Ahmedabad Chartered Accountants Journal

Ahmedabad Chartered Accountants Journal September, 2014 325

Volume : 38 Par t : 06 September, 2014E-mail : [email protected] Website : www.caa-ahm.org

Ahmedabad Chartered Accountants Journal

C O N T E N T S To Begin with

MananamLet go the Heart!................................................................................. CA. Jayesh C. Sharedalal..........326

Editor ialLaw Encroachment............................................................................. CA. Ashok Kataria .................... 327

From the President............................................................................CA. Shailesh C. Shah.................328

Ar t icles

Taxation of Charitable Trusts............... ...............................................CA. P. N. Shah............................329Analysis of Major Changes made in Tax Audit Report........................ CA. Paresh Desai &

CA. Kush Paresh Desai...............334

Direct Taxes

Glimpses of Supreme Court Rulings......... .......................................... Adv. Samir N. Divatia................340

From the Courts..................................................................................CA. C.R. Sharedalal &CA. Jayesh Sharedalal............... 341

Tribunal News.....................................................................................CA. Yogesh G. Shah &CA. Aparna Parelkar.................. 345

Unreported Judgements......................................................................CA. Sanjay R. Shah....................351Controversies......................................................................................CA. Kaushik D. Shah................. 353Judicial Analysis..................................................................................Adv. Tushar P. Hemani................356

FEMA & International Taxation

FEMA Updates................................................................................... CA. Savan A. Godiawala............359

Indirect Taxes

Service TaxService Tax Decoded.......................................................................... CA. Punit R. Prajapati................361Recent Judgements............................................................................. CA. Ashwin H. Shah...................367

Value Added TaxVAT Demystified..................................................................................CA. Priyam R. Shah................... 369Recent Judgements and Updates........................................................ CA. Bihari B. Shah.....................373

Corporate Law & Others

Business Valuation.............................................................................. CA. Hozefa Natawala.................375Corporate Law Update.......................................................................CA. Naveen Mandovara.............378

From Published Accounts ................................................................ CA. Pamil H. Shah..................... 380

From the Government ......................................................................CA. Kunal A. Shah..................... 382Association News.............................................................................. CA. Abhishek J. Jain &

CA. Nirav R. Choksi ...................383

ACAJ Crossword Contest ....................................................................................................................388

Ahmedabad Chartered Accountants Journal September, 2014326

AttentionMembers / Subscr ibers / Authors / Cont r ibutors1. Journals are carefully posted. If not received, you are requested to wr ite 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 Off ice.3. Subscription for the Financial Year 2014-15 is ` 400/-. Single Copy (if available) ` 40/-.4. Please mention your membership number/journal subscription number in all your correspondence.5. While sending Articles f or 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.

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

7. Membershi p Fees (For ICAI Members)Life Membership ` 7500/-Entrance Fees ` 500/-Ordinary Membership Fees for the year 2014-15 ` 600/- / ` 750/-Financial Year : April to March

Published ByCA. Ashok K atar ia,on behal f of Chartered A ccountants Association, Ahmedabad, 1st Floor, C. U. Shah Chambers, NearGujarat Vidhyapith, Ashram Road, Ahmedabad - 380 014.Phone: 91 79 27544232Fax : 91 79 27545442No par t of this Publication shall be reproduced or transmitted in any form or by any meanswithout the permi ssion in wr iting from the Chartered Accountants Associ ation, Ahmedabad.While every effort has been made to ensure accuracy of informati on contained in this Journal,the Publisher is not responsible for any error that may have arisen.

Professional AwardsThe best articles published in this Journal in the categories of 'Direct Taxes', 'Company Law andAuditing' and 'Allied Laws and Others' wi ll be awarded the Trophies/ Certif icates of Appreciationafter being vetted by experts in the profession.Articles and reading literatures are invited from members as well as from other professional colleagues.

Pr inted : Pratiksha Pr interM-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 Sharedalal CA. Mukesh KhandwalaCA. Naveen Mandovara CA. Rajni Shah CA. T. J. Advani

Ex-officioCA. Shailesh Shah CA. Abhishek Jain


I am sure all of you must have experienced thefeeling of ‘Hurt’. Most of you may not have to govery far in past of your present life. I f you closeyour eyes for a moment and start rememberingabout the incidents of Hur t caused to you, you willsee them and the persons involved, emerging frameby frame in your mind, who have given you thefeeling of Hurt. This feeling may have come to youdue to actions or words or sometimes due to in-action of the concerned person/s. Going a stepfurther, you may also try to visualize the incidentsand the persons concerned where your words /action /in-action may have caused Hur t to others.More often than not, the concerned persons wouldbe your spouse, children, parents, fr iends, off icecolleagues and occasionally may be an unknownperson also.

One example of feeling Hurt: You were told by yourwife that she is going to prepare Pav Bhaji fordinner. With this expectation you reach home. PavBhaji is your favourite food. You f ind that insteadof Pav Bhaji you are served Khichdi. You lose yourtemper and say unpleasant things to your wife. Youget Hurt and she also gets Hurt. You do not ask herwhat was the reason for change in menu. Here youassume too many things and hence lose yourtemper. You think negatively of the situation.

Remember, Hurt has been felt by you due to YourPerception of the issue involved. It is a situationwhere you yourself have become a Complainantas well as a Judge.

Most of us feel like taking a revenge for the Hurtcaused to us. Revenge usually does not involve aphysical f ight but mostly it i nvol ves a mentalexercise to f ind out ways of satisfying our self ofhaving taken a revenge. This idea of revenge keepsus in constant remembrance of the incident andgi ves us subconsciousl y a depressed f eel ing.M oreover all our energy gets di ver ted tounproductive work in waiting to take revenge.

MananaM

Let Go the Hurt ! Constant remembrance of Hurt and Revenge, sinceboth are inter connected, acts like a deep ravine inthe progress of your spiritual life. To uplif t yourlife, it is required to erase from your memory thesetwo.

What will happen if you don’t let go the Hurt?

Perceived Hurt would cause damage to your health,aff ect your mood, your productiv i ty, yourrelationships, and ultimately quality of your life.

Those who are already on Spiritual path will agreethat when you don’t let go the Hurt, consciously orsub consciously you will remember the Hurt quiteoften. This will give you negative thoughts aboutthe person concerned, which i n turn will sendnegative vibrations to the concerned person. Thiswill result in a debit entry in your ‘karmik’ account.Your negati ve thought wil l be rebounded bynegative vibrations and ultimately you will createa negative energy for your self.

The f irst step should be to think that the Hurt feltby you is on account of Your Perception and yourperception is not a Fact. Think that just as you haveyour percepti on, so also the other person who youthink has caused Hurt has also his perception aboutthe incident. The incident was Your Perception andthink that i t was an illusion which you mistook asan incident.

If Hurt still persi sts, one of the simple ways toremove Hurt is to forgive the person concerned whoaccording to Your Perception has caused you Hurt.Your act of forgiveness should be a sincere oneand not just a formality.

“The weak can never forgive. Forgiveness is theattribute of the strong”, said Mahatma Gandhi.

Just as you f orgive others, you also have to seekforgiveness for hurt caused by you to others.

Forgiving is diff icult to practice initi ally. But onceyou start forgiving, you will feel very light and stressfree. There will be no negative thoughts and thiswill help you in enjoying your life.So, Let Go the Hurt!

CA. Jayesh C. [email protected]


The basic foundation of the Indian democracy isits three pillars, viz. Legislature, Judiciary andExecutive. The role of legislature, parliament andstate assemblies is to f rame laws for smoothfunctioning, Executive ensures i ts properadministrations and implementation and Judiciarytakes care of the scenario where there is anyviolation. The law of the land reigns supreme andevery citizen need to abide by it. The question arisesare the roles of Legislature, Executive and Judiciaryinterchangeable? Can the Executive take over therole of the Legislator or exercise its powers in themanner against the spirit of the law framed by theLegislature? The obvious answer to the questionis, ‘No’.

Of late, especially in administration of the IncomeTax Law it is observed that the body responsiblefor the regulation and management is often foundto work as a law maker. The role of Central Boardof Direct Taxes is to ensure proper administrationof direct tax laws through Income Tax Department.The CBDT, now a days is working arbi trarilywithout considering the interest of tax payer publicin the country. Referring previous edi torial,introduction of income tax return forms after theend of three months of a financial year was justone example. The apathy has not stopped there.Recent couple of decisions by the CBDT, againstthe spirit of law, is adding to the worries of the taxpayers as well as tax professionals.

Against the hue and cry in response to changes intax audit forms, the CBDT extended the date ofobtaining and furnishing tax audit report u/s 44ADto 30-11-2014. One would fail to understandwhether such a decision taken by the Board is madewithout taking into consideration the provisions ofthe Income Tax Act. The Board has been granted

EditorialLaw Encroachment

certain powers to al ter some dates f or properadministration under section 119 of the Income TaxAct. Extending date for filing of return u/s 139 isone such authority granted. However, the Boardhas no such power to alter the date of obtainingand furnishing the tax audit reports. There is noreference of section 44AB in section 119 of theIncome Tax Act. It appears that the people who areissuing such illegal circulars are not acquainted withthe basic provisions of law. If so is the case, howthey would be administering the law?

The Board has not stopped here. Recently anothercircular has been issued making it mandatory forall tax deductors to file an online declaration on thewebsite of the Department, where in a quarter thereis no tax deducted and deposited. Is there anyprovision under the Income Tax Law that mandatesa tax deductor to file such declaration? Again theanswer seems to be ‘No’. Various courts have heldin past that there is no liability on the part of the taxdeductor to furnish TDS statements, if there is notax deductible and payable for any period. Despitethis, the Board has come with an impulsive circularframing its own law ignoring the provisions of theIncome tax Act.

Instances have been heard of land encroachment;however, it would be the first time where the IncomeTax Law is encroached by certain group of peopleresponsible for its smooth administration and in factnot just the law but the process of the law makingwith the aid of illegal circulars. The poor tax payerof the country, left wi th no choice, accepts,accommodates and adjusts himself to follow suchmandates.

Namaste,CA. Ashok Kataria

[email protected]


Dear Esteemed Readers,

Prime Mi nister Narendr a Modi’s maiden IndependenceDay Speech at the Red Fort was highly memorable. Anystudent want ing to develop oratorical capabilities cancertainly use Prime Minister Modi’s extempore speechat the Red Fort as an inspiration. His Speech laid out hisbiggest concerns for the country. Hi s speech touchedalmost every aspect. He spoke of governing throughconsensus and not on the basis of majority in Parliament.He emphasised that nation building could not be left tothe government alone, but time has come that peoplestop asking “M era Kya” and “Mujhe kya”, and contributeto the col lective sense of duty and responsi bil ity fornational interest. Spelling out his vision of “come andmake in India”, he invited manufacturers to invest inIndia and step up its industrial growth and that may bethe booster for the professi on as far as professionalopportuniti es are concerned. He urged the youth tounleash thei r potent i al and work towardsmanufacturing goods locally that are currently on theimport l ist.

“Made in India must be a synonym for excellence…Try and make one thi ng that Indi a won’t need toimport… the country must become a global exporter.But ensure zero-defect when it comes to quality”. SwachhBharat or Clean India will be another campaign high onhis priority l i st. Urging people to �clean homes, vil lagesand towns” across the nation, Modi said this would be af it t i ng t ri bute to M ahatma Gandhi on hi s bi rthanni versary. The vision seems to be clear, only timewould tell whether we are able to make India a betternation.

Since last many years September is a month when almostall chartered accountants are normally busy in preparingtax audits reports along with fi l ing returns of income.However the position this time is somewhat different.The reason behind this is that CBDT unexpectedlychanged the formats of the tax audit report U/S 44ABof Income-tax Act and to everyone’s surprise these newformats were made applicable from Financial Year 2013-14, for which the date of fi l ing tax audit reports is 30/09/2014. Due representation has been made by variousbodies includi ng representation made by our Associationto postpone the applicabil ity of the new report from nextyear. CBDT has extended the due date for obtaining and

From the PresidentCA. Shailesh C. Shah

[email protected]

furnishing of report of audit u/s 44AB of the Act for theAssessment Year 2014-15.

The order of CBDT has created lots of confusi onamongst the taxpayer and tax professional s by notextending the due date of fi l ing income tax return. OurAssociation has again made a strong representation forextending the due date of fi l ing the return. The copy ofrepresentation is already sent to all the members by e-mail.

At the Association Residential Refresher Course wasorganized at Jaypee Pal ace Hotel and Convention inbeautiful city of Agra from 2nd to 6th August 2014. Therewere total 95 parti cipant i n the Residenti al RefresherCourse. I am pleased to inform that the Central Councilof ICAI was also at the same venue and we all had achance to meet our al l central council members. Wefelicitated all the central council members including thePresident and the Vice President at this occasion. I reckonthat thi s was a mai den event in the history of theAssociation where the members of the Association gotto meet all the council members. It was fruitful exchangeof vi ews. The experienced team of Cul tural andEntertainment Committee led by the young and dynamicchai rman and convenor organi zed the program thatallowed members and family members to showcase theirtalent in Antakshri. 40 participants got the opportunityto present themselves on the big platform. The programwas thoroughly enjoyed by all the members and theirfamily members. Apart from Entertainment , second BrainTrust Meeting was organized on the topic of “Issues inTax Audit” with CA. Sanjay R. Shah and CA HardikSutaria, as the trustees of the meeting.

The results of CA Final and IPC examinat ions conductedin May / June 2014 were declared recently. I congratulateall those who passed in the examinati on. And thosestudents who could not succeed, I can only say that whenone fails he should never give up because FAIL means“First Attempt In Learning”. If you get No in the resultremember No means “ Next Opportuni ty” . So bepositive and work hard.

With regards,CA. Shailesh C. ShahPresi dent


The first Budget of the BJP led NDA Government,under the leadership of Shri Narendra Modi, waspresented in the Parliament on 10th July, 2014. ThisBudget, with the Finance (No.2) Bill 2014, hasbeen passed without any serious discussion on theamendments made in the Income Tax Act (Act).The Finance (No.2) Act, 2014 has received theassent of the President on 6th August, 2014.

There are some positive features in the Finance Actwhich reduces the burden of tax on Individuals,HUFs etc., as also gives incentives for increasingsavings, encouragement to small and medium sizemanufacturing Companies with a view to create newjobs and encourage growth of economy. Some stepsare also taken to reduce tax litigation, to expandscope for approaching Authority for AdvanceRuling, Settlement Commission etc. However, onedisturbing area relates to some of the amendmentsmade in the Act whereby additional powers aregiven to CIT w.e.f. 1.10.2014 to cancel Registrationof charitable Trusts u/s 12AA for non-complianceof some of the provisions of sections 11 or 13 ofthe Act. These provisions are very harsh and willput a large number of Public Trusts and Institutionsinto difficulties. The Finance (No.2) Act, 2014,amends section 10(23C), 11 and 115 BBC of theIncome tax Act from A.Y. 2015-16. Sections 12Aand 12AA have been amended from 1.10.2014.These amendments relating to Charitable Trusts andInstitutions are briefly discussed in this article.

1 Charitable and Religious Trusts cannotclaim exemption u/s 10 : A trust or institutionwhich is registered or approved or notified as acharitable or religious Trust under section 12AAor 10(23C) (iv), (v),(vi) and (via) will not nowbe entitled to claim exemption under any ofthe general provisions of section 10.

The intention is that such entities should begoverned by the special provisions of sections10(23C) 11,12 & 13, which is a code by itself,and should not be eligible to claim exemptionunder other provisions of section 10. Therefore,such entity will not now be entitled to claimthat its income, like dividend income (exemptu/s. 10(34)) or income from mutual funds(exempt u/s. 10(35)), or interest on tax freebonds, is exempt under section 10 and hencenot liable to tax. Such income continues toqualify for exemption under section 10(23C)or section 11.

Agricultural income of such an entity, however,will continue to enjoy exemption under section10(1). Further, such an entity eligible forexemption under section 11 will not be barredf rom claiming exemption under section10(23C).

2 Depreciation on Capital Assets:

(i) Hitherto, almost all courts in India, whileinterpreting Section 11, have held thatincome of a charitable trust u/s 11 is to becomputed on the basis of accountingmethod adopted by the trust following thecommercial principles. (CIT V/s Trusteesof H.E.H. Nizam’s SupplementalRel igious Endowment Trust 127 ITR378(AP), CIT V/s Estate of V.L.Ethiraj 136ITR 12 (Mad) and CBDT circular No.5-P(Lxx-6) dated 19.06.1968).

On this basis the courts have taken theview that depreciation on assets of the trustis to be deducted f or the purpose ofcalculation of Income of the trust incommercial sense u/s 11 of the Income Tax

CA. P. N. [email protected]

Taxation of Char itable Trusts



Act. The well settled principle of law, aslaid down by various courts, during the lastmore than 50 years is that under the schemeof Section 11, there are following two steps

(a) In the first step income of the trust is to be“computed” on commercial principles anddepreciation on capital assets is to bededucted for this purpose.

(b) In the second step the income so computedis to be compared with “application” of thisincome to objects of the trust. Forapplication of such Income, Capital andRevenue expenditure incurred during theyear for the objects of the trust is becompared with the figure of Income ascomputed in (a) above.

Therefore, “Depreciation” and expenditurefor acquiring “Capital Asset” fall under twodiff erent fields and there is no doublededuction of expenditure (Refer CIT V/sFramjee Cawasjee Institute 109 CTR 463(Bom), CIT V /s I nstitute of BankingPersonnel Selection 264ITR – 110 (Bom),CIT V/s Society of Sister of St. Anne146ITR 28 (Kar), CIT V/s Seth ManilalRamchhoddas Vishram Bhavan Trust 198ITR 598(Guj ) and CIT V/s M arketCommittee, Pipali 330 ITR 16 (P&H)

(ii) By amendment of Section 10(23C) and 11,from A.Y. 2015-16, it is now provided thatdepreciation wi ll not be al lowed incomputing the income of the Trust orInstitution in respect of an asset, where costof acquisition has already been claimed asdeduction by way of application of incomein the current or any earlier year. It may benoted that this amendment will over ruleall the above decisions of various HighCourts.

(iii) Logic for the above amendment is givenin the Explanatory Memorandum as under:

“The existing scheme of section 11 as wellas section 10(23C) provides exemption inrespect of income when it is applied toacquire a capital assets. Subsequently,while computing the income for purposesof these sections, notional deduction byway of depreciation etc. is claimed andsuch amount of notional deductionremains to be applied for charitablepurpose.

Therefore, double benefit is claimed by thetrusts and institutions under the existing law.The provisions need to be rationalized toensure that double benefit is not claimedand such notional amount does not getexcluded from the condition of applicationof income for charitable purpose.”

It will be noticed that this logic is quiteopposi te to the wel l settled law asinterpreted by various High Courts.

(iv) The effect of the above amendment willbe that all the Trusts/Institutions which willbe affected by this amendment will haveto maintain two separate records of CapitalAssets as under:

(a) WDV of Capital Assets in respect ofwhich depreciation as wel l asdeduction by way of application ofincome is claimed upto A.Y. 2014-15.

(b) WDV of Capital Assets in respect ofwhich deduction by way of applicationof income has not been claimed uptoA.Y. 2014-15 but only depreciation isclaimed and allowed.

It may be noted that from A.Y. 2015-16depreciation will not be allowed in respectof WDV of Capital Assets as stated in (a)above. As regards WDV of Capital Assetsas stated in (b) above, depreciation can beclaimed in A.Y. 2015-16 even after theabove amendment.


3 Sect ion 10 (23C): The existing section10(23C) (iiiab) and (iiiac) grants exemption toeducational institutions, universities andhospitals that satisfy certain conditions andwhich are wholly or substantially financed bythe Government. The term “substantial lyfinanced by the Government” is not definedand hence resulted in litigation (Refer CIT vs.Indian Institute of Management 196 Taxman276 (Kar). It is now clari fied that i f theGovernment grant to such institutions exceedsthe prescribed percentage of the total receipts,(including voluntary contributions), then it willbe considered as being substantially financedby the Government.

4 Section 12A- Registration of Trust: Section12A has been amended w.e.f. 01.10.2014. Atpresent a trust or an institution can claimexemption only from the year in which theapplication for registration under section 12AAhas been made. As such, registration can beobtained only prospectively and this causesgenuine hardship to several chari tableorganizations. It is now provided that the benefitof sections 11 and 12 will be available to suchtrusts for all pending assessments on the dateof such registration, provided the objects andactivities of such trusts in these earlier yearsare the same as those on the basis of whichregistration has been granted. It is also providedthat no action for reopening assessment undersection 147 shall be taken by the AssessingOff icer merely on the ground of non-registration. A ccordingly, completedassessments in which benefit under section 11has been granted, will not be adversely affectedon account of non-registration. It may be notedthat such benefit will not be available to trustswhere the registration was earlier refused orwas cancelled.

5 Section 12AA – Power to CIT to cancelRegistration: (i) The amendment made insection 12A A, w.e.f. 01.10.2014, giving

addi tional power to the CIT to cancelRegistration of a Trust wi ll create greathardships to the trusts. At present, for non-compliance with some of the requirements ofsection 11,12 or 13 the trust is liable to pay taxfor that year. Now, the amendment in section12AA empowering CIT to cancel Registrationof the trust for such non-compliance will meanthat a trust which has been complying withthese provisions for several years in the pastand also in subsequent years wi ll looseexemption in that year and also in subsequentyears. This is a very harsh and uncharitableprovision and will lead to unending litigationin which trustees will have to spend trust fundswhich they would have utilized for charitablepurpose. Surprisingly, none of the Public Trustsor insti tutions have seriously opposed thisamendment before it was passed in theParliament.

(ii) Briefly stated the amendment in section 12AAis as under.

At present registration of a trust / institution oncegranted, can be cancelled only under followingtwo circumstances:

(a) The activities of the trust are not genuine;or

(b) The activities are not being carried out inaccordance with the objects of the trust.

Now, the Commissioner has also been givenpower to cancel registration besides the abovetwo circumstances, if it is noticed that the trusthas not complied with the provisions of sections11, 12 or 13 in the following manner.

