Extension of 'due date' of filing of returns of income for the Assessment Year 2012-13

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F.No.225/163/2012/ITA.I1

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

New Delhi, the 31st  July 2012.

Order under Section 119 of the Income Tax Act. 1961

On consideration of the reports of disturbance of general life caused due to failure of power and further in consideration of the fact that the e-filing of returns for a specified category of individuals and HUF has been made mandatory, the Central Board of Direct Taxes, in exercise of powers conferred under section 119 of the Income Tax Act, 1961, hereby extends the 'due date' of filing of returns of income for the Assessment Year 2012-13 to 31st August 2012 in respect of assessees who are liable to file such returns by 31st July 2012 as per provisions of section 139 ofIncome Tax Act, 1961.

TDS not deductible on Payment to Google Ireland Ltd. for banner advertisement

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INCOME TAX APPELLATE TRIBUNAL, MUMBAI

ITA No.4332/Mum/2009 – Assessment year: 2006-07)

Pinstorm Technologies Pvt. Ltd. Vs ITO

Date of Pronouncement: 18.07.2012

The assessee in the present case is a company which is engaged in the business digital advertising and internet marketing. It utilises the internet search engine such as Google, Yahoo etc. to buy space in advertising on the internet on behalf of its clients. The search engine carries out its own programme whereby the assessee books certain words called “key words”. Whenever any person searches through the net for a specific “key word”, the advertisement of the assessee or its client is displayed. For example, if the “key word” “Hotels in Mumbai” is searched for, the advertisement of ‘Taj Hotel’ may be displayed among sponsor links on the search engine page. The price charged for such booking depends on type of phrase, its popularity, usage etc. The search engine renders this service outside India through internet. Google does such online advertising business in Asia from its office in Ireland. The search engine service is on a worldwide basis and thus is not relatable to any specific country. The entire transaction takes place through the internet and even the invoice is raised and payment is made through internet. During the year under consideration, the assessee company had made a payment of 1,09,35,108/- to Google Ireland Ltd. and the said amount was claimed as ‘advertisement expenditure’. While making the said payment, no tax at source was deducted by the assessee on the ground that the amount paid to Google Ireland Ltd. constituted business profits of the said company and since the said company did not have a permanent establishment (PE) in India, the amount paid was not chargeable to tax in India. According to the A.O., the services rendered by the Ireland company to the assessee company was in the nature of ‘technical services’ and hence the assessee company was liable to deduct the tax at source form the payment made against the said services. Since no such tax at source was deducted by the assessee, the deduction claimed by the assessee on account of expenditure incurred on payment of ‘advertisement charges to M/s. Google Ireland Ltd. was disallowed by the A.O. by invoking the provisions of sec.40(a)(i).

It is observed that a similar issue had come up for consideration before the Tribunal in the case of Yahoo India Pvt. Ltd. and vide its order dated 24th June, 2011 passed in ITA No.506/Mum/2008, the Tribunal decided the same in favour of the assessee for the following reasons given in paragraph No.8 of its order:

“8. As already noted by us, the payment made by assessee in the present case to Yahoo Holdings (Hong Kong) Ltd. was for services rendered for uploading and display of the banner advertisement of the Department of Tourism of India on its portal. The banner advertisement hosting services did not involve use or right to use by the assessee any industrial, commercial or scientific equipment and no such use was actually granted by Yahoo Holdings (Hong Kong) Ltd. to assessee company. Uploading and display of banner advertisement on its portal was entirely the responsibility of Yahoo Holdings (Hong Kong) Ltd. and assessee company was only required to provide the banner Ad to Yahoo Holdings (Hong Kong) Ltd. for uploading the same on its portal. Assessee thus had no right to access the portal of Yahoo Holdings (Hong Kong) Ltd. and there is nothing to show any positive act of utilization or employment of the portal of Yahoo Holdings (Hong Kong) Ltd. by the assessee company. Having regard to all these facts of the case and keeping in view the decision of the Authority of Advance Rulings in the case of Isro Satellite Centre 307 ITR 59 and Dell International Services (India) P. Ltd. 305 ITR 37, we are of the view that the payment made by assessee to Yahoo Holdings (Hong Kong) Ltd. for the services rendered for uploading and display of the banner advertisement of the Department of Tourism of India on its portal was not in the nature of royalty but the same was in the nature of business profit and in the absence of any PE of Yahoo Holdings (Hong Kong) Ltd. in India, it was not chargeable to tax in India. Assessee thus was not liable to deduct tax at source from the payment made to Yahoo Holdings (Hong Kong) Ltd. for such services and in our opinion, the payment so made cannot be disallowed by invoking the provisions of section 40(a) for non-deduction of tax. In that view of the matter we delete the disallowance made by the A.O. and confirmed by the learned CIT (A) u/s 40(a) and allow the appeal of the assessee.”

As the issue involved in the present case as well as all the material facts relevant thereto are similar to the case of Yahoo India P. Ltd. (supra), we respectfully follow the decision rendered by the co¬ordinate Bench of this Tribunal in the said case and delete the disallowance made by the A.O. and confirmed by the Ld. CIT (A) by invoking the provisions of sec.40(a)(i) holding that the amount paid by the assessee to M/s. Google Ireland Ltd. for the services rendered for uploading and display of banner advertisement on its portal was in the nature of business profit on which no tax was deductible at source since the same was not chargeable to tax in India in the absence of any PE of Google Ireland Ltd. in India.

TDS on transport charges deductible u/s. 194C not 194I

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INCOME TAX APPELLATE TRIBUNAL, DELHI

ITA No. 4913/Del/2011 – A.Y. : 2008-09

Asstt. Commissioner of Income Tax(TDS),

vs.

M/s Idea Cellular Limited

U/s 194-I, Income Tax is required to be deducted at source at the time of payment of any income by way of rent @’ 10% for the use of any machinery or plant or equipment. U/s 194C, tax is required to be deducted @’ 2% for carrying out any work which, inter alia, includes carriage of goods and passengers by any mode of transport other than by railways. Though generally speaking all types of machinery, plant and equipment given on hire get covered u/s. 194-I but hiring of transport vehicles get specifically covered u/s. 194-C as far as Tax Deduction at source is concerned. Transport vehicles used for carriage of goods and passengers are to be subjected to TDS provisions as per clause (c) of Explanation III of sub-section (2) of section 194C of the I.T. Act.

