CA Terminal: 12/11/14

Thursday 11 December 2014

No reassessment deeming exp. on software capital in nature when assessee had disclosed that it was a

IT : Where expenditure on software charges was an annual expenditure and such fact had been disclosed by assessee, reopening of assessment on ground that said expenditure was of enduring nature was unjustified

Fee from leasing of hotel wasn't income from house property if lessee was doing hotel business in na

IT : Where assessee had leased out its business assets and gave a special right or privilege to franchisees to undertake a particular business in property of assessee on receipt of franchisee fee, income as franchisee fee was clearly in nature of business income

If comparable was having different segments, only segment related to assessee was relevant for TP st

IT/ILT: Comparable company should have comparable turnover and comparable activity; further, in case of comparable having different segments, profit margin of similar segment is only to be considered

No ad-hoc disallowance when jeweller had proved genuineness of making charges paid in cash to worker

IT : Cash payment of making charges to workers being customary in jewellery business deserved allowance under section 37(1)

Call centre services to recipients located abroad were export of services even when Indian TelCos we

ST : When Call centre services are provided electronically to recipient located outside India, data has to be delivered to telecom authorities for transmission abroad and merely because of involvement of telecom authorities in India, it cannot be said services were not exported

Oppression petition quashed as it was filed to escape liability that would arise due to Bank's recov

CL : Where petitioners failed to substantiate allegations of oppressions and mismanagement and petition was filed for collateral purpose to escape possible liabilities that might arise on account of recovery proceedings initiated by bank, such petition could not be allowed

Fee from services rendered by expat using technical knowledge under secondment agreement was FTS; SL

IT/ILT : Where in terms of 'secondment agreement' employees of overseas companies used their technical knowledge and skills while assisting assessee in conducting its business of quality control and management, amounts reimbursed by assessee to overseas companies towards salaries of seconded employees amounted to 'fee for technical services' liable to tax in India

CBDT revises jurisdictions of DGITs, DITs of Intelligence and Criminal Investigation wing

IT : Section 120(1) and (2) of the Income-Tax Act, 1961 - Income-Tax Authorities - Jurisdiction of - Supersession of Notification No. SO 1942(E), Dated 19-8-2011

Assessee had to comply with pre-deposit order of Tribunal; he couldn't escape by making partial pre-

Service Tax : Where assessee had complied with pre-deposit order of Tribunal in part only and assessee's appeal was dismissed for default in full compliance with said order, assessee's challenge on ground of inconsistency in order of Tribunal was dismissed and assessee was directed to fully comply with said order

Despite Low Oil Prices, India May Not Gain Much. Here's Why

Oil prices have been falling for a while now. The price of the Indian basket of crude oil as on December 10, 2014, stood at $63.16 per barrel. At the beginning of this financial year, as on April 1, 2014, the price had stood at $104.56 per barrel. Hence, prices have fallen by close to 40% since then.

Analysts expect that oil prices will continue to remain low in 2015. In a report titled 2015: It Likely Gets Worse Before It Gets Better, analysts at Morgan Stanley give three possible scenarios for the price of oil. In the worst possible scenario they expect the price of oil to touch $43 per barrel in the second quarter of 2015 (i.e. the period between April and June 2015).

As the Morgan Stanley analysts write: “ With OPEC on the sidelines, oil prices face their greatest threat since 2009...Without intervention, physical markets and prices will face serious pressure, with 2Q15 likely marking the peak period of dislocation.”

As I have explained on previous occasions the Saudi Arabia led Organization of the Petroleum Exporting Countries(OPEC) is interested in driving down the price of oil to ensure that shale oil firms operating in the United States and Canada become unviable. This is why OPEC hasn't cut oil production majorly in recent months, even though oil prices have fallen dramatically.

The conventional thinking is that a fall in oil prices will benefit India tremendously. A major reason for the same is that India imports nearly four fifths of the oil that it consumes. Hence, a fall in oil prices will mean that there will be lower oil imports and this will mean a lower trade deficit (i.e. the difference between imports and exports).

Further, low oil prices will also mean lower inflation and a lower fiscal deficit for the government. Fiscal deficit is the difference between what a government earns and what it spends. In the years gone by, the government did not allow the oil marketing companies to sell diesel, cooking gas and kerosene oil, at a price that was viable for them. The government compensated these companies for a part of the under-recoveries.