(a) Income does not ensure for the benefit ofthe public;

(b) Income is applied for the benefit of anyreligious community or caste (In case of atrust established on or after 01.04.1962);



(c) Income is applied for the benefit of personsspecif ied in Section 13(3) i.e. relatedparties;

(d) Funds of the Trust / Institution are investedin prohibited modes i .e. there is non-compliance with Section 11(5) or 13.

It is however provided that registration will notbe cancelled if the trust / institution proves thatthere was reasonable cause for breaching anyof the above conditions.

(iii) It is true that the Trustees can file appeal againstthe order of CIT to ITA Tribunal when suchregistration is cancelled. But this will invitelitigation in which trust money will have to bespent.

(iv) It may be noted that this additional power givento CIT raises several issues which have notbeen considered whi le making the aboveamendments.

Some of these issues are as under:

(a) Whether the above amendment applies toassessments made after 1/10/2014 or willapply to assessments made prior to that datein which there was non-compliance withSections 11 or 13 and the Trust/Institutionhas been denied exemption u/s 11. If thisadditional power to cancel registration canbe exercised in respect of assessmentsmade prior to 1/10/2014, it will mean thatthis amendment is retroactive

(b) Compliance with sections 11,12 or 13raises several issues of interpretation.Therefore, a question will arise as to atwhat stage the CIT will exercise thisadditional power to cancel registration. Inother words, whether he wi ll cancelregistration when any adverse assessmentorder for a particular year is passed by theA .O. or when the enti re appel lateproceedings, in which the order is

challenged, are completed. If registrationis cancelled when the adverse assessmentorder is passed, whether the original ordergranting registration will be automaticallyrevived if the Trust/Institution ultimatelysucceeds in the appeal.

(c) Whether cancellation of registration as aresult of this amendment will be for theyear in which there is non-compliance withsections 11, 12 or 13. If this is not the case,the trust will not be able to claim exemptionu/s 11 in subsequent years f or whichassessments are pending although all thecondi tions of sections 11 or 13 arecomplied with.

(d) If the registration is cancelled for non-compliance with sections 11 to 13 in oneyear, whether the CIT can considergranting registration in subsequent yearswhen the trust is complying with theseprovisions.

(e) If registration is cancelled, say for A.Y.2013-14, whether the income of the trust /institution will be computed u/s 11 or afterapplying all the other provisions of theIncome tax Act for computation of totalincome.

(f) If registration is cancelled in the case of atrust holding certificate u/s 80 G, what willbe the position of persons who have givendonations and claimed deduction u/s 80G,in that year and in subsequent years,including years after cancellation ofregistration. It may be noted that there isno corresponding amendment in section80G where by CIT can cancel certificategiven under the section.

(v) Considering all these issues, it appears thatwhen the trust is required to pay tax in the yearwhen provisions of Sections 11 or 13 are notcomplied with, this additional power to CIT tocancel registration of the trust should not have



been given. There is a grave danger ofunhealthy practices being adopted by thosedealing with assessments of Charitable Trusts.

6 The effect of the above additional power, ifexercised by the CIT, wi ll be felt in thefollowing cases which are only illustrative.

(i) If the trust / institution has let and a part ofthe premises to a relative of a trustee at arent which according to A.O is below themarket rate. This is disputed by the trust /institution in appeal as the exemption isdenied u/s 11.

(ii) I f the trust/ insti tution has claimedexemption for a donation received ascorpus donation but it is not able to obtainletter of confirmation from the Donorbefore the date of assessment. The A.Otreats the donation as income u/s 12 anddenies exemption u/s 11 as the incomeapplied, according to him, is below 85%of income of the Trust. The matter isdisputed in appeal as the trustees havereceived the confirmation letter after thedate of the assessment order.

(iii) A trustee has given interest free loan to thetrust / institution to meet its immediateneeds without obtaining permission ofCharity Commissioner. In spite of the factthat appl ication before Chari tyCommissioner is pending consideration onthe date of passing the assessment orderthe A.O denies exemption u/s 11.

The appeal against this order is pending.

(iv) The A.O has denied exemption u/s 11 onthe ground that Form 10 for accumulationof income was not filed before due datebut was f i led during the course ofassessment proceedings. Appeal againstthis assessment is pending.

7 Section 115-BBC- Anonymous Donations:The existing provisions of section 115BBCprovide for levy of tax at the rate of 30% in thecase of Trust / Institution, being university,hospital, charitable organization, etc. on theamount of aggregate anonymous donationsexceeding five per cent of the total donationsreceived by the trust / institution or one lakhrupees, whichever is higher. This section isamended from A.Y. 2015-16 to provide thatthe incometax payable shall be the aggregateof the amount of income-tax calculated at therate of thirty per cent on such aggregate ofanonymous donations received and the amountof income-tax with which the trust / institutionwould have been chargeable had its totalincome been reduced by the aggregate of suchanonymous donations. This amendment is torationalize the provisions of the section.

8 From the above discussion it will be noticedthat while some of the amendments relating tocharitable trusts are beneficial, the amendmentgiving additional power to CIT to cancelregistration u/s 12AA if the trust / institutiondoes not comply with requirements u/s 11 or13 is disturbing. Those dealing with mattersrelating to taxation of Charitable or ReligiousTrusts know how difficul t it is to obtainregistration u/s 12AA. If such registration iscancelled on the ground of non-compliance withthe requirement of Sec. 11 or 13 in one year, itwill be difficult to get registration once again.This amendment wi ll end up in unendinglitigation in which public trust movies, whichwould have been spent for charitable purposes,will have to be spent. There is also a danger ofsome persons using unethical means to ensurethat Registration u/s 12 AA is not cancelled.Considering all these aspects, this particularamendment in section 12A A needs to bewithdrawn by the Government.

❉ ❉ ❉



Introduction

CBDT has through its Notification No: 33/2014dated 25th July, 2014 amended the Income TaxRules, 1962 to revise Tax Audit Report forms. Inrevised tax audit reports, number of clauses in Form3CD is increased from 32 to 41 and many existingclauses are revised drastically. Initially, it is madeapplicable for A.Y.2014-15 only with no extensionof time, because of which there was a cause ofconcern in our fraternity and many representationswere made to CBDT as well as to the FinanceMinistry. When we are putting up our pen to writethis article, one ray of happiness has come fromCBDT extending time limit to obtain and furnishtax audit report for the current year u/s 44AB from30th September, 2014 to 30th November, 2014.Immediately on receiving such notification, thediscussions started regarding the due date for filingof return of income. CBDT has also provided onlineschema covering the changes made to uploadrevised tax audit reports. In the back drop of this,let us analyse the changes made.

Changes made in Form 3CA/3CB

1) In clause 1(a), earlier only year ending datewas required to be mentioned while in therevised 3CA/3CB period starting date andending date needs to be mentioned. The onlyreason we can conclude for this change is toclearly accommodate situations like starting upnew business of profession, amalgamation anddemerger etc.

2) In clause 3, while commenting as to whetherparticulars given in annexed Form 3CD are trueand correct, there is a specific reference toexamination of books of account and otherrelevant documents, which was not there inearlier form 3CA.

3) The words “subject to following observationsor qualification, if any” have been added inthe opinion paragraph of Form 3CA/3CB. Ithas created practical difficulties as regards toForm 3CB. In form 3CB, under clause 3(a)itself the tax auditor is required to state anyobservations/comments/discrepancies/inconsistencies if any. Again in the revised form3CB, the observations/qualifications, if any arerequired to be mentioned in clause 5 i.e. inopinion paragraph.

4) Earlier Form 3CA/3CB was required to besigned by a Chartered Accountant within themeaning of the Chartered Accountants Act,1949 or by a person who, in relation to anyState, is, by virtue of the provisions of sub-section (2) of section 226 of the CompaniesAct, 1956 (1 of 1956), entitled to be appointedto act as an auditor of companies registered inthat State. As per revised tax audit reports, it isrequired to be signed by person eligible to signthe report as per the provisions of Section 44ABof the Income Tax Act, 1961. In our opinion,the intention behind this change is to allow otherprofessionals such as company secretaries, costaccountants, advocates etc. to carry out taxaudit in future by amending def inition ofaccountant u/s 288. The same is al readyproposed under the Direct Tax Code which iswarning sign for the Chartered Accountants inpractice.

5) Stamp and seal of the signatory is nowmandatorily required in the revised tax auditreports which was not required earlier.

Changes made in Form 3CD

1) Clause 4: Disclosur e of l iabi li t y andregistration under indirect taxes:

Analysis of MajorChanges Made inTax Audit Report CA. Paresh P. Desai

[email protected]. Kush Paresh Desai

[email protected]


This is the new clause added under the revisedtax audit report which requires reporting as towhether the assessee is liable to pay any indirecttaxes; if yes then registration number or anyidentification number allotted for the same isrequired to be furnished in respect of all theIndirect Tax provisions. The intention behindsuch change is to easily cross confirm certaininformation wi th other taxing authorities.Though this change looks simple, it can extendliability of the tax auditor to a great extent asthere is a risk that assessee may have been liableto pay any indirect tax but may not have beenregistered under the same and may not havepaid such tax. For this, tax auditor shouldreasonably satisfy himself that wherever theassessee is liable to pay any indirect taxes bychecking books of accounts and by obtainingknowledge of client’s business, and if yes, thenwhether it has taken registration for the sameand disclosed accordingly in f orm 3CD.Registration number need to be traced from theregistration letter / license issued by the relevantauthorities. There may be multiple registrationnumbers applicable for one assessee due todifferent services / units etc. In such a case, theregistration details of all such services / unitsshould be disclosed. In addition, the tax auditorshould also obtain representation from theassessee regarding all the applicable indirecttax laws.

2) Clause 8: Relevant Clause of Section 44ABunder which the audit has been conducted:

Sub-clauses of section 44AB covers variouscircumstances under which tax audit needs tobe carried out. Those are as follows:

- a person carrying on business ful fillingcriteria of turnover

- a person carrying on profession fulfillingcriteria of turnover

- a person carrying on business if profits andgains are deemed u/s 44AE,44BB and44BBB and person has claimed such income

to be lower than the profits or gains sodeemed to be the profits and gains of thebusiness

- a person carrying on business if profits andgains are deemed u/s 44AD and person hasclaimed such income to be lower than theprofits or gains so deemed to be the profitsand gains of the business

3) Clause 11(b): Address at which books ofaccounts are kept:

Under this clause, disclosure is to be maderegarding list of books of accounts and addressat which the books of accounts are kept. TaxAuditor should be very careful that accuratereporting under such clause is made based onaddress given under this clause as thedepartment may use it for conducting searchand survey.

While reporting under such clause, problemwould also arise in the following particularscenarios:

- Assessee operating at multi-location andbooks of accounts are maintained at differentlocations.

- When books of account can be accessiblefrom head office of the company in SAP /ERP software while related supportingvouchers are maintained at dif ferentlocations.

In all such cases, it is worthwhile to note thedefinition of books of account as per section2(12A) of the Income Tax Act. Books ofaccount includes ledgers, day-books, cashbooks, account-books and other books,whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or anyother form of electro-magnetic data storagedevices. The definition includes books ofaccount but does not include supportingvouchers or invoices. Accordingly, it may beconcluded that if books of account are kept andcan be examined from a single location through

Analysis of M aj or Changes made in Tax Audit Repor ts


SAP system or other electronic system, detailsof each location need not be separately stated.However, in cases where books of account arenot kept at one location and cannot be examinedfrom a single location, details of books ofaccount at respective locations should beseparately stated.

4) Clause 11(c): L ist of books of account andnature of relevant documents examined:

In this clause, change is made to also disclosealong with books of account, other relevantdocuments examined by the tax auditor. Whatdo the term “relevant documents” mean woulddepend upon the professional judgment of thetax auditor, till the time the term is clarified byICAI in its Guidance Note. Generally, the taxauditor during his audit procedures examinesvarious other documents to derive his opinionbut not all such documents are required to bedisclosed under this clause and relevancy &importance of the documents examined shouldbe taken into account while making disclosureunder this clause. Here are some of the itemswhich may be considered as relevantdocuments to be disclosed.

- Document Regarding Constitution of theassessee. i .e. MOA /AOA in case ofCompanies, partnership deed in case ofPartnership firm/LLP etc.

- Registration Certificate/Other RelevantDocuments under Indirect Tax laws

- Financial Statements & Auditor’s Report incase the statutory audit has been carried outby the person other than the tax auditor

- Minutes of Board Meetings, Director’sreports etc. in case of company to checkwhether there is any change in the nature ofbusiness

- Evidence regarding shareholding patternduring the year in case of company

- Excise / Service Tax Returns

- Stamp duty valuation in case any land orbuilding or both has been transferred duringprevious year

- Challans relating to payment of contributionsreceived by the employees

- TDS / TCS Returns

- Payment proof of items covered u/s 43B

- Income Tax Return of the immediatelypreceding Previous Year

- Proof f or Claiming Deductions underChapter VIA or III

- Proof Regarding Dividend & DividendDistribution tax payment

- Cost / Excise / Service Tax Audit Report

- Assessment Orders passed by the taxingauthorities under the act other than IncomeTax Act,1961 and Wealth Tax Act, 1957

5) Clause 17: Land or Building or both aretransferred during the previous year for aconsideration less than value adopted orassessed or assessable by any authority of aState Government ref erred to in section43CA or 50C:

In this clause, when land or building or bothhave been transferred during the previous yearat the consideration which is less than the rateadopted for stamp duty valuation, then amountof such consideration and stamp duty valueneeds to be reported. For this clause, wheneverland or building or both are transferred duringprevious year, tax auditor should obtain andverify evidence regarding stamp duty valuationof such land / building or both.

6) Clause 21(b): Amounts inadmissible undersection 40(a) :

Changes are made under this clause to reportsub clause wise amount inadmissible u/s 40(a).However, sub-clause (ii) of section 40(a) hasnot been included in revised 3CD which



requires disallowance of any sum paid onaccount of any rate or tax levied on the profitsor gains of any business or profession. Hence,question arises as to whether disallowancerelating to provision of income tax and deferredtax should be reported or not. On a conservativebasis, tax auditor can disclose disallowanceunder sub-clause (ii) in manual tax audit reportphysically signed by it but the same will not bepossible while uploading tax audit report inutility as utility does not contain the box underwhich disallowance can be made u/s 40(a)(ii).

7) Clause 21(d): Disallowance / deemedincome under section 40A(3):

Earlier, the tax auditor was required to statewhether he has obtained the certificate fromthe assessee as to whether payments were madeby account payee cheques drawn on a bank oraccount payee bank draft, as the case may beu/s 40A(3) and based on that he was requiredto report amount inadmissible u/s 40A(3) readwith Rule 6DD. As per revised tax audit report,the tax auditor is required to report amountinadmissible u/s 40A (3) based on examinationof books of account and other relevantdocuments / evidence. In addi tion, as perrevised tax audit report, tax audi tor is alsorequired to report deemed income u/s 40A (3A)which was not required earlier.

8) Clause 28 & 29: Receipt of share and issueof shares by a company:

These are the new clauses added by revisedtax audit reports. As per clause 28, where inprevious year the assessee received shares ofthe company not being a company in whichpubl ic are substantially interested, withoutconsideration or for inadequate considerationas per section 56(2)(viia), then details of thesame need to be furnished. As per clause 29,where the assessee has during previous yearreceived consideration for issue of shares whichexceeds its fair market value as per section56(2)(viib), then details of the same need to befurnished. Where such transactions have been

incurred during the previous year, the tax auditorshould verify as to calculations are made as perRule 11 & 11UA of the Income Tax Rules.

9) Clause 31: Tak ing or accepting loan ordeposit (Section 269SS/T):

Reporting under this clause has remained thesame except that requirement of stating whetherthe certificate has been obtained certificate fromthe assessee regarding taking or accepting loanor deposit, or repayment of the same throughan account payee cheque or an account payeebank draft has been done away with. Inaddition, it is worthwhile to mention here theamendment made by the Finance Act, 2014which states that acceptance or repayment byuse of electronic clearing system through a bankaccount is a valid mode of acceptance andrepayment under section 269SS / 269T (w.e.f.1st April, 2015 ).

10) Clause 34: Disclosure regarding TDS andTCS:

Earlier, it was required to report whether theassessee has complied with the provisionsregarding tax deduction and payment thereofto the Central Government and any default wasto be reported. Reporting under the revised taxaudit report has been made very much in detail.The tax auditor is now required to makeassessment regarding TDS / TCS provisionsof the assessee rather than auditing. Underclause 34, details regarding provisions of TDS/ TCS need to be given in three sub-clauses asmentioned hereunder:

- Under clause 34(a), if the assessee is requiredto deduct or collect tax, then details need tobe given in the prescribed table regardingsuch deduction or collection. Question arises,as to whether party-wise details need to begiven from which tax has been deducted orcollected. If so, the disclosure under thisclause would be very long in case of assesseehaving large operations. However in column1 of the prescribed table, TAN number ofthe assessee which is required to deduct or



collect the tax is required to be mentioned.Based on that, we may conclude that section-wise nature of payment made / amountreceived and tax deducted / collected thereonmay be disclosed under this clause and party-wise disclosure may not be required. Forexample, total payment made for contractservices and total tax deducted u/s 194Cthereon, or total payment made of fees fortechnical or professional services and total taxdeducted u/s 194J thereon may be disclosedalong wi th other detai ls as per tableprescribed.

- Under clause 34(b), disclosure needs to bemade whether the assessee has furnished thestatement of tax deducted or collected (TDS/ TCS Return) within prescribed time and ifnot, details to be given in the prescribedtable. It is also required to be reported as towhether such statement includes all thetransactions regarding TDS / TCS.

- Under clause 34(c), if the assessee is liableto pay interest u/s 201(1A) of 206C(7), thendetails regarding interest payable as per suchsections and actual interest paid need to bedisclosed.

11) Clause 36: Dividend Distribution Tax u/s115-O:

Under this clause, changes are made to alsoreport reduction in the amount of dividend onwhich Dividend Distribution tax needs to bepaid, of the following amounts.

- Under Section 115-O(1A)(i)

dividend received by the domestic subsidiarycompany if such company has paid taxunder this section or of the dividend receivedby the foreign subsidiary if the tax is payableby domestic company u/s 115BBD on suchdividend.

- Under Section 115-O(1A)(i)

Reduction of dividend of the amount if any,paid to any person for, or on behalf of, theNew Pension Scheme

12) Clause 37,38,39-Other Audits:

Under this clause, disclosure should be maderegarding if cost audit, excise audit and servicetax audit has been carried out. If yes, then anydisagreement or quali fication reported /identif ied by such auditors needs to bedisclosed.

13) Clause 41: Demand Raised or refundsissued under any t ax laws other thanIncome Tax Act, 1961 or the Wealth TaxAct, 1957:

Under this clause, if there is any demand raisedor refund issued during the previous year underany tax laws other than Income Tax Act, 1961or the Wealth Tax Act, 1957 is to be reported.Verifying completeness of the disclosure madeunder this clause may be difficult for the taxauditor in case the client does not give all therequired information regarding demands issued.If the assessee is a company, then tax auditormay cross verify disclosure made regardingcontingent liabilities in the financial statementsto check whether all the demands raised againstthe company and shown as contingent liabilitiesare disclosed under this clause. Other way tocheck the completeness is to get legalconfirmation regarding all the demands raisedagainst the assessee from the legal counsel ofthe assessee. Again, how much practical thisprocedure can be in the case of small assesseeneeds to be thought upon. Refunds issued andreceived by the assessee can be directly tracedfrom the books of account. However, questionarises as to whether refund acknowledged bythe taxing authorities to be paid before 31st

March but received later on should be reportedor not. Can refund acknowledged by the taxingauthority be considered as refund issued or itshould be considered as issued only whenreceived by the assessee? In this regard, if wetake reference of clause 16(b), it may beconcluded that in case refund acknowledgedby taxing authorities before the year-end but


contd. on page no. 358


Glimpses of SupremeCourt Rulings

Advocate Samir N. [email protected].

Service Law – Employer – employeerelationship:

The schools are established by NALCO andNALCO is also providing necessary infrastructure.It has also given adequate financial support in asmuch as deficit, after meeting the expenses fromthe tuition fee and other incomes received by theschools, is met by NALCO. NALCO has placedstaff quarters at the disposal of the schools whichare al lotted to the employees of the schools.Employees of the schools are also accorded someother benefits like recreation club facilities, etc.However, the poser is as to whether these featuresare sufficient to make the staff of the schoolsemployees of NALCO.

In order to determine the existence of employer-employee relationship, the correct approach wouldbe to consider as to whether there is completecontrol and supervision of NALCO.

The schools have their own Managing Committeeswho not only recruit teaching and other staff andappoint them, but all other decisions in respect oftheir service conditions are also taken by theManaging Committees. These range from payfixation, seniority, grant of leave, promotion,disciplinary action, retirement, termination etc. It,thus becomes clear that day-to-day control over thestaff is that of the Managing Committees. TheseManaging Committees are having statutory statusas they are registered under the SocietiesRegistration Act. Hence, Submission thatManaging Committees do not have their ownindependent legal entities is liable to be rejected.

Merely because the schools are set up by NALCOor they have agreed to take care of the financialdeficits for the running of the schools, are not the

conclusive factors to determine employer-employeerelationship. The exercise undertaken by the HighCourt was in the nature of piercing the veil andcommenting that real control vests with NALCO.Whether the arrangement/contract is sham orcamouflage is a disputed question of fact. In thepresent case, the writ petitions were filed and it wasnot a case where industrial disputes were raised bythese employees.

No doubt, there may be some element of control ofNALCO because of the reason that its officials arenominated to the Managing Committees of theschools. Such provisions are made to ensure thatschools run smoothly and properly by the society.It also becomes necessary to ensure that the moneyis appropriately spent. However, this kind of‘remote control’ would not make NALCO theemployer of these workers. This only shows thatsince NALCO is shouldering and meeting thefinancial deficits, it wants to ensure that money isspent for rightful purposes.