Amendment to DTAA can’t be given retrospective effect unilaterally

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IN THE ITAT MUMBAI

Abu Dhabi Commercial Bank Ltd.

v.

ADIT (IT) – 1(1), Mumbai

IT APPEAL NOS. 1996, 2205, 2851, 3925, 4304

& 5017 (MUM.) OF 2004

AND 3462, 3857 & 4022 (MUM.) OF 2010

C.O. NOS. 115 & 414 (MUM.) OF 2004

AND 48 (MUM.) OF 2005

[ASSESSMENT YEARS 1995-96 TO 2000-01]

July 20, 2012

It is a cardinal principle, when two sovereign nations enter into an agreement and have come to an understanding regarding the terms, views expressed in the agreement, such terms cannot be unilaterally changed. Once the Government of India and Government of UAE had not used the limitation clause of applicability of domestic law in determining the profits and deduction of expenses of PE under Article 7(3), the same cannot be read into even impliedly, that such a provision existed. One has to see the merits of the word and its meaning understood when the two high contracting parties, herein in this case, two sovereign nations entered into an agreement. When a particular provisions in the agreement has been brought from a particular date, it has to be, prima facie, taken to be prospective in operation, unless it is expressly or by necessary implication provided or made to have retrospective operation, because the parties interpreting such agreement gets vested right under such existing agreement and any such interpretation giving retrospective effect not only impairs the vested right but attracts the new disability in respect of transactions already entered in the past. Here in this case, if any such interpretation is given for retrospective operation of this Article, it creates new obligation and disturbs the assessability of the profit of the PE. The retrospective operation cannot be taken to be intended unless by necessary implication it has been made to have the retrospective effect. Thus, the amendment brought in Article 7(3) w.e.f. 1-4-2008, will not apply retrospectively, prior to such date as it would impose a new obligation or a liability to tax which was not made by the two Contracting States.

Due date for filing Cost Audit & Compliance Report in XBRL mode extended to 31.12.2012

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General Circular No. 18/2012, Dated the July 26, 2012

Subject: Filing of Cost Audit Report and Compliance Report in the eXtensible Business Reporting Language (XBRL) mode.

Vide MCA’s General Circular No. 8/2012 dated 10th May, 2012 [as amended on 29th June, 2012], it has already been mandated by the Ministry of Corporate Affairs that all cost auditors and the concerned companies shall file their Cost Audit Reports and Compliance Reports for the year 2011-12 onwards [including the overdue reports relating to any previous year(s)] only in the XBRL mode. For this purpose, the applicable taxonomy, business rules, validation tools, etc. and also the “Product Group” classification required for preparing the cost audit reports and compliance reports as per the notified Cost Accounting Records Rules, 2011 and Cost Audit Report Rules, 2011 are under preparation and would soon be made available by the Ministry. The actual date for enabling XBRL filing will be intimated separately.

2. It has now been decided by the Ministry that all cost auditors and the concerned companies will be allowed to file their Cost Audit Reports and Compliance Reports for the year 2011-12 [including the overdue reports relating to any previous year(s)] with the Central Government in the XBRL mode, without any penalty, upto 31st December, 2012.

Companies to enter SRN of form 24AAA in form 21 & 23 wef 12.08.2012

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Companies (Central Government’s) General Rules and Forms (Fifth Amendment) Rules, 2012 – (Form 21 & 23)

MINISTRY OF CORPORATE AFFAIRS

NOTIFICATION

New Delhi, dated the 26 July, 2012.

G.S.R. (E). – In exercise of the powers conferred by sub-section (1) of section 642 read with section 610B of the Companies Act, 1956 (1 of 1956), the Central Government hereby makes the following rules further to amend the Companies (Central Government’s) General Rules and Forms, 1956, namely: –

1. (1) These rules may be called the Companies (Central Government’s) General Rules and Forms (Fifth Amendment) Rules, 2012.

(2) These rules shall come into force with effect from the 12th August, 2012.

2. In the Companies (Central Government’s) General Rules and Forms, 1956, in Annexure ‘A’,-

(a) under FORM 21,-

(A) with respect to the portion occurring in the square brackets,-

(i) after figure and letter, “17A” the figures “18, 19” shall be inserted;

(ii) after figure “186”, the figure “188” shall be inserted;

(B) in serial number 13, after item (b) and entries relating thereto, the following shall be inserted, namely:-

“(c) SRN of Form 24AAA ——-

(b) under FORM 23, in serial number 10, after item (a) and entries relating thereto, the following shall be inserted, namely:-

“(b) SRN of Form 24AAA——-

Jewellers misuse PAN Card details from Railway reservation charts

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ABGP-All India Consumer Movement (Regd)- TATKAL Reservation- PAN Card Details-Misused By Unscrupulous Persons- Memorandum To Minister For Railways,Chairman, Railway Board & G.M.,S.Rlys.

AKHIL BHARATHEEYA GRAHAK PANCHAYAT(ABGP); An All India Consumer Movement ( Regn.No:S/9194,Delhi, having its branches in 30 states, submitted a memorandum to Hon.Minister For Railways,chairman-Railway Board and G.M.,S.Rlys’.

Copy of the Memorandums Hon.Minister For Railways,CC to Chairman,Railway Board and to G.M.S.Rly., with ack. is attached, for ready reference.

* As per Commercial Circular No.5 of 2011 issued wide Letter No.2010/TG.1/20/P/Tatkal dt.28.01.2011, Tatkal tickets shall be issued only on production of one of the 8 prescribed proofs of Identity.One among them is PAN CARD.The details of the Identity proof shall be captured by the system and indicated on reserved tickets as well as on the reservation charts.

* IR as per the above direction display PAN CARD DETAILS along with other details of reserved passenger’s, in the reservation chart pasted outside the Coach.

This practice has become a boon for benami transactions .In an attempt to combat black money, Government Of India by Finance Act 2012 has made it mandatory for certain traders like Jewellery dealers to collect tax (TCS) from customers on purchase of jewellery exceeding Rs.5 lakhs.

