COMMISSIONER OF INCOME TAX-(C)-III Vs. FLEX FOODS LTD

THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 10.05.2013 + ITA 21/2013 & ITA 20/2013 COMMISSIONER OF INCOME TAX-(C)-III ... Appellant versus FLEX FOODS LTD ... Respondent Advocates who appeared in this case: For the Appellan t : Mr N.P. Sahni For the Respondent : Mr M.P. Rastogi with Mr K.N. Ahuja CORAM:- HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE VIBHU BAKHRU JUDGMENT BADAR DURREZ AHMED, J (ORAL) 1. These appeals by the revenue are in respect of the assessment years 2003-04 and 2004-05 and arise out of the common order passed by the Income Tax Appellate Tribunal on 17.04.2012 in ITA Nos. 4880-4881/Del/2011, respectively. Limited notice had been issued in this matter on the previous occasion. The only issue sought to be raised in the present appeals relate to the submissions made by the learned counsel for the appellant/revenue that miscellaneous income and interest income should have been reduced while computing the deduction of eligible profits under Section 80HHC which would also be the same amount for the purposes of Section 115JB of the Income Tax Act, 1961 (hereinafter referred to as `the said Act') 2. We have heard the counsel for the parties at length. There appears to be a misunderstanding on the part of the revenue. It is abundantly clear that for ITA Nos. 21/13 & 20/13 Page 1 of 4 the purposes of computing the profits derived from the export of goods as referred to in Section 80HHC, the same has to be computed under sub-section (3) or sub-section (3A) of Section 80HHC. In the present case, clause (a) of sub-section (3) of Section 80HHC would be applicable. Therefore, the profits derived from exports would have to be computed by multiplying the profits of business with the ratio of export turnover to total turnover. Or, in other words:- Profits derived from Exports = Profits of business x Export turnover Total Turnover The profits of business have to be computed in the manner given in Explanation (baa) after sub-section (4) of Section 80HHC. The contention of the revenue is that in computing the deduction under section 80HHC, the same should have been reduced by the extent of miscellaneous income and interest income as the same cannot be considered to be part of export profits. This is where the misunderstanding on the part of the revenue lies. The so called miscellaneous income and interest income, in the present case, have never been regarded as part of the export turnover. They constitute part of the profits of business. The Assessing Officer, in the present case, has accepted the fact that the miscellaneous income and the interest income were part of the business income of the assessee. Once that is accepted, they would constitute part of the profits of business, of course, to a limited extent as provided in Explanation (baa) referred to above. That is exactly what has been done by the Assessing Officer as would be apparent from the computation, which we are reproducing herein below:- "Subject to these observations, the total income of the assessee is assessed as follows"- ITA Nos. 21/13 & 20/13 Page 2 of 4 Business income as declared by the assessee 9,23,71,923/- Add: On account of foreign exchange loss as discussed above 4,95 736/- 9,28,67,659/- Less: B/f losses/depreciation 7,90,26,260/- 1,38,41,399/- Less: Deduction u/s 80HHC as discussed above. Profit as above 1,38,41,399/- Less: 90% of other income of ` 29,83,818/- 26,85,436/- 1,11,55,963/- Deduction u/s 80HHC = Profit X Exportturnover/Total turnover = 1,11,55,963 X 8,18,29,489/25,03,74,251 = 81,01,803/- 30% of above = 24,30,541/- 24,30,541/- 1,14,10,858/- Computation of book profit u/s 115JB Book profit as taken in the computation of income 2,21,01,867/- Add: Claim for deduction u/s 80HHC not allowed as per discussion (supra) 6,37,08,462/- Book profit u/s 115JB 8,58,10,329/- Rounded off u/s 288A 8,58,10,330/-" 3. In respect of the above computation, there was no grievance on the part of the assessee upto the point the deduction under Section 80HHC has been computed at ` 81,01,803/-. The grievance of the respondent/assessee was only with regard to limiting the deductions to 30% of the above figure of ` 81,01,803/- by invoking Section 80HHC (1B) while computing the book profit under Section 115JB. That issue is no longer in dispute in view of the decision of the Supreme Court in the case of Ajanta Pharma v. CIT: 327 ITR 305 (SC), where it was made clear that 100% of the deduction would be allowable. Therefore, the Assessing Officer was wrong in allowing only 30% of the deduction allowable under Section 80HHC for the purposes of computing book profits under Section 115JB. ITA Nos. 21/13 & 20/13 Page 3 of 4 4. It is, therefore, apparent that with regard to the issue of miscellaneous income and interest income, there was no dispute with the Assessing Officer's treatment of the same as being part of business income. Consequently, the contention sought to be raised on behalf of the revenue that the miscellaneous income and interest income should be excluded does not arise at all. This is so because the assessing officer had treated the same as part of business income of the assessee. 5. As such no question of law, what to speak of a substantial question of law, arises for our consideration. 6. The appeals are dismissed. BADAR DURREZ AHMED, J VIBHU BAKHRU, J MAY 10, 2013 su ITA Nos. 21/13 & 20/13 Page 4 of 4

BHARAT SANCHAR NIGAM LTD. Vs. DEPUTY COMMISSIONER OF INCOME TAX AND ORS.

THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 09.05.2013 + W.P.(C) 550/2007 BHARAT SANCHAR NIGAM LTD. .. Petitioner versus DEPUTY COMMISSIONER OF INCOME .. Respondent AND + W.P.(C) 7707/2007 & CM 14692/2007 BHARAT SANCHAR NIGAM LTD. .. Petitioner versus DEPUTY COMMISSIONER OF INCOME TAX AND ORS. .. Respondents Advocates who appeared in these case: For the Petitioner :Mr M.S. Syali, Sr. Advocate with Mr MayankNagi and Ms Husnal Syali, Advocate. For the Respondent :Mr Sanjeev Rajpal, Advocate. CORAM:- HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE VIBHU BAKHRU JUDGMENT VIBHU BAKHRU, J 1. These two writ petitions are filed by Bharat Sanchar Nigam Limited (BSNL) and seek to challenge the notices under Section 148 of the Income Tax Act (hereinafter also referred to as "the Act") and the proceedings initiated pursuant thereto, for reopening the concluded assessments for the assessment year 2001-02 and 2002-03. The petitioner has, in Writ Petition No. 550/2007 W.P.(C) Nos. 550 & 7707/2007 Page 1 of 22 challenged the notice dated 23.11.2005 issued under Section 148 of the Act and the order dated 08.02.2006 passed by the Assessing Officer rejecting the objections raised by the petitioner against the reasons for issuance of the notice dated 23.11.2005. The Assessing officer had, by the notice dated 23.11.2005, initiated proceedings for reassessment of income for the period relevant to the assessment year 2001-02. The challenge in the Writ Petition No. 7707 of 2007 is with respect to the notice dated 12.3.2007 issued under Section 148 of the Act for initiating re-assessment proceedings in relation to the Assessment year 2002-03. As both the writ petitions raised similar issues, the same were taken up for hearing together and are being disposed off by this common order. 2. The petitioner is a Government Company and was incorporated on 15.09.2000 under the Companies Act, 1956. Prior to the incorporation of the petitioner company, the telecommunication services were being provided by Government of India, Ministry of Communication through its two departments, namely Department of Telecommunication Services (in short "DTS") and Department of Telecommunication Operation (in short "DTO"). The petitioner company was incorporated pursuant to the policy of the Government of India (National Telecom Policy 1999) to hive off its business of providing telecom services and operate the same through a corporate entity. The petitioner was constituted as a wholly owned Government of India enterprise for taking over the business of providing telecommunication services from DTO and DTS. The petitioner started functioning w.e.f. 01.10.2000. The terms of transfer of undertaking of telecom services from DTO and DTS to BSNL was recorded in an Office Memorandum dated 30.9.2000 and the relevant portion of the same is quoted below: "3. Government of India has decided to transfer all assets and liabilities (except certain assets which will be retained by Department W.P.(C) Nos. 550 & 7707/2007 Page 2 of 22 of Telecommunications required for the units and offices under control of DoT, to be worked out later on), to Bharat Sanchar Nigam Limited w.e.f. 1st October, 2000. The transfer of assets and liabilities to the Company will be subject to the following terms and conditions:- (i) The Company will carry out the duties and responsibilities regarding establishing, maintaining and working all types of telecommunication services in the country in accordance with and under the terms and conditions of the licence granted by the Central Government under the Indian Telegraph Act, 1885 and such other directions as may be given by the Central Government from time to time, (ii) The assets and liabilities of the Department of Telecommunications, Department of Telecom Services and Department of Telecom operations (the Government) will stand transferred to the Company, with effect from 1st October, 2000. The details of the assets will be worked out as per records available with the various Divisions and other units as on 30th September, 2000 after records and accounts are finalized up to this period. (iii) The assets and liabilities in respect of the business currently being carried out on account of the Government shall stand transferred to the Company on the book value thereof, which will be ascertained in the manner aforesaid. The book value of the assets comprising the business being transferred to the Company has been provisionally assessed as Rs 63,000 crores. The said sum of Rs 63,000 crores will be treated as the provisional value of the business being transferred to and taken over by the Company subject to finalization of the transfer value by 31.03.2001 in consultation with Ministry of Finance. (iv) The Assets are being transferred to the Company in consideration of Rs 5,000 crore equity (for which the Company will issue Five Hundred crores Equity Shares of face value of Rupees Ten each fully paid up having W.P.(C) Nos. 550 & 7707/2007 Page 3 of 22 aggregate value of Rupees Five Thousand crores to the VENDOR or his nominees), Rs 1500 crores ways, and means advance and the balance as a mix of long term debt, free reserves and preference share capital. The accounting treatment of this mix shall be notified later. (v) The capital structure of Bharat Sanchar Nigam Limited will be finalized by the Ministry of Communications, Department of Telecommunications in consultation with Ministry of Finance and the Comptroller and Auditor General of India, if necessary. (vi) The Company, Bharat Sanchar Nigam Limited shall be liable to make repayment of bonds raised by MTNL for DoT/DTS/DTO, which are now being transferred, to the Company. (vii) The Company as the successor company shall be responsible for all assets and liabilities and for satisfactory execution of all agreements, contracts and obligations in force, which pertain the business being transferred to it. (viii) The Company shall be solely responsible for honouring and performing all contracts/agreements and shall be liable for any defaults, delays or non-performance. The Company shall keep for all times the Government indemnified from all claims. (ix) After finalization of assets and liabilities and assets to be retained by Dot regular transfer deed(s) will be executed subsequently in respect of transfer of business to the Company listing out specifically all the assets being transferred. These orders will come into force from 1st October, 2000." 3. A Memorandum of Understanding (MOU) was executed between the Government of India, Ministry of Telecommunications and BSNL on 30.09.2000 for the purpose of transferring assets and liabilities from the Ministry of W.P.(C) Nos. 550 & 7707/2007 Page 4 of 22 Communications to the petitioner. In terms of the said MOU, the function of providing telecommunication services was taken over by the petitioner company and an agreement for transfer of business was also entered into between the Government of India, Ministry of Communication and BSNL. The said agreement for transfer of business, inter alia, recorded that "the business of providing telecom services and telecom network, inter-alia, comprising, management, control, operations and maintenance of communications network and services spread all over India, manufacturing, research and development and other facilities, some being also spread all over India, which business (hereinafter also referred to as "the Business"), recently entrusted to, and being currently carried on by DTO and DTS shall stand transferred to and vest in BSNL who has taken over or deemed to have taken over the same, as running concern, subject to the provisions and stipulations of this Agreement." 4. As per clause 6 of the agreement of transfer, the assets and liabilities in respect of the business currently carried on account of DTS and DTO were transferred to the petitioner at book values, which were at the relevant time being ascertained. The agreement also recorded that the parties had agreed that the total book value of the assets comprising the business of the petitioner would be in excess of Rs 63,000 Crores and therefore the said sum would be taken as the provisional value of the business being transferred. Clause 7 of the agreement recorded the consideration at which the assets were being transferred as under :- "7. The Assets are being transferred to the Company in consideration of Rs 5,000 crore equity (for which the Company will issue Five hundred crores Equity Shares of face value of Rupees Ten each fully paid up having aggregate value of Rupees Five Thousand crores to the VENDOR or his nominees), Rs 1500 crores ways and means advance and the balance as a mix W.P.(C) Nos. 550 & 7707/2007 Page 5 of 22 of long term debt free reserves and preference share capital. The accounting treatment of this mix shall be notified later." 5. The petitioner filed its return of income for the period 15.09.2000 to 31.03.2001, relevant to the assessment year 2001-02 on 26.03.2002 and declared a loss of Rs 58,46,31,20,000/-. The said return was taken up for scrutiny and the Assessing Officer framed an assessment under Section 143(3) of the Income Tax Act vide the assessment order dated 11.02.2004 assessing a net loss of Rs 39,53,78,45,000/-. However, the company was covered under the provisions of section 115JB of the Act and it declared taxable book profit at Rs 1801,28,11,000/- and paid tax on it as per section 115JB of the Act. 6. The Assessing Officer issued a notice dated 23.11.2005 under section 148 of the Act stating that he had reasons to believe that income of the petitioner had escaped assessment within the meaning of section 147 of the Act and called upon the petitioner to file its return of income for the said period. The petitioner requested for the reasons for reopening of the assessment under section 148 of the Act which were furnished by the Assessing Officer under the cover of his letter dated 22.12.2005. The reasons for issuance of notice under section 148 of the Act, as furnished by the Assessing Officer, referred to the capital structure of the petitioner company and the inference drawn by him was that the cost of assets was being met by the general reserve as reflected in the capital structure of the company. As per the Assessing Officer, a sum equal to the general reserve would be required to be reduced from the cost of the assets in terms of Explanation 10 of Section 43(1) of the Act. The Assessing Officer observed that the depreciation had been claimed by the petitioner on the cost of the assets without reducing the proportionate amount of reserves therefrom and on this basis the Assessing Officer had formed a belief that the assessee had claimed excessive depreciation. The Assessing Officer indicated that the proportionate amount of reserves had to W.P.(C) Nos. 550 & 7707/2007 Page 6 of 22 be reduced from the fixed assets to arrive at their actual cost on which depreciation would be allowable. 7. The petitioner filed its objections on 20.01.2006 to the reasons as furnished by the Assessing Officer in terms of the decision of the Supreme Court in the case of M/s GKN Driveshafts (India) Ltd. v. ITO: (2003) 259 ITR 19 (SC). The petitioner contended that all material facts had been placed before the Assessing Officer during the first round of assessment and various queries were raised by the Assessing Officer inter-alia with respect to the valuation of the assets as well as the depreciation claimed by the petitioner and thus there was no new fact which had been discovered subsequent to the assessment order which would warrant reopening of the concluded assessment. The petitioner objected to the proposition that reserves were required to be reduced from the value of the assets for purposes of computing depreciation. It was contended by the petitioner that this was only a change of opinion as to how depreciation was to be computed and thus it was impermissible for the Assessing Officer to initiate reassessment proceedings on this ground. The petitioner also contended that Explanation 10 to Section 43(1) of the Act had no application in the present case as the configuration of the capital structure of the company could not possibly lead to a conclusion that the reserves of the petitioner company represented cost of assets which had been met by the Government of India in the form of a subsidy, a grant or a reimbursement. The reserves were neither a subsidy nor a grant or reimbursement by the Government of India and, therefore, the premise on which the assessment was sought to be reopened was erroneous. 8. The objections raised by the petitioner were rejected by the Assessing Officer by an order dated 08.02.2006. The petitioner thus filed the present writ petition on 02.03.2006. However, the Writ Petition No. 550 of 2007 was not listed as the petitioner had sought approval from COD which had not been W.P.