[National Aluminium Company Ltd. and othersvs. Ananta Kishore Rout and others (2014) (6SCC 756)]

Criminal tr ial – Examination – Cross-examination:

It is a settled legal proposition that in case thequestion is not put to the witness in cross-examination who could furnish explanation on aparticular issue, the correctness or legality of thesaid fact/ issue could not be raised.

[Mahavir Singh vs. State of Haryana (2014)(6SCC 716)]

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Sec. 263 : Erroneous : Meaning ofDir ector of I ncome Tax v/s. Jyot iFoundation (2013) 219 Taxman 105(Delhi) (Mag) : (2013) 357 ITR 388 (Del)

Issue:

When can the order of the A.O. be said to be‘erroneous” and what is the duty of CIT/DIT?

Held:

Revisionary power u/s 263 is conferred by the Acton the CIT/DIT where an order passed by the lowerauthority is erroneous and prejudicial to the interestof the revenue. Orders which are passed withoutinquiry or investigation are treated as erroneous andprejudicial to the interest of the revenue, but orderswhich are passed after inquiry/investigation on thequestion/issue are not per se or normally treated aserroneous and prejudicial to the interest of therevenue simply because the revisionary authorityfeels and opines that further inquiry/investigationwas required or deeper or further scrutiny shouldbe undertaken.

I n the Instant case, inquires were certainlyconducted by the A.O. It is not a case of no inquiry.The order u/s 263 itself records that the Directorfelt that the inquiries are not sufficient and furtherinqui ries or details should have been called.However, in such cases, as observed in the case ofITO v/s. D.G. Highway Projects Ltd. (2012) 343ITR 329 the inquiry should have been conductedby the CIT/DIT himself to record finding that theassessment order was erroneous. He should nothave set aside the order and directed the A.O. toconduct the said inquiry.

CA. C. R. [email protected]

See. 147 : Meaning of “After a period offour years”.

Fateh Chand Charitable Trust v/s. CIT(2013) 219 Taxman 172 (Allahabad) :(2013) 357 ITR 604 (All)

Issue :

What is the meaning of “after a period of fouryears” in Sec. 147?

Held :

It was contended by the assessee that the instantcase was within the proviso to Sec. 147 and as theproceeding was initiated after a period of four yearsfrom the end of the assessment year 2006-07, theproceeding was bad. The said argument ismisconceived and proceeds on the wrong footingthat f our years period from the end of theassessment year 2006-07 will come to an end on31-03-2010. The phrase used in the proviso is ‘afterthe expiry of four years from the end of the relevantassessment year’. Clearly it postulates that thestarting up of four years period will be from theend of the assessment year, i.e. for the assessmentyear 2006-07, the assessment will expire on 31-03-2007 and four years period from that dateexpires on 31-03-2011. Admittedly the impugnednotice is dated 19-04-2010 and it is within the periodof four years from the end of the assessment year2006-07 and is clearly within time.

Penal ty : See. 271(1)(c) : Expl. 5 :MannerCIT v/s. Sidh Nath Goel (2013) 359 ITR481 (All)

Issue :

M eaning of “M anner” in Sec. 271(1)(c)Explanation 5 for claiming immunity from penalty.

From the Courts

CA. Jayesh C. [email protected]

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Held :

To the extent the assessee makes a clean breast ofhis undisclosed income represented by assets foundto be in possession of the assessee he is not deemedto have concealed his income or concealed theparticulars thereof. The explanation is not confinedto physical possession but extends to other formsof possession.

In the instant case a note book was found in whichdetails of expenses of renovation of residence werewritten. The assessee stated that he had made theexpenditure out of business income but had notnoted in his books of account. According to thenote book, the total came to Rs. 5,39,300/- whichthe assessee admitted to be undisclosed income ofthe financial year 1991-92 and on which he wasready to pay the tax. The statement was made duringthe course of search and the assessee was ready tomake payment of tax. No further details wasrequired nor was any further explanation be givenas to how and in what manner and in which yearor years the undisclosed income was earned and asto why the tax was not paid on such undisclosedincome.

Difference in stock disclosed to Bank :No Penalty : CIT v/s. Sachidanand PulseMil ls (2013) 219 Taxman 153 (Guj )(Mag)

Issue :

When assessee disclosed higher stock to Bank toavail higher credit, whether penalty can be levied?

Held :

The assessee availed overdraft f acility for thepurpose of accommodating existing bank balancesagainst hypothecation of stock. He provided stockstatements to bank in support of it.

During assessment proceedings, the A.O. founddifference in stock between stock statements givento bank by the assessee and stock as per the booksof account. Accordingly, he imposed penalty u/s271(1)(c).

CIT (A) dismissed assessee’s appeal.

I.T.A.T. deleted the penalty on the ground that no– concealment of income was found.

On appeal to the High Court it was held that :

It was found that there was as such no concealmentby the assessee and considering the case on behalfof the assessee that the stock statement given to thebank was purely for the purpose of accommodatingexisting bank finances and the assessee was requiredto submit bank statement showing a particular valueof the stock in order to continuously enjoy overdraftfacility and whatever was submitted before the bankwas disclosed before the authority, and, therefore,as such there was no concealment. The Tribunalrightly deleted the penalty imposed under section271(1)(c).

Purchase from open market : Only profitelement t o be added : CI T v/s.Sat yanar ayan P. Rath i (2013) 219Taxman 149 (Guj ) (Mag) : (2013) 351ITR 150 (Guj )

Issue :

When purchases were made of which the sellerswere not identified, whether full value of purchasesto be added ?

Held :

Assessing Officer made addition of entire amountof purchases on ground that concerned suppliershad never supplied goods as named by assessee.CIT(A) as well as Tribunal having found thatthough purchases were not made from parties fromwhom assessee claimed but such materials werepurchased from open market incurring cashpayment and bills were procured from varioussources held that only profit element at rate of12.5% was to be added as income of assessee.Whether present case being one of only purchasebut not from disclosed sources it would be onlyprofit element embodied in such purchase whichcould be added in income of assessee and thus,rightly so done by CIT(A) and Tribunal.

40

From the Cour ts

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Bui lder : Deposit for booking is notincome : The same will be income ontransfer of property. CIT v/s. ShivalikBuildwell (P) L td. (2014) 220 Taxman 3(Guj ) (Mag)

Issue :

When the income will arise in case of builder whoreceived money for booking?

Held :

Assessee was a builder and developer. It receivedcertain amount as advance from different parties.A.O. added said amount as assessee’s taxableincome. Tribunal set aside addition made by A.O.holding that assessee being a developer of project,profit in its case would arise only on transfer of titleof property and, therefore, receipts of any advanceor booking amount could not be treated as tradingreceipt of year under consideration. Hence orderpassed by Tribunal was upheld by the High Court.

Sec. 45 : Retir ing Partner taking onlymoney : Section not applicable : CIT v/s. Dynamic Enterprises (2013) 359 ITR83 (Karn) (FB)

Issue :

When reti ring partners are paid only money,whether provision of Sec. 45(4) is applicable?

Held :

(1) After the retirement of partners, the partnershipcontinued to exist and the business was carriedon by the remaining partners. What was givento the retiring partners was cash representingthe value of their share in the partnership. Nocapital asset was transferred on the date ofretirement. In the absence of transfer of anycapital asset in favour of retiring partners noprofit or gain arose in the hands of the firm.

(2) The property belonged to the firm. It did notbelong to the partners. When the retiringpartners took cash and retired, they were notrelinquishing their interest in the immovableproperty. Therefore there was no transfer of acapital asset as such; no capital gains or profitarose in the hands of the firm. Therefore Sec.45(4) had no application to the facts of thiscase.

(3) The firm did not transfer any right in the capitalasset in favour of the retiring partners. The firmdid not cease to hold the property andconsequently, the right to the property was notextinguished.

(4) When a retiring partner takes only moneytowards the value of his share and when thereis no distribution of capital asset/assets amongthe partners there is no transfer of a capital asset,and consequently, no tax on profits or gainswas payable u/s 45(4).

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From the Cour ts

Computers are inhuman because once programmed and workingsmoothly, they are completely honest.

Isaac Asimov

Wisdom is something that has to be discovered by each one, andit is not the result of knowledge.

J.Krishnamurti


Add


ACIT V. Nandlal Tolani Charitable Trust149 ITD 357 (Mum)Assessment year: 2004-05Order Dated:30thSeptember, 2013

Basic Facts

The assessee is a charitable trust registered underthe Bombay Public Trust Act, engaged in charitableobjects, as promotion of education, medical relief,and for other objects of general public nature. Theassessee had received donation from anothercharitable trust, TEF. Subsequently assessee alsogave certain amount of donation to TEF towardsits corpus. The AO opined that it was a clear caseof round tripping and thus only an eye-wash.Further the donation to TEF was again towards thecorpus of the donee- fund so that it was not liableto be spent for the latters objects. According to theAO the same would not therefore be regarded asan application of income for charitable purposes.He accordingly added amount donated by theassesse as its taxable income. The CIT(A) held infavour of the assesse.

Issue

Whether donation made by one charitable trustto another charitable trust would entitle donortrust to claim exemption qua application ofincome under section 11(1) even if donation istowards corpus of donee- fund ?

Held

The Hon’ble ITAT held that the donation by onecharitable trust to another would entitle the donorfund to claim exemption qua application of incomeunder section 11(1). It would make no difference ifthe donation is towards the corpus of the done- fundso that it is only the income therefrom and not thedonation sum itself that is liable to be spent for or

utilized for the charitable purposes of the recipient.The word ‘application’ has a wider connotation thanthe word ‘spent’ so that an application of incomeof the donor trust could not be denied. Again thecorpus fund may not necessarily be invested inspecified securities but could also be towards capitalexpenditure which again qualifies as an applicationof income. The objections thus raised by therevenue were held not maintainable.

LSG Sky Chef (INDIA) (P) L td. vs.DCIT 163 TTJ 808 (Mum))Assessment year: 2009-10 Order dated:27th March, 2014

Basic Facts

In the assessment completed under section 143(3)there was short grant of TDS even though theassessee had furnished the original TDS certificatesbefore the AO. It had also given, the party (deductor)wise details of the total tax deducted and had alsosubmitted that the entire income on which the taxstands deducted stands booked as its income forthe relevant year. The assessee has hence done allthat was within its mean to claim credit in respectof tax deducted on its income. Inspite of thistherewas a short credit for tax deducted at source. TheCIT(A) had given directions to the AO to grantcredit in accordance with the tax deducted anddeposited by the deductors in the name of the assesseand in accordance with the CBDT’s circulars/instructions and guidelines. Aggrieved by thesedirections the assesse was in appeal before the ITAT

Issue

Whether the assessee can be held responsiblefor any discrepancy in Form 26AS or for thenon-matching of TDS reflected therein with theassessee’s claim ?

CA. Yogesh G. [email protected]

Tribunal News

CA. Aparna [email protected]

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Held

The Hon’ble ITAT held that though Form 26AS[ r/w r.31AB and ss. 203A A and 206C(5)]represents a part of a wholesome proceduredesigned by the Revenue for accounting of TDS(and TCS), the burden of proving as to why thesaid Form (statement) does not reflect the details ofthe entire tax deducted at source for and on behalfof a deductee cannot be placed on an assessee-deductee. The Assessee by furnishing the TDScertificate/s bearing the ful l details of the taxdeducted at source, credit for which is being claimedhas discharged the primary onus on it towardsclaiming credit in its respect. He accordingly cannotbe burdened any further in the matter. The Revenueis fully entitled to conduct proper verification in thematter and satisfy itself with regard to the veracityof the assessee’s claim, but cannot deny the assesseecredit in respect of TDS without specifying anyinfirmity in its claims. Form 26AS is a statementgenerated at the end of the Revenue, and theassessee cannot be in any manner held responsiblefor any discrepancy therein or for the non-matchingof TDS reflected therein with the assessee’s claim.The plea that the deductor may have specified awrong TAN, so that the TDS may stand reflectedin the account of another deductee, is no reason orground for not allowing credit for the TDS in thehands of the proper deductee. The Revenue isobliged to grant the assessee credit for the TDS ofwhich he is able to satisfactorily prove to the AOthe factum of deduction of tax at source and itsdeposit to the credit of the Central Government,subject of course to the conditions of ss.198 and199.

(Note: Recently Gujarat High Court in case of SumitDevendra Rajani V ACIT SCA No.2349 of 2014,order dated 23rd June 2014 has also given similarfindings - covered in unreported judgements ofAugust, 2014 issue of ACA Journal).

Ushodaya Enterprises Ltd. vs. ACIT 149ITD 352 (Hyd)Assessment Year: 2002-03 and 2003-04Order Dated: 31st October, 2013

Basic Facts

The assessee had claimed depreciation at 60 percent on ‘computers’ and computer accessories. AOheld that every equipment which runs with the helpof computer cannot be said to be a computer. He,therefore, held all these items were to be alloweddepreciation at the normal rate of 25 per cent as isapplicable to ‘plant and machinery’. The AO furtherheld the software purchased by the assessee areversions and depreciation on the software isallowable at 25 per cent only which is applicablefor the block ‘plant and machinery’. On furtherappeal, CIT(A) upheld the decision of AO inrestricting the depreciation on those components to25 percent.

Issue

Whether depreciation claimed at 60 percent onprinters, scanners, modems, switches, hubs,cables/cards and softwar e etc. were to bedisallowed as these devices were used along withcomputer and their functions were integratedwith computer?

Held

The Tribunal held that functions of the computeras one composite unit is for performing logical,arithmetical or memory functions etc., but it is notthe only equipment which performs such functionsthat can be called as ‘computer’. All the input andoutput devices which in fact support in the receiptof input and outflow of the output are also part ofthe ‘computer’. Further, when a particular hardwareor software is used along with a computer and whentheir functions are integrated with a computer or inother words when the device is used as part of thecomputer in its functions, even though it may behaving user on standalone basis, but still then suchhardware or software would be termed as a‘computer’. In applying the aforesaid ratio to the

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facts of the present case, it can be seen that therevenue authorities have not disputed the fact thatthe items on which the assessee has claimeddepreciation at the rate of 60% by treating them as‘computer’ are being used as input or output deviceof the computers. However, the departmentalauthorities have negatived the claim of the assesseesolely on the reasoning that every peripheral deviceconnected to the computer cannot form part of thecomputer. However, such view of the revenueauthorities cannot be the correct proposition of law.The Tribunal also referred to the ratio laid down bythe Hon’ble Special Bench in case of Datacraft IndiaLtd. that any device when they are used along withcomputer and when their functions are integratedwith the computer comes within the ambit of theexpression ‘computer’.

GE Ener gy Par ts I nc. vs. ADI T(I nternational Taxation) 163 TTJ 697(Del)Assessment Year: 2001-02 Order Date:4th July,2014

Basic Facts

The assessee-company, a non-resident company,belonged to GE group. It had a branch office inIndia.A survey was conducted in case of assessee-company. In the course of survey, it was found thatassessee-company was carrying out sales activitiesin India on behalf of GE group for which thebusiness head were generally expats, who wereappointed to head Indian operations wi th thesupport staff provided by an Indian company‘GEIIPL’. On the basis of analysis of variousdocuments found during the course of survey, inthe form of agreements/purchase orders/copies ofcontracts, the AOopined that there was activeinvolvement of the employees of Indian companyand expats in the conclusion of contract on behalfof such non-resident GE Group entities. Therefore,it was concluded that GEIPL also constituted theagent, other than an agent of independent status, ofthe non- resident GE Group entities. This resultedinto the creation of the dependent agent PE as per

the provision of tax treaties and business connectionas per the provisions of Explanation 2 to section9(1)(i). The revenue’s case was that for properadjudication of issue relating to existence of PE, itwas necessary that entire information regardingemployees be available before the Tribunal. Therevenue thus sought to file additional evidence inthe form of LinkedIn Profile of employees whichcontained information on person’s education, detailsof employment, a summary of person’s job profileetc. The assessee raised various objections toproposed submission of additional evidence byrevenue authorities.

Issue

W hether since L ink edI n Pr ofi le hadconsiderable bearing on subject matter ofappeal, merely because it was available in publicdomain and was not referred to by AO earlier,can department be prevented from bringingthat information on record before Tribunal?

Held

Tribunal held that merely because the LinkedInprofiles was available in public domain and wasnot referred to by AO earlier, department could notbe prevented from bringing that information onrecord so as to arrive at the correct factual findingon the issue regarding PE. This cannot be said tobe a case of inordinate delay because the AO haddrawn an adverse inference on account of non-furnishing of information by assessee and whenassessee is trying to take mileage out of its conduct,the department is bringing on record additionalevidence in the form of L inkedIn profile ofemployees to demonstrate that the conclusion drawnby department was fully justified. Further, it wouldbe travesty of justice to ignore the additionalevidence at admission stage only before arriving ata correct finding of fact. As a matter of fact, assesseeshould have no complaints in getting the relevantinformation being brought on record from theappreciation of which correct factual finding canbe arrived at. In the present case, LinkedIn profiles

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sought to be fi led by the department hasconsiderable bearing on the subject matter of appealand therefore, it should be admitted. The assesseecan rebut the information contained in LinkedInprofiles by bringing on record contrary facts todislodge the claims made in LinkedIn profiles. Theassessee’s contention that linkedIn profiles is anhearsay evidence and has no probative value wasrejected on the ground that it is the employee whohimself has given all the relevant details and thesame relate to him. These details are akin toadmission made by a person. No third party isinvolved in creating of this LinkedIn profiles.

Hyper Quality (P.) L td. VS. ACIT 149ITD 277 (Del)Assessment Year:2007-08 Order Dated:11th April, 2014

Basic Facts

The assessee company was a captive serviceprovider engaged in providing back office supportservices to its AE in USA which was providingcall evaluation and monitoring services to other callcenters.During the course of the assessmentproceedings, the TPO objected to the ALP workedout on the Profit Split Method (PSM) and proposedto apply Transactional Net M argin Method(TNMM). The assessee in its reply providedconsolidated financials and the justification of theALP adopted by it. Ignoring the same the TPOadopted TNMM without valid reasons. TPO alsoerred in evaluating FAR (Functions performed,Assets employed and Risk assumed) analysis whichhad been summarily confirmed by DRP. Assesseefiled its objections before the Dispute ResolutionPanel (DRP-I), which issued deletions of someadditions and directed re-computation of Arm’slength pricing based on the ALP submitted by theassessee.

Issue

Whether TP adjustment made to ALP was notjustified as assessee earned profits in I ndia in

contrast to losses incurred by it s NR AEscontinuously?

Held

Assessee is a captive service provider to its AE inUS who is providing call evaluation and monitoringservices to other call centers. The assessee’sbusiness is experimental and new in this line andhas therefore the hardship to penetrate the marketand create demand for its service. This is the reasonfor thin business and lack of demand has resultedin no other players venturing into this kind ofbusiness. Thus there is no other company in themarket which can be compared with the assesseecompany in terms of its business functionality. Inthe absence of an appropriate comparable tobenchmark the financial result that too to a 10Aexempt company has resulted in futile exercise andarbitrary TP adjustments.The TNMM, whichwarrants external benchmarking at net profit level,will not be an appropriate method, considering thefact that there is no other company in India whichis into the line of business of the assessee company.Besides the new line of business involves uniqueintangibles used by the AE such that independentevaluation of performance is not possible. Since theservice of the assessee and its AE are coinedtogether as a service delivery to end clients. In sucha situation the net outcome should be a subjectmatter of tax apportionment in India. Rule 10B ofthe Income Tax rule is very clear in this regard.Since the AE in conjunction with the assessee areyet to earn any profits and AE is still in the stage ofaccumulating losses while the assessee company isearning profit, the TP report submitted by assesseewas self-explanatory. It is in this perspective thatsection 92(3) was enacted to chapter X of theIncome tax Act, for making the Transfer PricingReport not appl icable in case the transactionamongst the Multi National Enterprise has resultedin higher taxable profi t. The assessee by i tssubmission demonstrated that it bills the AE at totalcost plus 11 per cent. Thus the ALP adopted by theassessee is Operating Profit to Total Cost (OP/TC).

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The TPO has adopted Operating cost to OperatingExpenses (OP/OE). The DRP on submission bythe assessee has directed the TPO to revisit the caseof the assessee and re compute the A LPaccordingly. The TPO has failed to follow thedirection of the DRP while passing its final order.Thus, the TP adjustments made to assessees ALPis not justified in view of following reasons:

- Assessee furnished its split financials along withAE. Whereas the assessee has earned profit inIndia, its AE has continuously sustained losses.Thus with no element of profit in the hands ofthe AE, in all fairness there is no case of shiftingof profits, practicable or probable.

· AE is resident in USA which has a higher taxrate in India, therefore, we see little commercialprudence to shift profit out of India.

· The Far has not been properly evaluated by TPOand DRP.

· Proper justifications for applying TNM methodhave not been assigned by lower authorities.

· No objective justifications are provided by lowerauthorities as to why and how, Profit Splitmethod appl ied by assessee in the abovepeculiarities of business was not an appropriatemethod.

ADIT V Antwerp Diamond Bank NV163 TTJ 175 (Mum)Assessment Year: 2004-05 Order dated:14th March 2014

Basic Facts

The assesse is a bank incorporated in Beligum andis a tax resident of Belgium. The assesse is operatingthrough branch in India and has claimed treatybenefit under the Indo- Belgium DTAA. Theassesse had claimed data processing cost paid tothe head as reimbursement of expenses incurred bythe head office. The head office has acquired mainbanking application and had allowed the branch touse it accessible through server located at Belgium.

The branch reimburses the head office the cost ofthe data processing on pro rate basis for the use ofthe said resources. On the basis of the detailsfurnished in the assessment proceedings, the AOheld that the assesse was providing services to theIndian Branch which is in the nature of ‘royalty’ asdefined in sub-cl. (iv) of Expln.2 to s.9(1)(vi) aswell as DTAA. He therefore held that the assessewas required to deduct tax at source and disallowedthe entire payment under section 40(a)(i) of the Act.The CIT(A) held in favour of the assesse.

Issue

Whether data processing cost paid by the assessewere not in nature of royalty ?