While complying with TCS rules for collection, payment and uploading of TCS information (E-filing of TDS returns), Jewellery dealers have to furnish PAN of customers. For Certain customers,it is not convenient to provide PAN as they may have constraints in explaining the source.In such cases to accommodate high net worth customers,unscrupulous traders have an easy source of benami PAN particulars from reserved railway passengers chart.

After such illegal use of PAN CARD details of unconnected taxpayer, there is almost 6-12 months time for the PAN holder to know that a transaction of above nature has taken place in his name and only if he goes through Form 26.

The Income Tax Department will first initiate action from the tax payer side asking him to prove that he /she has not carried on the above transaction.The onus lies on the genuine tax payer for fault committed by the traders.

Hence, ABGP Requested By Its Memorandum That The Indian Railway’s Either Withdraw PAN Card As One Of The Prescribed Proofs Of Identity For Tatkal Reservation Or Publish Either The English Alphabet Part Or Numeric Part And Not The Full Details Of PAN Card In The Reservation Charts Displayed On The Railway Compartments to safeguard the interest of Railway Reserved Passengers.

With the severity and urgency of the matter, ABGP requests that suitable orders may be passed at the earliest.

Delhi HC stays differential demand of service tax of 2% on services provided & invoices issued prior to 01.04.2012

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Delhi High Court today Stays collection of differential demand of service tax of 2% on services provided and invoices issued prior to 01.04.2012 for which payment received after 31.03.2012 on following 8 categories of professionals services

· Architect

· Interior Decorator

· Cost Accountant

. Chartered Accountant

· Company Secretary

· Scientific or Technical Consultancy

· Legal Service

· Consulting engineer services

Service tax on staff benefits & employment related transactions

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DRAFT CIRCULAR

F.No 354/127/2012-TRU

Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs
Tax Research Unit

146 North Block, New Delhi
Dated 27^th July 2012

Subject: - Draft Circular on leviability of service tax on staff benefits and employment related transactions- reg

Subsequent to the operationlisation of the Negative List, a number of issues have been raised in relation to the manpower supply or the services provided by the directors of a company or by the employer to the employees. These issues have been examined and are proposed to be clarified as follows:

A. Scope of manpower supply

2. After the operationlisation of the Negative List, the erstwhile definition of the manpower recruitment or supply agency is no more applicable. Thus, the words manpower supply would have to be given their natural meaning. The manpower supply is understood to mean when one person provides another person with the use of one or more individuals who are contractually employed or otherwise engaged by the first person. The essence of the employment should be that the individuals should be employed by the provider of the service and not by the recipient of the service.

3. There could be certain contracts in which such manpower is made available to execute another independent contract by the service provider. For example, a person may agree to carry out construction or a manufacture for another in which certain manpower may be engaged. As long as such manpower is not placed operationally under the superintendence or control of the recipient, it shall not be a case of manpower supply, though it will continue to be judged independently whether it comprises any other taxable service.

4. There are also cases of secondment whereby certain staff belonging to an organization is placed at the disposal of a subsidiary company or any other associate company. Such cases will be covered by the definition of manpower supply as the contractual employment continues to be with the parent company.

B. Joint Employment

5. There can also be cases where staff is employed by one or more employers who normally share the cost of such employment. The services provided by such employee will be covered by the exclusion provided in the definition of service. However, if the staff has been engaged by one employer and only made available to other for a consideration, it shall not be a case of joint employment.

6. Another arrangement could be where one entity pays the salary and other expenses of the staff on behalf of other joint employers which are later recouped from the other employers on an agreed basis on actuals. Such recoveries will not be liable to service tax as it is merely a case of cost reimbursement.

C. Directors

7. Services of a director on the board of a company have now become taxable. A director may be appointed either in an individual capacity or to represent an entity (including government) who has either invested in the company or is otherwise authorized to nominate a director. When a director receives payment in his personal capacity, the same is liable to be taxed in the hands of the director. However, where the fee is charged by the entity appointing the director and is paid to such entity, the services shall be deemed to be supplied by such an entity and not by the individual director. Thus in the case of Govt. nominees, the services shall be deemed to be provided by the Govt. and liable to be taxed under the exclusion sub- (iv) of clause (a) of section 66D of the Finance Act, 1994 i.e. support services by Government to business. Such services are liable to be taxed on reverse charge basis.

D. Treatment of supplies made by the employer to employees

8. A number of activities are carried out by the employers for the employees for a consideration. Such activities fall within the definition of “service” and are liable to be taxed unless specified in the Negative List or otherwise exempted.

9. One of the ingredients for the taxation is that such activity should be provided for consideration. Where the employees pays for such services or where the amount is deducted from the salary, there does not seem to be any doubt. However, in certain situations, such services may be provided against a portion of the salary foregone by the employee. Such activities will also be considered as having been made for a consideration and thus liable to tax. Cenvat credit for inputs and input services used to provide such services will be eligible under extant rules. The said goods or services would now not be construed to be for personal use or consumption of an employee per se and rather shall be a constituent to the taxable service provided to an employee. The status of the employee would be as a service recipient rather than as a mere employee when consuming such output service. The valuation of the service so provided by the employer to the employee shall be determined as per the extant rules in this regard.

10. However, any activity available to all the employees free of charge without any reduction from the emoluments shall not be considered as an activity for consideration and will thus remain outside the purview of the service tax liability (facilities like crèche, gymnasium or a health club which all employees may use without any charge or reduction from the salary will be outside the tax net). However the Cenvat credit for such inputs and input services will be guided by the extant rules.

11. Moreover, it would need to be seen whether the services provided by the employer are otherwise covered by the Negative List or exempt. For example, the services of food and catering provided by the employer in a canteen would normally fall outside the tax net unless such canteen has both the facility of air-conditioning as well as license to serve liquor (S. No. 19 of the Mega exemption). Likewise, services provided by way of guest house will also not be liable to tax if the tariff for such unit of accommodation is below Rs.1000 per day or equivalent (S. No. 18 of the Mega exemption). Similarly, services of telephone and motorcar for personal use will be covered by the service tax.

E. Treatment of reimbursements made by the employer to the employee.

12. Provision of service by an employee to the employer in the course of or in relation to his employment is excluded from the definition of the “service”. Thus reimbursements of expenditure incurred on behalf of the employer in course of employment would not amount to a “service” per se and hence are non-taxable.