This led to the government expenditure shooting up which pushed up the fiscal deficit. While this sounds good in theory, things are not as straightforward as they are made out to be. Neelkanth Mishra and Ravi Shankar of Credit Suisse discredit this argument in their recent research report titled 2015 Outlook: Growth at any price?

Let's look at these points one by one. The government had budgeted Rs 63,426.95 crore as oil subsidy for this financial year. This as always has been the case in the past was a very optimistic assumption, given that a significant part of the oil subsidies for the last financial year were unpaid. The oil subsidies that had not been paid for during the course of the last financial year amounted to Rs 35,000 crore. This has been paid from this year's budget. Given this, despite a dramatic fall in oil prices there isn't going to be a huge impact on the fiscal deficit. If oil prices continue to remain low during the course of the next financial year (April 2015 to March 2016) it will benefit the government on the fiscal deficit front, feel the Credit Suisse analysts.

What about inflation? Petrol and diesel together make up for around 2% of the consumer price index. Over and above this, the government has raised the excise duty on petrol and diesel twice in the recent past. This has reduced the “passthrough to consumer prices”. Hence, consumers haven't benefited as much as they should have.

Further, “LPG [domestic cooking gas] and kerosene, which have higher weights [in the consumer price index],are still subsidised, so the fall in crude will not directly impact retail prices,” write Mishra and Shankar.

Now let's look at the trade deficit or the difference between imports and exports. Oil imports in the month of October 2014 fell by 19% to $15.2 billion in comparison to the same period last year. Despite this, the overall trade deficit for the month rose to $13.3 billion from $10.6 billion a year ago.

Why is that the case? With global growth slowing down, exports slowed down by 5% to $26 billion. Further, India seems to have rediscovered its appetite for gold with gold imports rising by 280% to $4.17 billion from $1.09 billion in October 2013.

So, despite falling oil prices India may not gain much immediately. Also, falling oil prices mean lower incomes for oil exporting countries and this will slow down their consumer demand, which will have an impact on Indian exports.

Professor Eswar Prasad of Cornell University explained this in an interview to CNBC. As he said: “Right now if oil goes to $65 or even slightly lower it is not a big negative but it does imply that there is going to be a lot of weakness in external demand and countries in Latin America like Venezuela which already have a very difficult situation, emerging markets like Russia and of course the Middle Eastern countries plus some of the European economies like the UK and Norway that rely on oil exports to a significant extent are going to be facing fairly difficult situations. This will affect their budgets and their current account balances which in turn will affect their consumption demand. So, softness in consumption demand is ultimately not good for anybody in the world including India.”

Neelkanth Mishra also made a similar point in an interview to The Economic Times. Mishra's argument was that if oil exporting countries earn lower, their sovereign wealth funds will invest a lower amount of money in other countries, including India.

As he said: “Further, capital flows get impacted, too — if you look at the sources of funds that invest in India, it's primarily the sovereign wealth funds (SWFs), the pension funds and the insurance funds. If Norway, Saudi Arabia, Abu Dhabi, Qatar, or Kuwait are not going to see the kind of surpluses that they used to then they will have less capital to send out, which will mean that capital flows into India will not be as strong as they were.”

To conclude, what these points clearly tell us is that a fall in oil prices will not benefit India as much as it is being made out to be.

Source:firstbiz.firstpost.com

Rajasthan Thermal Plants Exploit Allocated Coal Before Target

To keep thermal power plants TPP running, Rajasthan Rajya Vidyut Utpadan Nigam Limited (RRVUNL) is forced to import more coal than its set target. In the current year (April- October 2014), RVUNL had imported 0.85 million tonne against the target of 0.25 millian tonne which is likely to increase in coming months.

Unavailability of coal from domestic suppliers left RRVUNL to look for international suppliers. In the first two quarters itself it has crossed over 70% of its planned exports. "To meet shortfall in domestic availability of coal, power utilities including RRVUNL are importing coal," said power minister Piyush Goyal.

Under the exigency plans, power plants of RRVUNL have been allocated coal blocks so as to maintain proper supply. Unit I of Kalisindh (600 MW) and Unit III and IV of Chabra are getting coals from allocated blocks. To meet the demand of unit I and II of Kawai Power Plant (owned by a private company), it is being supplied through MoU with the coal blocks. Officials though claim that situation is under control as supplies in old plants are through fuel supply agreement (FSA) with CIL.

"Coal supplies from CIL sources to thermal power plants of Rajasthan have been 93% of FSA commitment," said senior official of RRVUNL. "New plants have also been allocated the blocks. Still if deficit exists, we import it. But we are able to mix only 10 of the imported coals as our old plants are domestic coal based," said senior official of RRVUNL.