Held

The Tribunal held that if the assesse is claimingthe application of the DTAA, then the definitionand scope of ‘royalty’ given in the domestic law, inthe present case section 9(1)(vi) should not be readinto or looked upon. The character of paymenttowards royalty depends upon the independent ‘use’or the ‘right to use’ of the computer software whichis a kind of copyright. In the present case thepayment made by the branch is not for ‘use’of or‘right to use’ of software which is being exclusivelydone by the head office only installed in Belgium.The branch does not have any independent right touse or control over the mainframe of the computersoftware installed in Belgium but it simply sendsthe data to the head office for getting it processed.In so far as the branch is concerned, it is onlyreimbursing the cost of processing of such data tothe head office which has been allocated on prorata basis. Such reimbursement of payment doesnot fall within the ambit of definition of royaltywithin the art 12(3)(a).Consequently there was norequirement of deducting tax from the paymentmade by the branch to the head off ice andprovisions of section 40(a)(i) is not applicable.

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Add


In this issue we are giving gist of AhmedabadIncome Tax Appellate tribunal decision in case ofOmnibus Industrial Development Corporation ofDaman &Div in which assessee was alloweddeduction of 20% of the amount transferred out ofits profits to the development reserve as the samewas a condition precedent for obtaining license fordoing liquor business in that union territory. Wehope readers would find the same useful.

I n the I ncome Tax AppellateTribunal “D”Bench, Ahmedabad

Before Shri Mukul Kr. Shrawat, JudicialMember and

Shri N.S.Saini, Accountant MemberITA NO. 3128/ Ahd / 2010(Assessment Year 2007-08)

Asst. Commissioner Vs. Omnibus Industrialof Income Tax DevelopmentVapi Circle , Vapi Corporation of Daman &

Diu & Dadra NagarHaveli Ltd Nani Daman(U.T. of Daman &Div)PAN : AAACO 3361K

Appellant Respondent

Revenue by : Shri Roopchand, Sr. DRAssessee by : Shri P.F. Jain, AR

Date of Hearing : 05/08/2014Date of Pronouncement : 08/08/2014

Gist onlyFacts :(i) The brief facts of the case are that during the

year under consideration, the assessee filedreturn of income declaring total income of Rs.1,25,48,070/- on 26-10-2007. The AssessingOfficer completed the assessment u/s 143(3)of the Act on 30-12-2009 determining the totalincome of the assessee at Rs.1,58,75,330/-wherein he made disallowance / additions ofcertain amounts including an amount ofRs.32,82,437/- on account of licence chargespaid. The assessee explained to the AssessingOfficer that the assessee had incurred amount

CA. Sanjay R. [email protected]

Unreported Judgements

of Rs.32,82,437/- being licence charges debitedas per direction from administration of Daman& Diu and Dadra & Nagar Haveli. The assesseehad received the order from the Secretariat ofDaman directing the assessee to transfer anamount equal to 20% of the gross profit earnedfrom liquor trade as a step to meet futuredevelopment expenses. This transfer of amountis to be compulsorily met in order to meetindustrial promotion development /maintenance and social and tourism relatedproject as may be identified and conveyed toOIDC by the Administration of Daman fromtime to time. The assessee also filed a copy ofletter from the Finance department of Daman& Diu and Dadra & Nagar Haveli Secretariatbefore the Assessing Officer. It was submittedthat the assessee has to spend earmarked fundfor the specified purpose to meet corporatesocial responsibility. Therefore, the same wasrightly claimed as legal expenditure which ischarged by the Government Administration.

(ii) The Assessing Officer treated transfer of suchamount as application of income and did notallow deduction for the same.

(iii) On appeal CIT(A) decided the issue in favourof the assessee. Department filed second appealbefore Tribunal. Before Tribunal the assesseeproduced letter dated 23-01-2000 addressed toMD of the assessee company while grantinglicense to the assessee company which read asunder :“Administration of Daman & Diu and Dadra&Nagar Haveli is pleased to order that the grant /continuation/ renewal of licence to sell liquor inthe Union Territories by OIDC shall be subjectto the condi tion that OIDC creates adevelopment Reserve by earmarking 20% ofgross profit generated from the liquor trade. Thisdevelopment Reserve shall be used for spendingon Industrial Promotion and development /maintenance of social & tourism related projectsas may be identified and conveyed to OIDC bythe Administration from time to time.”


Reliance was also placed on the S.C. decisionin case of Sri Venkata Satyanarayan Rice MillContractors Co. Vs. CIT in Civil AppealNo.5623- 5624.

Held :The Tribunal after considering facts of the case heldas under :“9. We have heard the rival submissions and

perused the orders of lower authorities andmaterial available on record. In the instant case,the assessee claimed deduction of Rs.32,82,437/- on account of licence charges paid.The Assessing Officer disallowed the same byobserving that it was not licence charges butwas expenditure incurred by the assessee onspecific di rection of the Government. As amechanism, 20% of gross profit of IMFLbusiness is credited to the development reserveand was debited in the profit and loss accountand hence it was application of income and nota charge against the income of the assessee.Further, the Assessing Officer observed that itwas gathered by him that there are quite a fewlicence holders of the same item in Daman andso such charges are imposed on them. He wasof the view that the expenses claimed aretowards welfare measures of normal citizensand are in the nature of donation or welfareexpenses which cannot be allowed as revenueexpenditure incidental to the business of theassessee as it was not incurred wholly andexclusively for the business of the assessee.”

“12.On the other hand, the A uthorisedRepresentative of the assessee submitted that20% of the gross profit earned on IMFL wasrequired by the assessee to be incurred asexpendi ture on industrial promotion anddevelopment / maintenance of social and tourismrelated projects a may be identified and conveyedto the assessee by the Administrator of Daman& Diu and Dadra &Nagar Haveli. Thus, thiswas an expenditure incurred for the purposes ofobtaining licence for doing liquor business andhence was incidental to and incurred wholly andexclusively for the purposes of business of theassessee and allowable u/s 37(1) of the Act.Further, it was his submission that in theimmediately succeeding Assessment Years 2009-10 and 2010-11, such expenditure has been

al lowed by the A ssessing Off icer in anassessment made u/s 143(3) of the Act.Therefore, it was his submission that as therewas no change in facts, the expenditure shouldbe allowed to the assessee.

13 We find that the assessee filed a letter dated 23-01-2000 bearing No.FIN/GEN/2000-01/ 541from Deputy Secretary (Finance), Administratorof Daman & Diu and Dadra & Nagar Haveliwherein it has been stated that under the grant /continuation / renewal of licence to sell liquor inthe Union Territories by the assessee , theassessee shall be subject to the condition that itcreates a development reserve by earmarking20% of gross profit generated from the liquortrade which shall be used for spending onIndustrial Promotion and Development /Maintenance of social & tourism relatedprojectsas may be identified and conveyed tothe assessee by the Administrator of Daman &Diu and Dadra & Nagar Haveli from time totime. From the above condition, it is seen that itis an expenditure incurred by the assessee forobtaining a licence for doing liquor business andhence it is an expenditure incurred wholly andexclusively for the purposes of business of theassessee and hence allowable u/s 37(1) of theAct. Further, the assessee has relied on thedecision of the Hon’ble Supreme Court in thecase of Sri Venkata Satyanarayana Rice MillContractors Co. Vs. Commissioner of IncomeTax (supra) wherein it has been held as under :“ Any contribution made by an assessee to apublic welfare fund which is directly connectedor related with the carrying on of the assessee’sbusiness or which results in the benefit to theassessee’s business has to be regarded as anallowable deduction u/s 37(1).”No contrary decision was cited by theDepartmental Representative during the courseof hearing. Hence in our considered opinion,the expenditure claimed as licence charges isexpenditure incurred for the purposes of businessof the assessee and hence we confirm the orderof the commissioner of Income Tax (Appeals)and dismiss the ground of appeal of the Revenue.

14. In the result, the appeal of the Revenue isdismissed.”

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Unrepor ted Judgements


Issue:

Whether the unutilized balance of deduction u/s.80IA can be carried forward and set off against theProfits of the assesse in the subsequent year?

Proposition:

Assessee company which is in to “Textiles”business have setup the “Windmills” for powergeneration to meet captive consumptionrequi rements as well as f or commercialpurposes.The windmills have started generatingprofits, which is entitled for deduction u/s. 80IAafter 7 assessment years following the assessmentyear in which it started generating power. Theprofits of the eligible undertaking, i.e. windmills inthe year in which it attained profitability were Rs.2 Crores, whereas the Gross Total Income in therelevant year was only to the tune of Rs. 1 Crore.Since, the Gross Total Income has exceeded thededuction u/s. 80IA, deduction available for thatyear was reduced only to Rs. 1 Crore. However,the questions pose before the assesse was to whetherthe unutilized balance u/s 80IA i.e. Rs. 1crore canbe carried forward and set off against the GTI ofsubsequent year(s)?

Views against the proposition:

To dwelve upon on the issue, let us analyse Sec.80IA (5), which reads as under vis-à-vis losses andcarry forward of deduction.

Analysis of Sec. 80-IA(5):

“Notwithstanding anything contained in any otherprovision of this Act, the profits and gains of aneligible business to which the provisions of Ss.(1)apply shall for the purpose of determining thequantum of deduction under that sub-section forthe assessment year immediately succeeding the

initial assessment year or any subsequent assessmentyear, be computed as if such eligible business werethe only source of income of the assessee duringthe previous year relevant to the initial assessmentyear and to every subsequent assessment year upto and including the assessment year for which thedetermination is to be made.” (Emphasis supplied).

Notional brought forward of loss of the earlieryears u/s.80-IA(5):

This is an important issue in determining the eligibleprofit of the windmill and the available period ofdeduction u/s.80-IA. The provisions of S. 80-IA(5)are analyzed accepting that the notional loss is tobe set off and that the provisions of S. 80-IA (5)are not redundant.

The Income-tax Act provides for deduction of 100%of income of a windmill u/s.80-IA for a period often consecutive years out of fifteen years. Thepossible interpretation is that the loss of theundertaking of the windmill from the year in whichit starts generating electricity is to be notionallycarried forward for setting off against the profitsfrom windmill in the subsequent years and only afterthe entire loss is absorbed by the income fromwindmill, deduction u/s.80IA is available.

Double deduction not possible

Where an amountof profits and gains of an industrialundertaking, is claimed and allowed as deductionunder section 80-IA, the profits to that extent shallnot qualify for deduction for any assessment yearunder any other provision of Chapter VIA and inno case shall exceed the eligible profi t of theindustrial undertaking, as the case may be.Further,it is expressly mentioned in the provisions of section80-IA that deduction claimed in the current year isavailable in the current year.

CA. Kaushik D. [email protected].

Controversies


Essential rule governing deduction

The pivotal rule has to be kept in mind whilecalculating deduction under sections 80C to 80U(which includes 80-IA, too):

The aggregate amount of deduction under sections80C to 80U cannot exceed gross total income (afterexcluding long-term capital gains, short-term capitalgains under section 111A, winnings from lottery,races, etc. and incomes referred to in sections 115A,115AB, 115AC, 115AD, 115BBA and 115D).Further Section 80AB provides that for the purposeof calculating the deductions specified in sections80HH to 80TT, the net income as computed inaccordance with the provisions of the Act (beforemaking any deduction under Chapter VIA, i.e,sections 80C to 80U) shall alone be regarded asthe income which is received by the assesse andwhich is included in his gross total income.Accordingly, the deductions speci fied in theaforesaid sections will be calculated with referenceto the net income as computed in accordance withthe provisions of the Act (viz, after deductingexpenses under sections 30 to 43B and 57 and afteradjusting losses but before making any deductionunder sections 80C to 80U) and not with referenceto the gross amount of such income, subject,however, to the other requirements of the respectivesections.

Provisions of Set off and carry forward of Losses

The provisions of set off and carry forward of lossesare enunciated via Sections 70 to 74A. It refers tothe set of and carry forward of losses and nowheredoes not lay down any emphasis on the profits(unclaimed profits and lapsed in the current year)to be carried forward and set off in the subsequentyear (s).

Considering the above argument and taking in toaccount the fact that neither provisions pertainingto ‘deductions from gross total income’ nor ‘set offany carry forward of losses’ entail any covenantcondi tions as to carry forward of unuti lizeddeduction which can be available to assesse on thecount of unavailability of claiming the deduction

owing to restriction of the said deduction to the tuneof GTI.

Further, deductions under Chapter VIA needs tobe construed in a very stricter connotation andcannot be then given a wider interpretation thanwhat has been expressly not stated therein underthose provisions.

Views in favour of proposition:

Deeming fiction u/s. 80-IA

The Legislature has consciously used different andcontrasting expressions in the different sub-sectionsof S. 80-IA. Ss.(2) inter alia, speaks of any ‘tenconsecutive assessment years’ out of fifteen yearsbeginning from the year in which the undertakingor the enterprise develops and begins to operate anyinfrastructure f acil i ty or starts providingtelecommunication service or develops or generatespower.

The fiction u/s.80-IA(5) to the effect that “as if sucheligible business was the only source of income ofthe assessee during the previous year relevant tothe initial assessment year and every subsequentyear” is to be confined to ten consecutive yearsbeginning from the initial assessment year and toevery subsequent year. The word ‘during’ connotesa period of time. Fiction U/ss.(5) operates in the‘initial assessment year’ i.e., the year of option andruns for ten consecutive years. Without the option,there is no initial assessment year for S. 80-IA.

The fiction in Ss.(5) is limited to assuming that,during the previous year relevant to the initialassessment year, the eligible business is the onlysource of income. The provision looks forward toa period of ten years from the initial assessment year(year of option). The f iction does not lookbackwards to the year beginning, referred to inSs.(2). In construing a fiction, it is impermissible toinvoke a further fiction or enlarge the same. [AIR1966 SC 870; AIR 1963 SC 448 1996 (2) SCC449].

Hence, the intention to spell the block of 10 out of15 consecutive assessment years has to be read in

Controversies


line with the cumulative trench of profits andallowability as such therein and cannot be given anarrow and mellowed way of interpretation. Theunexpired portion of deduction which could havebeen available to the assesse as deduction u/s. 80IAcan in lieu of aggregate deduction criteria prescribedu/s. 80-IA be sti ll avai lable to be set off as adeduction in the subsequent year (s) subject tothreshold of GTI.

Summation

The captioned query on carry forward of unexpiredportion of deduction u/s. 80-IA as can not squarelyand expressly be covered by any provisions of theIncome Tax Act, 1961 and hence will not beprudent to take it as a carry forward deduction inthe next year(s) as per the arguments stated overhere.

Although, all the conditions mentioned in variousprovisions of the Sections of the Act includingSection 80IA/80IB of the Act are intended to bemandatory in nature i.e. to be complied in strict andliteral manner. However, especially in respect ofthese beneficial sections, Hon’ble Courts on severalissues have stated that the conditions mentioned inthe sections are not mandatory but are suggestivein nature and a contrary view on the subject mattercan be possible but it will always be subject tolitigation.

The question arises whether relief u/s 80IA isavailable to power industries?

Incentives deduction is available under section 80IAfor manufacturing units. In the case of powergeneration for captive consumption, the fact thatgenerators were operated by the assessee itself wasfound to be not a disqualification for eligibility. Itwas so held in West Coast Paper Mills Limited V/SAsst. CIT(2006) 286 ITR (AT) 252 (Mumbai). Insimilar case, where work is done on job work basis,it has been held that where such job work is undersupervision and control of the assesse, manufacturewill be deemed to have been carried out by theassesse.

Let me now refer to the correct position of Law. Itis very clear that loss of eligible units will go toreduce gross total income, but it will not go to reducethe profits of eligible units to the extent of availablegross total income.

Where the assessee has two eligible units, one ofwhich has suffered loss and the other profit, botheligible for deduction under the same section, canthe relief be limited to the net amount as betweenthem was the issue posed before the Tribunal inMeera Cotton and Synthetic Mills P.Limited V/SAsst CIT (2009) 318 ITR (AT) 64 (Mumbai). Itwas decided that the relief for the profit of theeligible units cannot be reduced by setting off theloss in the other. It can be limited only by theavailable gross total income. The decision isconsistent with law settled by the Supreme Courtitself in CIT v/s Canara Workshops P.Ltd (1986)161 ITR 320 (SC). The department had relied uponthe decision in Synco Industries Ltd v/s AssessingOfficer (2008) 299 ITR 144 (SC). But this decisionwas distinguished by the tribunal by pointing out,that it was a case for computation of gross totalincome and not in working the eligible profits ofan eligible undertaking.

In reckoning eligible profits for relief under ChapterVI-A, unabsorbed depreciation and unabsorbedlosses in respect of the eligible undertaking, whetheradjusted against other income of the assesse or not,would go to reduce the eligible profit. This law wasfollowed in Modi Nagar Paper Mills Limited v/sDeputy CIT (2011) 330 ITR 405 (All) followingthe decision of the Supreme Court in SyncoIndustries Limited v/s Assessing Officer (2008) 299ITR 444.

Finally let me conclude with reference to theprovisions of Incentive deduction that prima faciait appears if in a particular year deduction is notabsorbed as is referred to in this column then thereis no provision for the carry forward of the balanceof such deduction. Every year the incentivededuction will have to be computed and claimed.

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Controversies


Disallowance u/s 14A cannot be added back tothe ‘book profit’ while computing MAT u/s115JB of the Act.

Reliance PetroproductsPvt. L td. vs. ACIT (ITA2324/Ahd/2009)

xxx…

5. When the matter was carried before the firstappellate authority, the ld.CIT(A) has affirmedthe finding of the Assessing Officer, however,he has also quoted that the computation forregular assessment is a different issue, whereaswhile computing the book profit only certainaspects can be adjusted as per Explanation tosection 115JB and no other adjustment inrespect of any allowance or disallowance madeduring the computation normal income can beconsidered for the computation of the bookprofit for the purpose of section 115JB of theI.T.Act. Although this observation was madeby the Learned CIT(Appeals) in paragraph No.2.3.1, but the view was taken in favour of theRevenue, therefore the assessee beingaggrieved is now in appeal. With this briefbackground, our attention was drawn on adecision of ITAT Delhi Bench “C” pronouncedin the case of Goetze (India) Ltd. reported at[2009]32 SOT 101 (Delhi), wherein paragraphNo.4.6, it was held as under:-

xxx…

6. Respectfully fol lowing the aforementionedorders as also the decision of Hon’ble ApexCourt in the case of Apollo Tyres Ltd.vs. CITreported at [2002]255 ITR 273(SC) dulyreferred in the cited precedents, we hereby directthe A ssessing Off icer not to make anyadjustment in respect of disallowance made u/s.14A of the I.T.Act while computing the bookprofit u/s.115JB of the I .T.A ct. We order

Advocate Tushar [email protected]

Judicial Analysis

accordingly and the substantial ground is herebyallowed.

xxx…

Atul Ltd. vs. ACIT (ITA 8/Ahd/2013)

xxx…

The second ground of appeal of revenue is againstdeleting the positive adjustment of Rs.3,25,92,000/- to book profit u/s. 115JB. The Ld. A.O. observedthat there was a disallowance u/s. 14A which wasadjusted in MAT income computed u/s. 115JB andincome determined in MAT by increasingdisallowance made u/s. 14A at Rs.36,41,54,090/-.The Ld. CIT(Appeal ) deleted the addition byfollowing the Hon. ITAT, A hmedabad Benchdecision in case of Reliance Petro Products Pvt. Ltdvs. ACIT order dated 13.07.2012 in ITA No. 2324/Ahd/2009 wherein the issue was decided byfollowing the Apex Court order in case of ApolloTyres Ltd. Vs. CIT 255 ITR 273 (SC) 2005. TheLd. CIT DR relied upon the order of the Ld. A.O.at the outset, Ld. Consul relied upon the order ofthe Hon. ITAT bench in case of Reliance PetroProducts Pvt. Ltd. (Supra) and requested to upheldthe order of the CIT(Appeal). The Coordinate benchdecided the identical issue in case of Reliance PetroProducts Pvt. Ltd. in favour of the assessee byfollowing the decision of the Hon. High Court incase of Apollo Tyres Ltd. Respectfully, followingthe decision of Apex Court on this issue, we upheldthe order of the CIT (Appeals) and dismissed theappeal of the revenue.

xxx…

DCIT vs. Alembic L td. (I TA 1928/Ahd/2010)

xxx…

16. Ground no.5 is against allowing disallowancemade by the A ssessing Off icer u/s. 14Acomputing prof it u/s. 115JB. The A .O.


observed that disallowance made u/s. 14A isrequired to be added back in computing of bookprofit u/s. 115JB as per clause (f) of Explanation1 of sub-Section 2 of Section 115JB at Rs.14,91,000/-. When ld. CIT(A) deleted theaddition u/s. 14A and allowed the appeal infavour of the assessee, therefore, this issue wasaccordingly, not in existence. Thus, it wastreated to be allowed in favour of the assessee.Ld. Sr. D.R. vehemently relied in Clause (f) ofExplanation 1 of sub-Section 2 of 115JB. Asper this clause, the book profit u/s. 115JB is tobe increased by expenditure relatable to anyincome of exempted u/s. 10. At the outset, ld.A.R. argued that no actual expenditure wasdebited in the p&l account relating to earningof the exempt income. He relied upon in caseof M/s. EssarTeleholdings Ltd. vs. DCIT inITA No. 3850/Mum/2010 for A.Y. 2005-06,for relating to earning of exempt income.Therefore, provisions of Section 14A cannotbe imported into while computing the bookprofit u/s. 115JB of the Act inasmuch as Clause(f) of Explanation to Section 115JB refers tothe amount debited to the p&l account, whichcan be added back to the book profit whilecomputing book profit u/s. 115JB of the Act.He further relied upon in case of Goetze(India)Limited, 32 SOT 101 (Delhi ITAT) &QuippoTelecom Inf rastructure Limited in ITA No.4931/Del/2010.