F. Treatment of supplies and reimbursements made by the employer to ex-employees/ pensioners.

13. The supplies made by the employer to the ex-employees or pensioners will be of same status as those to an employee and thus would accordingly attract taxability as per discussion in D above. The reimbursements to pensioners will also be treated at par with those of current employees when such reimbursements arise out of the initial employment contract or are in relation to that employment.

Service tax refund must be claimed within 1 year from the date of export of goods

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CESTAT, AHMEDABAD BENCH

Ultratech Cement Ltd.

v.

Commissioner of Central Excise, Bangalore

ORDER NO. A/312/WZB/AHD OF 2012

APPEAL NO. ST/301 OF 2010

Date of Pronouncement -02.03.2012

It is settled law that the notifications issued by Government have to be considered as a part of statute. Further, the Notification No.17/2009-ST is a self-contained notification which is basically an exemption notification and provides that the exemption is provided by way of refund of Service Tax paid in respect of export.

As observed by the lower authorities, according to Clause 2(f), the claim has to be filed within 1 year from the date of export of goods. As already observed, this becomes a statutory requirement and a substantive requirement and therefore, the Tribunal, being a creature of law, cannot go beyond the provisions of law and statutes and give relief.

Service tax liability can be shifted on service provider by agreement

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HIGH COURT OF DELHI

Decision on: July 4, 2012

OMP 955 of 2011 and IA No.20953 of 2011

RAGHUBIR SARAN CHARITABLE TRUST

Versus

PUMA SPORTS INDIA PVT. LTD.

In the present case, the wording of Clause 7.1 of the lease reflects the intention of the parties that it is the Petitioner who would bear the incidence of all taxes. In light of the decisions in Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd. and Rashtriya Ispat Nigam Ltd. v. M/s. Dewan Chand Ram Saran, the view of the learned Arbitrator that in terms of Clause 7.1 of the lease deed, the service tax liability is that of the service provider, i.e. the Petitioner, is a plausible one.

When income from sale of shares can be said to be income from business

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IN THE ITAT MUMBAI BENCH ‘B’

Manish P. Gandhi v. ACIT

IT APPEAL NOS. 5290 (MUM.) OF 2008 & 6430 (MUM.) OF 2009

[ASSESSMENT YEARS 2005-06 & 2006-07]

Date of pronouncement – 29.07.2011

Courts have laid down principles for deciding the question as to when income from sale of shares can be said to be income from business. The following are some of the important decisions in this regard:

(a) Whether a transaction of sale and purchase of shares were trading transactions or whether they were in the nature of investments is mixed question of law and fact. Learned CIT(A) v. H. Holck Larsen, [1986] 60 ITR 67.

(b) It is possible for an assessee to be both an investor as well as a dealer in shares. Whether a particular holding is by way of investment or formed part of stock in trade is a matter which is within the knowledge of the assessee and it is for the assessee to produce evidence from his records as to whether he maintained any distinction between shares which were hold by him as investments and those hold as stock in trade. (CIT v. Associated Industrial Development Co. Ltd., [1971] 82 ITR 586 (SC).

(c) Treatment in the books by an assessee will not be conclusive. If the volume, frequency and regularity with which transactions are carried out indicate systematic and organized activity with profit motive, then it would be a case of business profits and not capital gain. CIT v. Motilal Hirabhai Spg. & Wvg. Co. Ltd., [1978] 113 ITR 173 (Guj); Raja Bahadur Visheshwara Singh v. CIT [1961] 41 ITR 685 (SC).

(d) Purchase without an intention to resell where they are sold under changed circumstances would be capital gains. CIT v. PKN Co. Ltd. [1966] 60 ITR 65 (SC). Purchase with an intention to resell would render the gain profit on sale business profit depending on the circumstances of the case like nature and quantity of article purchased, nature of the operation involved. Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242 (SC).

(e) No single fact has any decisive significance and the question must depend upon the collective effect of all the relevant materials brought on record. Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 (SC).

The application of the principles as set out above will require reexamination of the correct facts that prevails in the case of the Assessee. Since, the Revenue authorities have proceeded on wrong facts and figures, we, deem it fit and proper to set aside the order of the CIT(A) and remand the issue to the AO for fresh consideration in accordance with law after taking into consideration the correct facts

Payment by newspaper company to news agencies is covered u/s.194J

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IN THE ITAT HYDERABAD BENCH ‘A’

ACIT v. Ushodaya Enterprises (P.) Ltd.

IT Appeal Nos. 1699 to 1701 and 1706 to 1708 (Hyd.) of 2008

[Assessment Years 2004-05 to 2006-07]

Date of pronouncement – 22.03.2021

The work carried out by newspaper agents requires professional qualifications and skills. Though the data collected by such reporters has to be reviewed, glossed up and made fit to be published /presented. Nevertheless, procurement of the basic data cannot be done without qualified reporters who utilize their professional skills for collection of the same. Further, the newspapers employ reporters who have been trained to have interrogative ability, presence of mind and have been specialized in doing their work and, hence, they are rendering work in their professional capacity. Hence, the Commissioner (Appeals) was justified in deducing TDS under section 194J and not under section 194C.

I-T – How to recover Password if we forget Registered email ID

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Taxpayer who are registered on E-filing portal of Income Tax department i.e. https://incometaxindiaefiling.gov.in/portal/index.do may sometime forget the password which is required to login on to website. In that case one of the option to retrieve password is that taxpayer opt for send of new password on his Registered Email ID which he specified when he first registered on E-Filing portal.

It is possible that taxpayer may not able to access the above registered email id for any of the following reasons :-

1. He do not remember the Email ID on which he registered

2. He forget the password of registered email id

3. Registered email id belongs to someone else i.e employee of the taxpayer, Consultant etc. and he is not aware who this email id belongs and even if he knows it is possible that they refuse to provide password sent by department.

In all the above cases taxpayer to login into his account on income tax portal taxpayer can request a new password by writing a email on the email id validate@incometaxindia.gov.inmentioning his NAME, PAN & Registered Address with Income Tax Department. Once done with this, taxpayer will receive the password of the Income Tax e-filing account within 48 hours on new email ID.