Source:timesofindia.indiatimes.com

SEBI permits non-demat transactions in mutual fund through stock exchange platform

SEBI : Facilitating Transaction in Mutual Fund Schemes through the Stock Exchange Infrastructure

FAQs on Research Analyst norms- Journalists giving opinion on securities via public media covered un

SEBI : Frequently Asked Questions (FAQs) on SEBI (Research Analysts) Regulations, 2014

Indian Iron Ore Miners Halt Exports On Weak Prices And Higher Taxes - Report

Bloomberg reported that iron ore exports from India have halted as a global price slump and an increase in royalty fees made shipments unviable for miners battling high taxes levied on overseas sales.

Mr RK Sharma secretary general of Federation of Indian Mineral Industries in an interview, without giving specific data said that “The third biggest iron ore exporting nation until three years ago didn’t sell a single gram overseas in October and November. International prices have fallen to rock-bottom and our costs have remained high. You lose money on every ton you export.”

Mr KK Sahu port traffic manager at Paradip said that “There’ve been no iron ore exports from our port since the end of August.”

Mr AN Joshi, vice president for iron ore at Sesa Sterlite Ltd said that “Our costs are now higher than the prices we will get in the international market. The export tax has to be abolished altogether.” Miners have sought the scrapping of a 30% export tax levied in 2011 to be able to resume sales.

Source:steelguru.com

Us Lifts Cotton Price Hopes, But Warns Over India's Export Prospects

US farm officials lifted their forecast for domestic cotton prices as they said that the country would prove, relatively, unscathed by the slump in Chinese imports this season, with India to "bear the brunt" of the decline.

The US Department of Agriculture ditched its most pessimistic forecasts for US farmgate cotton prices this season, revising its estimate to 59-64 cents a pound from a previous figure of 56-64 cents a pound.

The USDA said that the revision, while still implying a large drop from the average price of 77.9 cent a pound in 2013-14, was "based on stronger-than-expected early season prices".

However, it also came as the USDA lower by 500,000 bales to 4.6m bales its forecast for domestic cotton stocks at the close of this season, reflecting a cut of 26 pounds per acre to 773 pounds per acre in the yield forecast. "Production is reduced 474,000 bales, due mainly to a lower crop estimate for Texas," the department said.

It also flagged the relative resilience of the US, Brazilian and Uzbekistani cotton exports to the halving, to 7.0m bales, in China's imports this year. India will suffer most, with its price competitiveness eroded by a programme guaranteeing cotton farmers a minimum value for their crop.

"In addition, import demand from China is likely to focus on machine-picked cotton not available from domestic supplies," the USDA said. "As a result, India will struggle to maintain its share in the shrinking Chinese market and stocks will rise sharply."

Indeed, the USDA raised by 300,000 bales to 1.1m bales its forecast for India's imports, as the country's "support programme raises domestic prices".

By contrasts, Brazil, the US and Uzbekistan have been "much less dependent on the Chinese market" for shipments "and will see proportionately smaller decreases in their 2014-15 exports.

"In fact, for Brazil, which had the least reliance on China, total exports are forecast to rise on larger supply and shipments to other destinations." Cotton futures for March stood up 0.4% at 60.09 cents a pound in late deals in New York.

Source:agrimoney.com

Gm India Future Plans Include Launching New Cars And Increasing Exports

Following falling sales and lower than predicted demand, General Motors India is set to concentrate more on exports and new offerings in the sub four meter sedan segment.

Falling market share, low capacity utilisation and mounting losses has caused General Motors India to rework its marketing strategy with added focus on exports and introduction of new offerings in sub four meter sedan segment.

In the offing are two products from General Motors India which include a sedan based on an M300 platform besides the new gen Beat hatchback, both of which should enter markets in early 2017.

With the sub four meter sedan segment fast catching the attention of buyers in the country, GM India follows in the footsteps of both Ford and Volkswagen in introducing more models in this segment.

New launches of Sail UVA hatchback, Sail sedan and Enjoy MPV in 2013 failed to attract the desired attention in domestic markets and hence the company will be boosting exports. GM India has commenced exports of the Beat hatchback to China while the company will be planning exports of over 30% of total production by 2017. GM India is exploring markets of South Africa, Mexico and other Latin American markets while using India as its export base.