17. We have heard the rival contentions andperused the material on record. As this issuehas been set aside to the A.O. for re-computationof disallowance u/s. 14A, however, for makingadjustment u/s. 115JB, the ITAT, M umbaiBench in case of M /s. EssarTeleholdingsLimited (supra) held that Provisions of sub-Section 2 & 3 of Section 14B cannot beimported into Clause (f) of the Explanation toSection 115JB of the Act. As per Clause (f) ofExplanation 1 to Section 115JB refers toamount debited to the p&l account, which canbe added back to the book prof it whi lecomputing the book profit u/s. 115JB. Similarviews have been taken by the ITAT, Delhi

Bench in case of Goetze(India) Ltd. (supra).Therefore, we held that adjustment made bythe A.O. is not as per law. Accordingly, wedismiss the Revenue’s appeal on this ground.

xxx…

Quippo Telecom Infrastructure Ltd. vs. ACIT(ITA No. 4931/Del/2010)xxx…9. Ground No.2 is directed against the CIT(A)’s

order in confirming the AO’s action in makingaddition of Rs.19,58,253/- being expenditureincurred to earn exempt income whilecomputing book profit under sec. 115JB of theAct.

10. We have heard both the parties and havecarefully perused the material on record.

11. In the present case, the AO has also madeaddition of Rs.19,58,253/- on account ofalleged expenditure incurred to earn exemptincome while computing book profit u/s 115JBof the Act. The AO’s action has been confirmedby the CIT(A). Both the authorities haveapplied Rule 8D of the Income-tax Rules whilecomputing the amount of expendi turedisallowable u/s 14A of the Act. As alreadyheld above, the provisions of Rule 8D are notapplicable to the present assessment year underconsideration. Therefore, disal lowance ofexpenditure by applying Rule 8D is not justified.Further, no actual expenditure was debited inthe profit & loss account relating to the earningof exempt income. Therefore, the provision ofsection 14A cannot be imported into whilecomputing the book profit u/s 115JB of the Actinasmuch as clause (f) of Explanation to sec.115JB refers to the amount debited to the profit& loss account which can be added back to thebook profit while computing book profit u/s115JB of the Act. In this connection, reliancecan be placed upon the decision of ITAT DelhiBench in the case of Goetze (India) Ltd. Vs.CIT (2009) 32 SOT 101 (Del), wherein it hasbeen held that provisions of sub-sec. (2) & (3)of section 14A cannot be imported into clause(f) of the Explanation to sec. 115JA of the Act.

Judicial Analysis


In this view of the matter, we therefore, deletethe disallowance of expenses confirmed by theCIT(A) while computing book profit undersec. 115JB of the Act. In other words, noaddition to the book profit shall be made onaccount of alleged expenditure incurred to earnexempt income while computing income u/s115JB of the Act. Thus, this ground No.2 isdecided in favour of the assessee.

xxx…

Goetze (I ndia) L td. vs CIT [32 SOT101 (Delhi)]

xxx…

4.6 We have considered the facts of the case andrival submissions. We may at the outset considerthe provisions contained in cl. (f) of the Expln.to s. 115JA and sub-s. (1) of s. 14A of the Act.Under the aforesaid cl. (f), the amount ofexpenditure relatable to any income to whichany of the provisions of Chapter III applies has

Judicial Analysis

to be added to the book profit. Under theprovision contained in s. 14A, no deduction isto be allowed in respect of expenditure incurredby the assessee in relation to income which doesnot form part of the total income under this Act.Since we are deal ing wi th the issue ofexpenditure relating to dividend income, amatter falling under Chapter III, it becomes clearon perusal of these two provisions that theyare similar in nature. Clause (f) uses the words“expenditure relatable to any income”, whiles. 14A uses the words “expenditure incurredby the assessee in relation to income”. Thesewords have the same meaning. We may alsoadd here that s. 14A contains two more sub-sections, sub-s. (2) and sub-s. (3), which donot find a place in the cl. (f). Therefore, insofaras computation of adjusted book profit isconcerned, provisions of sub-s. (2) and sub-s.(3) of s. 14A cannot be imported into cl. (f).

❉ ❉ ❉

received later on may be disclosed under thisclause on prudent basis. In such cases, the taxauditor should examine relevant orders issuedby various taxing authorities to determinewhether any refund has been acknowledged.The tax auditor should take representation fromthe assessee regarding completeness of thedisclosure made under this clause.

In revised tax audit report, Annexure to form3CD has been removed. Such annexure wasbased on old Schedule VI while for thecompanies, Schedule VI was revised from theyear 2011-12, due to which addi tionalworkings were needed to be made to arrive atfigures to be disclosed. To that extent, a littlepain has been reduced.

To conclude, we wil l say that f or betterassessment, the department has entrusted theprofessionals to fulfill additional responsibilitiesby revising tax audit reports. Some of thechanges are needed taking into account the

contd. from page 339 Analysis of Maj or Changes made in Tax Audit Repor ts

amendments made in the Income Tax Act, 1961while some changes can be easily known to thedepartment. Since there are responsibilitiesinvolved, certainly efforts of our professionwould increase drastically but as against this,there are chances that fees for the same wouldnot proportionally increase. It would be typicallya case where the client takes auditing process ascompulsion by the law only and not for valueaddition. In such a case, we will have to put ourefforts in such a way that client is bound to feelthe value addition along with the legalcompliance. In addition, the Institute is underprocess of preparing revised Guidance Note onTax Audit to cover changes made and may sooncome out wi th the same. Hence, it is alsoadvisable to wait till such Guidance Note comesout and hopefully it will clarify much confusionand guide us as to how the disclosures shouldbe made in revised Tax Audit Reports.

❉ ❉ ❉


CA. Savan A. [email protected]

Liberalised Remittance Scheme (LRS)for resident individuals-I ncrease in thelimit from USD 75,000 to USD 125,000

It was to increase the limit to USD 125,000 per

financial year (April-March) from USD 75,000.

Accordingly resident individuals have been

allowed to remit up to USD 125,000 per financial

year, under the Scheme, for any permitted current

or capital account transaction or a combination of

both. Further, it is clarified that the Scheme can now

be used for acquisition of immovable property

outside India.

For Full Text refer to A.P. (DIR Series) Circular

No. 5 @ http://www.rbi .org.in/Scripts/

NotificationUser.aspx?Id=9110&Mode=0

Foreign Direct I nvestment – Reportingunder FDI Scheme

The Department of Industrial Policy and Promotion(DIPP), M inistry of Commerce and Industry,Government of India has, vide Press Note 4 (2014Series) dated June 26, 2014 decided to switch overto the National Industrial Classification 2008 (NIC2008) from the NIC 1987 version, for the purposeof classification of activities under the industrialclassification system.

Accordingly Indian companies are required to reportthe NIC Codes in the FCGPR and FCTRS formsas per the NIC 2008 version, henceforth.

It has also been decided to introduce a uniform Stateand District code list for reporting of details offoreign direct investment by Indian companies inForm FCGPR.

For full text refer to: A.P. (DIR Series) Circular No.6 @ http://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=9111&Mode=0

Recognising E-Aadhaar as an ‘OfficiallyValid Document’ under Prevention ofMoney Laundering Act (PMLA), 2002and PML Rules with reference to MoneyChanging Activities and Money TransferService Scheme

The above mentioned circular lists officially validdocuments for customer identification.

Physical Aadhaar card/ letter issued by the UniqueIdenti f ication A uthori ty of I ndia (UIDAI )containing details of name, address and Aadhaarnumber may be accepted as an ‘Officially ValidDocument’. If the address provided by the customeris same as that on the Aadhaar letter, it may beaccepted as a proof of both identity and address.

In order to reduce the risk of identi ty fraud,document forgery and have paperless K YCverification, UIDAI has launched its e-K YCservice. Accordingly, it has been decided to accepte-KY C service as a valid process for K YCverification under Prevention of Money Laundering(Maintenance of Records) Rules, 2005. Further, theinformation containing demographic details andphotographs made available from UIDAI as a resultof e-KYC process (“which is in an electronic formand accessible so as to be usable for a subsequentreference”) may be treated as an ‘Officially ValidDocument’ under PML Rules. In this connection,it is advised that while using e-KYC service ofUIDAI, the individual user has to authorize theUIDAI, by explicit consent, to release her or hisidentity/address through biometric authentication tothe Authorised Persons. The UIDAI then transfersthe data of the individual comprising name, age,gender, and photograph of the individual ,electronically, to the Authorised Person, which maybe accepted as a valid process for KYC verification.

FEMA Updates

2729

28


The broad operational instructions to AuthorisedPersons on Aadhaar e-KYC service are enclosedas Annexure to this circular.

Further, it is clarified that, Authorised Persons mayaccept e-A adhaar downloaded from UIDAIwebsite as an officially valid document subject tothe following:

a) If the prospective customer knows only his/herAadhaar number, the Authorised Person mayprint the prospective customer’s e-Aadhaarletter directly from the UIDAI portal; or adopte-KYC procedure as mentioned above.

b) If the prospective customer carries a copy ofthe e-Aadhaar downloaded elsewhere, theAuthorised Person may print the prospectivecustomer’s e-Aadhaar letter directly from theUIDAI portal; or adopt e-KYC procedure asmentioned above; or confirm identity andaddress of the resident through simpleauthentication service of UIDAI.


10 @ http://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=9116&Mode=0

Export of Goods and Services – ProjectExports

In order to f urther liberalise and simplify theprocedure of deferred payment terms in case ofexport of goods or services or in execution of aturnkey project or a civil construction contractrequiring prior approval of the approving authorityin terms of Foreign Exchange Management (Exportof Goods and Services) Regulations, 2000, it hasbeen decided as under:

i) The structure of Working Group (consisting ofrepresentatives from Exim bank, ECGC &RBI), which has hitherto been permitted toconsider project exports and deferred serviceexports proposals for contracts exceeding USD100 Million in value will now be dispensedwith. The AD banks / Exim Bank can nowconsider awarding post-award approvals

without any monetary limit and permi tsubsequent changes in the terms of post awardapproval within the relevant FEMA guidelines/ regulations. Project and service exporters mayaccordingly approach AD banks / Exim Bankbased on their commercial judgement. Therespective A D bank / Exim Bank shouldmonitor the projects for which post-awardapproval has been granted by them; and

ii) The stipulation of time limit of 30 days for theexporter undertaking Project Exports andService contracts abroad to submit form DPX1/PEX-1 /TCS-1 to the Approving Authority(AA) for seeking post award approval will notapply henceforth.

The revised Memorandum of Instructions on Projectand Service Exports (PEM) is enclosed to thiscircular.

For full text refer to: A.P. (DIR Series) Cir. No. 11@ http://www.rbi .org.in/Scripts/NotificationUser.aspx?Id=9125&Mode=0

Foreign investment in I ndia by SEBIr egist ered L ong t erm investor s inGovernment dated Securities

It has been decided to enhance the investment limitin government securities available to FIIs/QFIs/FPIsby USD 5 billion by correspondingly reducing theamount available to long term investor from USD10 billion to USD 5 billion within the overall limitof USD 30 billion. The incremental investment limitof USD 5 billion shall be required to be invested ingovernment bonds with a minimum residualmaturity of three years. Further, all future investmentagainst the limit vacated when the currentinvestment by an FII/QFI/FPI runs off either throughsale or redemption shall also be required to be madein government bonds with a minimum residualmaturity of three years. It is, however, clarified thatthere will be no lock-in period and FIIs/QFIs/FPIsshall be free to sell the securities (including that arepresently held with less than three years of residualmaturity) to the domestic investors.

FEMA Updates

31

30



CA. Punit R. [email protected]

Filing of the periodical return is one of the importantingredients of the self assessment system. Taxliability, which is self assessed is being conveyedto the concerned department through filing ofperiodical returns. Tax payer is also required tomake self assessment declaration in the return.Section 70(1) of the Act, also requires that a personliable to make payment shall f urnish to theSuperintendent of the Central Excise, a return insuch form and in such manner and at such frequencyas may be prescribed.

Service tax return is to be filed in Form ST-3, halfyearly and within 25th of the month following theparticular half-year. Form ST-3 is required to besubmitted electronically [Rule 7 of the Service TaxRules, 1994 (the Rules)]. If return is delayed, LateFee upto Rs. 20000/- is also required to be paid[Section 70(1) of the Act read with Rule 7B of theRules].

Besides a return under Section 70(1), some otherperiodical returns are also required to be filed inspecial circumstances. Details of periodical returnsare as follows.

Service Tax Decoded

Return Filing and Practical I ssuesLevy of tax is followed by assessment. Delegatedauthorities assess the tax, for example, in PropertyTax, concerned department assess the tax and raisethe demand. However, many times, liability toassess the tax is being cast upon the tax payer andhe is required to assess the tax and pay on his own.For examples, for Income Tax, Service Tax, CentralExcise, Customs, Value Added Tax etc., a personliable to pay tax is also required to assess the taxalso. It is called self assessment. Self assessment isnot a facility but a liability and a burden on the taxpayers. If tax payer fails to assess the tax properly,penalties may be levied.

In service tax, a tax payer is required to self assessthe tax liability. Section 70(1) of the Finance Act,1994 (The Act) requires that every person liable topay the service tax shall himself assess the tax dueon the services provided by him. For this purpose,he himself is required to classify his service,ascertain valuation of the service, determine thepoint of taxation, determine the place of provision,determine avai labi lity of CENVAT credi t etc.within the four corners of the law.Sr. Person Form Referen ce Due Date1 Every person liable to pay ST-3 Section 70(1) of the Finance Act,94 1994 25

th October/25

th

Service Tax and Rule 7 of the Service Tax Rules, 1994 April

2 Input Service Distributer ST-3 Rule 4 of Service Tax (Registration of 30th April/

Special Category of Persons Rule), 2005 31st October

and 9(10) of CENVAT Credit Rules, 2004

3 Large Tax Payer ST-3 Rule 10 of Service Tax Rules, 1994 25th October/25

th

April

4 Provider of Output Service avail ing ST-3 (no Rule 9(9) of CENVAT Credit Rules, 2004 30th April/

CENVAT Credit specif i c form 31st October

prescr ibed)

5 Person opted for Provisional ST-3A Rule 6(4),(5) and (6) of Service Tax 25th October/

Assessment Rules, 1994, -Statement (Memorandum 25th April

of Provisional Deposit)

6 Person Exporting Goods and paying EXP4 Notificati on No 42/2012 - Service Tax 15th October/

Commission to person located 15th April

outside India (not applicabl e for theperiod commencing 1-10-2014)


Practical Issues relating to filing of returns in servicetax law are discussed below.

I ssue 1.

Does an assessee need to submit any additionalinformation if he is filing the ST-3 Return forthe first time after registration with Service TaxDepartment?

- In terms of Rule 5(2) of the Rules, every assesseeshall furnish a list in duplicate, of

· All the records prepared or maintained by theassessee for accounting of transactions in regardto providing of any service, receipt orprocurement of input service and paymentthereof, receipt, purchase, manufacture etc. ofInputs and Capital Goods, other activities, suchas manufacture and sale of goods.

· All other financial records maintained in normalcourse of business.

- At present, ACES system doesn’t support onlinefiling of such inf ormation along with ST-3return. Hence, it is to be filed manually.

- Residual penalty upto Rs. 10000/- under Section77(2) of the Act may be imposed if such list isnot submitted.

I ssue 2.

Does one need to file physical signed copy of ST-3 return after filing the same online throughwebsite www.ACES.gov.in?

- In Para V of the Circular No. 956/17/2011-CXDated 28-09-2011 it is clarified that whereverthe returns are submitted through ACES therewill not be any requirement to submit signedhard copy separately.

I ssue 3.

Mr. Hopeful has obtained service tax registrationbut has neither provided any taxable service norreceived any amount towards taxable serviceduring the period. I s Mr. Hopeful requires tofile the ST-3 return?

- As per Section 70 of the Act, person liable topay service tax is required to furnish the return.

As per Rule 7 of the Service Tax Rules, 1994,every assessee shall submit the return. However,as per Section 65B(12), assessee means personliable to pay tax and his agent. As, Mr. Hopefulis not a “person liable to pay service tax”, he isnot require to file the return.

- In para 6.1 of the Circular No. 97/8/2007-S.T.,Dated 23-8-2007 issued by the CBEC it hasbeen clarified that person who are not liable topay service tax (because of an exemptionincluding turnover based exemption), are notrequired to file ST-3 return.

- However, as per Para 4.9 of the FAQs issued byDGST, 5th Edition, September, 2010, returnfiling is compulsory even if no taxable serviceis provided or received or no payment is receivedduring a particular half year.

- Considering the provisions of the law, myopinion is that Mr. Hopeful is not required tofile the return. However, to avoid the unduelitigation and as abundant precaution, return maybe filed in such situation.

I ssue 4.

M r. Fr esh CA has obtained service taxregistration, has provided taxable services andreceived amount towards t axable ser vicesduring the period April, 2014 to September,2014. However, Mr. Fresh CA has avai ledthreshold exemption of Rs. 10 Lacs as providedunder Notif ication No. 33/2012-ST and notrequired to pay service tax. I s Mr. Fresh CArequired to file ST-3 return for the period April,2014 to September, 2014?

- Please refer the discussion in forgoing issue.Opinion is the same.

I ssue 5.

Mr. ACA has obtained service tax registration,provided taxable services, charged service taxin invoices but has not received any amountduring the period April, 2014 to September,2014. As his turnover of taxable services is belowRs. 50 Lacs, he is not liable to pay service taxduring the above period. I s Mr. ACA liable to

Service Tax Decoded


file ST-3 return for the period April, 2014 toSeptember, 2014?

- In terms of Section 70 of the Act, ‘person liableto pay service tax’ is required to file the return.However, the term ‘person liable to pay servicetax’ is not defined. Hence, it may be argued thatMr. ACA is also a ‘person liable to pay servicetax’ as he has charged the service tax in invoices.Hence, it is highly advisable that Mr. ACAshould file the return.

I ssue 6.

Mr. BeSahara does not have money to payservice tax but doesn’t want to delay his servicetax return. Can he do so?

- Earlier, in old ST-3 format specific clause (Clause4C) was made available for the details of amountof service tax payable but not paid as on the lastday of the period for which return is filed. Thisclause is discontinued in new ST-3 format.Section 70 states that person liable to pay servicetax shall himself assess the tax due and shallfurnish the return but it really doesn’t stipulateany condition for payment before filing of return.

- Similarly, Rule 7 of Service Tax Rules, 1994provides that every assessee shall submit return.It also doesn’t stipulate any condition f orpayment before filing of return.

- However, format of ST-3 return, as prescribedunder the Rules, requires a declaration to effectthat the assessee has assessed and “paid” theservice tax. [Part K, Clause (b)]. Unless thisdeclaration is made, no returns can be filed.Hence, it requires payment of tax before filingof return and Mr. BeSahara can’t file returnunless he has paid the service tax.

- A rule prescribed under a particular law can’toverride the provision of the law. Similarly, aFormat prescribed under a particular rule, can’ttravel beyond the boundaries of the rule. Thus,such a provision (assuming that it a provision),may be held ultra virus and validity of this maybe challenged in the court of law.

I ssue 7.

What are the major consequences of late filingof a return?

- Late filing fees upto Rs. 20000/- under Rule 7Cof the Rules, read with Section 70 of the Act isrequired to be paid for delayed return.

- Show Cause Notice as provided in Section 73may be issued within 18 months/Five years fromthe relevant date where service tax has not beenlevied or paid or has been short-levied or short-paid or erroneously refunded. Where return isfiled, date of filing of the return is the relevantdate. Hence, due to delay in return, time limitgranted to the department for issuance of ShowCause Notice also gets extended.

I ssue 8.

What are the major consequences of non filingof return?

- Besides, requisition of information, issuance ofShow Cause Notice etc. f ollowing crucialproceeding may be initiated.

- Best Judgment Assessment under Section 72.

- Penalty of Rs. 10000/- under section 77(2) foreach return.

I ssue 9.

M/s. LastMinute Ltd. has uploaded his servicetax return using Excel Utility on 25-10-2014. Dueto minor error, system has rejected this returnon 26-10-2014, M/s. L astMinute Ltd. hascorrected the same and submitted the sameagain on the 26-10-2014. I s M/s. LastMinuteLtd. is required to pay Late Filing Fee?

- ST-3 return may be furnished in two ways. First,data may be filled in the online form availableafter log in into the www.aces.gov.in (ACESsystem), if there is an error, system will not allowto submit the return unless error is corrected andonce the data is corrected, return will be acceptedimmediately by the system.

- Another way is to use Excel Utility provided bythe system. In this method, data will be filled inthe excel utility, XML file will be generated by

Service Tax Decoded


the utility and that XML file will be uploaded inthe ACES system. Once the file is uploaded,status “UPLOADED” will be given. After thatsystem scrutinise the data and if found properaccept the return and then the status will be“FILED”. System may take more than a day forsuch verfication. It may happen that the systemrejects the uploaded data and one need to uploadthe corrected data again. Unless the system hasaccepted the data, return is not filed.

- In this issue, the system has not accepted thereturn which was uploaded on 25th October andthe date of filing of return is 26th October, whichis beyond the period granted for filing the return.Hence, in such a situation Late Fee is alsorequired to be paid.

- CBEC has through Para (i) (1) of the CircularNo. 956/17/2011 Dated 28-09-2011 clarifiedthat in case a return is “rejected” by theapplication, the date of uploading of the rejectedreturn will not be considered as the date of filing,rather the date of uploading of the successfully“filed”, return (after the assessee carries outnecessary corrections and uploads it again) willbe considered as the actual date of filing.

- Hence, it is highly advisable that if service taxreturn is being filed using Excel Utility, oneshould not wait for uploading the returns till lastdate.

I ssue 10.

For the period April, 2014 to September, 2014,Mr. Lazy Small has service tax liability of Rs.61.80 only which is discharged within due dates.His return is delayed by 230 days. I s he requiredto pay Late Fee of Rs. 20000/- as provided underRule 7B of the Rules or is liability of late fee canbe limited to service tax?

- In terms of Rule 7B of the Rules, if return isfurnished after the date prescribed for submissionof such return, the person liable to furnish thesaid return shall pay the late fees. Thus, paymentof late fees is mandatory and automatic.