Assessee not bound to keep record of parties to whom cash sales made

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INCOME TAX APPELLATE TRIBUNAL AHMEDABAD

I.T.A. No. 896/ Ahd/2011 – (Assessment year 2007-08)

M/s. Nitisha Silk mills Pvt. Ltd. Vs. ITO

584. Adarsh Market,

Date of pronouncement: 20.07.2012

Assessee has claimed to have effected cash sales of grey cloth on three dates i.e. 16.5.2006, 17.5.2006 and 31.3.2007 totaling an amount of Rs.9,95,870/-. The A.O.’s objection is this that why cash sale is only on these three dates in the year and not on other dates. With regard to this objection of the A.O., it was submitted by the assessee before the A.O. vide written submission dated 29.12.2009 that since the assessee decided to discontinue the business, major quantity of grey cloth lying in various process houses were called back without processing and the grey cloth so received was sold in cash. It is also submitted that some of the process houses could not trace grey cloth of the assessee and therefore, cash equal to that value of grey cloth was given by the owners of the process houses. Considering these facts of the present case, in its entirety, we are of the considered opinion that the claim of the assessee regarding cash sales under peculiar conditions that the assessee was discontinuing its business and therefore some sales were made in cash cannot be summarily rejected. We also find that it is observed by the Ld. CIT(A) on pages 51-52 of his order that the assessee could not provide even the names and addresses of those parties to whom cash sales were claimed to have been made. This is the main basis on which Ld. CIT(A) has confirmed the decision of the A.O. In our considered opinion, it cannot be said that in the case of cash sales, the assessee is bound to keep record of the names and addresses of the buyers. The judgement of Hon’ble Bombay High Court cited by the Ld. A.R. rendered in the case of R B Gurnam Fatehchand vs ACIT as reported in 75 ITR 33 also supports the case of the assessee. In that case also, the assessee was not in a position to give the addresses of the customers to whom cash sales were made. Under these facts, it was held by the Hon’ble Bombay High Court that this cannot be the basis to reject the book results.

I-T department adds new column in ITR for declaring foreign assets

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Taxpayers, who hold foreign bank accounts or properties, will now have to furnish details of their foreign assets which include information like country name, address of the bank, name mentioned in the account and peak balance during the year etc.
Tightening the norms, Income Tax (I-T) department has introduced a new column seeking details of foreign assets in the income tax return (ITR) forms for the 2012-13 assessment year.
Taxpayers, who hold foreign bank accounts or properties, will now have to furnish details of their foreign assets which include information like country name, address of the bank, name mentioned in the account and peak balance during the year etc.
“An individual being a resident having assets (including financial interest in any entity) located outside India or is a signing authority in any account located outside India shall furnish the return electronically,” chief commissioner of I-T (Delhi) M Sailo said here today.
For example, a salaried person having any form of foreign assets including shares or bond of foreign company is required to fill ITR 2 instead of ITR 1, she added.
Besides, details of overseas immovable property and any other other asset outside India have to be disclosed.
The then finance minister and now President-elect Pranab Mukherjee had announced in the Budget speech this year that new steps will be taken to make compulsory the reporting of assets held by Indians abroad.
“Furnishing of return by such a resident (with assets abroad) would be mandatory irrespective of the fact whether the resident taxpayer has taxable income or not,” the Budget statement had said.

Section 14A can’t be invoked in respect to income, for which deduction under Chapter VI-A is claimed

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HIGH COURT OF DELHI

CIT v. Kribhco

IT APPEAL NO. 444 OF 2011

Date of Pronouncement – 18th July 2012

Section 14A states that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred in relation to the income which does not form part of the total income under this Act. It does not state that income which is entitled to deduction under Chapter VIA has to be excluded for the purpose of the said Section. The words “do not form part of the total income under this Act” is significant and important. As noticed above, before allowing deduction under Chapter VIA we have to compute the income and include the same in the total income. In this manner, the income which qualifies for deductions under Sections 80C to 80U has to be first included in the total income of the assessee. It, therefore, becomes part of the income, which is subjected to tax. Thereafter, deduction is to be allowed in accordance with and subject to the fulfillment of the conditions of the respective provisions. This is also subject to Section 80AB and 80A(1) and (2). Chapter VIA does not postulate or state that the incomes which qualify for the said deduction will be excluded and not form part of the total income. They form part of the total income but are allowed as a deduction and reduced.

SEBI Revises Eligibility Criteria for Stocks in Derivatives Segment

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CIRCULAR

CIR/DNPD/3/2012 July 23, 2012

To

Managing Director/ Chief Executive Officer

Recognized Stock Exchanges

Dear Sir/Madam,

Sub: Revision of Eligibility Criteria for Stocks in Derivatives Segment

1. This circular is issued in partial modification of Master Circular on Exchange Traded Derivatives CIR/DNPD/1/2012 dated January 2, 2012.

2. In order to improve market integrity, it has been decided, in consultation with Stock Exchanges, to tighten the eligibility and exit criteria for stocks in derivatives segment as given hereunder.

Eligibility criteria for stocks in derivatives segment

3. At present, minimum Median Quarter Sigma Order Size (MQSOS) requirement for a stock to be eligible for introduction in derivatives segment is 5 Lakh. It has been decided to revise this minimum MQSOS requirement to 10 Lakh.

4. Thus, in Para ‘3.1.2.b’ of the master circular, for the letters and figures “Rs. 5 Lakh (Rupees Five Lakh)”, the following letters and figures shall be substituted, namely “ 10 Lakh”.

5. At present, minimum MWPL requirement for a stock to be eligible for introduction in derivatives segment is 100 crore. It has been decided to revise this minimum MWPL requirement to 300 crore.

6. Thus, in Para ‘3.1.2.c’ of the master circular, for the letters and figures “Rs. 100 crores (Rupees Hundred Crores)”, the following letters and figures shall be substituted, namely “ 300 crore”.

Exit criteria for stocks in derivatives segment

7. At present, minimum MWPL requirement for a stock to be retained in derivatives segment is 60 crore. It has been decided to revise this minimum MWPL requirement to 200 crore.

At present, minimum MQSOS requirement for a stock to be retained in derivatives segment is ` 2 Lakh. It has been decided to revise this minimum MQSOS requirement to ` 5 Lakh.

An additional criterion of ‘stock derivatives to have average monthly turnover in derivatives segment for last three months of ` 100 crore’ has also been decided to be implemented for a stock to be retained in derivatives segment.

