case ofShri Satpuda Tapi Parisar SSK Ltd. (supra).However, it is required to be noted that onceat the time of original assessment under Section143(3) of the Act the Assessing Officer afterapplying the mind accepted the return,thereafter reopening of the assessment can besaid to be on mere change of opinion of theAssessing Officer and as per the catena ofdecisions of the Hon’ble Supreme Court aswell as this Court mere on change of opinionof the Assessing Officer, reassessmentproceedings are not permissible.

xxx…

9.2 Even otherwise it is required to be noted thatthe reasons to believe must necessarily show,indicate and communicate why and on whatgrounds/cause any income has escapedassessment. Reasons recorded must begermane, prudent and disclose prima faciebelief that income has escaped assessment.Even for formation of the opinion and/or reasonto believe that any income has escapedassessment, there must be some tangible newmaterial available with the Assessing Officeron the basis of which the reassessmentproceedings are permissible. In the present caseas such except the allegation that cane price/price has been paid to the cane growers morethan the purchase price determined/declaredby the Government under the Control Orderand therefore, the difference between the sameis distributing the profits and therefore, the

Judicial Analysis


income liable to tax has escaped assessment.However, mere payment of cane price paid inexcess to the SMP cannot by ipso facto and/orper se can be said to be distributing the profits.There must be tangible material available withthe Assessing Officer, such as the amount orcane price paid to the cane growers in excessto the SMP either is exorbitant or too excessiveand is not justifiable at all and on the basis ofthe material available with the AssessingOfficer with respect to the cane price paid byother societies it is found that amount of caneprice paid by a particular assessee/cooperativesociety is not justifiable at all, as either it isexorbitant and/or unreasonable, then and thenonly it can be said that such excess paymentof cane price is nothing but distributing theprofits and/or passing of the profits. However,for that and for reopening of the assessmenton the aforesaid ground, there must be sometangible material available with the AssessingOfficer to have a reasonable belief and/or formsuch an opinion and in that case only thereassessment is permissible.

At this stage it is required to be noted that assuch the SMP declared by the Government,declared under the Control Order is as such inthe larger interest of the cane growers and soas to see that the cane growers are not exploitedand therefore, it is mandated that the sugarcooperative societies to pay the purchase priceof the cane not less than the SMP declared bythe Government. Under the Control Order assuch there is no restriction and/or ban not topay more amount than the SMP declared. Evenin the case of Shri Satpuda Tapi Parisar SSKLtd. (supra), the Hon’ble Supreme Court hasobserved that in deciding the questions whetherthe differential payment made by the assesseeto the cane growers after the close of thefinancial year or after the balance-sheet datewould constitute an expenditure under Section37 of the Act and whether such differentialpayment would, applying the real incometheory, constitute an expenditure or distributionof profits, the Assessing Officer is required totake into account the manner in which the

business works, resolutions of the StateGovernment, the modalities and the mannerin which SAP and SMP are decided, the timingdifference which will arise on account of thedifference in the accounting years etc.Therefore, while considering the aforesaidquestion, numbers of questions are requiredto be examined by the Assessing Officer,before even forming an opinion and/or areason to believe that the income chargeableto tax has escaped assessment. Mere paymentof any amount of cane price/purchase price inexcess to SAP/SMP per se cannot be said tobe distribution of profits. For which a detailedinquiry is required to be conducted by theAssessing Officer. In the present case no suchinquiry has been done and/or conducted bythe Assessing Officer before having areasonable belief and/or forming an opinionthat the income chargeable to tax has escapedassessment on the aforesaid ground.

9.3 At this stage it is required to be noted that insome of the cases the Assessing Officer hasformed an opinion on the basis of the orderpassed by the learned CIT (Appeals) whichwere pursuant to the order of Hon’bleSupreme Court in the case of Shri SatpudaTapi Parisar SSK Ltd. (supra). However, it isrequired to be noted that on the basis of theorder passed by the learned CIT (Appeals)in the case of some other assessee thesatisfaction of the Assessing Officer andformation of opinion in the case of presentassessee cannot be sustained and the samecan be said to be a borrowed satisfaction fromanother officer. Such borrowed satisfactionin absence of any application of mind andany real finding in the case of the assessee donot constitute valid reason to believe that theincome has escaped assessment. Under thecircumstances on the aforesaid ground alsothe impugned reassessment proceedingswithin 4 years and beyond 4 years deservesto be quashed and set aside.

xxx…

Judicial Analysis


Shree Sayan Vibhag Sahkari v. DCIT [2016]69 taxmann.com 245 (Gujarat)xxx…

2. This petition under Article 226 of theConstitution of India is directed against the noticedated 25.03.2015 issued by the respondent undersection 148 of the Income Tax Act, 1961(hereinafter referred to as the “Act”) whereby,he seeks to reopen the assessment of thepetitioner for assessment year 2008-09.

3. The facts stated briefly are that the petitioner isa Co-operative Society manufacturing sugarfrom sugarcane supplied by its members andhas been assessed to tax under the provisionsof the Act for the last several years. Forassessment year 2008-09, the Assessing Officerissued the impugned notice dated 25.03.2015under section 148 of the Act in response towhich, the petitioner addressed a letter dated05.01.2016 stating that the return under section139 of the Act as originally filed be consideredas a return in response to reassessment noticeand also prayed for the copy of the reasonsrecorded. By a letter dated 06.01.2016, suchreasons came to be furnished to the petitioner.The petitioner filed its objections to therespondent by a letter dated 12.01.2016, whichcame to be rejected by an order dated18.01.2016. Being aggrieved, the petitioner hasfiled the present petition.

xxx…

6. On a perusal of the reasons recorded forreopening the assessment as referred to in thecase of Shree Chalthan Vibhag Khand (supra)and the reasons recorded in the present case, itis evident that the grounds for reopening theassessment in the present case are identical tothe grounds for reopening the assessment inthe said case. This court, in the above case,after giving detailed reasons in support of itsconclusion, has set aside the impugned noticeunder section 148 of the Act on the ground thatthe formation of opinion in the case of theassessee could not be sustained as the same canbe said to be a borrowed satisfaction fromanother officer and such borrowed satisfaction,

in the absence of any application of mind andany real finding in the case of the assessee, doesnot constitute valid reason to believe that theincome has escaped assessment. The court tooknote of the fact that despite the fact that in certaincases, reopening was beyond a period of fouryears, in the reasons recorded, there was noteven a whisper as regards any failure on thepart of the petitioner to disclose fully and trulyall material facts.

7. In the facts of the present case, the impugnednotice under section 148 of the Act has beenissued on 25.03.2015 for reopening theassessment for assessment year 2008-09, whichis clearly beyond a period of four years from theend of the relevant assessment year. Under thecircumstances, in view of the first proviso tosection 147 of the Act, the Assessing Officer isrequired to record twin satisfaction, viz., thatincome chargeable to tax has escaped assessmentand that such escapement is by reason of failureon the part of the petitioner to disclose fully andtruly all material facts necessary for its assessmentfor the year under consideration. On a perusal ofthe reasons recorded it is amply clear that there isnothing stated therein to the effect that there wasany failure on the part of the petitioner to disclosefully and truly all material facts. Thus, the secondcondition precedent for exercise of powers undersection 147 of the Act is clearly not satisfied.Moreover, even as regards the first condition,namely, that the Assessing Officer should recordsatisfaction that income chargeable to tax shouldhave escaped assessment, in the light of thereasons recorded by this court in the case of ShreeChalthan Vibhag Khand (supra), it cannot be saidthat on the reasons recorded for reopening theassessment, the Assessing Officer could haveformed the belief that income chargeable to taxhas escaped assessment. Therefore, even the firstcondition precedent for exercise of powers undersection 147 of the Act, is not satisfied. Under thecircumstances, the impugned notice issued undersection 148 of the Act cannot be sustained.

xxx…

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Judicial Analysis


1. Executive Summary

On 24 November 2016, the Organisation forEconomic Co-operation and Development(OECD) released the text of the MultilateralConvention to Implement Tax Treaty RelatedMeasures to Prevent Base Erosion and ProfitShifting (BEPS) under BEPS Action 15 (themultilateral instrument). The text and the relatedexplanatory statement were formally adoptedby approximately100 countries at a ceremonyhosted by the OECD following the conclusionof the negotiations during the week of 21November 2016.

The multilateral instrument under BEPS Action15 is a key part of the OECD’s effort towardimplementation of the tax treaty related BEPSmeasures into existing bilateral or regional taxtreaties as quickly and consistently as possible.

In general, the multilateral instrument will onlyenter into force after 5 countries have ratified itand will apply for a specific tax treaty, after allparties to that treaty have ratified the instrumentand a certain period has passed to ensure clarityand legal certainty. It is expected that themultilateral instrument will be open forsignature as of 31 December 2016 and a firsthigh-level signing ceremony will take place inthe week beginning 5 June 2017.

2. Detailed discussion

The multilateral instrument will operate tomodify tax treaties between two or more parties.It will not however, function in the same wayas an amending protocol to a single existing

CA. Dhinal A. [email protected]

treaty, which would directly amend the text ofthe tax treaty. Instead, it will be appliedalongside existing tax treaties, modifying theirapplication in order to implement the BEPSmeasures. As a result, while for internalpurposes, some Parties may developconsolidated versions of their Covered TaxAgreements as modified by the multilateralinstrument, doing so is not a prerequisite forthe application of the multilateral instrument.