- In terms of third proviso to the said rule, wherethe gross amount of service tax payable is nil,

the Central Excise Officer may, on being satisfiedthat there is sufficient reason for not filing thereturn, reduce or waive the penalty. Hence, ifCentral Excise Officer wants to reduce/waivethe late fee, service tax payable should be nil. Inany other case, no such power to reduce/waivethe late fee is prescribed. Even, benefi t ofreasonable cause, as provided under Section 80of the Act, is not applicable to the late fee payableunder Section 70 of the Act. Thus, even if thereis strong reasonable cause is available, forexample of death of partner, Central ExciseOfficer doesn’t have power to waive the late feeif service tax payable is not nil.

- Hence, Mr. Lazy Small is required to late fee ofRs. 20000/- even if his service tax liability isRs. 61.80 only.

I ssue 11.

I s it compulsory to pay Late Fee before filing ofreturn? Can department refuse to accept thereturn if Late Fee is not paid at the time of filingthe return?

- There is no provision in the law which providethat such late fee should be paid on or beforefiling of the return. Hence, Late Fee may be paidafter filing of return.

- It is clarified at Para No. 6.4 of the Circular No.97/8/2007-ST Dated 23-08-2007 that “mer enon-submission of evidence of payment of latefee along with the return is, however, not aground for refusal to allow filing of the return”.Hence, department can’t refuse to accept thereturn merely because late fee is not paid.

- However, it is worth noting that payment of latefee is compulsory and automatic. If not paidalong with filing of return, in future, departmentwill take follow up for payment, will write letters,intimation is to be given, client and consultant’stime and energy will be wasted. Hence, it ishighly advisable that such late fee is paid alongwith the return.

- Further, Para 6.4 of Circular No. 97/8/2007-S.T.,dated 23-8-2007 clarifies that the appropriatelate fees should be paid at the time of filing the

Service Tax Decoded


return, without waiting for any communicationor notice from the department.

I ssue 12.

Mr. No-Knowledge was not required to file theST-3 Return. However, he has filed the “Nil”ST-3 return belatedly on a letter received fromthe department. Is Mr. No-Knowledge requiredto Pay Late fee?

- In terms of Rule 7C of the Rules, where thereturn prescribed under Rule 7 is furnished afterthe date prescribed for submission of such return,“the person liable to furnish the said return”shall pay the late fee. As Mr. No-Knowledge isnot the person required to file the return, he isnot required to pay the late fee even if return issubmitted belatedly.

- Above propositions also upheld by Hon’bleCESTAT, Kolkata in the case of SuchakMarketing Private Ltd. V. CST Kolkata [2013(30) STR 593 (Tri.- Kolkata)].

I ssue 13.

Mr. Lazy has filed the service tax return withpr escribed L ate Fee. Now, Centr al ExciseOfficer wants to impose a penalty of Rs. 200 perday under Sect ion 77(1)(c) f or delay infurnishing information. I s Mr. Lazy required topay penalty?

- In terms of second proviso to Rule 7C of theRules, where the assessee has paid the amountas prescribed under Rule 7C, the proceedings,if any, in respect of such delayed submission ofreturn shall be deemed to be concluded. Hence,once the late fee as prescribed in the Rule 7Chas been paid, no other penalty is to be levied.

I ssue 14.

Mr. Careless has erred in filing ST-3 Return.Can he correct it? How?

- In terms of Rule 7B of the Rules, an assesseemay submit a revised return, in Form ST-3, tocorrect a mistake or omission, within a periodof ninety days from the date of submission ofthe return under Rule 7. Hence, Mr. Careless

can revise his ST-3 return within 90 days of thesubmission of original return.

- It is worth noting that there is no provision inservice tax law to revise the return after 90 daysfrom filing of the original return. Even ACESsystem doesn’t accept the return after 90 days.In such a situation it is highly advised that errormay be communicated to the concerned rangeoffice in writing as soon as discovered.

I ssue 15.

Mr. Super-Lazy has not filed his returns for lastthree years. I s there any time limit to file abelated return?

- There is no time limit provided in the servicetax related law which restrict the filing of belatedreturn. Hence, belated return may be furnishedat any time. However, it is worth noting that timelimit issuance of Show Cause Notice dependson relevant date which will be extended due tofiling of delayed return.

I ssue 16.

Mr. Lazy-Car eless has fi led ST-3 r et ur nbelatedly. Now, he wants to file a revised return.Can he do so?

- A return filed belatedly is also a return filedunder Rule 7 of the Rules. Hence, belated returncan also be revised in terms of Rule 7B of theRules.

I ssue 17.

M/s. Super-Careless Pvt. L td. has filed returnand had discovered certain mistakes and hasrevised it. Now, once again M/s. Super-CarelessPvt. L td. has found another mistake or omissionin revised ST-3. They want to revise ST-3 onceagain. Can they do so?

- There is no restriction in the law that the returnmay be revised only once and not thereafter. Itseems that it may be revised any number oftimes. However, ACES system doesn’t allowrevision of the return again, once revised returnis revised. It is an arbitrary action by the ACESsystem and contradictory to the law.

Service Tax Decoded


I ssue 18.

A Service Provider is regist ered as serviceprovider but not registered as recipient of legalser vice r eceived from an Advocate. ServiceProvider has discharged service tax liabilityunder reverse char ge mechanism butRegistration Certificate is not amended. Can hefile his return and disclose the liability as servicerecipient or has to wait till registration certificategot amended?

- At present, ACES system accepts the returncontaining details for a category of service evenif it is not included in the registration certificate.Hence, ST-3 return is not required to be delayedpending amendment in the registrationcertif icate. However, it is advisable that theregistration certificate should be amended.

- It is worth mentioning that in terms of Rule4(5A) of the Rules, where there is any changein any information or details furnished by theassessee, such a change shall be intimated withina period of thirty days of such change. Hence,assessee is duty bound to make necessaryamendment within thirty days.

I ssue 19.

M/s. QUARTER BASE is a partnership firmand required to make payment quarterly andrequired to disclose figures quarterly in ST-3returns. However, while filing the ST-3 returns,ACES system shows monthly data filling in thereturn. Why it is so and what is the remedy?

- It seems that during the data migration to ACESsystem, for number of assessee status f orconstitution is wrongly uploaded in the newsystem as “other” instead of proprietary concernor partnership firm or company etc. as the casemay be, and such assessees are considered byACES system as other and not Proprietor orPartnership Firm. Due to this system force theassessee to provide the data on monthly basis.

- Legally individuals and partnership firms mayprovide the data on monthly basis. All suchassessees are required to amend their registrationfor proper constitution despite having no faulton their part.

- Earlier, it has been noticed that some of the returnsfiled using excel utility were rejected due to thefact that their constitution status as available inthe data base and as selected in the ST-3 returnutility was not matching. To avoid such unduehardship in f uture, i t is advised that theregistration certificates should be amended.

I ssue 20.

M/s. TAX-NOTAX is paying service tax ontaxable services and also providing some exemptservices. I s M/s. TAX-NOTAX is required toshow details of exempt services in their ST-3returns?

- Yes. ST-3 return specifically requires disclosureof exempt services also. Specific provisions aremade in the ST-3 returns in this behalf.

- Not only the value of exemption but also aNotification Number, with clause if any, is alsorequired to be disclosed. I n the case whereexemption is optional, department may arguethat assessee has never opted for the exemption.

- Where such a disclosure is not made and ifexemption availed is legally not available, it hasbeen held that non disclosure of exemptionamounts to suppression of facts.

- For the purpose of CENVAT Credit, Trading ofGoods is also an exempted services and valuethereof, as provided in the CENVAT CreditRules, 2004 is required to be disclosed in thereturn.

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Service Tax Decoded


CA. Ashwin H. [email protected]

34 STR 610 Arvind Mills L td. Vs. Comm.Of ST, Ahmedabad (Tri-Ahmedabad)

The activity of supplying qualified/skilledemployees to group companies does notamount t o ser vice in the natur e of“manpower recruitment and supplyagency services”

Facts:-

Appellant supplied qualified /skilled employees toits subsidiary/group companies. Service Taxdepartment alleged that the transaction was coveredunder manpower recruitment and supply agencyservices.

Held:-

Ahmedabad Tribunal held that there was noallegation or findings about supplying of employeesto any concern other than its own group companies.Also the employees did not work under the direction, supervision and control of the group companiesbut completed the work as directed by theappellants. Further Tribunal also relied on thedecision in the case of Paramount CommunicationLtd, wherein i t was observed that in case thepersonnel works for two sister concerns, therendition of services was by the personnel to boththe companies and it was not a case of one companyproviding services to another and accordingly theappeal was allowed.

34 STR 778 JCT Electronics L td vs.Comm of Ex. & ST., Vadodara (Tri-Ahmedabad)

Adjustment of excess service tax paid innext subsequent month/quarter.

Facts:-

The appellant paid excess service tax which wasadjusted by them after a long time in subsequentmonth or quarter. The appellant also contested that

Service Tax -Recent Judgements

such service tax adjustment was appropriate videRule 6(4A) and 6(4B) of the service tax rules,1994.Service tax department argued that such adjustmentcould be made in the next month or next quarterprovided intimation was filed to the departmentwithin 15 days of such adjustment and accordinglyimposed penalties u/s 76 and 77 of the act. Theappellants argued that they have adjusted their ownmoney and hence, penalty was unwarranted in thepresent case.

Held:-

The Tribunal held that under the service tax rulesthe phrase used is subsequent month or quarter andnot subsequent months and quarters. Further it heldthat the appellant had neither fulf illed all theconditions as required under the said rules.However , since the appellants had a bonafide beliefwith respect to adjustment of excess service tax paid,the penalties were set aside.

46 taxmann.com 97 Mallika Jeyabalanvs. CCE, Madurai. (Chennai- CESTAT)

Train ing given r elating to variousprocedures and statutory compliances tobe made in relation to export of goodsqualifies as “vocational training” and isexempt under notification no. 24/2004

Facts:-

The appellant was providing training relating tovarious procedures and statutory compliances to bemade in relation to export of goods and claimedexemption by contending that it would qualify tobe vocational training relying upon the decision ofAshu Export Promoters 9p) Ltd v. CST (2012) 34STT 47,(Delhi – CESTAT) and Wigan & LeighCollege (India) Ltd v. Jt. CST (2008) 12 STT 157(Bang – CESTAT). While department agrued thatvocational training would only cover courses withspecific syllabus and approved by government and

22

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hence the said activity would be liable to servicetax under the category of commercial training andcoaching.

Held:-

The Tribunal held that the decisions relied upon bythe appellant will apply to the training impugned inthis case also and hence granted waiver and stayedcollection of all the dues arising from the impugnedorder.

34 STR 383 Marine Container Services(South) P. L td. Vs. CCE (ST) Tirunveli(Tri- Chennai)

I n case of margins earned by a steameragent by booking space on shipping linethrough another steamer agent , there isno liability of service tax on the saidmargin earned.

Facts:-

Appellant was steamer agent of a particular shippingline and was paying service tax on the servicesrendered to the said shipping line. Appellant alsomakes booking arrangements through anothersteamer agent for the customers who comes to themfor booking space on a different shipping line andcharges the customers an extra amount over andabove that was paid to another steamer agent.Service tax department demanded service tax onthe said margin amount under “steamer agentservice”.

Held:-

The Tribunal held that there is no evidence thatservices were rendered to a shipping line andpayment received from shipping line for booking

of space through another agent and thereforedemand under steamer agent’s service is notmaintainable.

34 STR 850 Nandganj Sihori Sugar Co.L td vs. CCE, (Tr ibunal –Delhi)Transportation of goods from itscollection centre to its factory, whetherliable to service tax under the categoryof goods transport agency services ( GTA)

Facts:-

The appellant has availed services of transportationof sugarcane from its collection centre to its factory.The transporters did not issued any consignmentnotes but issued fortnightly bills to the appellants.The department argued and demanded service taxfrom the appellant on the grounds that it had availedgoods transport agency (GTA) services.

Held:-

Tribunal held that in case of GTA service the agencynot only undertakes the service of transportation ofgoods but also undertakes delivery of goods to theconsignee and temporary storage of goods till itsdelivery to the consignee. It was further held thatthe bills issued are not the consignment notes asrequired in terms of rule 4B of the service tax rulesand therefore the track owners cannot be consideredas goods transport agency . In the present case theactivity is merely of transportation of goods in motorvehicle and accordingly no service tax is payableby the appellants as a recipient of goods transportagency services.

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Service Tax - Recent Judgements

25

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Do not be afrai d of a small beginning, great thi ngs come afterwards. Becourageous. Do not try to lead your brethren, but serve them. The brutalmania f or l eading has sunk many a great ships in the waters of lif e. Takecare especially of that, i.e. be unselfish even unto death, and work.

Swami Vivekananda


CA. Priyam R. [email protected]

What is meant by “Goods” under VAT Act.

1. I ntroduction:

Entry 54 of List II of the Seventh Scheduleread with Article 246(3) of the Constitutiongives the States power to make laws withrespect to “taxes on the sale or purchase ofgoods other than newspapers subject to theprovisions of Entry 92(A) of List I”.

Article 246(3) reads as under:

Subject to clauses (1) and (2), the Legislatureof any State has exclusive power to make lawsfor such State or any part thereof with respectto any of the matters enumerated in List II inthe Seventh Schedule ( in the Consti tution,referred to as the “State List”).

Article 366(12) reads as under:

“goods” includes all material, commoditiesand articles

Article 366(29)(d) reads as under:

a tax on the transfer of the right to use anygoods for any purpose (whether or not for aspecified period) for cash, deferred paymentor other valuable consideration.

2. Definition of Goods under Gujarat VAT Act:

Sec 2(13) “goods” means al l kinds ofmovable property (other than newspapers,actionable claims, electricity, stocks and sharesand securities) and includes live stocks, allmaterials, articles and commodities and everykind of property (whether as goods or in someother form) involved in the execution of workscontr act, all intangible commodi ties andgrowing crops, grass, standing timber or thingsattached to or forming part of the land, whichare agreed to be severed before sales or underthe contract of sale.

3. Classification of goods:

3.1.Existing Goods :

These are the goods which are owned orpossessed by the seller at the time of sale. Onlyexisting goods can be the subject of a sale. Theexisting goods may be:

a. Specific Goods: These are goods which areidentified and agreed upon at the time of acontract of sale is made.

b. Ascertained Goods: Though commonlyused as similar in meaning to specific goods,these are the goods which becomeascertained subsequent to the formation ofa contract of sale.

c. Unascertained or Generic Goods: Theseare the goods which are not identified andagreed upon at the time of contract of sale.They are defined only by description andmay form part of a lot.

3.2.Future Goods:

These are the goods which a seller does notpossess at the time of the contract of sale butwhich will be acquired or manufactured orproduced by him after the making of thecontract of sale.

Such type of contract is known as an agreementto sell, and in such case sale will be completeonly when actual goods are acqui red ormanufactured or produced.

3.3.Contingent Goods:

Though a type of future goods, these are thegoods the acquisition of which by the sellerdepends upon a contingency, which may ormay not happen.

VAT Demystified


4. Di ff erent it ems whether are ‘goods’ -interpreted by courts.

4.1 LotteryTickets:

This classical concept of sale was held to applyto the entry in the legislative list. There have tobe three essential components to constitute atransaction of sale before tax could be imposed-namely, (i) an agreement to transfer title (ii)supported by consideration, and (iii) an actualtransfer of title in the goods. In the absence ofany one of these elements it was held that thereis no sale of goods.

Lottery tickets are not ‘goods’. Lottery tickethas no value itself. It is a mere piece of paper.Its value lies in the fact that it represents achance or r ight to a conditional benefi t ofwinning a prize of a greater value than theconsideration paid for the transfer of that chance.It is nothing more than a token or evidence ofthis right. Lottery ticket is merely evidence ofthe right to participate in the draw and thereforegoods, the transfer of which was sale. To extendthat the lottery ticket evidenced the right to claimthe prize, it was not goods but an actionableclaim and therefore not ‘goods’ under the SalesTax Laws. A transfer of it was consequentlynot a sale. Ref:Sun Rise Associates 3 VST 151(SC)

4.2 Sim Cards:

The issue which arose for consideration beforethe Hon’ble Supreme court in the case of IDEAMobile Communication Ltd. v/s Commissionerof Central Excise and Customs Cochinreported in 43 VST 1(SC), whether the valueof SIM cards sold by the appellant to theirmobile subscribers is to be included in taxableservice for levy of sevice tax or whether it istaxable as sale of goods under Sales Tax Act.

It was held that the amount received by thecellular telephone company from its subscriberstowards the SIM card will form part of thetaxable value for levy of service tax. The SIMcards are never sold as goods independent fromthe service provided. They are considered part

and parcel of the services provided and thedominant position of the transasction is toprovide services and not to sell the material, i.eSIM cards which on its own but without theservice would hardly have any value at all. Itwas established from the records and facts ofthe case that the value of SIM cards formedpart of the activation charges as no activationis possible without a valid functioning of SIMcard and the value of the taxable service iscalculated on gross total amount received bythe operator from the subscribers, and there isno element of sale involved.

4.3 Computer Software:

4.3.1 Hon’ble Supreme Court has decided what ismeant by Goods under Customs Act in thecase of In Associated Cement CompaniesLtd. v/s Commissioner of Customs [ 2001]124 STC 59 (SC), and has held that :

Any movable article brought into India by apassenger as part of his baggage makes himliable to pay customs duty as per the CustomsTariff Act, 1975. The definition of “goods”in section 2(22) of the Customs Act, 1962,includes in sub-clause (c) baggage and in sub-clause (e) “any other kind of movableproperty”. In effect the definition is so wordedthat all tangible movable articles will be goodsfor the purposes of the Act under the residuaryclause (e). Whether a movable article comesas part of a baggage or is imported into thecountry inany other manner, for the purposeof the Customs Act, the provisions of section12 of the Customs Act would be attracted.

Any media, whether in the form of books orcomputer disks or cassettes, which containsinformation technology or ideas, wouldnecessarily be regarded as goods under theseprovisions of the A ct. These items aremovable goods and would be covered bysection 2(22)(e). Whenever any goods ormovables or tangible articles are imported intoIndia customs duty is payable. For thepurpose of attracting duty it is immaterial whatare the types of goods that are imported or

VAT Demystif ied


what is contained in them or recordedthereon. The contents are relevant only forthe purpose of valuation.

“Computer programs are the product of anintellectual process, but once implanted in amedium are widely distributed to computerowners. A n analogy can be drawn to acompact disc recording of an orchestralrendition. The music is produced by theartistry of musicians and in itself is not a‘goods’, but when transferred to a laser-readable disc becomes a readily marketablecommodity.

Similarly, a computer program, may becopyrightable as intellectual property, does notalter the fact that once in the form of a floppydisc or other medium, the program is tangible,movable and available in the market place.The fact that some programs may be tailoredfor specific purposes need not alter their statusas ‘goods’ because the ‘Code’ def initionincludes ‘specifically manufactured goods.”

4.3.2 In Tata Consultancy Services v/s State ofAndhra Pradesh [ 2004] 137 STC 620 (SC)the hon’ble Supreme Court held that the term“goods”, for the purposes of sales tax, cannotbe given a narrow meaning. It has been heldthat properties which are capable of beingabstracted, consumed and used and/ortransmitted, transferred, delivered, stored orpossessed, etc., are “goods” for the purposesof sales tax. In India the test, to determinewhether a property is “goods”, for purposesof sales tax, is not whether the property istangible or intangible or incorporeal. The testis whether the concerned item is capableof abstraction consumption and use andwhether it can be transmitted, transferred,delivered, stored, possessed, etc. Admittedlyin the case of software, both canned anduncanned, all of these are possible.

Hence it was held that software programscontain these characteristics and are hencegoods.

4.4 Electro Magnetic Waves:

The question before the Hon’ble SupremeCourt in the case of Bharat Sanchar NigamLtd. v. Union of India 145 STC 91(SC) waswhether electro magnetic waves are Goodswithin the meaning of article 366(29A)(d)*of the Constitution of India.

Three Judge Bench of the Supreme CourtHon’ble Court held that, Electro magneticwaves are neither abstracted nor are theyconsumed in the sense that they are notextinguished by thei r user. They are notdelivered, stored or possessed nor are theymarketable. They are merely the medium ofcommunication. What is transmitted is not anelectro magnetic wave but the signal throughsuch means. The signals are generated by thesubscribers themselves. In telecommunicationwhat is transmitted is the message by meansof the telegraph. No part of the telegraph itselfis transferable or deliverable to thesubscribers.

The second reason is more basic. A subscriberto a telephone service could not haveintended to purchase or obtain any right touse ‘electromagnetic waves’ or ‘radiofrequencies’ when a telephone connection isobtained Nor does the subscriber intend touse any portion of the wiring, the cable, thesatellite, the telephone exchange etc. At themost the concept of a sale in a subscriber’smind would be limited to the use of any othergoods, incorporeal or corporeal is given tohim with the telephone connection.

We cannot anticipate what may be achievedby scientific and technological advancementsin future. No one has argued that at presentelectromagnetic waves are abstract table orare capable or delivery. It would, therefore,appear that an electromagnetic wave (or radiofrequency, as contended by one of the counselfor the respondents) does not fulfi ll theparameters applied by the Supreme Court inthe case of Tata Consultancy (supra) fordetermining whether they are goods, right to

VAT Demystif ied


use of which would be a sale for the purposeof Article 366 (29-A)(d).

Hon’ble court further held that theelectromagnetic waves are not ‘goods’ withinthe meaning of the word either in Article366(12)* or in the state Legislations.

4.5 Whether purchase of Flat aft er BUPermission liable for VAT?

The question before advance ruling authorityU/s 80 of GVAT Act in the case of Dr. AshaSemson Choudhry and Ni rajsinghRamchandraSinghThakur order dtd: 16-7-2014 was whether buyer who acquires flatafter BU (building use ) permission or afteroccupancy certificate is required to pay VATto the developer or to the builder?

Hon’ble Joint Commissioner of Commercialtax (Legal) has held that such sale is sale ofimmovable property and it is not covered

VAT Demystif ied

within the definition of ‘goods’ defined undersection 2(13) of GVAT Act,. therefore notliable to tax under the Act.