(C) Nos. 550 & 7707/2007 Page 7 of 22 accorded at the material time. The COD granted its approval to proceed with the writ petition at its meeting held on 21.12.2006 which was communicated to the petitioner vide a letter dated 03.01.2007. In the meantime, the Assessing Officer completed the reassessment proceedings for the year 2001-02 by his order dated 22.12.2006. The Assessing Officer recomputed the allowable depreciation at Rs 56,28,89,21,000/- against the amount of Rs 1,26,46,77,42,000/- as computed earlier. The excess depreciation of Rs 70,17,88,21,000/- has been added to the income of the petitioner for the relevant assessment year and the Assessing Officer has raised a demand for a sum of Rs 802,93,34,358/- by the notice of demand dated 22.12.2006. The present petition (i.e. Writ Petition No. 550 of 2007) was thereafter listed for hearing and by the order dated 01.03.2007 this Court directed that the date of filing of the petition be deemed to be 24.01.2007. 9. The issues raised in Writ Petition No.7707/2007 are identical and pertain to the subsequent period i.e., Assessment year 2002-03. The petitioner had filed its return of income for the relevant assessment year 2002-03 on 30.10.2002 declaring a loss of Rs 19,27,43,00,000. However, the audited balance sheet disclosed a profit of Rs 68,57,32,00,000 which was liable to tax under Section 115JB of the Act. The said return was taken up for scrutiny and the Assessing Officer framed the assessment under Section 143(3) of the Act vide the assessment order dated 28.02.2005. 10. The Assessing Officer issued notice dated 12.03.2007 of the Act for reopening the assessment for the period relevant to the Assessment Year 2002- 03. At the request of the assessee, the Assessing Officer supplied the reasons for issuance of notice under Section 148 of the Act, under the cover of his letter dated 28.05.2007. The reasons furnished by the Assessing Officer for reopening the assessment are similar to the reasons as furnished by the Assessing Officer W.P.(C) Nos. 550 & 7707/2007 Page 8 of 22 for initiating reassessment proceedings for the assessment year 2001-02 which are the subject matter of challenge in the Writ Petition No. 550/2007. 11. The learned counsel for the petitioner contended that the reassessment proceedings are illegal and without jurisdiction. It is contended that action of the Assessing Officer in seeking reassessment for the reasons as supplied indicate that the assessments were sought to be reopened only on a mere change of opinion as all relevant facts were within the knowledge of the Assessing Officer during the first round of assessment and were subject matter of inquiry in the initial assessment proceedings. The learned counsel for the petitioner has drawn our attention to Para 2 of Schedule T to the notes of accounts to the audited balance sheet which had been submitted to the Assessing Officer. The notes clearly disclose the value of the assets as well as the capital structure of the company. The relevant paragraph of the notes to accounts is quoted below:- "Assets and Liabilities taken over from DoT In pursuance of the Memorandum of Understanding dated 30th September 2000 executed between President of India and BSNL all assets and liabilities in respect of business carried out by DTS and DTO were transferred to the Company with effect from 1st October 2000 at a provisional value of Rs 630,000 Million. The value was subject to finalisation with Ministry of Finance by 31st March 2001, which has not yet been done. The assets and liabilities as on 1 st October 2000 have been classified broadly under the following heads: Assets (` In Million) -- Fixed Assets 501078.6 -- Capital Work-in-progress 47900.9 -- Inventory 18132.2 -- Sundry Debtors 33103.8 ------------- 600215.5 Liabilities W.P.(C) Nos. 550 & 7707/2007 Page 9 of 22 -- Customer Deposits (Excluding interest accrued thereon) 38606.5 -- Net assets taken over by the Company 571609 -- Contingent liabilities taken over by the Company --- The net assets (including liabilities) transferred to the Company as of 1st October 2000 are subject to confirmation by DoT as regards to ownership and the value. The Capital structure for BSNL concurred in by Ministry of Finance and conveyed by Department of Telecommunications vide their UN. No. 1-2/2000-B (Pt.) dated 1 December 2001 as consideration for transferring the above stated assets and liabilities is as follows: -- Equity 50000 -- Non-cumulative preference Shares (9%) 75000 -- 15 Years Government Load (12%) 75000 -- Loan from MTNL (Refer Note 101) 30000 -- Reserves # 331609 ------------- 571609 -------------" 12. It has also been brought to our notice that during the assessment proceedings relevant to the assessment year 2001-02, the Assessing Officer issued a questionnaire dated 13.12.2002 seeking various explanations for the purpose of framing the assessment. Question nos. 5 and 6 of the said questionnaire are relevant as the Assessing Officer had raised queries regarding the value of the reserves as well as the taxability of the treatment of the surplus in the hands of the transferors (Department of Telecommunication Services and Department of Telecommunication Operation) the said queries are quoted below:- "5. Explain as to how the value of reserve, which factually is the balance of surplus amounting to Rs 3,31,609/-, has been worked out. Whether any final decision as to the surplus available on W.P.(C) Nos. 550 & 7707/2007 Page 10 of 22 account of such takeover in the hands of DTS and DTO separately of the above said amount was finalized?" 6. In case no finalization as to the taxability or treatment of such surplus in the hands of DTS and DTO have been finalized, explain as to why such surplus should not be subjected to tax in the hands of the assessee company?" 13. The petitioner replied to the queries and the assessment order was framed after considering the same. The assessment order also noted that the assets had been transferred at book value which would not be less than Rs 63,000 Crores. The components, on the liability side of the balance sheet of the petitioner were examined and the Assessing Officer noted that the fixed components on the liability side consisted of share capital and loans aggregating to Rs20,000 Crores and the balance amount would be reflected as reserves which would increase or decrease corresponding to the change in the book value of the assets as finalized. The relevant portion of the assessment order dated 11.02.2004 for the assessment year 2001-02 is quoted below:- "10.2 It should be clearly understood that given the huge asset base, it was not possible to arrive at the precise value of the assets handed over by the Government. Therefore, it was decided that the precise value of the total assets would be arrived at in due course and in any case it would not be less than Rs 63,000 Crore. Till the process of precise ascertainment of the value of the assets transferred was completed it was expected that the amount would keep changing. This is true also because in the next year the assessee took over further assets amounting to Rs 3578 Crore and these were adjusted with the assets taken over as on 1.10.2000. Therefore, on the liability side the fixed components, consisting of capital and loan were only adding up to Rs 20,000 Crore as detailed above. The balancing figure was to represent the 'reserves' on the liability side and with the change in the value of the assets taken over the `reserve' was to be increased or decreased correspondingly. This formed the balance sheet of the company at the time of transfer of business from Government of India to BSNL." W.P.(C) Nos. 550 & 7707/2007 Page 11 of 22 14. It is thus contended on behalf of the petitioner, that the Assessing Officer was fully conscious of all relevant facts which had been duly disclosed before him. The provisions of Explanation 10 of Section 43(1) were not applicable and consequently the cost of assets had been taken at the book value and depreciation was computed accordingly. The subsequent action of the Assessing Officer in seeking to apply the provisions of Explanation 10 to Section 43(1) of the Act would only tantamount to a change of opinion as no new material was discovered which would warrant re-computation of depreciation, on the contrary, the issues relating to depreciation and value of assets had been discussed in the first round of assessment itself. 15. The learned counsel for the petitioner also relied on a full bench decision of this court in the case of CIT v. Kelvinator of India Ltd.: 99 (2002) DLT 221, wherein it has been held that if the Assessing Officer has examined the facts and not made an addition, it cannot be presumed that he had not applied his mind to the assessment. The learned counsel also cited the decision of this court of in the case of CIT v. Usha International Ltd.: (2012) 348 ITR 485 (Del.) as also the decision of the Supreme Court in the case of CIT Vs. Kelvinator of India Ltd.: (2010) 320 ITR 561 (SC), in support of his contention that reassessment proceedings cannot be initiated on a mere change of opinion. 16. The learned counsel for the petitioner also urged that, even on merits, no reasonable person could come to the conclusion that the reserves of the company represented cost of the assets of the company being met by the government in the form of a subsidy, grant or reimbursement so as to attract the provisions of Explanation 10 to Section 43(1) of the Act. It is contended that treating the reserves separately from the capital was fallacious as the reserves represented W.P.(C) Nos. 550 & 7707/2007 Page 12 of 22 shareholder's fund and the value of the shares would include not only the face value of shares but also reserves and surpluses. 17. We have heard the learned counsel for both the parties and the principal question that needs to be addressed is whether the action of the Assessing Officer in reopening the assessment is based on any tangible material or represents only a mere change of opinion? The second issue that can be considered is whether, on the basis of the capital structure of the petitioner, an inference could be drawn that reserves represented cost of assets met by the government so as to fall within the ambit of Explanation 10 to Section 43(1) of the Act? 18. The petitioner company has been incorporated to provide the telecom services which were being carried out earlier by Department of Telecommunication Services (DTS) and Department of Telecommunication Operations (DTO). As per the decision of the Government of India, the business being conducted by DTO and DTS were vested with the petitioner company. This was pursuant to NTP 1999, whereunder the Government had decided to corporatise certain services and operations being carried on by the Department of Telecommunications under the Ministry of Communications. Thus, in a sense the Government decided to incorporate a new company as a Government of India enterprise to carry on the business of telecom services instead of conducting the same directly. The assets were to be transferred at book values. The value of net assets was agreed to be in excess of Rs 63,000 Crores and, therefore, the same was provisionally taken as a book value of the business being transferred. The consideration for the same was agreed to be met by issue of equity capital of Rs 5000 Crores (500 Crore shares of the face value of Rs 10/- each), preference share capital of Rs 7500 Crores and debt of Rs 7500 Crores. The balance consideration was reflected as reserves. This capital structure was also duly W.P.(C) Nos. 550 & 7707/2007 Page 13 of 22 disclosed by the petitioner company in its Directors Report forming a part of the first annual report as under:- "CAPITAL STRUCTURE & FINANCING The Authorised Share Capital of your Company is Rs 10000 crores, and the present paid up capital is Rs 5000 crores. Pursuant to the MoU dated 30th September, 2000, signed with the Government of India, Ministry of Communications, your Company took over the business of erstwhile Deptt. of Telecom Services and Deptt. of Telecom Operations with effect from 1st October, 2000 on a going concern basis alongwith all the assets, liabilities and all the contractual obligations. The business was transferred to the Company at an estimated value of Rs 63,000 crores. The Capital Structure of the Company as indicated by DoT is as under : Rs 5000 crores Fully paid up Equity Capital. Rs 7500 crores Preference Share Capital. Rs 7500 crores Loans. The Balancing figure will be represented by the Reserves." 