The tax treaty related BEPS measures coveredby the multilateral instrument include (elementsof): (i) Action 2 on hybrid mismatcharrangements, (ii) Action 6 on treaty abuse,(iii)Action 7 on the artificial avoidance of the PEstatus; and (iv) Action 14 on dispute resolution.The substance of the tax treaty provisionsrelating to these actions was agreed under thefinal BEPS package released in October 2015.

The multilateral instrument does not modify oradd to the substance of these provisions. Theinstrument is solely focused on how to modifythe provisions in bilateral or regional tax treatiesin order to align these treaties with the

BEPS measures. The only action for which thenegotiations both related to developing thesubstance of the provision and the modalitiesof its implementation in bilateral and regionaltax treaties, concerns the mandatory and bindingarbitration provision which was announced inthe final report on Action 14. A group ofcountries (20 countries) expressed theirwillingness to voluntarily include mandatoryand binding arbitration in their existing taxtreaties at the time of conclusion of the Action

OECD releases MultilateralInstrument to modify bilateraltax treaties under

CA. Sagar ShahBEPS Action [email protected]


14 final report. Eventually, 27 countriesparticipated in the subgroup which developedthis provision.

The intention of the multilateral instrument isto enable all countries to meet the treaty-relatedminimum standards that were agreed as part ofthe final BEPS package. These include theminimum standard for the prevention of treatyabuse under Action 6 and the minimum standardfor the improvement of dispute resolution underAction 14. Given, however, that each of thoseminimum standards can be satisfied in multipledifferent ways, and given the broad range ofcountries and jurisdictions involved in thenegotiations, the multilateral instrument wasdesigned to be flexible enough to accommodatethe positions of different countries andjurisdictions. The multilateral instrument is alsodrafted to provide flexibility in relation toprovisions that do not reflect minimumstandards.

The multilateral instrument provides thatflexibility by:

• Allowing countries to specify the tax treatiesto which the multilateral instrument applies

• Creating flexibility with regard to theprovisions that relate to a minimumstandard, in order to allow countries tochoose for the option that fits those best

• Including the possibility to opt out ofprovisions when the provisions do not relateto a minimum standard

• Including the possibility to opt out ofprovisions for treaties with existingprovisions with specific, objectively definedcharacteristics

• Allowing a choice to apply optional oralternative provisions, such as for example

the optional provision on mandatory andbinding arbitration

3. Implications and Next Steps

The multilateral instrument of BEPS Action 15is a key part of the OECD’s effort towardimplementation of the recommended measures.The instrument will implement the tax treatyrelated BEPS measures into existing bilateralor regional tax treaties.

Currently more than 3000 of such treaties arein force. Bilateral renegotiations of these treatiesin the conventional ways would potentially takedecades and would therefore hamper the swiftimplementation of the treaty related BEPSmeasures. The multilateral instrument couldpotentially lead to the amendment of at least2000 of these treaties in the coming years.

Governments are currently preparing their listsof treaties to be covered by the multilateralinstrument and are considering which optionsto select and reservations to make. They willhave to notify this to the OECD, who will bethe depositary of the multilateral instrument andwill support governments in the process of itssignature, ratification and implementation.

The multilateral instrument will be open forsignature as of 31 December 2016 and a firsthigh-level signing ceremony will take place inthe week beginning 5 June 2017, with theexpected participation of a significant group ofcountries.

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OECD releases Multilateral Instrument to modify bilateral tax treaties under BEPS Action 15


CA. Savan [email protected]

Foreign Exchange Management(Insurance) Regulations, 2015

On a review, it is felt necessary to revise theregulations issued under the Foreign ExchangeManagement (Insurance) Regulations, 2000notified vide Notification No. FEMA. 12/2000 -RB dated May 03, 2000 c.f. G.S.R. No. 395(E)dated May 03, 2000. Accordingly, the saidRegulations have been repealed in consultation withthe Government of India and superseded by theForeign Exchange Management (Insurance)Regulations, 2015 notified vide Notification No.FEMA. 12(R)/2015-RB dated December 29, 2015c.f. G.S.R. No. 1007(E) dated December 29, 2015.The revised notification has come into force witheffect from December 29, 2015.

The Memorandum of Foreign ExchangeManagement Regulations relating to General/Health Insurance (GIM) and Life Insurance (LIM)in India have also been suitably modified and areannexed at Annex I and Annex II of the circular.

A.P. (DIR New Series) Circular No.18 [(1)/12(R)], dated November 17, 2016

For Full Text refer to https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10717

Investment by Foreign PortfolioInvestors (FPI) in corporate debtsecurities

In terms of extant provisions, foreign portfolioinvestors (FPI) are permitted to invest only in listedor to-be-listed debt securities. Investment in unlisteddebt securities is permitted only in case of companiesin the infrastructure sector.

As announced in the Union Budget 2016-17, it hasnow been decided to expand the investment basketof eligible instruments for investment by FPIs underthe corporate bond route to include the following:

(i) Unlisted corporate debt securities in the formof non-convertible debentures/bonds issued bypublic or private companies subject tominimum residual maturity of three years andend use-restriction on investment in real estatebusiness, capital market and purchase of land.The custodian banks of FPIs shall ensurecompliance with this condition.

(ii) Securitised debt instruments as under:

a. any certificate or instrument issued by aspecial purpose vehicle (SPV) set up forsecuritisation of asset/s where banks, FIsor NBFCs are originators; and/or

b. any certificate or instrument issued andlisted in terms of the SEBI Regulations onPublic Offer and Listing of SecuritisedDebt Instruments, 2008.

Investment by FPIs in the unlisted corporate debtsecurities and securitised debt instruments shall notexceed ̀ 35,000 crore within the extant investmentlimits prescribed for corporate bond from time totime which currently is ` 2,44,323 crore. Further,investment by FPIs in securitised debt instrumentsshall not be subject to the minimum 3-year residualmaturity requirement.

All other existing conditions for investment by FPIsin the debt market remain unchanged.

A.P. (DIR Series) Circular No.19, datedNovember 17, 2016


Exchange facility to foreign citizens

In supersession of instructions issued inA.P. (DIRSeries) Circular No. 16 dated November 9, 2016giving certain exemptions to foreign tourists visiting

FEMA Updates

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India, it has been decided that foreign citizens (i.e.foreign passport holders) can exchange foreignexchange for Indian currency notes up to a limit of` 5000/- per week till December 15, 2016 subjectto the tenderer submitting a self-declaration that thisfacility has not been availed of during the week.The Authorized Person shall keep the passportdetails and the above declaration on record.Authorized Person may also ensure that the totalvalue of such exchange to Indian currency notesdoes not exceed ` 5000/- during the week.

A.P. (DIR Series) Circular No.20, datedNovember 25, 2016


FEMA Updates

41 Exchange facility to foreign citizens

Attention of Authorized Persons is invited to theA.P. (DIR Series) Circular No. 20 dated November25, 2016 permitting foreign citizens to exchangeforeign exchange for Indian currency notes up to alimit of ̀ 5000/- per week till December 15, 2016.

2. On a review it has been decided that theinstructions contained in the A.P. (DIR Series)Circular No. 20 dated November 25, 2016 shallcontinue to be in force till December 31, 2016.

A.P. (DIR Series) Circular No. 22, datedDecember 16, 2016

h t t p s : / / w w w . r b i . o r g . i n / S c r i p t s /BS_CircularIndexDisplay.aspx?Id=10781

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“We do not find any justification in the orders ofthe authorities below in invoking the provisions ofsection 50C of the Act and adopting the value ofproperty as determined by the stamp valuationauthority, for the purpose of computing the capitalgain on transfer of the assessee’s leasehold rights”.

In the end, let me refer to the latest decision of theirlordships of Bombay High Court in ITA No. 735

thof 2014 decided on 24 Oct, 2016. Their lordshipsheld as under:

“Mr. Kotangale, learned counsel for the revenue,states that the Revenue has not preferred any appealagainst the decision of the Tribunal in the case ofAtul Puranik (Supra.). Thus, it could be inferredthat it has been accepted. Our court in DIT Vs.Credit Agricole Indosuez 377 ITR 102 (dealingwith Tibunal Order) and the Apex Court in UIOVs. Satish P. Shah 249 ITR 2211 (dealing with High

Court Order) has laid down of the Court/Tribunalon an issue of law and not challenged it in appeal,then a subsequent decision following the earlierdecision cannot be challenged. Further, it is not theRevenue’s case before us that there are anydistinguishing features either in facts or in law inthe present appeal from that arising in the case ofAtul Puranik (Supra.).

It is also interesting to note that this decision also isapplicable not only to assignment of leasehold rightsin land but also transfer of tenancy rights orleasehold rights in land as well as building aboutwhich the question was raised in some of thedecisions of the ITAT.

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contd. from page 578 Controversies


CA. Ashwin H. [email protected]

106) Commissioner of Service Tax Vs.Lionbridge Technologies (P.) Ltd,CESTAT, Mumbai 2016

Facts:-

Assessee exported information technology services.Assessee took credit of services received at ChennaiBranch and sought refund thereof under rule 5.Department denied refund on ground that assessee’sChennai Branch was not registered and creditcannot be allowed without registration.

Held:-

Assessee had exported Information TechnologyServices and input services were used for renderingsuch services. It was further held that assessee’sChennai branch was subsequently registered.Substantial benefit of Cenvat Credit cannot bedenied merely because of non-registration. Hence,credit and consequent refund was allowed.