8. Thus, for the first paragraph under heading “Exit criteria for stocks in derivatives” under Para ‘3.1.2’ of the master circular, the following paragraph shall be substituted:

“The criteria for retention of stock in derivatives segment are as under:

a. The stock’s median quarter-sigma order size over last six months shall be not less than ` 5 lakh.

b. MWPL of the stock shall not be less than ` 200 crore.

c. The stock’s average monthly turnover in derivatives segment over last three months shall not be less than ` 100 crores”

9. Rest of the stipulations regarding eligibility and exit criteria for single stock derivatives will remain as it is.

10. Exchanges are directed to take necessary action to give effect to this circular. No fresh month contract shall be issued on stocks that may exit the F&O segment, however, the existing unexpired contracts may be permitted to trade till expiry and new strikes may also be introduced in the existing contract months.

11. This circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act 1992, read with Section 10 of the Securities Contracts (Regulation) Act, 1956 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

12. This circular is available on SEBI website at www.sebi.gov.in under the category “Derivatives- Circulars”.

CENVAT Credit admissible on Service Tax on Commission to Consignment Agent

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CESTAT, NEW DELHI BENCH

Vishal Pipes Ltd.

v.

Commissioner of Central Excise

FINAL ORDER NOS. 292 of 2012-SM (BR) &

S-266 of 2012-SM (BR)

APPLICATION No. E/STAY/2935 of 2011-SM

APPEAL NO. E/2243 of 2011-SM

MARCH 22, 2012

There is no dispute about role of consignment agent attributing to the promotion of the sale. Once sale promotion falls within Rule 2 (l) of Cenvat Credit Rules 2004, admissibility of cenvat credit of the service tax paid in respect of such service availed is permissible.

If service tax is not separately charged, amount charged should be taken as inclusive of service tax

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CESTAT, NEW DELHI BENCH

Speedway Carriers (P.) Ltd.

v.

Commissioner of Central Excise

Stay Order No. ST/S/525 of 2012-Cus.

Application No. ST/STAY/3482 of 2010

Appeal No. ST/1626 of 2010

April 11, 2012

 The appellants were engaged in the business of renting out low-floor buses to Rajasthan State Road Transport Corporation (RSTRC) on contract basis. RSTRC was using the buses as stage carriers for transportation of persons. The appellants did not pay service tax on the consideration received from RSTRC during the period 01-06-2007 to 31-12-2007.

ROC -Amendment in forms 8, 10 & 17 wef 22nd July 2012

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Companies (Central Government’s) General Rules and Forms (Fourth Amendment) Rules, 2012 – Amendment in Forms 8, 10 & 17

Notification No. G.S.R. 577(E), dated 19-7-2012

In exercise of the powers conferred by sub-section (1) of section 642 read with section 610B of the Companies Act, 1956 (1 of 1956), the Central Government hereby makes the following rules further to amend the Companies (Central Government’s) General Rules and Forms, 1956, namely: -

1. (1) These rules may be called the Companies (Central Government’s) General Rules and Forms (Fourth Amendment) Rules, 2012.

(2) These rules shall come into force with effect from the 22 nd July, 2012.

2. In the Companies (Central Government’s) General Rules and Forms, 1956, in Annexure ‘A’,-

(a) in Form 8, for serial number 8 and entries relating thereto, the following shall be substituted -

“8. Particulars of the charge holder (In case charge is modified in favour of ARC or assignee enter particulars of ARC or assignee)

	Category
	If others, specify

	Get list of chargeholders
	*Name of chargeholder

	In case of others, specify
		CIN, if applicable	Pre-fill
		Name

	*Address Line I
	Line II
	*City
	*State
	*ISO country code
	Country
	*Pin code

*e-mail ID

“

(b) in Form 10, for serial number 5 and entries relating thereto, the following shall be substituted -

“5. *Number of trustee(s) of debenture holders or charge holder(s)

Particulars of the trustee of debenture holders or charge holder (In case charge is modified in favour of ARC or assignee, enter particulars of ARC or assignee)

Get list of chargeholders *Name of chargeholder In case of others, specify CIN, if applicable Pre-fill Name *Address Line I Line II *City *State *ISO country code Country *Pin code *e-mail ID

” ;

(c) in Form 17, in serial number 4 for item (a) and entries relating thereto, the following shall be substituted -

(a) Particulars of the charge holder or ARC or assignee

	Get list of chargeholders
	*Name of chargeholder

	In case of Others,
		CIN, if applicable	Pre-fill
		Name

	Address
	*e-mail ID		“

Payments made for transmission of electricity by transmission lines do not constitute rent payment U/s.194-I

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INCOME TAX APPELLATE TRIBUNAL, MUMBAI

I.T.A.No.2872/Mum/2010 – Assessment Year: 2009-10

Maharashtra State Electricity Distribution Co. Ltd. Vs. DCIT TDS Range-2

Date of Pronouncement: 27/06/2012

Payments made for transmission of electricity by the transmission lines owned by PGCIL do not constitute payment for rent under section 194-I, it is not really necessary to go into this aspect of the matter. The question as to whether the definition of expression “rent”, introduced in section 194-I with effect from July 2006, is prospective or clarificatory is also, given our findings that, even on the touchstone of the definition of rent under the aforesaid provision, the payment for transmission of power will not constitute “rent”, not really relevant in the present context, and we see no need to deal with the same either. In view of the above discussions, and bearing in mind entirety of the case, we are of the considered view that the provisions of section 194-I cannot apply in respect of payments made for transmission of power by the PGCIL, on the facts of the case before us. Accordingly, the impugned demands raised under section 201(1) read with sections 194-I and 201(1A) read with section 201(1A) are cancelled. The assessee gets the relief accordingly”.

Similar view was also taken by ITAT Cuttack Bench in the case of GRIDCO Ltd in ITA No.404/CTK/2011 dated 17.11.2011. In view of the detailed discussions made by the Coordinate Benches in the above cases and since the agreement entered by assessee with MSETCL. and PGCIL are similar in nature, we hold that the payments made to the above companies cannot be considered as a ‘rent’ under the provisions of section 194I and consequently the levy of interest under section 201(1A) also does not arise.