19. Paragraph 2 of schedule T to the Final accounts for the period 15.9.2000 to 31.3.2001 containing the notes to the accounts as reproduced hereinbefore also disclosed the value at which the assets were transferred to the petitioner and also the capital structure as was decided at the material time. Indisputably, the Assessing Officer had occasion to examine the aspect of valuation of assets and the same is also clearly evident from the questionnaire framed by the Assessing officer for the purposes of scrutiny of the return filed by the petitioner. Merely because there is no discussion regarding applicability of Explanation 10 to Section 43(1) of the Act cannot lead to the conclusion that the Assessing Officer was ignorant of the said provisions. There is no occasion for us to presume that the assessment order framed by the Assessing Officer was without application of W.P.(C) Nos. 550 & 7707/2007 Page 14 of 22 mind as to the relevant facts and the applicable laws. A full bench of this court has held in the case of CIT v. Kelvinator of India Ltd. (DHC) (supra) as under: "43. We also cannot accept submission of Mr Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded on analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under Section 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of Sub-section (1) of Section 143 or Sub-section (3) of Section 143. When a regular order of assessment is passed in terms of the said Sub-section (3) of Section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of Clause (e) of Section 114 of the Indian Evidence Act the judicial and official acts have been regularly performed...." 20. Admittedly, no new tangible material has been discovered subsequent to the framing of the first assessment relating to the assessment year 2001-02. The reasons as furnished by the Assessing Officer, ex-facie, indicates that he has sought to make certain inferences based on disclosures which were already on record and had been considered while framing the first assessment. The relevant portion of the reasons for issue of notice under Section 148 are quoted below: "The assessee company came into existence on 1st October 2000 and the year under consideration is the first year of the assessee. The history of the assessee company is that in pursuance to the New Telecom Policy, 1999 the Government decided to corporatise the service provision functions of the Department of Telecommunication (DoT) were carved out for providing telecom services in the country and maintaining the telecom network factories. The business of providing telecom services and running the telecom Factories was transferred to the new company i.e. BSNL w.e.f. 1.10.2000 AND THE Government retained functions of policy formulation, licencing, R&D etc. W.P.(C) Nos. 550 & 7707/2007 Page 15 of 22 The takeover of the assets and liabilities by the Company was in terms and conditions with the Office Memorandum No.-2-30/2000 dated 30.09.2000 issued by the Ministry of Communications, Govt. of India. In terms of this OM dated 30.09.2000, the total book value of the assets transferred to BSNL was provisionally assessed as `63,000 crores subject to finalization of the transfer value by 31.03.2001. In the consultation with the Ministry of Finance. The assets transferred included fixed assets (like land, building etc.) and trading assets (like debtors raised by DOT and not realized till the time of transfer of business). Para 3 (iv) of the OM further mentioned that the assets were transferred to the Company in consideration of Rs 5000 crores equity (for which the Company will issue Five Hundred crores Equity Shares of face value of Rs 10/- each fully paid up having aggregate value of Rs Five Thousand crores to the VENDOR or his nominees), Rs 1500 crores ways and means advance and the balance as a mix of long term debt, free reserves and preference share capital. It was also mentioned that the accounting treatment of this mix would be notified later. Para 3 (v) of the OM mentioned that the capital structure of BSNL would be finalized by the Ministry of Communications, Department of Telecommunications in consultation with Ministry of Finance and the Comptroller and Auditor General of India, if necessary. Accordingly, another Office Memorandum No. 67-2/2002- OC dated 19.06.2002 was issued by the Department of Telecommunications, Govt. Of India regarding the terms of capital structure and package of measures in the form of financial reliefs. As per this OM the capital structure of BSNL was as follows: Paid up Equity Share Capital Rs 5000 crores 9% (Non-Cumulative) Preference Rs 7500 crores Government Loan Rs 7500 crores MTNL Loan Rs 3000 crores Reserves Balance of asset Value transferred. During the course of assessment for the A.Y. 2003-04, the assessee was required to explain the nature of reserves as mentioned in the capital structure of BSNL. In response the assessee stated that it is in the nature of a `capital reserve' and is the `balance of asset value W.P.(C) Nos. 550 & 7707/2007 Page 16 of 22 transferred'. The assessee further gave a mathematical equation for reserves as: RESERVES = Asset ­ Liabilities ­ Paid-up Equity Capital ­ 9% (NC) Preference Share Capital ­ Government Loan ­ MTNL Loan. Thus, from the assesse's definition of reserves, the following can be derived: ASSET = Reserves + Liabilities + Paid-up Equity Capital + 9% (NC) Preference Share Capital + Government Loan + MTNL Loan. The assets transferred to BSNL include fixed assets as well as trading assets. Therefore from the above equation it is clear that part of the cost of fixed assets of the assessee company are met by the reserves, which as per the assessee are in the nature of capital reserves. This means that to the extent of reserves, the cost, of fixed assets of the assessee company is met by the Government. Now, sub-section (1) of section 43 of the Income-tax Act, 1961 defines actual cost for the purpose of depreciation as the actual cost of assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. Explanation 10 to this sub-section further states that where a portion of the cost of an asset is met directly or indirectly by the Central Government in the form of a subsidy or grant or reimbursement (by whatever name called), then so much of the cost as is relatable such subsidy or grant or proviso to this explanation further states that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets such asset in respect of the or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. In the instant case part of fixed assets and part of other assets in met by the Government in form of reserves created at the time of corporatisation. Thus, the actual cost of fixed assets to the assessee must be reduced by that proportion of the reserves as the fixed assets bears to all the assets taken over at the time of corporatization." W.P.(C) Nos. 550 & 7707/2007 Page 17 of 22 21. It is apparent from the above that the conclusion drawn by the Assessing Officer that the cost of fixed assets of the petitioner company has been met by the Government is based on the capital structure as was recorded in various documents including the Office Memorandum dated 30.09.2000 issued by the Ministry of Telecommunication, Government of India. Whereas the earlier Assessing Officer had not thought it fit to conclude that the cost of the fixed assets were required to be reduced to the extent of the reserves during the first round of assessment, the reasons as recorded disclose that this was sought to be done by reopening the assessment. This in our view represents a clear change in the opinion without there being any further "tangible material" to warrant the same. It is trite law that a mere change of opinion cannot be a reason for reassessing income under Section 147 of the Act. The Supreme Court in the case of CIT vs. Kelvinator of India Ltd. (SC) (Supra) has held as under:- "On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-conditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" W.P.(C) Nos. 550 & 7707/2007 Page 18 of 22 as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief." 22. Following the aforesaid view we are of the opinion that the notices dated 23.11.2005 and 12.03.2007 under Section 148 of the Act and all proceedings initiated pursuant thereto are illegal and are liable to be quashed. 23. In view of our decision above, it is not necessary to examine the question whether the configuration of the capital structure of the petitioner could by itself provide a reason for the Assessing Officer to believe that provisions of Explanation 10 to Section 43(1) of the Act were applicable and the book value at which the assets were vested with the petitioner were required to be reduced to the extent of the reserves of the company. However, having heard the counsel for the parties on this issue, it is apposite that we consider the same. 24. Explanation 10 to Section 43(1) of the Act is as under: "Explanation 10. - Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee: Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee." W.P.(C) Nos. 550 & 7707/2007 Page 19 of 22 25. The Assessing Officer seems to have proceeded on an assumption that whereas the value of share capital, issued to the Government as part consideration for the transfer of business to the petitioner company, is limited only to the face value of the shares, the reserves represent a subsidy, grant or reimbursement for meeting the cost of assets transferred. We find no basis for such an assumption. We are hard pressed to imagine as to how free reserves and surpluses of a company can be considered anything but as part of shareholders funds. The Assessing Officer erred in completely ignoring that reserves and surpluses of a company are a part of shareholders funds and the book value of equity share consists of not only the paid up capital but also the reserves and surpluses of the company. The format of the balance sheet as prescribed under Schedule VI of the Companies Act, 1956 also clearly indicates that reserves and surpluses are a part of shareholders fund. The balance sheet of the petitioners company also reflects the reserves and surpluses as a part of shareholders' funds. The relevant portion of the balance sheet of the petitioner company as on 31.03.2001 is quoted below:- "Shareholders' Funds Capital A 50.000,000 Preference Capital pending allotment (Refer Note 2.3 on T) 75,000,000 Reserves & Surplus B 339,079,523 Loan Funds Secured Loan C 5,100,000 Unsecured Loans D 107,983,258 __________ Total 577,162,781" 26. The scheme of hiving off the business of telecom services by Government of India to a corporate entity entailed incorporation of a wholly owned W.P.(C) Nos. 550 & 7707/2007 Page 20 of 22 government company (i.e, the petitioner company) and the transfer of the business as a going concern along with all its assets and liabilities to the company. The net assets were transferred at book value, which was agreed to be at least Rs 63,000/- Crores and in consideration of this the petitioner company accepted a liability of Rs 7500 Crores and issued both equity and preference share capital of the face value of Rs 5000 Crores and Rs 7,500 Crores, respectively. The balancing figure was reflected as reserves which is an integral part of the shareholders funds. The Government of India has transferred the assets to the petitioner company at their book value i.e., the value at which the said assets are reflected in the books of DTS and DTO and the book value of the Government of India's holding in the petitioner company as shareholder and a creditor aggregates the book value of the assets transferred. The configuration of the capital structure of the petitioner has no impact on the value of the Government's holding in the petitioner company as reserves of a company are subsumed in the book value of its capital. We find no basis, at all, for the Assessing Officer to surmise that reserves represent a subsidy, grant or reimbursement from which the cost of assets of the petitioner company are met and the whole consideration received by the Government of India for transfer of business is limited to the value of loans and the face value of the shares issued to the Government of India. A reserve represents the shareholders' fund and may be utilized in various ways including to declare dividends or for issuing bonus shares. There is no plausible reason to assume that the value of shareholders' holding in a company is limited to the face value of the issued and paid up share- capital and the reserves represent a subsidy or a grant or a reimbursement by the shareholders from which directly or indirectly the cost of the assets in the hands of a company are met. We are thus of the view that the reasons as furnished by the Assessing Officer for reopening the assessments could not possibly give rise W.P.(C) Nos. 550 & 7707/2007 Page 21 of 22 to any belief that income of the petitioner had escaped assessment and proceedings initiated on the basis of such reasons are liable to be quashed. 27. We accordingly set aside the notices dated 23.11.2005 and 12.03.2007 issued under Section 148 of the Act and quash all proceedings initiated pursuant thereto. The parties are left to bear their own cost. VIBHU BAKHRU, J BADAR DURREZ AHMED, J MAY 09, 2013' `rk'/`ns' W.P.(C) Nos. 550 & 7707/2007 Page 22 of 22