SME Consulting Private Limited Vs.Comm. of Excise-ST, Jaipur (2016)

Facts:-

A show cause notice was issued to the appellant todemand service tax under the category ofManagement Consultancy Services for the activityof Data Processing. The matter was adjudicated andit was held that appellant is liable to pay service taxunder Management Consultancy Service.Accordingly demand of service tax along withinterest confirmed penalty was also imposed. Thesaid order was challenged by the appellant beforethe Commissioner (Appeals) who hold thatappellant is liable to pay service tax under thecategory of Management Consultancy service thesame fall under Business Auxiliary Service and heldthat appellant is liable to pay service tax under thecategory of BAS. Aggrieved from the said orderappellant is before us.

Service Tax -Recent Judgements

Held:-

On consideration of the facts that we find that theshow cause notice was issued to demand the servicetax under the category of Management Consultancyservice, therefore, the scope of the show causenotice on this point. In the impugned order, thelearned Commissioner (Appeals) opined beyondthe scope of show cause notice. The activity of theappellant falls under the category of BAS as it isnot alleged in the show cause notice to demand theservice tax under the category of BAS, the demandof service tax cannot be confirmed against theappellant under the said category. In thesecircumstances, we set aside the impugned order quademanding the service tax under the category ofBAS. With these observations, impugned order isset aside demanding service tax under the categoryof BAS. In result appeal is allowed withconsequential relief.

Chief Engineer Maharashtra StateElectricity Distribution Co. Ltd. v.Commissioner, Central Excise, Customs& Service Tax, Aurangabad [2016]

Facts:-

In Transmission or Distribution of Electricity,Assessee, an electricity company, was collectingsupervision charges from consumers under outrightcontribution scheme in relation to power supplyand also for erection, commission and installationof meters. Department demanded service taxthereon under Consulting Engineer’s services.Assessee claimed exemption under Notification 45/2010-ST.

Held:-

All services in relation to supply and distributionof electricity are exempt under Notification 45/2010-ST. Since so called consulting engineer

44

45 46


service was provided in relation to supply anddistribution of electricity to consumer. And hence,same was also exempt.

Raval Trading Company Vs. Comm. ofService Tax, ,2016 , Gujarat HC

Facts:-

Assessee claimed that no penalty could be leviedunder section 76 if penalty had been levied undersection 78 of the Finance Act,1994.

Held:-

Section 78 deals with penalty in evasion cases andprovides for higher penalty, while section 76 dealswith penalty generally for failure to pay tax. Hence,it was a plausible view that both sections aremutually exclusive. Amendment by way of insertionof proviso in section 78 from 16-5-2008 makeslegislative intention clear that sections 76 and 78are mutually exclusive and hence, said amendmentis clarificatory and retrospective. Further,substitution of sections 76 and 78 by Finance Act,2015 further fortifies view that both sections areand have been mutually exclusive. Hence, nopenalty can be levied under section 76, if penaltyhas been levied under section 78 even for periodprior to 16-5-2008.

Commissioner of Customs & ServiceTax, Bangalore Vs. Nisha DesignsBangalore, 2016

Facts: -

The facts of the present case are that the appellantis a 100% EOU and is engaged in the manufactureof export and readymade garments. The respondentfiled refund claim with Assistant Commissioner ofCustoms Bangalore in terms of Rule 5 of CENVATCredit Rules 2004 claiming refund of CENVATCredit of service tax paid on input services used inthe manufacture of their final product. The AssistantCommissioner vide order -in-original disallowedinput service credit on services which is not directly

Held :-

Learned A.R. for the Revenue has submitted that

related with the manufacturing.

all these services on which the learnedCommissioner (Appeals) has allowed CENVATcredit does not fall in the definition of input serviceas contained in Rule 3 of CENVAT Credit Rules2004 as the said service is not used by themanufacturer in relation to manufacture of finalproduct. Further, he submitted that these inputservices have no nexus with the manufacturingactivity and therefore service tax credit should notbe allowed. On the other hand learned counsel forthe respondent submitted that all these services onwhich the credit has been allowed by the learnedCommissioner has been held to be input servicesand are directly related to the business. He furthersubmitted that the Tribunal and the High Court invarious judgments have held that these services fallin the category of input services on which credit isadmissible.

After hearing the counsel for the parties andfollowing the ratio of various judgments cited bythe counsel for the respondent, Bench viewed thatthere is no merit in the appeal of the appellant andthe impugned order is valid and does not requireany interference by this Tribunal. Consequently theappeal of the revenue is dismissed.

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Service Tax - Recent Judgements

48

47

It is only by doing good toothers that one attains to one'sown good, and it is by leadingothers to Bhakti and Muktithat one attains them oneself.

- Swami Vivekananda


CA. Bihari B. [email protected].

GST and VAT Judgments and Updates

[I] Important Circulars/Notifications:

[i] Time is extended for filing the Vat AuditReport as well as Annual Return inForm No. 203:

The Hon. Commissioner of CommercialTax, Gujarat State has issued a Public

thCircular dated 20 Dec. 2016 and extendedththe time up to 28 Feb. 2017 for filing the

Vat Audit Report under Rule 44(2) andAnnual Return under Rule 20 of the GVATRules.

[ii] Tax Credit is withdrawn of the Purchaseof Natural Gas:

The Under Secretary to the Govt. ofGujarat has issued a Notification dated20.11.2016 and as per the Notification, theEntry No. 6 has been amended dated29.06.2010 in respect of Natural Gas, theInput Tax Credit shall not be availablewhen sold/resold in the course of InterstateTrade and Commerce or consign ordispatch for Branch Transfer or to the Agentoutside the State. This notification iseffective from 20.11.2016.

Various Notifications:

[iii] The Joint Secretary to the Government ofGujarat has issued a Notification dated19.12.2016 under which the whole tax isexempted in the sale or purchase of Pointof Sale (POS), Terminal Machine (SwipeMachine) for cashless transaction.

[iv] The Hon. Commissioner of CommercialTax, State of Gujarat vide Public Circular

thdated 25 Nov. 2016 has extended the timelimit for filing the Form No.203 under theIncentive of Textile Policy up to 45 days.

VAT - Judgementsand Updates

Now both the returns in Form No. 201 aswell as in Form No. 203 are to be filedwithin 45 days instead of 30 days.

[II] Important Judgments:

[i] Hon. Gujarat High Court in case ofMosaic India Pvt. Ltd. v. State ofGujarat: (Writ Petition)

Issue:

No Provisional attachment ispermissible for dues of Entry Tax inabsence of enabling provisions in EntryTax Act. (Gujarat Entry Tax Act):

Facts of the case:

The assessee is a dealer registered underthe VAT Act. The assessing officer, for thepurpose of recovery of future dues,attached bank account of the assesseeoutside the State by invoking powers undersection 45(1) of the Vat Act. Beingaggrieved, the assessee filed present writpetition before the Gujarat High Court.

Arguments of the Assessee:

The assessee has argued before the GujaratHigh Court that the assessing officer hascommitted a serious error in placing theassessee’s bank account under provisionalattachment since the Entry Tax Act doesnot invest the authority with any power ofsuch nature. Even if as apprehended by theAssessing Officer, the registration of theassessee as a dealer were to be cancelledwith retrospective effect, the same can havelittle effect on the assessee’s tax liabilityby disallowance of input tax credit since,as an importer of the goods from outsideIndia, there is no element of input tax inrelation to such purchases.


VAT - Judgements and Updates

Department’s Arguments:

The learned counsel for the revenuesubmitted before the Gujarat High Courtthat the assessee has no permanentestablishment within the State. If theregistration were to be cancelled withretrospective effect, the tax, interest andpenalty liability may touch Rs. 40 Lakhs.The competent authority has therefore, toprotect the interest of the Revenue, put theassessee’s bank account under attachment.Learned counsel was however unable topoint out any provision in the Entry TaxAct which would enable the authority toexercise power of provisional attachmentfor unpaid dues of entry tax even beforethe assessment is completed.

Held:

The Gujarat High Court held that the factthat the disputed tax liability represents insubstantial measure, entry tax, is not indispute. The Entry Tax Act does notcontain any provision for provisionalattachment. Section 45(1) of the Vat Act,of course, authorize the competentauthority to exercise the power ofprovisional attachment pending theproceedings for assessment orreassessment of turnover escapingassessment to protect the interest ofRevenue. Such power obviously cannot beimported for the purpose of the Entry TaxAct.

In facts of the present case therefore, whenwe notice that the assessee has alreadydeposited a sum of Rs. 11 lakhs towardsthe initial estimated tax, penalty and interestliability of Rs. 20 lakhs, which in any case,includes substantial portion of disputedentry tax, we would not permit theauthorities to provisionally attach theassessee’s bank account. The writ came tobe allowed accordingly and the order ofbank attachment came to be set aside.

[ii] Hon. Gujarat High Court in case ofRoyal Enterprise v. State of Gujarat:(Writ Petition)

The Time Limit of assessment is alsoapplied to issue base assessment(Section 34(8A)):

Facts of the case:

The assessee is a dealer registered underthe Vat Act. The assessee filed self –assessment return for the year 2006-07.The assessee did not receive any notice forregular assessment under section 34 of theAct. The time limit of passing assessmentorder u/s. 34 was also over and the self-assessment return filed by the assesseebecame final. Thereafter, the time limit forrevision also came to be passed.

Thereafter, the assessee received a noticefor issue base assessment under section34(8A) of the Act proposing to reduceinput tax credit claimed by the assessee.The said notice was issued on objectionraised by AG Audit. The assesseecontended that since the time limit forassessment/revision was expired, thepowers under section 34(8A) cannot berevoked. The said submissions came to berejected and the assessment order came tobe passed raising demand against theassessee. Being aggrieved, the assesseefiled present writ petition before the GujaratHigh Court.