5. Conclusion

Whether a particular item is ‘Goods’ or notdepends on facts of each case and such thingsbecome very important under excise lawwhere intermediate product is producedduring the process of manufacturing and iscapable of being marketable as such.

Under the Vat law also areas of dispute is incase of intangible goods i.e copy right, trademark, brand name, know how etc. as the sameare ‘goods’ and covered by entry 41 ofSchedule II of Gujarat VAT Act, under suchcircumstance it is always advisable to go foradvance ruling, by which one can avoid futurelitigation.

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contd. from page 360 FEMA Updates

32


External Commercial Borrowing (ECB)Policy — Review of all-in-cost ceiling

It has been decided that the all-in-cost ceiling asspecified under paragraph 2 of A.P. (DIR Series)Ci rcular No. 99 dated March 30, 2012 (alsomentioned hereunder) will continue to be applicabletill December 31, 2014 and is subject to reviewthereafter. All other aspects of ECB policy remainunchanged.

Average Maturity All-in-cost overPeriod 6 month LIBOR*

Three years and upto five years 350 bps

More than five years 500 bps

* for the respective currency of borrowing orapplicable benchmark


Liberal ised Remit tance Scheme f orresident individuals-clarification

The requirement of post facto reporting stipulatedin terms of A.P. (DIR Series) Circular No.32 datedSeptember 04, 2013, (Sr. no. 4 of Annexure to theCircular) stands withdrawn.

For Full Text refer to A.P. (DIR Series) CircularNo. 19

h t t p : / / w w w . r b i . o r g . i n / S c r i p t s /NotificationUser.aspx?Id=9161&Mode=0

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33


CA. Bihari B. [email protected].

Important Judgments:

[1] Important judgment delivered by the Hon.Madhya Pradesh High Court in case of ShreeRam Agro Ltd. on Input Tax Credit allowabilityon Entry Tax paid on raw material, used in themanufacturing of taxable goods and noproportionate disallowance on by-product is tobe made on tax free goods.

Issue:The dealer has purchased the cotton seeds bypaying the Entry Tax on it and after productionof oil cake, no disallowance has been made onthe by-product of d-oiled cake. (D.O.C)

Facts:When taxable and tax f ree goods aresimultaneously manufactured, the dealer wouldbe entitled to input tax credit of the total taxpaid on the purchase and this cannot be reducedon pro-rata basis.This appeal has been admitted for consideringthe following substantial question of law.“Whether input tax credit of taxes paid on thepurchase of cotton seed used in the manufactureof cotton seed oil can be denied proportionatelymerely because during the process ofmanufacture a by-product in the form of cottonseed cake is also produced, so when taxable andtax free goods are simultaneously manufactured,the appellant dealer would be entitled to inputtax credit of total tax paid on purchase and thesame cannot be reduced on pro rata basis?”The question of imposing liabil i ty onproportionate basis and denying the entire set-off with regard to the credit available on thepurchase of raw material has been consideredby this court in the case of Ruchi SoyaIndustries Ltd v. State of M.P. [2013] 70 VST40 (MP); [2014] 24 STJ 235 (MP) and theDivision Bench of this court after consideringvarious judgments of the Supreme Court.

“From the aforesaid finding of the Hon.Supreme Court, it is clear that manufacturer iseligible to the benefit of set-off on the entireamount of tax paid on purchase of raw materialand principle of apportionment could not beinvoked. In the facts and circumstances of thepresent case, the judgment of the Hon. SupremeCourt is applicable because the DOC, a by-product is tax free and another by-productsludge and main product oil are taxable. Hence,the authority cannot apportion the tax liabilityafter deducting the percentage of proportionatemanufacture of DOC, which has been done inthe present case.”From the aforesaid analysis of law, it is clearthat the manufacturer is eligible for the benefitof set-off on the entire amount of tax paid onpurchase of raw material and the principle ofproportionate liability has been found to beunsustainable.In view of the above, this appeal is allowed. Thequestion raised is answered by holding that onthe purchase made by the manufacturer withregard to raw material, he is entitled to the benefitof set-off on the entire amount of tax and theprinciple of apportionment cannot be invoked.

[2] The Important judgment delivered by theGujarat High Court in case of Shri Anilkumarv. State of Gujarat on the Penalty levied fortaking no registration on bonafide belief.Penalty confirmed.Issue:Gujarat Value Added Tax Act, 2003 – Sec. 41– Requirement to get registration in case of adealer is liable to pay tax – Ground for notgetting registration was bonaf ide error –Assistant Commissioner imposed penalty withinterest – Explanation that error was bonafidethat dealer did not get registration – Nointerference called for – Insistence of personalhearing no basis to challenge the order ofpenalty – Petition dismissed.

VAT - Recent Judgementsand Updates


Facts:Brief facts are that the petitioner was based inRajasthan and was engaged in industrial andcommercial construction activities. Thepetitioner for and was awarded a tender issuedby the Western Railway, Ahmedabad f orconstruction of minor bridge.For execution of such work, the petitionerstarted purchasing goods from the registereddealer in the State of Gujarat. As per his ownsay, with awarding of this contract, thepetitioner’s business in Gujarat gradual lyincreased and he shifted his base from Rajasthanto Gujarat in April 2008. All along, however,the petitioner never appl ied f or and wastherefore obviously not granted any registrationunder the Vat Act. Admittedly, if the petitionerwanted to take the credit of the Vat paid goodsfrom the sellers, such registration was required.As a consequence of the petitioner’s failure toobtain the registration, the petitioner was unableto get the credit. To assess the petitioner’sliability for Vat, proceedings were initiated andare informed that the Assistant Commissionerconf irmed the total tax demand of Rs.41,81,169/- and permitted deduction of Rs.6,68,242/- which was the tax deducted by theWestern Rai lway at source. The A sst.Commissioner imposed penalty equal to theamount of tax and also demanded interest ofRs. 15,29,085/-. The order of the A sst.Commissioner is under challenge before theGujarat Value Added Tax Tribunal. At this stage,the petitioner applied to the State Governmentunder application dated 4th Feb. 2010 andrequested for remission of the tax and penaltyunder section 41(1) of the Act.On this application, the State Governmentpassed impugned order dated 8th Oct. 201. Insuch order, it was conveyed to the petitionerthat under the Vat Act, any dealer who is liableto pay tax is required to obtain registration. Thepetitioner had not obtained registration for theperiod for which he had asked for remission,his application therefore is rejected.Learned Counsel of the petitioner assailed thesaid order contending that there is norequirement under section 41(1) of the Vat Act

VAT - Recent Judgements and Updates

that a dealer must be registered before hisrequest for remission can be accepted. TheLearned Counsel for the petitioner submittedthat the petitioner had made detailed groundswhy remission should be granted. The staterejected such application without hearing thepetitioner. He relied on the decision of SupremeCourt in case of Shara India (Fi rm) v.Commissioner of Income Tax, Central ,reported in 2008 (226) ELT 22(SC) to contendthat even though section 41(1) of the Vat Actdoes not specifically provide for hearing, thesame must be read into it.The Hon. High Court does not find any illegalityin the order passed by the State Government,which is challenged before High Court. Admittedfacts are that the petitioner though was requiredto get registered under the Vat Act, since he wasregularly involved in the purchase of goods forthe purpose of execution of his works contract,he did not obtain such registration. The onlyground made out before us for not obtaining suchregistration is the bona fide error on his part. TheWestern Railway had deducted tax at sourcewhich gave an impression to the petitioner thatnow he is not required to obtain registration,since tax is already deducted.The explanation of the peti tioner begs thequestion. Deduction of tax at source has norelevance to the requirement of registration bya dealer under the Vat Act. It is a statutoryrequirement and mere explanation that he wasunder bona f ide impression that no suchregistration was necessary would not besufficient.The contention that there was a breach of naturaljustice also cannot be accepted. It was not a casewhere the Government without putting thepetitioner to notice passed an order whichresulted into adverse civil consequences. It wasa case where the petitioner made a representationwhich was not accepted by the Government.The insistence on personal hearing also has nolegal base. It is well settled that requirement ofhearing as a part of natural justice does not in allcases include a right to personal hearing.In the result, writ petition is dismissed.

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CA. Hozefa [email protected]

asset in the world of business. It refers to the price orvalue above the market value of the identifiable assetsof a company. When a business is bought, the pricepaid will often be above the market value of itsinfrastructure, equipment, inventory, etc. A businessenterprise cul tivates this intangible asset byestablishing a strong business track record and byestablishing many beneficial relationships, includingthose with customers, distributors, and suppliers. Inaddition, goodwill covers other valuable albeitintangible aspects of a business, such as its creditrating, location, reputation, and name. Goodwill alsomay mani fest itself in the form of trademarks,manufacturing processes, and license rights.

I n any event, goodwil l ref lects the buyer’sperception that the business as a whole is worthmore than the sum of the identifiable physical assets.On occasions, enterprises even sell their goodwillwithout the sale of other assets.

There are two primary forms of intangibles - legalintangibles (such as trade secrets (e.g., customer lists),copyrights, patents, trademarks, and goodwill) andcompetitive intangibles (such as knowledge activities(know-how, knowledge), collaboration activities,leverage activities, and structural activities). Legalintangibles generate legal property rights defensiblein a court of law. Competitive intangibles, whilstlegally non-ownable, directly impact effectiveness,productivity, wastage, and opportunity costs withinan organization - and therefore costs, revenues,customer service, satisfaction, market value, and shareprice. Human capital is the primary source ofcompetitive intangibles for organizations today.Competitive intangibles are the source from whichcompetitive advantage flows, or is destroyed.

Below mentioned examples, though not exhaustive,provide a useful framework for the determinationof intangible assets. They fall into five categories(as shown below).

Business Valuation

I ntangible Assets and its ValuationIntangible assets are something of value that cannotbe seen, touched or physically measured, which arecreated through time and/or effort and that areidentifiable as a separate asset, such as a brand,franchise, trademark, or patent. Just an opposite oftangible assets.In the world of business today, things are not whatthey used to be. In the new economy, the mostvaluable assets have gone f rom tangible tointangible. Instead of plant and equipment,companies today compete on ideas andrelationships. While intangible assets don’t have theobvious physical value of a factory or equipment,they can prove very valuable for a firm and can becritical to its long-term success or failure. Althoughbrand recognition is not a physical asset you cansee or touch, its positive effects on bottom-lineprofits can prove extremely valuable to firms, forexample- Coca Cola, whose brand strength drivesglobal sales year after year.

Mr. Ágnes Horváth in his article “Non Quantitativemeasures in company valuation” summarizes factorsdetermining the company value, started out from thefact that a company does not exist in completeisolation. There are several elements in theenvironment that contribute to its operation. Thesesignificant qualitative characteristics, which must notbe discounted or must not be over looked, includes;dominant market size, company size and critical mass,employees’-management relations, strength ofcompetition, technological capabilities and expertise,size of backlog, location of operations, strength ofcustomer-vendor relationship, competence ofmanagement etc. It is essential to focus not only onfactors closely related to the company operation, buton micro and macro factors as well. This all togethergive rise to goodwill of the business concern.

Goodwill is the most common and popular intangible

Academic Refresher:Approaches to ValuationAsset Approach


Intangible Asset categories Examples include:1. Marketing-related intangible assets : Trademarks,

trade names, service marks, internet domainnames, non-competition agreements.

2. Customer-related intangible assets : Customerlists, order or production backlogs, customercontracts and customer - relationships includingnon-contractual relationships.

3. Artistic-related intangible assets : Plays, books,magazines, newspapers, pictures, photographs.

4. Contract-based intangible assets : Licensingand royal ty agreements, advertising,construction, service or supply agreements,lease agreements, franchise agreements,employment contracts.

5. Technology-based intangible assets : Patentedtechnology, computer software, unpatentedtechnology (know-how), databases, trade secretssuch as secret formulas, processes and recipes.

Difficult questions about intangibles assets are todrive finance professionals and AccountingStandard Setters to develop new measurements,new reporting forms, new tools and techniques foran economy based on intangibles.Valuation of intangible assetsWhile intangible assets play an increasinglyimportant role in today’s business world, it remainsdifficult to quantify its economic and monetaryvalue. Companies with a large part of their value inintangible “assets,” such as high-technologycompanies and companies with substantial researchand development activities, may be particularly hardto value because such a small portion of their valuelies in assets in place whereas a large portion derivesfrom uncertain future growth opportunities. Afurther complication with such companies is thattheir high R&D expenses reduce current earningseven though R&D projects could be perceived asinvestments for the future; in such a case, currentearnings may be a bad predictor of value.

Intangible assets are significantly more difficult tovalue than their tangible counterparts. Obviously,it is more difficult to determine the value of a tradesecret than the value of office space. When it istime to sell assets, intangible assets, such asgoodwill and patent, can cause real problem in the

form of financial and legal obstacles if improperlyvalued. The “fair” value of an intangible asset isthe amount that such asset can be bought, sold, orsettled in a transaction between willing parties, notinvolving forced or liquidation sale. The methodmost often used in the valuation of intangibleproperty determines the present value of the cashflows derived from using such property.Intangible value is created when a company hasabove average return on assets (or equity), so thatthe value of the business (based on expectedearnings or cash flow) exceeds the underlying netasset value.

- Consequently, intangible value is the amount bywhich the value of the business exceeds the valueof the underlying, tangible assets. Intangibleassets can be difficult to value individually withno guarantee of completeness.

- The most common technique for capturing totalintangible value is an enterprise valuation toestablish total asset value. The value of currentand fixed assets is then deducted to arrive at thevalue of intangible assets.

Many times a business owner incurring specificexpenses like research on value addi tion of aproduct, huge advertisement cost on initial start upsfor product publicity, extra amount paid on purchaseof specif ic f ormula etc.; claim existence ofintangible worth arisen due to these expenditures.The analyst should note that, in order for expenditureto qual ify as an intangible asset, a businessenterprise must expect benefits in the coming yearsand support that expectation with evidence.Expenditures such as those on advertising, forexample, may promise future benefits, but thebenefits are so uncertain and unpredictable that thebusiness classify them as current expenses.

Methods for the Valuation of I ntangiblesAcceptable methods for the valuation of identifiableintangible assets and intellectual property fall intothree broad categories. They are market based, costbased, or based on estimates of past and futureeconomic benefits.

In an ideal situation, a value analyst will alwaysprefer to determine a market value by reference to

Business Valuation


comparable market transactions. This is difficultenough when valuing assets such as bricks andmortar because i t is never possible to find atransaction that is exactly comparable. In valuingan item of intellectual property, the search for acomparable market transaction becomes almostfutile. This is not only due to lack of compatibility,but also because intellectual property is generallynot developed to be sold and many sales are usuallyonly a small part of a larger transaction and detailsare kept extremely confidential.Cost-based methodologies, such as the “cost tocreate” or the “cost to replace” a given asset, assumethat there is some relationship between cost and valueand the approach has very little to commend itselfother than ease of use. The method ignores changesin the time value of money and ignores maintenance.The methods of valuation flowing from an estimateof past and future economic benefits (also referredto as the income methods) can be broken down into four limbs; 1) capitalization of historic profits, 2)gross profit differential methods, 3) excess profitsmethods, and 4) the relief from royalty method.1. The capitalization of historic profits arrives at

the value of intangibles by multiplying themaintainable historic profitability of the assetby a multiple that has been assessed afterscoring the relative strength of the intangibleassets. For example, a multiple is arrived at afterassessing a brand in the light of factors such asleadership, stabi li ty, market share,internationality, trend of profitability, marketingand advertising support and protection. Whilethis capitalization process recognizes some ofthe factors which should be considered, it hasmajor shortcomings, mostly associated withhistoric earning capability. The method payslittle regard to the future.

2. Gross profit differential methods are oftenassociated with trade mark and brand valuation.These methods look at the differences in saleprices, adjusted for differences in marketingcosts. That is the difference between the marginof the branded and/or patented product and anunbranded or generic product. This formula isused to drive out cash flows and calculatevalue. Finding generic equivalents for a patentand identifiable price differences is far moredifficult than for a retail brand.

3. The excess profits method looks at the currentvalue of the net tangible assets employed asthe benchmark for an estimated rate of return.This is used to calculate the profits that arerequired in order to induce investors to investinto those net tangible assets. Any return overand above those profits required in order toinduce investment is considered to be the excessreturn attributable to the intangible assets.Whi le theoretical ly relying upon f utureeconomic benefits from the use of the asset,the method has diff iculty in adjusting toalternative uses of the asset.

4. Relief from royalty considers what the purchasercould afford, or would be willing to pay, for alicense of similar intangible asset. The royaltystream is then capitalized reflecting the risk andreturn relationship of investing in the asset.

Discounted cash flow (“DCF”) analysis sits acrossthe last three methodologies and is probably the mostcomprehensive of appraisal techniques. Potentialprofits and cash flows need to be assessed carefullyand then restated to present value through use of adiscount rate, or rates. The discount rate is used tocalculate economic value and includes compensationfor risk and for expected rates of inflation.Real option or option pricing method is now a daysgetting more recognition for valuing the patent.While some of the above methods are widely usedby the financial community, it is important to notethat valuation is an art more than a science and isan interdisciplinary study drawing upon law,economics, finance, accounting, and investment. Itis rash to attempt any valuation adopting so-calledindustry/sector norms in ignorance of thefundamental theoretical framework of valuation.When undertaking an Intangible valuation, thecontext is all-important, and the value appraiser willneed to take it into consideration to assign a realisticvalue to the asset.Each method proceeds on different fundamentalassumptions, which have greater or lesser relevance,and at times even no relevance to a given situation.Thus, the methods to be adopted for a particularvaluation must be judiciously chosen.

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Business Valuation


CA. Naveen [email protected]

(A) MCA Updates:

1. Class of Companies for the purpose of secondproviso to section 203(1) of the CompaniesAct, 2013:The M CA has notif i ed that the publ i ccompanies having paid-up share capital of Rs.100 crore or more and annual turnover of Rs.1,000 crore or more, which are engaged inmultiple businesses and have appointed ChiefExecutive Officer for each such business shallbe the class of compani es for the purposes ofthe second proviso to sub-section (1) of Section203 of the said Act.

For the purposes of this notif ication, the paid-up share capital and the annual turnover shallbe decided on the basis of the latest auditedbalance sheet.

[F. No. 1/5/2013-CL-V dated 25th July, 2014]

2. Companies (Removal of Diff icult ies) SixthOrder, 2014

To make harmonious interpretation, the MCAhas inserted the word “or his relative” in section2 of the Companies Act, 2013, in clause (76),in sub-clause (iv), after the word “manager”.W. e. f. 24/07/2014, the sub clause (i v) ofSection 2(76) shall be read as under:

“a pri vate company in which a director ormanager o r his rela tive is a member ordirector”

[F. No. 2/14/2014-CL.V dated 24th July, 2014]

3. Clar if ication with regard to applicability ofprovisions of section 139(5) and 139(7) of theCompanies Act, 2013

The MCA has cl ar if ied that the DeemedGovernment Companies, (where ownership orcontrol li es with two or more GovernmentCompanies or Corporati ons etc.) are coveredunder Section 139(5) and 97) of the CompaniesAct, 2013 and the responsibility rests with both,the Government concerned and the relevantcompany, for sending the information about the

Corporate Law Update

incorporation of a Company subject to auditby an auditor to be appointed by the C& AGfor the purpose of appointing the f irst auditorsunder section 139(7).

The MCA has fur ther clarif i ed that it willprimarily be the responsibility of the companyconcerned to intimate to the C& AG about itsincorporation along with name, location ofregistered off ice, capital structure of such acompany immediately on its incorporation.

Such company shall share such intimation tothe relevant Government so that suchGovernment may also send a suitable requestto the C& AG.

[General Circular No. 33/2014 dated 31st

July, 2014]

4. Company Law Sett lement Scheme, 2014

In order to prov ide an opportunity to thedefaulting Companies to enable them to maketheir defaults good by f iling the annual statutorydocuments belatedly which were due for f ilingtill 30th June, 2014, the Ministry has decidedto condone the delay in f iling of such annualdocuments wi th the ROC.It further prov ides an opportunity to theinactive compani es to get their companiesdeclared as “Dormant Companies” by f iling asimple application at reduced fees.

The salient features of the CLSS, 2014 are asunder:

· Filing Fees: Normal f iling fees plus 25% ofactual additional f ili ng fees payable on thedate of f iling of such belated document.

· Applicant Company has to withdraw theappeal f iled against prosecution f iled againstnoti ces/complai nt for the of fenses andfurnish the proof of such withdrawal alongwith the application.

· E-f orm for f i li ng appl ication seek ingimmunity (E-form CL SS-2014) in respectof the belated documents under the schememay be f iled on or after 01/09/2014 but


before 3 months from the date of closure ofthe scheme.

· The scheme shall be applicable for f iling thefollowing e-forms only:- Form 20B;- Form 21A;- Form 23AC, 23ACA, (Normal & XBRL

mode);- Form 66; and- Form 23B.- Under thi s scheme, the def ault ing

inactive companies may either completethe pending f ilings or may apply forstriking off the name at the concessionalrate of 25% of the f iling fees by f iling e-from FTE.

[General Ci rcular No. 34/2014 dated 12t h

August, 2014]

5. Compani es (Meet ings of Boar d and it sPowers) Second Amendment Rules, 2014.

Effective Date: They shall be effective fromthe date of their publication in the off i cialgazette.- In Clause (iv) of Rul e 4(1), for the words

“Consideration of Accounts”, the words“Considerat ion of f inancial statementi ncl uding Consoli dated f inanci alstatement, if any, t o be approved by theBoar d u/s. 134(1) of t he Act ” shall besubstituted.

- For the purpose of f ir st proviso to section188(1), the threshold limits in Rule 15, forsub-rule (3), have been changed for takingthe prior approval of the company by aspecial resolution and such revised limitsare as mentioned herein below.