Tax rate on interest can’t exceed 12.5% under India-UAE DTAA and surcharge and cess can’t be levied

IT/ILT : Tax payable at 12.5 per cent on interest income under article 11(2) of DTAA between India and UAE is inclusive of surcharge and education cess

Even if there is no suppression by assessee, interest for delayed payment of service tax is leviable

ST : Once service tax liability has been accepted and paid by assessee, interest liability automatically gets attracted even if there was no suppression or intention to evade tax

Sec. 10A relief upheld as appellate authorities found assessee’s activities of software export as ge

IT : Where appellate authorities on basis of audit report, agreement with STPI, certificate in respect of custom boarding arrangement of assessee and payment received from various parties through channel of banks, concluded that assessee's activities of software development and export were genuine and, thus, its claim for exemption under section 10A was to be allowed, no interference was called for in said order of authorities below

No reassessment if claim of assessee was thoroughly examined by AO during scrutiny assessment

IT : Reassessment to make disallowance under section 40(a)(ia) held not justified when Assessing Officer had thoroughly and fully scrutinized assessee's claim in scrutiny assessment

Service tax penalty under sections 76 and 78 can’t be levied simultaneously

ST : In case show-cause notices were issued on or after 10-5-2008, penalty under sections 76 and 78 cannot be levied simultaneously

Mere claiming an untenable deduction isn’t sufficient to levy concealment penalty

IT : Mere making of a claim, which is not sustainable in law, would not, ipso facto amount to furnishing inaccurate particulars regarding income of assessee and would, therefore, not automatically result in a penalty order passed under section 271(1)(c)

Intentions to earn profit from demolition and reconstruction of a property liable to be taxed as bus

IT : Where assessee, a co-operative society, was having office and godown and it after obtaining permission demolished said office and godown and constructed shops at that site and sold such shops to individual purchasers, income earned on sale of shops formed business income

Central Excise Notification No 20/2013 dated 05-06-2013

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

(DEPARTMENT OF REVENUE)

Notification No. 20/2013-Central Excise

New Delhi, the 5^th June, 2013

G.S.R. (E). - In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/2012-Central Excise, dated the 17^th March, 2012 which was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 163(E) dated the 17^th March, 2012, namely: -

In the said notification, in the Table,-

1. in S. No. 189, against item (i), for the entry in column (4), the entry “7%” shall be substituted;


2. in S. No. 191, against item (i), for the entry in column (4), the entry “7%” shall be substituted.

[F. No. 354/95/2013-TRU]

[Raj Kumar Digvijay]

Under Secretary to the Government of India

Note:- The principal notification No. 12/2012-Central Excise, dated the 17^th March, 2012 was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 163(E) dated the 17^th March, 2012 and was last amended vide notification No.16/2013-Central Excise, dated the 8^th May, 2013 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R 295 (E) dated the 8^th May, 2013.

Customs Notification No.31/ 2013 dated 05-06-2013

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

(DEPARTMENT OF REVENUE)

Notification No. 31/2013-Customs

New Delhi, the 5^th June, 2013

G.S.R. (E). - In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/2012-Customs, dated the 17^th March, 2012 which was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide G.S.R. 185(E) dated the 17^th March, 2012, namely: -

In the said notification, in the Table,-

1. against S. No. 116, for the entry in column (5), the entry “6%” shall be substituted;


2. against S. No. 318, for the entry in column (5), the entry “6%” shall be substituted;


3. in S. No. 321, against item (i), for the entry in column (4), the entry “8%” shall be substituted;


4. against S. No. 323, for the entry in column (4), the entry “8%” shall be substituted;


5. against S. No. 328, for the entry in column (4), the entry “8%” shall be substituted.

[F. No. 354/95/2013-TRU]

[Raj Kumar Digvijay]

Under Secretary to the Government of India

Note:- The principal notification No. 12/2012-Customs, dated the 17^th March, 2012 was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 185(E) dated the 17^th March, 2012 and was last amended vide notification No. 30/2013-Customs dated the 21^st May, 2013 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R.325 (E) dated 21^st May, 2013.

Any mode of receiving the export proceeds is acceptable till it’s in accordance with directions issu

FEMA/ILT : FEM (Manner of Receipt and Payment) (Second Amendment) Regulations, 2013 - Amendment in Regulation 3

SEBI issues clarifications on its earlier circular on ‘Manner of dealing with audit reports filed by

SEBI : Clarification on SEBI's Circular Dated August 13, 2012 Providing for the "Manner of Dealing with Audit Reports Filed by Listed Companies"

Agency PE exists only if agent fits into meaning of ‘dependent agent’ provided in Article 5 of India

IT/ILT : In order to treat any agent as PE within meaning of Paras 4 and 5 of article 5 of relevant DTAA it is very vital that such agent should fit into description of 'Dependent Agent' and has to perform either of activities as mentioned in articles 5(4) and 5(5)

CIT vs. Crescent Export Syndicate (Calcutta High Court)

S. 40(a)(ia) TDS: Special Bench verdict in Merilyn Shipping is not good law The assessee incurred expenditure on which TDS ought to have been deducted but was not. The AO disallowed the expenditure u/s 40(a)(ia). On appeal, the Tribunal relied on Merilyn Shipping & Transports 146 TTJ 1 (Viz) (SB) and held that the disallowance u/s 40(a)(ia) could be made only for the expenditure that is “payable” as of 31st March and not for the amounts that have already been “paid” during the year. On appeal by the department to the High Court, HELD reversing the Special Bench: The key words in s. 40(a)(ia) are “on which tax is deductible at source under Chapter XVII –B” and this makes it clear that it applies to all expenses. Nothing turns on the fact that the legislature used the word ‘payable’ and not ‘paid or credited’. Unless any amount is payable, it can neither be paid nor credited. If an amount has neither been paid nor credited, there can be no occasion for claiming any deduction. The Special Bench was wrong in making a comparison between the draft Bill and the enacted law to determine the intention of the Legislature. A comparison is permissible only between the pre-amendment and post amendment law to ascertain the mischief sought to be remedied or the object sought to be achieved by the amendment. The fact that the impact of s. 40(a)(ia) is harsh is no ground to read the same in a manner which was not intended by the legislature. The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It is not the case of an inadvertent error. For the same reason, the second proviso sought to become effective from 1st April, 2013 cannot be held to have already become operative prior to the appointed date. Consequently, the majority view in Merilyn Shipping & Transports is not acceptable.