Arguments by the Assessee:

The learned counsel for the assesseesubmitted before the Gujarat High Courtthat in the facts and circumstances of thecase, the assessing officer wrongly invokedsub-section (8A) of section 34 of the VatAct. It was submitted that admittedly, noassessment was pending till theproceedings become time barred. It wassubmitted that for the first time, the notice

thcame to be issued on 10 August, 2016

contd. to page 593


CA. Kush [email protected]

Mergers andAcquisition Corner

1. Sun Pharma to acquire cancer drug from1Novartis for $175 mn

Sun Pharmaceutical Industries Ltd, India’sbiggest drugmaker, plans to acquire skin cancerdrug Odomzo from Swiss firm Novartis AGfor an upfront payment of $175 million (Rs1,190 crore). The company will also makeadditional milestone payments as part of theproposed deal, it said in a stock exchange filing.It didn’t specify the quantum of these payments.The deal is subject to anti-trust clearance andother closing conditions, the company said.Odomzo was approved by the USFood andDrug Administration in July 2015. It is a so-called hedgehog pathway inhibitor indicatedfor the treatment of adult patients with locallyadvanced basal cell carcinoma that has recurredfollowing surgery or radiation therapy, or thosewho are not candidates for surgery or radiationtherapy, Sun Pharma said. “Odomzo gives usan opportunity to meaningfully expand ouralready established branded dermatologybusiness and support our expansion intobranded oncology with a launched brand,” saidKirti Ganorkar, global head of businessdevelopment at Sun Pharma. Sun Pharma,which counts Singapore sovereign wealth fundGIC and state investment firm Temasek asinvestors, has made several acquisitions andentered new segments over the past months. InOctober, Sun Pharma said it would acquireSwiss firm Ocular Technologies from privateequity firm Auven Therapeutics to boost itsophthalmic pipeline. Sun Pharma agreed to payAuven $40 million upfront, plus contingentdevelopment milestones and sales milestonesas well as tiered royalty on sales of Ocular’seye disease treatment drug Seciera. In March,Sun Pharma said it will acquire 14 prescriptionbrands from Swiss firm Novartis in Japan for

$293 million in a deal that would help thecompany to establish a strong footprint in theworld’s second-largest pharmaceuticalmarket.The drug maker announced its entryinto the dermatology segment in June with thelaunch of its sunscreen product Suncros, as itsought to expand its over-the-counter business.

2. Reliance communication to sell tower biztobrookfield Infra for G11k cr in all cash

2deal

Reliance Communications (RCom) signedbinding agreements with Canada-basedBrookfield Infrastructure and its institutionalpartners to sell 51 per cent stake in its pan Indiatelecom towers for cash Rs11,000 crore ($1.6billion) on completion of the sale. The all-cashdeal will be used solely to reduce the firm’sdebt, which stood at over Rs 42,000 crore ason September 2016.As per the terms of thedeal, RCom’s telecom tower business will bedemerged into a separate company that will be100 per cent owned and independentlymanaged by Brookfield Infrastructure, therebycreating the second largest independent andoperator-neutral Towers company in India.According to the statement, RCom will “alsoreceive B Class non-voting shares in its towercompany, providing 49 per cent futureeconomic upside in the towers business basedon certain conditions. The firm also expectssignificant future value creation from the BClass shares, based on growth in tenanciesarising from fast accelerating dataconsumption, the statement added. RCom willenjoy certain information and other rights, butwill not be involved directly or indirectly in themanagement and operations of the newCompany. The transaction, which is subject toregulatory and other requisite approvals, willrepresent the largest-ever investment by an


overseas financial investor in the infrastructuresector in India.RComand Reliance Jio willcontinue as major long term tenants of the newTower company, along with other existing thirdparty telecom operators. Anil Ambani led firmexpects that the already announcedcombination of RCom’s wireless business withAircel, and the monetization of the Towerbusiness, will together reduce RCom’s overalldebt by Rs 31,000 crore, or nearly 70 per centof existing debt. RComwill continue to hold50 per cent stake in the wireless businesscombination with Aircel and the 49 per centupside in the towers business, and will monetisethese valuable assets at an appropriate time inthe future to further reduce its overall debtsignificantly, the statement added.It may berecalled that in mid-October, RCom hadannounced the signing of a non-binding termsheet with Brookfield Infrastructure Group for

Mergers and Acquisition Corner

contd. from page 591 VAT - Judgements and Updates

sale of thenationwide tower assets and relatedinfrastructure. The deal with Brookfield is thesecond attempt made by RCom to sell its towerbusiness. However, Fitch Ratings downgradedcredit rating of Reliance Communicationssaying that it feels that ongoing joint ventureplan of the company with Aircel and proposalto sell stake in its mobile tower arm will benegative for creditors.

1. h t t p : / / w w w . v c c i r c l e . c o m / n e w s /pharmaceuticals/2016/12/22/sun-pharma-a c qu i r e - c a nc e r - d r u g- n o v a r t i s - 17 5 -mn?logintype=premium

2. http://www.newindianexpress.com/business/2016/dec/22/reliance-communication-to-sell-tower-biz-to-brookfield-infra-for-g11k-cr-in-all-cash-deal-1551804.html

❉ ❉ ❉

and that too, based on the audit objection.It was submitted that therefore theassessment order passed by the AssessingOfficer is wholly without jurisdiction. Insupport of the above statement, the learnedcounsel heavily relied upon the decisionof Division Bench of this court in case ofDhanani Imp. Exp. Pvt. Ltd. v. State ofGujarat (Special Civil Application No.9519 of 2016.

Department’s Arguments:

The learned counsel for the revenueconceded before the Gujarat High Courtthat when the proceedings under section3498A) of the Vat Act were initiated,admittedly, no assessment was pendingand in fact, the period of limitationprovided for the audit assessment,

reassessment and/or even the revisionpowers had expired.

Held:

Applying the decision in case of Dhanani,the Gujarat High Court held that theimpugned order passed by the assessingofficer can be said to be withoutjurisdiction.

In as much as the assessment has beenmade for the period between 1.4.2006 to31.3.2007 beyond the period of limitation,which is 4 years as prescribed under section34(9) of the Act. The assessment ordercannot to be quashed accordingly.

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CA. Naveen [email protected]

Corporate Law Update

MCA Updates:

1. Notification regarding Sections underInsolvency and Bankruptcy code, 2016:

The Ministry of Corporate Affairs has notifiedthe following sections of the Insolvency andBankruptcy Code, 2016 with effect from 1stDecember, 2016.

(1) clause (a) to clause (d) of section 2 (exceptwith regard to voluntary liquidation orBankruptcy);

(2) section 4 to section 32 [both inclusive];

(3) section 60 to section 77 [both inclusive];

(4) section 198;

(5) section 231;

(6) section 236 to section 238 [both inclusive];and

(7) clause (a) to clause (f) of sub-section (2)of section 239.

[F. No. 30/7/2016-Insolvency Section datedth30 November, 2016]

2. Insolvency and Bankruptcy (Application toAdjudicating Authority) Rules, 2016:

The Central Government has made theInsolvency and Bankruptcy (Application toAdjudicating Authority) Rules, 2016 w. e. f.

st01 December, 2016.

These rules prescribe about the proceduralaspects of Application by financial creditor,Demand notice by operational creditor,Application by operational creditor, Applicationby corporate applicant, Withdrawal ofapplication, Interim resolution professional,Filing of application and application fee etc.

Various forms have been prescribed, details ofwhich are as under:

Particulars Form No.

Application by financial creditor(s) to 1initiate corporate insolvency resolutionprocess under the code.

Written communication by proposed 2interim resolution professional

Form of demand notice / invoice 3demanding payment under theinsolvency and bankruptcy code, 2016

Form of notice with which invoice 4demanding payment is to be attached

Application by operational creditor to 5initiate corporate insolvency resolutionprocess under the code.

Application by corporate applicant to 6initiate corporate insolvency resolutionprocess under the code.

Schedule of Fees:

S. Fee payableNo. Applicant (in Rs.)

1 Application by financial creditor 25000(whether solely or jointly)

2 Application by operational 2000creditor

3 Application by corporate debtor 25000

th[F. No. 30/10/2016-Insolvency dated 30November, 2016]

3. Benches of the National Company LawTribunal designated:

The Central Government has designated theBenches of the National Company Law

stTribunal from 01 December, 2016, constitutedvide notification number S.O. 1935 (E) datedthe 1st day of June, 2016 to exercise theJurisdiction, powers and authority of theAdjudicating Authority conferred by or underPart II of the Code.

th[F. No. A-45011/14/2016-Ad-IV dated 30November, 2016]



4. Companies (Removal of Difficulties) FourthOrder, 2016:

In the Companies Act, 2013, in Section 434,in sub-section (1), in clause (c), after theproviso, the following provisos shall be insertedwith effect from 15.12.2016, namely:-

“Provided further that only such proceedingsrelating to cases other than winding-up, forwhich orders for allowing or otherwise of theproceedings are not reserved by the HighCourts shall be transferred to the Tribunal:

Provided further that –

(i) all proceedings under the Companies Act,1956 other than the cases relating towinding up of companies that are reservedfor orders for allowing or otherwise suchproceedings; or

(ii) the proceedings relating to winding up ofcompanies which have not been transferredfrom the High Courts;

shall be dealt with in accordance with provisionsof the Companies Act, 1956 andthe Companies (Court) Rules, 1959".

th[F. No. 16/61/2016-Legal dated 07December, 2016]

5. Notification regarding enactment of certainprovisions of the Companies Act, 2013:

The Central Government hereby appoints theth15 day of December, 2016 as the date on

which the following provisions of the said Actshall come into force, namely :-

1. Clause (23) of section 2

2. Clause (c) and (d) of sub-section (7) ofsection 7

3. Sub-section (9) of section 8

4. Section 48

5. Section 66


7. Section 226

8. Section 230 [except sub-section (11) and(12)], and Sections 231 to 233

9. Sections 235 to 240



12. Section 324


14. Proviso to section 370




18. Clause (c) of sub-section (1) of section 434th[F. No. 2/31/CAA/2013-CL-V-pt dated 07

December, 2016]

6. The Companies (Transfer of PendingProceedings) Rules, 2016:

st(Effective from 01 April, 2017)

Pending proceeding relating to VoluntaryWinding up:

All applications and petitions relating tovoluntary winding up of companies pendingbefore a High Court on the date ofcommencement of this rule, shall continue withand dealt with by the High Court in accordancewith provisions of the Act.

th(Effective from 15 December, 2016)

Transfer of pending proceedings relating tocases other than Winding up:

all proceedings under the Act, includingproceedings relating to arbitration, compromise,arrangements and reconstruction, other thanproceedings relating to winding up on the dateof coming into force of these rules shall standtransferred to the Benches of the Tribunalexercising respective territorial jurisdiction:

Provided that all those proceedings which arereserved for orders for allowing or otherwiseof such proceedings shall not be transferred.