GM India is at present operating at 30% of capacity and losses mounted to INR 6,552 crores at the end of FY 2014. Market share currently stands at just 2.2% while sales have dipped 36% to 32,567 units during the April-October period.

Source:rushlane.com

Assessee had to company with pre-deposit order of Tribunal; he couldn't escape by making partial pre

Vodafone again in trouble - ITAT decides against Vodafone on TP issue of ‘call options’

IT/ILT : As per the definition of international transaction as contemplated u/s 92B r.w.s 92F(v), it does not necessarily require a transfer or assignment of a property or creating any right or interest in the property but even an arrangement, understanding and action in concert, whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings or not, if the said understanding shall have a bearing on the profits, income, losses or asset of the enterpris

Rule 5A(2) providing for ST audit has statutory backing; CBEC directs officers to audit ST assessees

ST LAWS : Rule 5A of the Service Tax Rules, 1994 Read with Sections 72A, 83 and 94 of the Finance Act, 1994 - Audit - Service Tax – Audit of Service Tax Assessees by Officers of Service Tax and Central Excise Commissionerates

RBI allows Indian party to pledge shares of its overseas step-down subsidiary to avail of credit fac

FEMA/ILT/INDIAN ACTS & RULES : FEM (Transfer or Issue of any Foreign Security) (Third Amendment) Regulations, 2014 – Substitution of Regulations 18 and 18A

Rupee Weakens 24 Paise To 62.26 Per Dollar As China’S Inflation Data Disappoints

The Indian rupee was trading lower against the dollar on Thursday, mirroring other Asian currencies after China’s inflation data disappointed, making markets in the region less attractive.

At 2.25pm, the rupee was trading at 62.26 a dollar, down 0.39% compared with its previous close of 62.02. The local currency opened at 62.17 per dollar and touched a low of 62.34 during the day—a level last seen on 20 February. India’s benchmark equity index Sensex was trading at 27,762 points, down 0.25%.

Most of the Asian currencies were trading lower. Japanese yen fell 0.33%, Malaysian ringgit 0.24%, China renminbi 0.21%, China offshore 0.21%, Thai Baht 0.17% and Indonesian rupiah 0.1%.

Since the beginning of this year, the rupee has weakened 0.75% against the dollar, while foreign institutional investors have bought $17.32 billion during the period from local equity markets.

The dollar index, which measures the US currency’s strength against major currencies, was trading at 88.216, down 0.06% from its previous close of 88.271.

“Indian rupee traded lower against the greenback, in line with most of its Asian peers, as disappointing inflation data from China dented the demand for emerging market currencies,” Religare Retail Research wrote in its daily forex report.

China’s November retail inflation was below estimates at 1.4% from 1.6% in October and marks the lowest monthly reading since November 2009.

The yield on India’s 10-year benchmark bond stood at 7.878% compared with its Wednesday’s close of 7.908%. Bond yields and prices move in opposite directions. It touched a low of 7.874%—a last level seen on 15 July 2013.

The government will issue Consumer Price Inflation (CPI)-based inflation and index of industrial production (IIP) data on 12 December. A Bloomberg poll estimates CPI at 4.4% as compared with 5.52% in October and IIP at 2.7% for October as compared to 2.5% in September.

Source:livemint.com

ITAT allows provision for excise duty as it was paid before due date of filing of return

IT : Interest on fixed deposit kept as margin money towards bank guarantee in course of export business is to be considered as income from business eligible for deduction in terms of Explanation (baa) to section 80HHC

HC quashed recovery proceeding as it was related to period prior to insertion of recovery provisions

CST & VAT: Kerala VAT : Where secretary of a society had resigned from society on 18-11-1998 and long thereafter Assessing Authority relying on section 22(4) of Kerala General Sales Tax Act initiated recovery proceeding against secretary for recovery of arrears of sales tax dues of society for assessment years 1981-82 to 1991-92, since section 22(4) was incorporated in statute only w.e.f. 1-4-1999, recovery proceedings against secretary were not permissible

Trial running exp. of plant and machinery is in nature of capital exp., says ITAT

IT : Pre-commencement expenses and capital expenditure

No TP adjustment for interest earned by foreign branch from ECB which is subject to credit analysis

IT/ILT: Where assessee Indian branch of foreign bank made credit analysis of Indian borrowers which helped overseas branch for taking decisions on granting loans to Indian borrowers, no part of income of interest paid by Indian borrower could be attributed to assessee in respect of fees received by it for purpose of transfer pricing adjustment

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