SAT upheld penalty levied by SEBI as promoter failed to disclose pledging of shares and their revoca

SEBI : Where appellant-promoter failed to disclose information regarding pledge of shares and their revocation, penalty was rightly imposed on it

Interest was payable on delayed refund of ST even if refund arose under exemption notification

ST : In case of delay in refund of service tax under Notification No. 41/2007-ST, assessee is eligible for interest thereon in accordance with provisions of section 11BB of the Central Excise Act, 1944

INCOME TAX APPELLATE TRIBUNAL, NEW DELHI CONSTITUTION OF BENCHES FROM 10.06.2013 TO 13.06.2013

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Sec. 54 only requires investment of cap gains, which can be in several independent residential units

IT : Exemption under section 54 cannot be denied, where residential house property purchased by assessee consists of several independent units

Relieved after filing your income tax return? Challenges may still await you

The Tax return filing for most of us is like the toughest exam, it brings nervousness and trouble and when completed, there is a sigh of relief!

We often consider filing of the tax return is the end of the whole story. There is misconception that once the tax return has been filed, work is over until the next tax return filing deadline. This is what even Gaurav thought when he filed his tax return for the year 2011-12.

Gaurav is a software engineer with an IT company and his personal tax situation is not very complex. His only sources of income are salary received from his employer and a small amount of interest from his savings bank accounts. He reported these incomes and filed his tax return before 31 July 2012 and took a deep breath, he too thought it is all over.

He was a relieved man until one day, when he received an e-mail from the tax department. "An e-mail from the tax department" - he thought he had landed in trouble. Shivering and tensed, he opens the mail which said that his ITR-V was not received by the Income tax Department - CPC, Bangalore. And there he sat, now confused what 'ITR-V' meant and not knowing what was he supposed to do next. He quickly caught hold of his return files and glanced through the papers of his last tax return. He realized that the acknowledgement of the income tax return is called the ITR-V. When he read the document hard, he found a caption on it reading that it is required to be signed and sent to the Income tax Department - CPC, Bangalore within 120 days of e-filing of his tax return. "How could I miss this?", so thought Gaurav as he quickly signed the ITR-V and sent it off through Speed Post.

Gaurav soon realized that tax return filing may not necessarily end with the deadline. One needs to watch out a host of other factors even after filing of the tax return.

A few days later while I was sitting with Gaurav I offered him a few handy tips that one should be vigilant of even after the tax returns have been filed. Here are the tips for the readers:

The process of return filing is complete only once a signed copy of the ITR-V has been sent to the Income tax Department - CPC, Bangalore after e-filing of the return. The ITR-V should be sent within 120 days of filing of the return.

It is necessary that the credit of taxes deducted at source as claimed in the tax return is also appropriately reflected in the Form 26As. If not your refund may not be processed. In case the credit in the Form 26As does not match with the amount claimed in the tax return, you may have to approach the deductor of tax and ask him to revise his quarterly TDS tax return. Once the deductor's quarterly TDS return has been revised, the credit will automatically get updated in the Form 26As.

Be watchful of emails, letters and notices received from the Income tax Department and respond to them within the requisite time. The process of responding to the notices has been simplified now and in many cases one can directly send the details and documents to the Income tax Department - CPC, Bangalore online.

The Indian tax authorities follow a well laid out procedure for assessment of income and taxes. As provided in the India tax law, after the preparation of a tax return, the total income and tax of an individual is re-assessed by the tax office. Tax returns to be assessed by the tax officer are chosen on a random basis. If the tax office determines any differences in the amount of income or tax, they send an intimation/notice to the individual. One must be promptly respond to such notices.

If you have missed the deadline for filing of your tax return, you may still be able to file your tax return after the deadline. A belated Income-tax return for the tax year 2012-13 can be filed upto 31 March 2015. However, in such a case, the following points need to be noted:

a)A belated return cannot be revised if certain errors / omissions are discovered after filing the return of income

b)Certain losses under some heads of income cannot be carried forward to subsequent years for being set-off against future income

c)If any taxes remain unpaid, then simple interest @1% per month is payable on such outstanding tax liability upto the date of payment of such tax. In case the return of income is not filed within 1 year from the end of financial year, the tax officer has the power to levy a penalty of Rs 5,000.

Be careful of spam e-mails on income tax refunds. Such e-mails may ask you to disclose your Permanent Account Number and personal information which can be misused by the sender.

With these simple tips, we hope the tax return filing will no more be life's toughest exam.

Failure to Deposit TDS On Time Will Attract Penalty: CBDT

Failure to deposit timely and correct TDS or TCS will now attract a penalty ranging from Rs 200 to Rs one lakh by the Income Tax department.

All the Tax Deducted at Source (TDS) range offices of the department across the country have been asked by the Central Board of Direct Taxes (CBDT) to ensure compliance in this area and also inform and make aware the authorised deductors about this new action being initiated by the taxman.

According to the new instructions issued, a deductor, either government or private, will have to submit a "compulsory" fine of Rs 200 for delay in filing either TDS or Tax Collected at Source (TCS) every day beyond the stipulated date of remittance of these category of taxes.

Similarly, the penalty would be between Rs 10,000 to Rs one lakh for furnishing incorrect information or failure to file the collection statement within the due date.

"The assessing officer of the department will use sections 234E and 271H of the I-T Act to ensure that TDS or TCS collections are not delayed or faltered. The department, in many cases, has found that deductors delay for long the filing of these category of taxes even after deducting it from the salary of their employees," a senior official said.

The TDS regime has to be strengthened and hence such measures are important, the official said.

A big chunk of 41 per cent, in the total tax collections in the last fiscal, came from the TDS category alone.

During financial year 2012-13, Rs 2,30,188 crore tax was collected under the TDS category while the total direct taxes collections stood at 5,58,970 crore.

The department, during its recent deliberations with top I-T and CBDT officials here, has also decided to strengthen its regime for obtaining TDS from salaries of employees in order to collect more revenue under this category.

Taxation issues may cripple radio expansion

Radio is one of the highest regulated media in the Indian context. Right from purchasing the spectrum to paying music royalty, radio broadcasters have to bear a number of taxes and fees. With the advent of Phase III, broadcasters’ tax implications will go up, adding either to their capital cost or operational cost.

In 2011, the government raised the FDI limit in the radio sector from 20 to 26 per cent. Nonetheless, the FDI limit for radio is still the lowest in the Indian broadcasting space and has failed to attract foreign investors, leaving broadcasters to deal with their own woes.

License woes

Radio players are currently dealing with a number of direct and indirect taxes, which are likely to increase post Phase III expansion, depending on the policies then designed or altered by the government. To start with, for a new radio station, players have to give a one-time license fee and an annual license fee – a recurring amount which has to be paid to the government every year. While the one time license fee is a part of the capital cost, the treatment of the fee is a major issue.

Also, there is no clarity on whether new license obtained will be housed in an existing company or a new one? In case of an existing venture, the expenses incurred will be allowed as revenue expenditure and expenses incurred in setting up a new station will be treated as capital expenditure, in which no deduction of expenses will be available.

Tax loses

Radio broadcasters often face issues in breaking even the investment made and due to the slow economy, are usually faced by low y-o-y growth. Thus, a number of times, radio players have significant tax losses brought forward. Under the Income Tax Act, 1961, taxes can be carried forward only for a period of eight years and no carry back of such tax losses is permitted. Thus, radio players will have to look at effective methods of utilisation of tax loses to avoid added expense.

Indirect taxes

While direct taxes and unclear license policies are a major headache for radio broadcasters, indirect taxes hold the biggest consideration for the growing radio industry. Major indirect taxes applicable to the radio industry are service tax, value added tax, custom duty and stamp duty.

Radio owners need to pay a service tax on the ad revenues earned each year. Service tax rate currently is 12.36 per cent. Also, broadcasters have to pay copyright of sound recordings or music which is levied with the service tax.

Radio industry pays VAT for expenses such as royalty paid on music as it is an expense to the radio station. However, given that the radio players do not enter into a lot of revenue transactions that attract VAT, the amount charged to them remains unutilised and results in an additional cost to them. Similarly, custom duty and stamp duty as well imply additional costs for radio players that need to be abolished soon.

Tax implication is something that is the eating up radio players already. Burdened with this kind of expenses already, Phase III expansion will mean a lot of investment for radio players. With FDI giving no relieve to the industry and the existing government support, expansion at the current expenses is indeed going to be a hard ball to play.

Penalty under sec. 76 would mean exclusion of sec. 78 penalty; revenue can’t impose both simultaneou

ST : Even for period prior to amendment from 10-5-2008, no penalty would be leviable under section 76, if penalty under section 78 was already imposed

Dgft Inks Mou With Delhi Govt For Use Of E-Brc

5-Jun-2013

NEW DELHI: Directorate General of Foreign Trade (DGFT), under the commerce ministry, today signed an agreement with Delhi government for the use of electronic Bank Realisation Certificate (e-BRC), a move which will help in reducing transactions cost of exporters.



The e-BRC initiative leads to electronic transmission of foreign exchange realisation certificate from the banks to the DGFT's server on a daily basis. With this facility, there will be minimum human interface between the Commerce Ministry and the exporting community for grant of benefits.