Transfer of pending proceedings of Windingup on the ground of inability to pay debts:

(1) All petitions relating to winding up underclause (e) of section 433 of the Act on theground of inability to pay its debts pendingbefore a High Court, and where the petitionhas not been served on the respondent asrequired under rule 26 of the Companies(Court) Rules, 1959 shall be transferred tothe Bench of the Tribunal established undersub-section (4) of section 419 of the Act,exercising territorial jurisdiction and suchpetitions shall be treated as applicationsunder sections 7, 8 or 9 of the Code, as thecase may be, and dealt with in accordancewith Part II of the Code:

Provided that the petitioner shall submit allinformation, other than informationforming part of the records transferred inaccordance with Rule 7, required foradmission of the petition under sections 7,8 or 9 of the Code, as the case may be,including details of the proposedinsolvency professional to the Tribunalwithin sixty days from date of thisnotification, failing which the petition shallabate.

(2) All cases where opinion has beenforwarded by Board for Industrial andFinancial Reconstruction, for winding upof a company to a High Court and whereno appeal is pending, the proceedings forwinding up initiated under the Act,pursuant to section 20 of the Sick IndustrialCompanies (Special Provisions) Act, 1985shall continue to be dealt with by suchHigh Court in accordance with theprovisions of the Act.

Transfer of pending proceedings of Windingup matters on the grounds other than

All petitions filed under clauses (a) and (f) of

inability to pay debts:

section 433 of the Companies Act, 1956pending before a High Court and where thepetition has not been served on the respondentas required under rule 26 of the Companies(Court) Rules, 1959 shall be transferred to theBench of the Tribunal exercising territorialjurisdiction and such petitions shall be treatedas petitions under the provisions of theCompanies Act, 2013 (18 of 2013).

Transfer of Records:

Pursuant to the transfer of cases as per theserules the relevant records shall also betransferred by the respective High Courts tothe National Company Law Tribunal Bencheshaving jurisdiction forthwith over the cases sotransferred.

Fees not to be paid:

Notwithstanding anything contained in theNational Company Law Tribunal Rules, 2016,no fee shall be payable in respect of anyproceedings transferred to the Tribunal inaccordance with these rules.

th[F. No. 1/5/2016– CL-V dated 07December, 2016]

7. Clarification of the due date of transfer ofshares to IEPF Authority:

The MCA has clarified that simplification oftransfer process of shares to IEPF Authorityand extension of due date for such transfer, areunder review. The rules are likely to be revisedand shall be notified in due course.

th[F. No. 5/23/2016– IEPF dated 07December, 2016]

8. Companies (Compromises, Arrangementsand Amalgamations) Rules, 2016:

These rules shall be effective from 15.12.2016.Under these rules various forms have beenprescribed for submission of notices/statements/reports/petitions. A gist of the same is as under:



Particulars Section Rule Form No.

Creditors Responsibility Statement 230(2)(c)(i) 4 CAA. 1

Notice and Advertisement of notice of meeting of creditors or members 230 (3) 6 and 7 CAA. 2

Notice to Central Government, Regulatory Authorities. 230(5) 8 CAA. 3

Report of result of meeting by chair person. 13 (2) and 14 CAA. 4

Petition to sanction compromise or arrangement. 230 15(1) CAA. 5

Order on petition 230 (7) Sub-rule (3) CAA. 6of rule 17

Order under section 232 232 20 CAA. 7

Statement to be filed with Registrar of Companies 232 (7) 21 CAA. 8

Notice of the scheme inviting objections or suggestions 233(1)(a) 25(1) CAA. 9

Declaration of Solvency 233(1)(c) 25(2) CAA. 10

Notice of approval of the scheme of merger 233(2) 25(4) CAA. 11

Confirmation order of scheme of merger or amalgamation 233 25(5) CAA. 12

Application by the Central Government to the Tribunal 233(5) 25(6) CAA. 13

Notice to dissenting shareholders 235(1) 26 CAA. 14

Information to be furnished along with circular in relation to any 238(1)(a) 28 CAA. 15scheme or contract involving the transfer of shares or any class ofshares in the transferor company to the transferee company

Schedule of Fees

Sr. Sections of the Companies Act, 2013 Rule Nature of application or petition FeesNo. Number

1. Sub-section (1) of section 230 3 (1) Application for compromises arrangement Rs. 5000and amalgamation

2. Sub-section (2) of section 235 Application by dissenting shareholders Rs. 1000

3. Sub-section (2) of section 238 29 Appeal against order of Registrar refusing Rs. 2000to register any circular

th[F. No. 2/31/CAA/2013– CL-V dated 14 December, 2016]

9. National Company Law Tribunal (Procedure for reduction of share capital of Company) Rules,2016.

Under these rules various forms have been prescribed for submission of Application/notice/affidavit/order etc. A gist of the same is as under:

Particulars Rule Form No.

Application under section 66 for confirming the reduction of share capital 2(1) RSC-1

Notice to Central Government, Registrar etc in respect of application for 3(1)(i) and (ii) RSC-2reduction of share capital.

Notice to Creditors 3(1)(iii) RSC-3

Publication of Notice 3(3) RSC-4

Affidavit on dispatch and publication of notice 3(5) RSC-5

Order confirming the reduction of share capital and approving minute 6(2) RSC-6

Certificate of registration of order and minute 6(3) RSC-7



Schedule of Fees

Sr. No. Section of the Companies Act, 2013. Nature of Application/ petition Fees in Rs.

1. Sub-section (1) of section 66 Application for reduction of share capital 5000/-

th[F. No. 1/30/2013/CL.V dated 15 December, 2016]

10. Delegations of Powers to Regional Directors:

The Central Government has delegated the following powers to the Regional Directors at Mumbai,Kolkata, Chennai, New Delhi, Ahmedabad, Hyderabad and Shillong:

Sr. No. Section Description of Powers

1 Section 8 (i)(4)(for alteration of memorandum in case of Power to give approval for altering the provisions ofconversion into another kind of company) memorandum and articles of Company registered under

Section 8 of the Companies Act, 2013

2 Section 8 (6) Power to revoke the license granted to a Company registeredunder Section 8 of the Companies Act, 2013

3 Section 13 (4) and (5) Power to give approval for alteration of Memorandum forplace of registered office from one state of another state

4 Section 16 Power to Rectify the name of company

5 Section 87 Power for Condonation of Delay of Creation, Modificationand Satisfaction of Charge.

6 Section 111 (3) Power to give order, declares that the right conferred by thissection is being abused to secure needless publicity fordefamatory matter.

7 Section 140(1) Power to removal of Auditor by Passing of Special Resolution

8 Section 230 (5) To receive the notice of the meeting called by the tribunalfor Compromise and Arrangement

9 Section 233 (2), (3), (4), (5) and (6) Merger or amalgamation of certain companies

10 First and second proviso of section 272 (3) Power to give sanction for Petition for winding up by theRegistrar

11 Section 348 (1) Information as to pending liquidations

12 Sections 361 Power to order for winding up of company by Summaryprocedure for liquidation

13 Section 362 Power to make orders on the Sale of assets and recovery ofdebts due to company

14 Section 364 Power to dismiss the Appeal made by Creditor or modify thedecision of Official Liquidator

15 Section 365 Power to Order of dissolution of company

16 Clause (i) of the proviso to section 399 (1) Power to give permission for inspection of documents with aprospectus.

17 Section 442 Power to maintain Mediation and Conciliation Panel

th[F. No. 2/31/CAA/2013-CL-V dated 19 December, 2016]



11. NCLT (Amendment) Rules, 2016:

Under NCLT (Amendment) Rules, 2016, following changes have been made:

Clause National Company Law NCLT (Amendment) Rules, 2016 ChangeTribunal Rules, 2016 Effected(Principal Rules)

In Part-I, for the “Definitions, forms and etc.” “Definitions and forms etc.” Substitutedheading

Rule 2 (5) Words “Interlocutory Words “Interlocutory Application” are omitted. OmittedApplication”

Rule 2 (9)(d) “or a chartered accountant or a “or a chartered accountant in practice or a cost Substitutedcost accountant or a company accountant in practice or a company secretarysecretary” in practice”

Rule 23A — “23A.Presentation of joint Petition: Inserted

1. The Bench may permit more than oneperson to join together and present a singlepetition if it is satisfied, having regard tothe cause of action and the nature of reliefprayed for, that they have common interest.