EPF member can now Generate Member / Employee Passbook online

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Facility to generate Member Passbook, Employee Passbook and On-request Passbook through Employees’ Portal on EPFO website – HO No. WSU/5(1)2003/11146 dated 20/07/2012

A facility of E-Passbook to EPF Members has been devised by the IS Division, Head Office through Member Portal on EPFO website. The EPF Members can directly approach the EPFO website and after entering certain necessary details, they can get themselves registered. The registered EPF Members can obtain E-Passbook after entering Establishment Code/Extn. (if any) / Employee Number and Name as per PF slip.

2. The E-Passbook shall be available subject to following conditions:

(i) Reconciliation of Challan Data alongwith ECR with Bank Statement;

(ii) For active members only;

(iii) No Passbook shall be available for Settled Members/Inoperative Members/

Negative Balances/Exempted Establishments.

3. A new function i.e. ADMIN » Master » GENERATE MEMBER PASSBOOK FOR EMPLOYER E-SEWA under SUPER ADMIN-EDP Role has been introduced having following four Radio Button options:

(i) GENERATION OF MEMBER PASSBOOK: The generated PDF file would be uploaded to the Employer’s Portal on EPFO website. The PDF would be generated against TRRN. It contains all the transaction of the members against the establishment in a single PDF. Further, the transactions would be available since last approved accounting year onwards (Sample attached).

(ii) REGENERATION OF MEMBER PASSBOOK: The PDF file may be regenerated (if required).

(iii) EMPLOYEE WISE PASSBOOK: The ge00nerated PDF file would be uploaded on the Member Portal on EPFO website. The PDF would be generated for all the members individually containing all the transactions since opening of his/her account or data available in the new System.

(iv) EMPLOYEE WISE PASSBOOK (ON-REQUEST): These employees who could not obtain their respective passbook through Member Portal, may send their request. All such requests would be curtailed into a txt file, for uploading & accepting into Application Software. If requisite data relating to the member is available in the System, the same would be furnished to requesting member

Last Date to File Form 23B without Penalty Extended by 2 Weeks

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Ministry of Corporate Affairs vide circular number 14/2012 dated 21.06.2012 had imposed fees on Form 23B (Information by auditor to Registrar) w.e.f. 22/07/2012.

Kindly note that the last date for filing the Form 23B without fee has been extended for two weeks. Fee shall be charged on any eForm 23B filed on or after 5th August, 2012. You are therefore advised to file the pending eForms within the time limit to avoid any last minute rush.

Personal guarantee must before loan restructuring

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RBI releases Report of the Working Group to review the existing prudential guidelines on restructuring of advances by banks/financial institutions

The Reserve Bank of India (RBI) today placed on its website the Report of the Working Group (WG) to review the existing prudential guidelines on restructuring of advances by banks/financial institutions (Chairperson: Shri B. Mahapatra). Comments on the Report may please be emailed or forwarded by August 21, 2012 to the Chief General Manager-in-Charge, Department of Banking Operations and Development, Reserve Bank of India, Central Office, Mumbai-400 001.

The WG approached the mandate given to it from the perspective that restructuring of advances serves a useful social purpose as it protects the productive assets of the economy. It also approached the issue from the perspective that internationally restructuring of an account is considered as an event of impairment irrespective of whether an account’s asset classification status is downgraded or not. The WG has, however, suggested a gradual and calibrated approach.

The key recommendations of the WG are:

• The RBI may do away with the regulatory forbearance regarding asset classification, provisioning and capital adequacy on restructuring of loan and advances in line with the international prudential measures. However, in view of the current domestic macroeconomic situation as also global situation, this measure could be considered say, after a period of two years. (Para 6.9)
• In the interregnum, in order to prudently recognise the inherent risks in existing assets classified as standard on restructuring (stock), the provision requirement on such accounts should be increased from the present 2% to 5% in a phased manner over a two-year period, i.e. 3.5% in the first year and 5% in the second year. However, in cases of new restructuring of standard asset (flow), provision of 5% should be made with immediate effect.(Para 6.10)
• Notwithstanding the recommendation for progressively doing away with the asset classification benefit on restructuring, the WG felt that extant asset classification benefits in cases of change of date of commencement of commercial operation (DCCO) of infrastructure project loans may be allowed to continue for some more time in view of the uncertainties involved in obtaining clearances from various authorities and importance of the sector in national growth and development. (Para 6.11)
• Accounts classified as NPAs upon restructuring are presently eligible for up-gradation to the ‘standard’ category after observation of ‘satisfactory performance’ during the ‘specified period’. The specified period has been defined as a period of one year from the date when the first payment of interest or instalment of principal falls due under the terms of restructuring package. The WG has recommended that the ‘specified period’ should be redefined in cases of restructuring with multiple credit facilities as ‘one year from the commencement of the first payment of interest or principal, whichever is later, on the credit facility with longest period of moratorium. (Para 6.19)
• Conversion of debt into preference shares should be done only as a last resort. Also, conversion of debt into equity/preference shares should be restricted to a cap (say 10% of the restructured debt). Further, conversion of debt into equity should be done only in the case of listed companies. (Para 6.52 & 6.53)
• A higher amount of promoters’ sacrifice in cases of restructuring of large exposures under CDR mechanism needs to be considered. Further, the promoters’ contribution should be prescribed at a minimum of 15% of the diminution in fair value of the restructured account or 2% of the restructured debt, whichever is higher. (Para 6.50)
• As stipulating personal guarantee will ensure promoters’ “skin in the game” or commitment to the restructuring package, obtaining the personal guarantee of promoters be made a mandatory requirement in all cases of restructuring, i.e., even if the restructuring is necessitated on account of external factors pertaining to the economy and industry. Further, corporate guarantee should not be considered as a substitute for the promoters’ personal guarantee. (Para 6.66 & 6.67)
• RBI may prescribe the broad benchmarks for the viability parameters based on those used by CDR Cell; and banks may suitably adopt them with appropriate adjustments, if any, for specific sectors. The WG also felt that the prescribed time span of seven years for non-infrastructure borrowal accounts and ten years for infrastructure accounts for becoming viable on restructuring was too long and banks should take it as an outer limit. The WG, therefore, recommended that, in times when there is no general downturn in the economy, the viability time span should not be more than five years in non-infrastructure cases and not more than eight years in infrastructure cases. (Para 6.24 &6.25)
• In terms of present guidelines, banks are required to disclose annually all accounts restructured in their books on a cumulative basis even though many of them would have subsequently shown satisfactory performance over a sufficiently long period. The WG has, therefore, recommended that once the higher provisions and risk weights (if applicable) on restructured advances (classified as standard either abinitio or on upgradation from NPA category) revert back to the normal level on account of satisfactory performance during the prescribed period, such advances should no longer be required to be disclosed by banks as restructured accounts in the “Notes on Accounts” in their Annual Balance Sheets. (Para 6.28)
• The WG observed that there were cases which were found to be viable before restructuring but the assumptions leading to viability did not materialise in due course of time. There were also cases where the approved restructuring package could not be implemented satisfactorily due to external reasons or due to promoters’ non-adherence to the terms and conditions. The WG recommended that in such cases, banks should be advised to assess the situation early and use the exit options with a view to minimise the losses. The WG also recommended that the terms and conditions of restructuring should inherently contain the principle of ‘carrot and stick’, i.e. while restructuring being an incentive for viable accounts, it should also have disincentives for non-adherence to the terms of restructuring and under-performance. (Para 6.59)
• Due to the current guidelines issued by CDR Cell that recompense be calculated on compounding basis and that 100% of recompense so calculated is payable, exit of companies from CDR system was not happening. Therefore, the WG recommended that CDR Standing Forum/Core Group may take a view as to whether their clause on ‘recompense’ may be made somewhat flexible in order to facilitate the exit of the borrowers from CDR Cell. However, it also recommended that in any case 75% of the amount of recompense calculated should be recovered from the borrowers and in cases of restructuring where a facility has been granted below base rate, 100% of the recompense amount should be recovered. The WG also recommended that the present recommendatory nature of ‘recompense’ clause should be made mandatory even in cases of non-CDR restructurings. (Para 6.63 & 6.64)