It would help reduce transaction cost to exporters, who will not be required to make any request to bank for issuance of bank export and realisation certificate.



It establishs a seamless electronic data interchange connectivity among DGFT, banks and exporters.



Transmission of bank realisation against shipping bills has been made mandatory from August 2012.



"Eighty-one banks have transmitted more than 38 lakhs e-BRC to DGFT. DGFT has requested State Governments to use e-BRC in their efforts to refund VAT and other related tax administration. The central/state government departments have shown commendable response to this initiative," an official statement said.



The government of Delhi has become the second state to sign the MoU after Maharashtra.



"MoU was signed between DGFT and Commissioner (Trade and Taxes), Government of NCT of Delhi here today for the use of e-BRC," it said.

Source:-economictimes.indiatimes.com

Pharmaceutical Exports Slow Down Due To Approval Delays And Recalls

5-Jun-2013

HYDERABAD: India's pharmaceutical exports grew at less than half the pace it did last year, hurt by delays in drug approvals and products recalls in some of its key markets. In dollar terms, pharmaceutical exports rose 9.9% in fiscal 2013, compared with 23% a year earlier. But a weaker Indian currency — which fell about 18% over the last year — meant that pharma exports grew 25% in rupee terms.



This is the first time in the recent years that the Indian pharma exports saw single digit growth in dollar terms. "Europe has faced recession with two countries — Spain and Italy — suffering the most. The United States and Europe account for nearly half of Indian pharma exports and growth in exports to both these regions saw a significant decline," said PV Appaji, Director-General, Pharmaceutical Exports Promotion Council (Pharmexcil). Pharmexcil now expects the sector to grow at 17% for the current fiscal, said Appaji. The commerce ministry, which had set a target of $25-billion (Rs 1,41,750 crore) worth of exports by March 2014, has shifted the deadline to March 2016, he added.



Pharmaceutical exports from the country during 2012-13 stood at $14.59 billion (Rs 79,500 crore), up from $13.26 billion (Rs 63,500 crore) the previous year.



"Most Indian pharmaceutical companies were affected by macroeconomic factors like high interest rates and inflation. However, the rupee weakening against most major global currencies has come as a major help to the net exporting firms," said an analyst with a Mumbai-based brokerage who did not wish to be identified.



While exports to North America grew 13.44% to $4 billion (about Rs 22,000 crore) , those to Europe rose marginally to $2.63 billion. A year-ago, exports to North America and Europe had grown 33% and 30%, respectively. Natco Pharma's Chief Financial Officer, P Bhaskara Narayana, and Angel Broking's pharma analyst, Sarabjit Kaur Nangra, attributed the slowdown in growth to delayed approvals from regulators and drug recalls.



Ranbaxy, Dr Reddy's and GlenmarkBSE 0.51 % are among the top Indian companies that recalled their products during the last fiscal because of various issues. RanbaxyBSE 1.30 % recalled its generic Lipitor, Dr Reddy's its anti-depression drug Citalopram and Glenmark recalled Montelukast sodium tablets. "Large-cap Indian pharma companies like Dr Reddy's have performed well in the US market last fiscal and many big companies have given good guidance of 20% for the current fiscal," said Nangra. "The problem in growth is mostly being faced by the small and medium pharma companies."

Source:-economictimes.indiatimes.com

Cargo Exports From Tiruchi Airport Soar

5-Jun-2013

Cargo exports from Tiruchi Airport continue to climb up steadily and the Airports Authority of India is expecting over 50 per cent growth during the current financial year. The air cargo terminal here has registered a high of 410 tonnes of cargo during May.



Vegetables and fruits account for a major portion of the volumes, despite the slump in production owing to the drought conditions and the spurt in the price of various vegetables. But for this, the volume would have been much higher, airport sources said.



In March this year, the air cargo terminal had handled 395 tonnes and the figure has touched 410 tonnes in May. The previous high was 313 tonnes handled in January early this year. Cargo exports from the airport had registered 44 per cent growth in 2012-13 and this year the growth is expected to be more than 50 per cent. The cargo terminal handled 2,920 tonnes of cargo in 2012-13 against 2,022 tonnes recorded in the previous financial year. “We expect to handle a minimum of 4,500 tonnes during the current fiscal,” S. Dharmaraj, Airport Director, told The Hindu.



Airport officials attribute the steady growth to increase in uplift capacity, especially after Tiger Airways started lifting cargo from here to Singapore in September last year. Sri Lankan Airlines, Air Asia, and Mihin Lanka, were the other carriers lifting cargo from here. With Air Asia expected to introduce a third daily frequency on the Tiruchi-Kuala Lumpur sector from July, the uplift capacity would increase further, Mr. Dharmaraj said.



Consignments were mainly sent to Kuwait, Dubai, Colombo, Singapore, Kuala Lumpur, and Colombo. The export market to Europe was still untapped for want of connectivity, said A. Moorthy, Branch Manager, Skyfield India Pvt. Ltd., a major clearing and forwarding agency in Tiruchi.



“There is much more demand for vegetables and fruits even from Gulf countries. But given the capacity constraints, we could not cater to the demand. If more airlines introduce services to the city, we can export more,” Mr. Moorthy said. The AAI was extending full support with consignments being handled even on Sundays at the cargo terminal, he added. The composition of the cargo exported from Tiruchi was expanding gradually to include readymade garments, fabrics, leather goods, pharma products, fish, and crabs.



However, assorted vegetables and fruits constitute more than 85 per cent of the volumes.



The slump in production caused by drought in the region was impacting on the exports, say some of the exporters. “Even though we don’t mind the price rise, we could not meet the orders fully as we face problems in procurement as production has come down of late,” says a representative of another export agency.

Source:-www.thehindu.com

Fdi To Our Defence: Dependence On Imports Can Be Cut By Allowing Foreign Companies To Produce Weapons In India

The chorus for increasing the foreign direct investment (FDI) limit in the defence sector is growing louder by the day. The parliamentary standing committee on defence has also now urged the government to raise the limit to mitigate the "steadily expanding deficiency in defence modernisation". Yet, there is a danger that the issue will be relegated to the back burner as in the past.



The recurring and dominant theme of those who oppose the increase is that the defence sector must be the monopoly of the defence public sector undertakings. The putative reason for not relaxing the ceiling is that it would make the Indian defence sector hostage to foreign companies, jeopardising our national security. This is a rather tenuous argument.



Unfortunately, when it comes to policy changes in the defence sector, we resist change, are slow learners and only yield whencrisis is upon us. The delay in the decision to share the Long Term Integrated Perspective Plan (LTIPP) with private industry announced last month is an illustrative instance.



A strong case for both increasing the FDI and sharing the LTIPP was made in a seminar at the Institute for Defence Studies and Analyses five years ago. But it took a defence scandal to engender a change in policy.



Are there so many negatives in relaxing our FDI policy? A careful analysis would reveal that there is much to be gained in taking a more liberal approach.



First, among the nations with comparable or large military budgets, or even the Brics, none are so dependent on imports as India is. Russia and China are in a completely different league, though the latter has only recently built its capacity through a slew of measures ranging from clandestine procurement of technology to reverse engineering.



Around 70% of India`s defence equipment is imported and if the total value of the foreign components in the equipment/platforms assembled/manufactured in India is computed, the dependency would be higher. As a result, of the estimated $80-100 billion capital acquisition over the next five years, defence wares worth upwards of $63 billion would have to be imported. This will hurt our security more than higher foreign equity of some defence companies may. A nation that would have to face several challenges as it strives to become a greater economic power, cannot afford to be so dependent on imported weapons.



To reduce dependence on imports, the creation of an ecosystem that allows foreign companies to establish industries in the country is imperative. We could, perhaps, take some lessons from the Brazilian experience of bolstering its military-industrial complex, harnessing foreign technology through a liberal policy.



Brazil amended its restrictive 1988 federal constitution that prohibited foreign investment in certain sectors, including defence, in 1995, allowing even 100% investment by foreign companies in the defence sector. The policy has helped expand the country`s domestic production capability and enhanced its defence export prospects. For instance, Helibras of Brazil, which manufactures/assembles advanced helicopters for the three forces, is 85% owned by Eurocopter, the European aviation giant.



Secondly, India`s domestic defence industry requires foreign technology to build production capacity to supply sophisticated weapons to our armed forces. It has to be sourced from companies/nations that safeguard their defence technologies jealously by encouraging them through a compensatory mechanism.



Thirdly, 26% FDI is too small to attract major players. According to Indian company law, 26% equity holding only enables the shareholder to prevent special resolutions. It does not give them the freedom to appoint directors or determine their remunerations. It also limits the profit of such companies. Why then should a company transfer technology and create competition for the parent companies?



India can take several steps to bridge the technology gap.