2. Such permission shall be granted where thejoining of the petitioners by a single petitionis specifically permitted by the Act”

Rule 25 Words “in the prescribed” Words “in the Form No. NCLT 3C” Substituted

Rule 27(1) Words “or by any other Words “or if the authorized representative Substitutedadvocate or authorized engaged in the case authenticates suchrepresentative whether certificate or prepared by a translator approvedengaged in the case or not or for the purpose by the Registrar on payment ofif the advocate or authorized such charges as he may order”representative engaged in thecase authenticates suchcertificate or prepared by atranslator approved for thepurpose by the Registrar onpayment of such charges ashe may order”

Rule 38(1) — After the words “by post”, the words Inserted“or by courier” shall be inserted.

Rule 38(2) — After the words “acknowledgement due”, the Insertedwords “or by courier” shall be inserted.

Explanation:- For the purpose of Rule 38(1) and (2), the term “courier” means a person or agency which delivers thedocument and provides proof of its delivery.

Rule 38A — “38A. Multiple remedies: Inserted

A petition shall be based upon a single cause ofaction and may seek one or more reliefs providedthat the reliefs are consequential to one another”.

Rule 68A — “68A. Application to cancel variation of rights Insertedunder sub-section (2) of section 48:Where an application to cancel a variation of therights attached to the shares of any class is made



on behalf of the shareholders of that class entitledto apply cancellation under sub-section (2) ofsection 48 by the letter of authority signed by theshareholders so entitled, authorizing the applicantor applicants to present the application on theirbehalf. For full text, please refer the completecircular.

Rule 76A — “76A. Application under section 130: InsertedThe Central Government, the Income taxauthorities, the SEBI, any other statutoryregulatory body or authority or any person mayfile an application for reopening of books ofaccounts and for re-casting of financial statementof a company under section 130 of the Act andsuch application shall be accompanied by suchdocuments as mentioned in Annexure-B”.

Rule 83A — “83A. Application under sub-section (1) of Insertedsection 244:

An application may be filed before the Tribunalfor waiver of requirement of clause (a) or (b) ofsection 244 of the Act which shall be accompaniedby such documents as mentioned in Annexure-B”.

Rule 112(3) — After the words “shall be paid by means of”, the Insertedwords “an Indian Postal Order or by” shall beinserted.

Schedule of — For the word “deposition” the word “depositor” SubstitutedFees in serial shall be substituted.no. 10 underthe heading“Nature ofapplication /petition”

In the Principal Rules, in Annexure “A” the Form No. NCLT-3 (Notice of Motion) and Form No. NCLT-3C (Memorandumof Caveat) has been substituted by the new Form NCLT-3 and NCLT-3C.

Changes in the Principal Rules, in the Annexure “B”

Clause National Company Law NCLT (Amendment) Rules, 2016 ChangeTribunal Rules, 2016 Effected(Principal Rules)

Serial no. 7 under the — For the word “deposition” the word Substitutedheading “Nature of “depositor” shall be substituted.petition”

Serial no. 7 under the — In para 2, the word “small” shall be omitted. Omittedheading “Enclosuresto the Petition”

Serial No. 13 — Following serial number and entries relating Insertedthereto shall be inserted



Sr. Section Nature of Petition Enclosures to the PetitionNo. of the Act

13. — Wherever no document is prescribed to 1. Document and /or other evidence in supportbe attached with the application or of the statement made in the application orpetition, documents as mentioned in next appeal or petition, as are reasonably open tocolumn may be attached, as applicable. the petitioner(s).

2. Documentary evidence in proof of theeligibility and status of the petitioner(s)withthe voting power held by each of them,whatever applicable;

3. Where the petition os presented on behalf ofmembers, the letter of consent given by them, ifapplicable;

4. Statement of particulars showing names,address, number of shares held, and whether allcalls and other monies due on shares have beenpaid in respect of members who have givenconsent to the petition being presented on theirbehalf;

5. Where the petition is presented by a member ormembers authorized by the CentralGovernment, the order of the CentralGovernment authorizing the officer(s) ormember or members to present the petition shallbe similarly annexed to the petition;

6. Affidavit verifying the petition;

7. Evidence regarding payment of fee;

8. Memorandum of appearance with copy of Boardresolution or the vakalatnama, as the case maybe;

9. Three copies of the petition; and

10. Any other documents in support of the case.

th[F. No. 1/30/2013/CL.V dated 20 December, 2016]

❉ ❉ ❉



Allied Laws Corner

Adv. Ankit [email protected]

of the person who has provided theconsideration;

(b) a transaction or an arrangement in respectof a property carried out or made in afictitious name; or

(c) a transaction or an arrangement in respectof a property where the owner of theproperty is not aware of, or, deniesknowledge of, such ownership;

(d) a transaction or an arrangement in respectof a property where the person providingthe consideration is not traceable or isfictitious.

2. Which property is excluded from BenamiTransaction?

When the property is held by,

(a) a Karta, or a member of a Hinduundivided family, as the case may be, andthe property is held for his benefit orbenefit of other members in the family andthe consideration for such property hasbeen provided or paid out of the knownsources of the Hindu undivided family;

(b) a person standing in a fiduciary capacityfor the benefit of another person towardswhom he stands in such capacity andincludes a trustee, executor, partner,director of a company, a depository or aparticipant as an agent of a depositoryunder the Depositories Act, 1996 and anyother person as may be notified by theCentral Government for this purpose;

(c) any person being an individual in thename of his spouse or in the name of anychild of such individual and theconsideration for such property has been

The Benami Transactions (Prohibition)Amendment Act, 2016:

The Benami Transactions (Prohibition) AmendmentBill, 2015 was introduced in Lok Sabha on May13, 2015 by the Minister of Finance Mr. ArunJaitley. Originally the Benami Transactions(Prohibition) Act was enacted in 1988 and had onlynine Sections and any person who wishes to acquirean asset or a property must do it in his own name,with his money. If he acquires it in the name ofsomebody else, then, it is deemed to be a benamiproperty. The Statement of Objects and Reasonsof the Bill outlines that it has been brought toprohibit holding property in benami and to restrictthe right to recover or transfer such property, andto provide a mechanism and procedure forconfiscation. It mentions that during the process offormulating the rules for implementing certainprovisions of the Benami Transactions (Prohibition)Act of 1988, it was found that the provisions wereinadequate to deal with benami deals. The Act

threceived the assent of the President on 10 August,st2016 and came to be in force with effect from 1

November, 2016.

Salient features of the Benami Transactions(Prohibition) Amendment Act, 2016 are asunder:

1. What is Benami Transaction?

S.2(9) of the Act provides the meaning ofbenami transactions as under,

(a) a transaction or an arrangement—

(i) where a property is transferred to, oris held by, a person, and theconsideration for such property hasbeen provided, or paid by, anotherperson; and

(ii) the property is held for the immediateor future benefit, direct or indirect,


provided or paid out of the knownsources of the individual;

(d) any person in the name of his brother orsister or lineal ascendant or descendant,where the names of brother or sister orlineal ascendant or descendant and theindividual appear as joint-owners in anydocument, and the consideration for suchproperty has been provided or paid out ofthe known sources of the individual.

3. Who is Benamidar?

“Benamidar” means a person or a fictitiousperson, as the case may be, in whose namethe benami property is transferred or held andincludes a person who lends his name.

4. Who is Beneficial Owner?

“Beneficial Owner” means a person, whetherhis identity is known or not, for whose benefitthe benami property is held by a benamidar.

5. What kind of property is included inBenami Property?

(a) Assets of any kind, whether movable orimmovable,

(b) tangible or intangible, corporeal orincorporeal and includes any right orinterest; or

(c) legal documents or instrumentsevidencing title to or interest in theproperty; and

(d) where the property is capable ofconversion into some other form, then theproperty in the converted form and alsoincludes the proceeds from the property.

6. Who shall be punishable under the BenamiProperty Act?

Sub-section (3) to S.3 of the Act provides thatwhoever enters into any benami transactionon or after the date of commencement of theBenami Transactions (Prohibition)

stAmendment Act, 2016 (i.e 1 November,2016) shall be punishable in accordance with

Allied Laws Corner

the provisions contained in Chapter VII of theAct.

7. Whether property subject matter ofbenami transaction can be confiscated?

Yes. The property which is subject matter ofbenami transaction shall be confiscated by theCentral Government.

8. Who shall be authorities in the BenamiProperty Act?

(a) The Initiating Officer, who shall be Asst./ Dept. Commissioner of Income Tax;

(b) The Approving Authority, who shall beAddl. / Joint Commissioner of IncomeTax;

(c) The Administrator, who shall be theIncome Tax Officer;

(d) The Adjudicating Authority, who shallbe the Adjudicating Authority appointedu/s 7 of the Act;

(e) Officers of other agencies shall assist theauthorities in enforcement of this Act.

9. What shall be the powers of the authoritiesin the Act?

(a) The Authorities shall have the same poweras vested in a civil court, under a Code ofCivil Procedure, namely,

(i) discovery and inspection;

(ii) enforcing the attendance of anyperson, including any official of abanking company or a publicfinancial institution or any otherintermediary or reporting entity, andexamining him on oath;

(iii) compelling the production of booksof account and other documents;

(iv) issuing commissions;

(v) receiving evidence on affidavits; and

(vi) any other matter which may beprescribed


Allied Laws Corner

(b) They shall have power to require anyofficer of the Central Government or StateGovernment or a local body or any personor officer who is responsible forregistering and maintaining books ofaccount or other documents containing arecord of any transaction relating to anyproperty or any other person to furnishany information in relation to any person,point or matter as in his opinion shall beuseful for or relevant for the purposes ofthis Act.