Corporate Law Update

Sr. No. Nature of Transaction Threshold Limita sale, purchase or supply of any goods - 10% of Turnover of the Company OR

or materials - Rs. 100 Crore, whichever is lower.

b selling or otherwise disposing of, or — Same as above—buying, property of any kind

c leasing of property of any kind - 10% of Net Worth OR- 10% of Turnover of the Company OR- Rs. 100 Crore, whichever is lower.

d availing or rendering of any services - 10% of Turnover of the Company OR- Rs. 50 Crore, whichever is lower.

e appointment of any agent for purchase or - 10% of Turnover of the Company ORsale of goods, materials, services or - Rs. 100 Crore, whichever is lower.property [w. r. t. Sr. No. (a) & (b)]

- 10% of Turnover of the Company OR- Rs. 50 Crore, whichever is lower.

[w. r. t. Sr. No. (d)]f such related party’s appointment to any Rs. 2.5 lacs p.m.

office or place of profit in the company, itssubsidiary company or associate company

g Remuneration for underwriting the Remuneration >1% of Net Worth of thesubscription of any securities or derivatives Company.thereof, of the company

Explanatory Statement pursuant to section 101 shallcontain the followings:- Name of the Related Party;- Name of the Director or KMP who is related, if

any;- Nature of relationship;

- Nature, Material Terms, Monetary Val ue &particulars of the contract/arrangement;

- Any other relevant or important information fortaking the decision on the proposed resolution.

[F. No. 1/32/2013 CL-V-Part dated 14th August,2014]

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AS –11 The Effects of Changes in ForeignExchange Rates

Foreign Exchange Transactions – A nnualReport 2013-14

Manugraph I ndia Ltd.

i. Transactions denominated in foreign currencyare recorded at the exchange rate on the dateof transaction. The exchange gain/loss onsettlement / negotiation during the year isrecognised in the Statement of Profit and Loss.

ii. Foreign currency transactions remainingunsettled at the end of the year are converted atyear-end rates. Gain or loss arising on accountof transactions covered by forward contract isrecognised over the period of contracts.

iii. Current assets and current liabilities at the endof the year are converted at the year end rateand the resultant gain or loss is accounted forin the Profit and Loss Account.

iv. The company has not used any derivativeinstrument except forward contracts whichhave been used for hedging its foreign currencyexposure. The company does not undertake anyspeculative or trading activi ty throughderivative instruments.

Bannari Amman Spinning Mills L td.

vii. The Foreign Currency transactions are recordedat the exchange rate prevailing on the date ofthe transaction. Foreign currency monetaryitems as at the Balance Sheet date are reportedat the closing rate or at the rate at which it islikely to be realized from or required to bedisbursed. Exchange differences arising onsettlement / restatement of short-term foreigncurrency monetary assets and liabilities of theCompany are recognized as income or expensein the Statement of Profit and Loss.

Bajaj Corp Ltd.

(i) I nitial recognition

Foreign currency transactions are recorded inthe reporting currency, by applying to theforeign currency amount the exchange ratebetween the reporting currency and the foreigncurrency at the date of the transaction.

(ii) Conversion

Foreign currency monetary items are reportedusing the closing exchange rate on the BalanceSheet date. Non-monetary items which arecarried in terms of historical cost denominatedin a foreign currency are reported using theexchange rate at the date of the transaction; andnon-monetary items which are carried at fairvalue or other similar valuation denominatedin a foreign currency are reported using theexchange rates that existed when the valueswere determined.

(iii) Exchange differences

Exchange difference arising on the settlementof monetary items at rates different from thoseat which they were initially recorded duringthe year, or reported in previous financialstatements, are recognized as income or asexpenses in the year in which they arise.

CMC Limited

Initial recognition

i. Company: Transactions in foreign currenciesentered into by the Company are accounted atthe exchange rates prevailing on the date ofthe transaction or at rates that closelyapproximate the rate at the date of thetransaction.

ii. Integral foreign operations: Transactions inf oreign currencies entered into by the

CA. Pamil H. [email protected]

From Published Accounts


Company’s integral foreign operations areaccounted at the exchange rates prevailing onthe date of the transaction or at rates that closelyapproximate the rate at the date of thetransaction

iii. Non-integral foreign operations: Transactionsof non-integral foreign operations are translatedat the exchange rates prevailing on the date ofthe transaction or at rates that closelyapproximate the rate at the date of thetransaction.

Measurement at the Balance Sheet date

i. Company: Foreign currency monetary items(other than derivative contracts) of theCompany, outstanding at the balance sheet dateare restated at the year-end rates. Non-monetaryitems of the Company are carried at historicalcost.

ii. Integral foreign operations: Foreign currencymonetary items (other than derivative contracts)of the Company’s integral foreign operationsoutstanding at the balance sheet date arerestated at the year-end rates. Non-monetaryitems of the Company’s integral foreignoperations are carried at historical cost.

iii. Non-integral foreign operations: All assets andliabilities of non-integral foreign operations aretranslated at the year-end rates.

Treatment of exchange differences

i. Company: Exchange di fferences arising onsettlement / restatement of short-term foreigncurrency monetary assets and liabilities of theCompany are recognised as income or expensein the Statement of Profit and Loss.

ii. I ntegral foreign operations: Exchangedifferences arising on settlement / restatementof short-term foreign currency monetary assetsand liabilities of the Company’s integral foreignoperations are recognised as income or expensein the Statement of Profit and Loss.

iii. Non-integral foreign operations: The exchangedifferences relating to non-integral foreignoperations are accumulated in a “Foreign

From Published Accounts

currency translation reserve” until disposal ofthe operation, in which case the accumulatedbalance in “Foreign currency translationreserve” is recognised as income / expense inthe same period in which the gain or loss ondisposal is recognised.

Accounting of forward contracts

Premium / discount on forward exchange contracts,which are not intended for trading or speculationpurposes, are amortised over the period of thecontracts if such contracts relate to monetary itemsas at the Balance Sheet date.

Lumax Auto Technologies Limited

a) Transactions denominated in foreign currenciesare recorded at the exchange rate prevailing onthe date of the transaction or that approximatesthe actual rate at the date of the transaction.

b) Monetary i tems denominated in foreigncurrencies at the year end are restated at yearend rates.

c) Non monetary foreign currency i tems arecarried at cost.

d) Any income or expense on account of exchangedifference either on settlement or on translationis recognized in the Statement of Profit and Lossaccount.

Adani Power L imited

i) Transactions denominated in foreign currenciesare normally recorded at the exchange ratesprevailing on the date of the transaction.

ii) Monetary i tems denominated in foreigncurrencies outstanding at the balance sheet dateare restated at the rates prevailing on that date.The exchange differences arising on settlement/ restatement of long term foreign currencymonetary items are capitalized as part of thedepreciable fixed assets to which the monetaryitem relates and depreciated over the remaininguseful life of such assets. If such monetary itemsdo not relate to acquisition of depreciable fixedassets, the exchange di f f erences are



CA. Kunal A. [email protected]

From the Government

(a) K umaon M andal Vik as Ni gamLimited, a Government of UttarakhandUndertaking; or

(b) ‘Committee’ or ‘State Committee’ asdefined in section 2 of the HajCommittee Act, 2002 35 of 2002);’.

(Notification No. 17/2014, dated 20/08/2014)

2) Not ification r elating to amendments inservice tax rules, 1994

In the Service Tax Rules, 1994, after rule 10,the following rules shall be inserted, namely:-

�11. Determination of rate of exchange.– The rate of exchange for determinationof value of taxable service shall be theapplicable rate of exchange as per thegenerally accepted accounting principleson the date when point of taxation arisesin terms of the Point of Taxation Rules,2011.”

�12. Power t o issue supplementar yinstructions.– The Board or the ChiefCommissioners of Central Excise mayissue instructions for any incidental orsupplemental matters f orthe implementation of the provisions ofthe Act.”.

The aforesaid Service Tax (SecondAmendment) Rules, 2014. shall come into forceon the 1st day of October, 2014.

(Notification no. 19/2014, dated 25-08-2014)

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I ncome Tax

1) Order relating to extension for furnishingtax audit report for AY 14-15.

The Central Board of Direct Taxes (CBDT)hereby extends the due date for obtaining andfurnishing of the report of audit under section44AB of the Act for Assessment Year 2014-15in case of assessees who are not required tofurnish report under section 92E of the Act from30th day of September, 2014 to 30thNovember, 2014. It is further clarified that thetax audit report under section 44AB of the Actfiled during the period from 1st April, 2014 to24th July, 2014 in the pre-revised Forms shallbe treated as valid tax audit report furnishedunder section 44AB of the Act.(Refer Order,dated 20-08-2014)

Service Tax

1) Notif ication r elating t o amendment innotification no. 25/2012 – Mega Exemption

The Central Government hereby makes thefollowing amendments in notification no. 25/2012 :-

a) Insertion of entry “5A” after entry no “5”:-

“5A. Services by a specified organisationin respect of a religious pilgrimagefaci litated by the Ministry of ExternalAffairs of the Government of India, underbilateral arrangement;”;

b) Insertion of clause (zfa) after clause (zf) inpara 2 relating to definitions:-

‘(zfa) “specified organisation” shall mean:-


Association News

CA. Abhishek J. JainHon. Secretary

CA. Nirav R. ChoksiHon. Secretary

Glimpses of events gone by:

A Group Photo at 41st RRC held at Jaypee PalaceHotel & Convention Centre, Agra from 2nd August2014 to 6th August 2014.

On 14th August 2014, Entertainment Committee Programme - “ANTAKSHARI 2014” was held at Fire& Flames, Alpha One Mall, Ahmedabad.

6th Knowledge Clinic

6th Knowledge Clinic is scheduled to be held on Friday, 26th Septemeber 2014 at the Association’s officefrom 3.30 pm to 4.30 pm. Members having queries on the subject of professional interest may send by emailor by hand delivery on or before 19th September 2014.

On 9th August 2014, 2nd Brain Trust CommitteeProgramme was held on the topic of “Issues in TaxAudit (Tax & Audit Perspective) at Atma Hall,Ashram Road, Ahmedabad.

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(L to R CA. Abhishek J. Jain, CA. Kunal A. Shah,Speaker CA. Hardik Sutaria, CA. Shailesh C. Shah,

Speaker CA. Sanjay R. Shah and CA. Ronak M.Khandwala)


The assessee filed appeals for AY 1994-95 & 1996-97 which were delayed by 2984 days. In supportof the application for condonation of delay, theassessee claimed that his CA, M/s Rajesh RajeevAssociates, had advised him that as he had alreadyfiled an appeal for AY 1993-94 on the same point,which was pending before the Tribunal, he neednot file appeals for AYs 1994-95 & 1996-97 and,instead, he could, after adjudication of the appealfor AY 1993-94 by the Tribunal, move a rectificationapplication before the AO to bring the assessmentorder in conformity wi th the decision of theTribunal. The CA filed an affidavit in which heconfirmed having given the said advice. In thecondonation application, the assessee pleaded thathe ought not to be made to suffer for the “incorrect”advice given by the CA. HELD by the Tribunaldismissing the application and the appeals:

(i) The advice given by the CA firm shows signsof deteriorating standards with some of theChartered Accountants in profession, whichneeds to be stopped on war footing by theICAI. The assessee is having connection withmany tax professionals and, in all probabilities,the assessee might have had consultation withany one or more of them on the impugnedproblem. I t is inconceivable that al l theChartered Accountants, whom the assesseemight have had consultation or availed services,would have concurred with the view expressedby the above said C.A firm. If it is presumedfor a moment that all the C.A.s have concurredwith the said view, then it only shows that theC.A profession is losing its grip over the Incometax matters, which is another cause of concernfor ICAI. The self study model coupled with‘on-site articled clerk training’ embedded inthe Chartered A ccountancy course aims toachieve high quality education and trainingthrough undergoing practical training,inculcating the habi t of thinking, sel fintrospection, application of mind, analyticalability etc. and they enable the C.A students to

ITAT laments severe fal l in standards of CA profession. Advices ICAI to take disciplinaryproceedings against er r ing members & tackle issue on war footing

have strong grip over the subjects and also toattain expertise in them… In the recent past,the methodology of self study is given a go-byby some C.A students and they have starteddepending more and more on the CommercialCoaching Centers, who undertake coaching ofvarious subjects in the class room model. Wenotice that the ICAI does not appear to havetaken steps to contain mushrooming growth ofsuch coaching institutes, which indulge inmanufacturing of Chartered A ccountantsthrough class room model , which mayultimately have undesirable effect on the qualityof Chartered Accountants, since the habit ofthinking, introspection, application of mind isreplaced by spoon-feeding, which kind ofteaching discourages independent thinking.There should not be any controversy on thefact that the Chartered Accountants, till date,have occupied pioneer position vis-à-vis theircounterparts in other parts of the World. Theyalso contribute a lot to the building, sustenanceand growth of our National economy. Anycompromise on the quality of CharteredAccountants would not only affect our Countryvery badly, but is also expected to endangerthe pioneer position enjoyed by the Indian C.Afraternity vis-à-vis their counter parts in otherparts of the world. In our view, the ICAI shouldseriously take note of these alarming practicesslowly emerging in our Country and shouldtake appropriate corrective steps, lest theconfidence reposed in C.A.s by the publicshould get diluted;

(ii) In this back ground, in our view, the above saidC.A. firm would have given the letter as wellas the af fidavi t only to accommodate theassessee herein. We would like to mention herethat we have come to such a conclusion, sincea qualified C.A. firm would not commit suchkind of sil ly mistakes while giving expertprofessional advice. If the C.A. firm has soaccommodated the assessee, without even


realising that it is detrimental to its reputation,then the conduct of the C.A. firm needs to becondemned strongly. In that case, we are ofthe view that the above said conduct of the C.A.firm not only denigrates its name/ reputation,but also badly affects the high standards,confidence, quality, prestige, reputation etc.enjoyed by the C.A. profession;

(iii) The advice claimed to have been given by M/sRajesh Rajeev A ssociates, CharteredAccountants, if considered to have been reallygiven, would create doubt about the efficacy ofthe CPE programmes, since such kind of advicesis not expected from a Professional. Further thesekind of advices claimed to have been given by aC.A firm clearly give signals that the CPEprogrammes might have failed to achieve thedesired objectives with some of the CharteredAccountants. It is high time that the ICAI shouldtake note of these practicalities and should takecorrective steps in order to maintain/restore thehigh standards and quality expected from a C.A.

professional. We have also expressed the viewthat the above said C.A firm might have giventhe affidavit only to accommodate the assessee,which conduct is also not expected from aProfessional. If it is considered that the C.A firmhas colluded with the assessee for giving suchkind of af fidavi t, then it only warrantsdisciplinary action against them. Even, if it isconsidered that the said C.A. firm has reallygiven such advices, then also it may requiredisciplinary action against them for giving suchkind of advices, without proper verification offacts and without proper consideration of law.In our view, strict actions and fast disposal ofdisciplinary proceedings would not only instilldiscipline among the C.A fraternity, but also helpcurtail these kind of undesired practices adoptedby some of the Chartered Accountants.

Vijay V Meghani vs. DCIT (ITAT Mumbai)

Source – www.itatonline.org

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accumulated in “Foreign Currency MonetaryItem Translation Difference Account” and isamortised over the maturity period / up to thedate of settlement of such monetary items,whichever is earl ier and charged to theStatement of Prof it and Loss. Exchangedifferences arising on settlement / restatementof short term foreign currency monetary itemsare recognized as income or expense in theStatement of Profit and Loss.

iii) Premium / discount on forward exchangecontracts, which are not intended for tradingor speculation purposes, are amortised overthe period of the contracts if such contractsrelate to monetary items as the balance sheetdate.

iv) Non monetary foreign currency i tems arecarried at cost.

contd. from page 381 From Published Accounts

Chemfab Allalis L imited

Transactions in foreign currencies are accounted atthe exchange rates prevailing on the date of thetransactions and the realized exchange loss/gain aredealt within the Statement of Profit and Loss.

Monetary assets and liabilities denominated inforeign currency are restated at the rates ofexchange as on the Balance Sheet date and theexchange gain / loss is suitably dealt with in theStatement of Profit and Loss.

Premium / discount on forward exchange contracts,which are not intended for trading or speculationpurposes, are amortised over the period of thecontracts if such contracts relate to monetary itemsas at the balance she

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16th August, 2014

To,The Chief Commissioner of I ncome Tax – 1Gujarat

Respected Sir,

Sub: Representation for keeping the appellateproceedings relating to applicability of Section234E in abeyance.

1.0 INTRODUCTION

1.1 The Finance Act, 2012 has inserted Section234E in the Income Tax Act, 1961 wherebyfee of Rs. 200/- per day is levied for the defaultof the deductor/collector for failure to file TDS/TCS Statement within the due date.

1.2 The constitutional validity of Section 234E hasbeen chal lenged in different High Courtsthrough various writ petitions.

1.3 The implementation of Section 234E is turningout to be a hardship for taxpaying or taxdeducting/col lecting publ ic at large. Thedeductors are not being spared even for theslightest of the procedural lapse.

1.4 The levy of fee of Rs. 200 per day for eachday of defaul t is very stringent on thetaxpaying public at large considering the natureof default being procedural in nature withoutany loss of revenue to the exchequer. The levyalso seems to be unjust considering thediscrimination in the time period allowed tofi le quarterly statements to governmentdeductors and non-government deductors.

1.5 With the help of RTI machinery, it has beenshockingly and surprisingly found that variousgovernment deductors viz. CPC (TDS), VariousIT Departments at Ahmedabad and Gujarat,High Courts etc. did not file the TDS statementson or before the due date thereby attracting thelevy of fees u/s. 234E of the Act. However, theCBDT has vide a circular No. 07/2014 F. No.275/27/2013-IT(B) dated 04rth March, 2014

extended the due date for filing return for FY2012-13 (Q2 to Q4) and FY 2013-14 (Q1 toQ3) only to the government deductors.

1.6 This circular definitely gives a big relief togovernment deductors of T.D.S/TCS butsimilar relief also expected/sought by otherassessees. The issuance of such a circulardefinitely proves a fact that there were validreasons why there was a delay in filing of theTDS statements. Issuance of such a circular inorder to deliberately conceal the personalnegligence of the government employees ishighly discriminatory and throws light on thedouble standards adopted by the Board. TheCBDT should also consider the practicaldifficulty faced by other assessees, those whoare not government deductor and give a duerel ief to such other assessees at par withgovernment deductors.

1.7 Morever, demand of late fee cannot be raisedby way of processing of TDS statement,because Sec 200A(1) of the Act talks aboutTDS returns by a person deducting any tax,so it does not cover cases of tax deductible butnot deducted at all. Further the provisions ofSec. 200A of the Act do not permit processingTDS statement for default in payment of latefee, except any arithmetical error, or incorrectclaim, or default in payment of interest, anyTDS payable or refundable etc.

1.8 The Kerela High Court has in the case ofNarath Mapila LP School Vs. UOI has videan interim order dated 18.12.2013 granted astay on the proceedings u/s. 234E of the Act.

1.9 The Karnataka High Court has in the case ofAdithya Bishop Solutions India P. Ltd. V. UOIstated that “Pending consideration of thegrounds in the writ petition, it is desirable thatenforcement of notices referred to aboveissued by the 4th respondent are stayed untilfurther orders.”

Representation to keep the Appellate Proceeding relatingto applicabil i ty of Section 234E in abeyance


1.10 Similarly, the Rajasthan High Court has in thecase of Om Prakash Dhoot V. UOI directedthat “notice should be issued to the CBDTand the UOI as to why the Petition shouldnot be accepted. It has also been held that inthe meanwhile, if any recovery is made fromthe Petitioner, that shall be subject to the finaldecision of the Writ Petition.”

2 MAJOR ISSUES2.1 A few enlightened assessees have also filed a

writ petition before the Honorable GujaratHigh Court. Though the matter has alreadybeen taken on board by the Honorable HighCourt, the hearing has been adjourned up toOctober, 2014.

2.2 Varioius assessees who have been served withthe notice for payment of fees u/s. 234E of theIncome Tax Act, 1961 have preferred appealsbefore the Hon. CIT(A) XXI, Ahmedabad.

2.3 However, it has come to our notice that theCITs (A) have started rejecting the appeals anddelivering the judgment against the assessees.

3 REPRESENTATION3.1 It is clearly evident that the constitutional validity

of Section 234E has been challenged before theHigh Courts and the Courts have even granteda stay on the recovery proceedings until thedisposal of the writ petitions.

3.2 It is therefore sincerely requested that all theappellate proceedings which relate to theapplicability of Section 234E of the Act be keptin abeyance till the disposal of the aforesaidwrit petitions including the petition before theHonorable Gujarat High Court in order toprotect the interest of the tax paying communityat large.

Thanking you,Yours truly,CA Rajni Shah Shailesh C. ShahChairman PresidentLegal and Representation C.A. Association,Committee AhmedabadDirect Taxes

CC: CIT(A) – XXI , Ahmedabad.❉ ❉ ❉

Can’t is a word that is

Foe to ambition

An enemy ambush to

Shatter your will.

It’s prey forever to

A man with a mission

And bows only to courage,

And patience, and skill.

So hate it with hatred that’s

Deep and undying

For once it is welcomed,

It will break any man.

And whatever the goal you

Are seeking, keep trying,

And answer this demon by

Saying, “I Can!”

- Anonymous

❉ ❉ ❉

I Can


Across

1. ________________ of Charity was foundedby Mother Teressa.

2. Section 40(A)(2) cannot be applied when thereis no _____________ claimed.

3. __________ begins at home.

Down

4. “Cost to Create” value is basically from theview point of the buyer or the _________.

5. Under the RTI Act, generally the officer whois ___________ in rank to the PIO is the FirstAppellate Authority.

6. Assessee is entitled to the credit of _______for which form no. 16A is produced.

ACAJ Crossword Contest # 5

Notes:

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

2. Three lucky winners on the basis of a drawwill be awarded prizes.

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

ACAJ Crossword Contest # 4 - SolutionAcross1. Competent 2. Repatri ate3. Seven

Down4. Happy 5. Yourself6. Addition

❉ ❉ ❉

Winners of ACAJ Crossword Contest # 4

1. CA. Akta Patel

2. CA. Mehul Shah

3. CA. Priyank Dave

4. M embers may submi t their reply eitherphysically at the office of the Association orby email at [email protected] on orbefore 30/09/2014.

5. The decision of Journal Committee shall be finaland binding.

Ahmedabad Chartered Accountants Journal

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