First, have no limit on FDI. Vary the limit on a case-to-case basis depending on what a company may be proposing to establish in India. If the technology is necessary to fill critical gaps in Indian technology, allow even 100% and impose conditions such as the hiring of Indian engineers and sourcing components indigenously. This would help the development of ancillary industries.



Second, depending on the type of equipment that would be manufactured, assure the company continuing orders for a decade or so in the form of repeat orders. Impose conditions necessitating technology upgradation of equipment when they are available with the parent company.



Third, link FDI with offsets. Allow higher percentage of ownership to incentivise a company that wins a defence contract to establish production facilities that would fill domestic technology gaps. As an adjunct strategy, allow a combination of higher ownership with the use of multipliers (giving higher credit value) in discharging offset obligations when specialised equipment is manufactured in India.



Fourth, where higher equity is allowed, impose export obligations on the entity. This would encourage the parent company to outsource from India.



Fifth, allow some sort of price preference for defence companies in India that do not have more than 49% foreign ownership. It would encourage foreign firms to progressively reduce their holdings while at the same time retaining their interest in Indian entities.



It is time that we took some bold steps to strengthen our own military-industrial complex. The seemingly sacrosanct figure of the present 26% ceiling on foreign investment in defence appears to have attained the inviolability that crossing the Rubicon had for the returning Roman legions. This has to change and change now.

Source:-timesofindia.indiatimes.com

Gold Import Duty Hiked To 8% To Rein In Demand

NEW DELHI: The government raised the import duty on gold and platinum by another two percentage points on Wednesday to discourage buying that threatens to worsen India's already high current account deficit.



The yellow metal, the demand for which is mostly met for imports, will now attract 8% import duty against 6% levied earlier, marking third such increase in about a year but the measure does not seem to have helped.



The decision comes close a day after the Reserve Bank of India tightened gold import rules. The duty changes will be effective immediately.



According to the World Gold Council, India could import as much as 400 tonnes of gold in the first three months of the current financial, a 200% annual increase, raising the chances that the current account deficit could worsen in the new financial year. India imported 162 tonnes of gold in May alone.



"The import duty on gold has been increased from 6% to 8%," revenue secretary Sumit Bose said.



The Indian rupee has fallen nearly 5.2% against the dollar since May amidst rising concerns that the country will find it difficult to fund its current account deficit that is projected to touch record high of 5% of GDP last year if the US Fed scaled down its quantitative easing programme.



Finance minister had said on Monday that the government could consider more measures to curb gold imports. "Necessarily, we will have to check," he had said after a meeting of the Financial Stability Development Council (FSDC) that deliberated on the issue.



Chief economic advisor Raghuram Rajan had also supported the measures to dampen demand even as he backed longterm solutions to discourage people from buying gold.



The government has been trying to make financial investments attractive to wean away people who bought gold as inflation hedge, recently launched inflation-index bonds were one such measure.



"Hopefully, the CPI inflation coming down will help that process but in the meantime the measures that the RBI announced can be way of throwing sand in the wheels so that we don't get excess," Rajan had said on Tuesday justifying measures. India imported $52.5 billion worth of gold and silver in 2012-13, down marginally from $56.7 billion in the previous fiscal as record high prices and increase in import duty to 6% from 2% last year dampened demand, but the sharp correction in prices in last few months has spurred buying.



Gold and silver imports more than doubled to $7.5 billion in April, the commerce ministry said last month. India imported 257 tonnes of gold in January-March quarter, up 27% from a year ago. Excise duty was also raised in line with the changes in the import. Duty on gold dore bars and ores was raised to 6% from 5%.

Source:-economictimes.indiatimes.com

Before investing make sure that your money is protected

Before investing, especially with companies promising high returns, investors must ensure that the entity is registered with the Reserve Bank of India, Securities & Exchange Board of India or any other financial sector regulator and is authorised to accept funds — in the form of deposits or otherwise. Raising public money does not necessarily mean acceptance of deposits. A deposit is acceptance of money with a promise to return it with interest. Raising money by way of share capital, money raised as security deposit, earnest money and advance against goods or services and subscriptions to chits are not treated as deposits.

Entities that can raise public deposits

RBI allows banks, cooperatives and some non-banking fi nance companies (NBFCs) to accept deposits. RBI issues special licences to these NBFCs including housing fi nance companies for raising deposits up to a certain limit. Some companies are authorised by the ministry of corporate affairs to raise deposits from the public.

Cooperative credit societies and salary earners' societies can accept deposits only from their members. Others are not legally allowed to raise deposits. NBFCs registered with the RBI are not allowed to raise deposits unless by way of a deposit accepting certificate. Unincorporated bodies like individuals, partnership fi rms and other association of individuals cannot raise deposits, even if they do fi nancial business.

RBI follows a restrictive policy in allowing companies to raise deposits. Protection of depositors' interest is the RBI's supreme concern. Banks are the most regulated fi nancial entities and therefore the safest as far as your money is concerned. The maximum interest rate that an NBFC can pay to a depositor is 12.5% a year.

But, banks can fail too. The Deposit Insurance and Credit Guarantee Corporation insures deposits up to Rs 1 lakh. This means depositors' money up to Rs 1 lakh is safe and they will get back anything up to this limit even if a bank fails.

NBFCs Permitted to Raise Deposits

There are some 257 NBFCs that are allowed to raise deposits. The list is available on the RBI's website (www.rbi.org.in — sitemap — NBFC list — list of NBFCs allowed to accept deposits).

Collective investment schemes are not deposits

Collective investment schemes are schemes where companies raise money as advance for delivering goods or services at a future date. RBI does not regulate them and does not treat this collection of money as a deposit. The Securities & Exchange Board of India does.

RBI bars chit funds from accepting deposits

Chit funds are legal under the Chit Funds Act, 1982, which is a central act but administered by state governments. Chit funds can raise money from their members. RBI barred these entities from accepting deposits from the public in 2009 and can prosecute them in case they violate the law. Violation of deposit-accepting rules is a criminal offence.

If unincorporated entities are found accepting public deposits, they are liable for criminal action. Further, NBFCs are prohibited by RBI from associating with any unincorporated bodies. If NBFCs associate themselves with proprietorship/partnership firms accepting deposits in contravention of the RBI Act, they are also liable to be prosecuted.

Transactions between PE and its HO are tax neutral on principle of mutuality

IT/ILT : In respect of transactions between permanent establishment and its head office, neither can there be any deduction in hands of permanent establishment nor can there be any income in hands of head office and, accordingly, section 40(a)(i) does not apply to such expenditure

Two-edged sword - even if rule 8D isn’t applicable, AO can still disallow proportionate exp. under s

IT : Even in absence of rule 8D, disallowances can be made under section 14A by proportionate bifurcation of expenditure

Definition of 'group company' inserted in 'circular on consolidated FDI policy'

FDI/FEMA/ILT : Circular 1 of 2013 - Consolidated FDI Policy - Definition of 'Group Company'

Restriction on import of gold on consignment basis extended to all nominated agencies or star tradin

FEMA/ILT : Import of Gold by Nominated Banks/Agencies

Himachal Pradesh Govt. nods to implementation of policy on multi-brand retail trading

FDI/FEMA/ILT : Review of the Policy on Foreign Direct Investment in The Multi Brand Retail Trading Sector - Amendment of Paragraph 6.2.16.5(2) of 'Circular 1 of 2013 - Consolidated FDI Policy

‘Job worker’ includes another factory of same manufacture to which goods are sent for doing certain

ST : Expression 'job-worker' in rule 2(n) may cover another factory of same manufacturer to which goods are sent for doing certain processes

Indian subsidiary treated as fixed PE of Convergys; TP Principles to be applied for attribution of i

IT/ILT : Indian subsidiary, which was practically projection of business of American company in India carrying out its business under control and guidance of American company without assuming any significant risk in relation to such functions, would be considered as fixed place PE of American company

CIT to exercise his discretion judiciously while dealing with request for waiver of interest under W

Wealth Tax : While dealing with waiver application under section 31(2A), Commissioner has to exercise his discretion judiciously, giving reasons for not allowing waiver of interest in its entirety, where assessee satisfied all conditions for same

Value of goods or software exported by SEZ to be realized and repatriated to India within 12 months,

FEMA/ILT : Foreign Exchange Management (Export of Goods & Services) (Amendment) Regulations, 2013 - Amendment in Regulation 9

Canvassing potential clients for sale of financial products is a service and liable to ST

ST/ECJ : I. Canvassing potential clients, proposing financial products to them appropriate to their needs and evaluating client's conditions and ensuring follow-up for consideration is a service liable to service tax

FTS is taxable even if NR doesn’t have PE in India; No deduction for sum paid without withholding of

IT/ILT : Since fees for technical services is taxable even if NR does not have PE in India, fees for same paid to overseas agent is taxable in India