10. Who shall be the Adjudicating Authorityand how it shall be constituted?

(a) The Central Government shall appointone or more Adjudicating Authorities toexercise jurisdiction, powers and authorityconferred by this Act;

(b) An Adjudicating Authority shall consistof a Chairperson and at least two othermembers;

(c) A person shall not be qualified forappointment unless, he,

(i) has been a member of IndianRevenue Service and has held thepost of Commissioner of IncomeTax or equivalent post in that service;or

(ii) has been a member of the IndianLegal Service and has held the postof Joint Secretary or equivalent postin that service.

(d) The jurisdiction of the AdjudicatingAuthority may be exercised by Benchesthereof;

(e) A benches may be constituted by theChairperson of the AdjudicatingAuthority with two members;

(f) The Benches shall ordinarily sit in theNational Capital Territory of Delhi andat such other places as the CentralGovernment may, in consultation withthe Chairperson, by notification specify;

(g) The Adjudicating Authority shall not bebound by the procedure laid down by theCode of Civil Procedure, 1908 but shallbe guided by the principles of naturaljustice and subject to other provisions ofthis Act the Authority shall have powersto regulate its own procedure;

(h) The Chairperson and Members shall holdoffice for a term not exceeding five yearsfrom the date on which they enter upontheir office, or until they attain the age of62 years, whichever is earlier and shallnot be eligible for reappointment.

11. What are the provisions for provisionalattachment of property involved in BenamiTransaction?

(a) Where the Initiating Officer (i.e Asst. /Dy. CIT) , on the basis of material inhis possession, has reason to believe thatany person is a benamidar in respect of aproperty, he may, after recording reasonsin writing, issue a notice to the personto show cause within such time as maybe specified in the notice why theproperty should not be treated asbenami property;

(b) Show Cause Notice may also be issuedto the beneficial owner, if his identity isknown;

(c) Where the Initiating Officer is of theopinion that the person in possession ofthe property held benami may alienatethe property during the period specifiedin the notice, he may, with the previousapproval of the Approving Authority,by order in writing, attach provisionallythe property in the manner as may beprescribed, for a period not exceedingninety days from the date of issue ofnotice;

(d) The Initiating Officer, after making suchinquiries and calling for reports orevidences, may pass the order forcontinuation of provisional attachment


beyond a period ninety days till theadjudication by the adjudicating authority.

12. Who shall pass the adjudication order?What is the limitation of time?

On reference received from the InitiatingOfficer, the Adjudicating Authority, afterproviding an opportunity of being heard, shallpass the adjudication order with respect to theproperty subject matter of benami transaction.The Adjudication order shall be passed within1 years from the end of the month in whichreference was received by him from theInitiating Officer.

13. What are the provisions for confiscation ofthe property?

(a) Where an adjudication order is passedholding such property to be a benamiproperty, the Adjudicating Authority, afterproviding an opportunity of being heard,shall make an order confiscating theproperty held to be a benami property;

(b) No confiscation order shall be passed,where a property held or acquired by aperson from the benamidar for adequateconsideration, prior to the issue of noticeunder sub-section (1) of section 24without his having knowledge of thebenami transaction;

(c) Once the confiscation order is passed, allthe rights and title in such property shallvest absolutely in the Central Governmentfree of all encumbrances and nocompensation shall be payable in respectof such confiscation;

(d) Any right of any third person created insuch property with a view to defeat thepurposes of this Act shall be null and void;

(e) Where an order of confiscation in respectof a property under sub-section (1) ofsection 27, has been made, theAdministrator shall proceed to take the

14. Who can appear before the Authorities in

possession of the property.

the Act?

A person authorized in writing, being

(i) a person related to the benamidar orsuch other person in any manner, or aperson regularly employed by thebenamidar or such other person as thecase may be; or

(ii) any officer of a scheduled bank withwhich the benamidar or such other personmaintains an account or has other regulardealings; or

(iii) any legal practitioner who is entitled topractice in any civil court in India; or

(iv) any person who has passed anyaccountancy examination recognised inthis behalf by the Board; or

(v) any person who has acquired sucheducational qualifications as the Boardmay prescribe for this purpose

may appear before the Authorities in the Act.

15. What are the penalty provisions forBenami Transactions?

(a) Guilty of offence - Where any personenters into a benami transaction in orderto defeat the provisions of any law or toavoid payment of statutory dues or toavoid payment to creditors, the beneficialowner, benamidar and any other personwho abets or induces any person to enterinto the benami transaction, shall be guiltyof the offence of benami transaction;

(b) Imprisonment and fine - Whoever isfound guilty of the offence of benamitransaction referred to in sub-section (1)shall be punishable with rigorousimprisonment for a term which shall notbe less than one year, but which mayextend to seven years and shall also beliable to fine which may extend to 25%of the fair market value of the property.

Allied Laws Corner


(c) Fair Market Value - FMV for thepurpose of this Act means a price that theproperty would ordinarily fetch on salein open market on the date oftransaction. In cases where the price isnot ascertainable, another procedure willbe prescribed;

(d) Imprisonment and fine for providingfalse information - Imprisonment fromsix months to five years and fine up to 10per cent of the fair market value of theproperty.

16. What are the appeal provisions?

(a) Any person including the Initiating Officeraggrieved by an order of the AdjudicatingAuthority may prefer an appeal beforethe Tribunal within 45 days from thedate of order;

(b) The Tribunal shall grant an appropriateopportunity of being heard to theAppellant;

(c) Tribunal, as far as possible, may hear andfinally decide the appeal within a periodof one year from the last day of the monthin which appeal is filed;

(d) Any person including the Initiating Officeraggrieved by an order of the Tribunalmay prefer an appeal before the HighCourt within a period of 60 days fromthe communication of the order ordecision of the Tribunal;

(e) Where the HC is satisfied that asubstantial question of law is involvedin a case, it shall formulate that question;

(f) The appeal shall be heard only on thequestion of law so formulated.

17. Under what circumstances transfer ofproperty can be treated as null and void?

S.57 provides that notwithstanding anythingcontained in the Transfer of the Property Act,

1882 or any other law for the time being inforce, where, after the issue of a notice undersection 24, any property referred to in thesaid notice is transferred by any modewhatsoever, the transfer shall, for the purposesof the proceedings under this Act, be ignoredand if the property is subsequentlyconfiscated by the Central Government undersection 27, then, the transfer of the propertyshall be deemed to be null and void.

18. Who shall be treated as guilty in the caseof the offence committed by a Company?

Where a contravention of any of the provisionsof this Act or of any rule, direction or ordermade there under has been committed by acompany and it is proved that thecontravention has taken place with theconsent or connivance of, or is attributableto any neglect on the part of any director,manager, secretary or other officer of thecompany, the director, manager, secretaryor other officer shall also be deemed to beguilty of the contravention and shall be liableto be proceeded against and punishedaccordingly.

In this Act, ‘Company’ means a bodycorporate, and includes— (i) a firm; and (ii)an association of persons or a body ofindividuals whether incorporated or not.

“Director”, in relation to—

(i) a firm, means a partner in the firm;

(ii) any association of persons or a body ofindividuals, means any membercontrolling the affairs thereof.

❉ ❉ ❉

Allied Laws Corner


CA. Pamil H. [email protected]

From Published Accounts

AS - 13 Investments - Significant AccountingPolicies - Annual Report 2015-16

Abhishek Corporation Limited

Investments are started at cost.

B. L. Kashyap and Sons Limited

Investments are classified as current and long-termInvestments; current investments are stated at lowerof cost and fair value. Long-term investments arestated at cost. A provision for diminution is madeto recognise a decline, other than temporary, in thevalue of long-term investments.

Manaksia Limited

Long-term investments are stated at cost lessprovisions recorded to recognise any decline, otherthan temporary, in the carrying value of eachinvestment. Investments in foreign companies areconsidered at the exchange rates prevailing on thedate of their acquisition. Current investment arecarried at lower of cost or fair value of eachinvestment. Short them investments in liquid fundscheme of mutual funds have been stated at theirNAV on year end date or purchase price whicheveris less.

VRL Logistics Limited

Investments are classified into current investmentsand non-current investments. Current investments,i.e. investments that are readily realisable andintended to be held for not more than a year arevalued at lower of cost and net realisable value.Any reduction in the carrying amount or any reversalof such reduction are charged or carried to thestatement of profit and loss.

Non-current investments are stated at cost. Provisionfor diminution in the value of these investments ismade only if such decline is other than temporary,in the opinion of the management.

H.P. Cotton Textile Mills Limited

Current investment are carried at lower of cost andfair value; if any, and Non Current investments arestated at cost.; if any, provision for dimunation invalue on Non current investments is made only ifsuch a decline is other than temporary.

IFB Industries Limited

Non-current investments are stated at cost lessdiminution in value, if any other than temporary,determined on specific identification basis.

Current investments are stated at lower of cost andfair value. The comparison of cost and fair value iscarried out separately for each investment.

Profit or loss on sale of investment is determined asthe difference between the sale price and carryingvalue of investment, determined individually foreach investment.

Claris

a. Long-term investments are stated at cost. Anydiminution in the value, other than temporary,is provided for current investments are carriedindividually, at lower of cost and fair value.

b. Investments in share of foreign subsidiarycompanies are expressed in Indian currencyat the rate of exchange prevailing at the timewhen the original investments were made.

Triveni Engineering & Industries Ltd.

Investments, which are readily realizable andintended to be held for not more than one year fromthe date on which such Investments are made, areclassified as current Investments. All otherInvestments are classified as non-current / long-terminvestments. Current investments are carried atlower of cost and fair value determined on anindividual investment basis. Long-term investments

contd. to page 611


From the Government

CA. Kunal A. [email protected]

Income Tax

1) Circular regarding Clarifications on theDirect Tax Dispute Resolution Scheme, 2016

The Direct Tax Dispute Resolution Scheme,2016 (hereinafter referred to as ‘the Scheme’)incorporated as Chapter X of the Finance Act,2016 provides an opportunity to tax payers whoare under litigation to come forward and settlethe dispute in accordance with the provisionsof the Scheme.

In furtherance of the provisions and earliercircular No.33 of 2016 dated 12.09.2016, theCentral Government vide this circular hasconsidered the further queries raised anddecided to clarify the same in the form ofquestions and answers.

(For full text refer Circular No. 42, dated 23/12/2016)

2) Press Release clarifying the reporting CashTransactions under Rule 114E of theIncome-tax Rules,1962.

Serial no. 11 of the rule 114E reads as under:-

Sl. No. Nature and value of transaction Class of person (reporting person)

11. Receipt of cash payment exceeding two lakh Any person who is liable for audit under sectionrupees for sale, by any person, of goods or 44AB of the Act.services of any nature (other than those specifiedat Sl. No. 1 to 10 of this rule, if any.

With regard to the above, CBDT herebyclarifies that the said transactions did not requireaggregation and the reporting requirementunder statement of financial transactions (SFT)for this purpose is on receipt of cash exceedingrupees two lakh for sale of goods or servicesper transaction.

(Press Release, dated 22/12/2016)

3) The Central Government vide thisnotification notifies the Pradhan MantriGarib Kalyan Deposit Scheme, 2016. The

thscheme shall come into force from 17stDecember, 2016 and shall be valid till 31

Marche, 2017. The Scheme shall be applicableto every declarant under the Taxation andInvestment Regime for Pradhan Mantri GaribKalyan Yojana, 2016.

(For full text refer Notification, dated 16/12/2016)

4) Notification regarding the ‘Taxation andInvestment Regime for Pradhan Mantri

The CBDT hereby makes the rules for

Garib Kalyan Yojana Rules,2016

declaration of income in the form of cash ordeposit in an account and prescribes form 1(form for declaration under section 199C inrespect of the taxation and investment regimefor pradhan mantra garib kalian yojana rules,2016) and form 2 (Certificate of declarationunder section 199C in respect of the taxationand investment regime for pradhan mantra garibkalian yojana rules,2016)

(For full text and form 1 and 2 referNotification no. 116, dated 16/12/2016)

5) Press Release relating to Filing of RevisedIT returns by the tax payers PostDemonetisation of Currency

Under the existing provisions of section 139(5)of the Income-tax Act, 1961 (‘Act’), RevisedReturn can only be filed if any person, whohas filed a return under section 139(1) of theAct or in response to notice u/s 142(1),discovers any omission or any wrong statementtherein. Post demonetization of the currency


on 8th November, 2016, some taxpayers maymisuse this provision to revise the return-ofincome filed by them for the earlier assessmentyear, for manipulating the figures of income,cash-in-hand, profits etc.

It is hereby clarified that the provision to file arevised return of income u/s 139(5) of the Acthas been stipulated for revising any omissionor wrong statement made in the original returnof income and not for resorting to makechanges in the income initially declared so asto drastically alter the form, substance andquantum of the earlier disclosed income.

It is brought to the notice of tax payers that anyinstance coming to the notice of Income-taxDepartment which reflects manipulation in theamount of income, cash-in-hand, profits etc.and fudging of accounts may necessitatescrutiny of such cases so as to ascertain thecorrect income of the year and may also attractpenalty/prosecution in appropriate cases as perprovision of law.(Press Release, dated 14/12/2016)

6) Circular regarding on directions undersection 119 of the Income-tax Act, 1961.Recent initiatives of the Government to curbthe black economy in the country haveencouraged people to shift towards digitalmode of payment while making financialtransactions. By adopting digital mode ofpayment, no financial transactions wouldremain undisclosed and consequently anenhanced turnover of business might getreflected in the books of accounts. Under thecircumstances, an apprehension has been raisedthat increased turnover in the current year maylead to reopening of earlier years’ casesinvolving lower turnover u/s 147 of the Income-tax Act, 1961 (‘Act’) by the Assessing Officercausing undue harassment to tax payers.

It is hereby clarified that reopening of cases u/s 147 of the Act is feasible only when theAssessing Officer “has reason to believe thatany income chargeable to tax has escapedassessment for any assessment year” and notmerely on the basis of any reason to suspect.

Mere increase in turnover, because of use ofdigital means of payment or otherwise, in aparticular year cannot be a sole reason tobelieve that income has escaped assessment inearlier years. Hence, Assessing Officers areadvised not to reopen past assessments in casesmerely on the ground that the current year’sturnover has increased.

(Circular No. 40/2016, dated 09/12/2016)

Service Tax1) Notification regarding amendment in Mega

Exemption Notification no. 25, dated 20/06/2012:-The Central Government hereby makes thefollowing further amendments in thenotification No.25/2012-Service Tax, dated the20thJune, 2012, by inserting a entry 64 afterentry 63, which reads as under:- “64. Services by an acquiring bank, to any

person in relation to settlement of anamount upto two thousand rupees in asingle transaction transacted throughcredit card, debit card, charge card orother payment card service.

Explanation. — For the purposes of this entry,“acquiring bank” means any banking company,financial institution including non-bankingfinancial company or any other person, whomakes the payment to any person who acceptssuch card.”(Notification No. 52, dated 08/12/2016)

2) Notification regarding amendment inService Tax Rules, 1994The Central Government hereby amends therules by inserting the following proviso in sub-rule (1) of rule 4C:-‘Provided that a person located in non-taxableterritory providing online information anddatabase access or retrieval services to a non-assessee online recipient located in taxableterritory may issue online invoices notauthenticated by means of a digital signaturefor a period upto 31st January,2017.’ (Rule 4C:-Authentication by digital Signature)(Notification No. 53, dated 19/12/2016)

❉ ❉ ❉

From the Government


1 Forthcoming Programmes

Date/Day Time Topic Venue

28/01/2017 8.30 a.m. Cricket Match - C. A. Association v/s Ahmedabad University Ground,Saturday Income Tax Bar Association Ahmedabad

18/02/2017 8.30 a.m. Cricket Match - C. A. Association v/s Railway Cricket Ground,Saturday Baroda Branch of WIRC of ICAI

Association News

CA. Dilip U. JodhaniHon. Secretary

Sabarmati, Ahmedabad

CA. Riken J. PatelHon. Secretary

Glimpses of Past Events

CA Foundation Day Celebrations


Cricket Match

are carried at cost. However, provision is made torecognize a decline, other than temporary, in thevalue of long-term investments, such reductionbeing determined and made of each investmentindividually.

Ankit Metal & Power Limited

Long Term investment is valued at cost. Provisionfor diminution in value of these investments is madeonly if such a decline other than of temporary innature.

KLRF Limited

Investments are meant to be long term investmentsand are stated as cost. Diminution in the value ofinvestments other than temporary in nature is

Triveni Turbine Limited

provided for.

Investments, those are readily realisable andintended to be held for not more than one year fromthe date on which such Investments are made, areclassified as current Investments. All otherInvestments are classified as long term Investments.Current Investments are carried at lower of cost andfair value determined on an individual Investmentbasis. Long term Investments are carried at cost.However, provision for diminution is made torecognise a decline, other than temporary, in thevalue of long-term Investments, such reductionbeing determined and made for each Investment

4th Brain Trust Meeting

individually.

❉ ❉ ❉

GST Series

contd. from page 607 From Published Accounts

Association News


Across1. Supreme Court has held that the speech of

Finance Minister is relevant in so far it givesthe background, but is not _________ of theconstruction of provisions.

2. Punjab and Haryana High Court in case ofRamesh Steels has held that premium paid onKeyman Insurance Policy taken on the life of_________ is an allowable expense.

3. Money can buy all the materialistic pleasures

Down4. On the internet what we leave behind after

in the world but not ________.

storage, usage, navigation and communicationis called _________ Footprints.

5. On 15-12-2016, CA Association celebrated theFoundation Day and completed ____________years.

6. Gujarat Government dated 28-11-16 hasnotified that the input tax credit on___________ Gas shall be reduced when sold/resold in the course of interstate trade and

ACAJ Crossword Contest # 32

commerce.

Notes:

1. The Crossword puzzle is based on previousissue of ACA Journal.

2. Two lucky winners on the basis of a draw willbe awarded prizes.

3. The contest is open only for the members ofChartered Accountants Association and nomember is allowed to submit more than oneentry.

4. Members may submit their reply eitherphysically at the office of the Association orby email at [email protected] on orbefore 22/01/2017.

5. The decision of Journal Committee shall be final

ACAJ Crossword Contest # 31 - Solution

and binding.

Across1. Service2. Partner 3. Quarter

Down4. Supply 5. Vishala

Winners of ACAJ Crossword Contest # 31

1.

6. Nectar

❉ ❉ ❉

CA. Mahavir Shah

2. CA. Irfan Hawa

5

1/4 6

2

3

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Volume : 40 | Part 9 | December, 2016 · 2017. 8. 4. · Ahmedabad Chartered Accountants Journal...

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