Background

It may be recalled that in the Second Quarter Review of Monetary Policy 2011-12 announced on October 25, 2011, it was proposed to constitute a WG to review the existing prudential guidelines on restructuring of advances by banks/financial institutions and suggest revisions taking into account the best international practices and accounting standards. Accordingly, a WG was constituted on January 31, 2012 under the Chairmanship of Shri B. Mahapatra, Executive Director, RBI. The WG had members representing RBI, select commercial banks, IBA, CDR Cell and a rating agency. The WG was required to submit its Report by July 31, 2012.

Interest payable on late TDS payment for delay due to Cheque clearing / Govt holiday

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ITAT AGRA BENCH

G.M., Mprrda, PIU v. Income-tax Officer (TDS),

IT Appeal NOs. 370 & 371 (Agra) of 2011

Assessment Year 2008-09

Date of Pronouncement – 08.06.2012

Interest on late payment of TDS payable for delay due to Cheque clearing / Govt holiday

The undisputed fact is that the assessee is liable to deduct the tax at source on the payments made to the contractors. The assessee has also deducted tax at source as per Chapter XVII and the liability of assessee to deduct tax at source has also not been disputed. It is also not in dispute that after deducting the TDS, the assessee also made deposit of the tax that with the Central Government, but it was paid belatedly. The assessee in its appeals before the Commissioner (Appeals) also only challenged the interest payable for two months instead of one month. Therefore, in principle, it is admitted fact that the assessee was liable to deduct tax at source and since the assessee did not deposit the TDS within time, therefore, the interest was levied against the assessee under section 201(1A) which is mandatory in nature. The provisions of section 201(1A)(ii) also put the assessee on liability for payment of interest at the specified rate on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid. Similarly, according to section 200 of the Income-tax Act, the assessee shall have to pay and deposit the amount of TDS at the credit of Central Government, as the Board may prescribe. Rule 30 of the Income-tax Rules. Also provides the modes of payment of tax deducted with the provisions of Chapter XVII by paying the amount of tax to the credit of the Central Government within the time prescribed. The cumulative effect of all the above provisions and Rules clearly provide that the assessee has to deposit the tax with the Government of India of the amount deducted at source and such tax shall be deemed to be paid to the Government when actual payment of tax has been brought to the Government by crediting the amount of taxes to the Central Government. The word ‘credit’ and ‘actual amount paid to the Government of India’ as prescribed in the above provision clearly denotes that the payment would be treated as made to the Government when the amount is actually credited and actually paid to the Government of India. Since the assessee has not deposited the amount of tax within the prescribed time, therefore, the assessee was liable for interest as per the above provisions. The time taken for clearing of cheques and Government holidays and reasonable cause etc. are not the reasons, which could be considered while levying the interest against the assessee. Such reasons are irrelevant and alien to the above provisions. Therefore, the contention of the assessee cannot be accepted and is, accordingly rejected. Since section 201(1A) of the Income-tax Act and relevant rules have specific provision of law and put the assessee in liability to pay mandatory interest for delay in depositing TDS within time, therefore, the provision of law shall have to be read as it is and cannot be stretched to give different meaning under the law. However, on consideration of the submissions of the assessee that excessive interest has been charged, it is found that the same have some points to argue because as per the schedule of payment, it is found that there may be some mistake in calculating the excessive interest as is demonstrated by the assessee on examining the payment of tax for the month of May, 2007 because the delay is apparently of 11 days but the Assessing Officer treated the default for 60 days. The said matter, therefore, requires reconsideration at the level of the Commissioner (Appeals).

Depreciation allowable on non-compete fee paid for acquisition of non-compete rights

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IN THE ITAT AHMEDABAD BENCH ‘D’

ACIT v. GE Plastics India Ltd.

IT APPEAL NOS. 483 & 573 (AHD.) OF 2007

[ASSESSMENT YEAR 2003-04]

MARCH 23, 2012

In the Tribunal decision rendered in the case of Srivatsan Surveyors (P.) Ltd. v. ITO [2009] 32 SOT 268 (Chennai) the issue was decided against the assessee on the basis that the depreciation on restrictive covenant is ‘a right in persona’ and not a ‘right in rem’ and, hence, depreciation on it is not allowable as per the provisions of section 32(1)(ii). In that case, Rs. 1 crore was paid to one of the directors on the basis of non-compete covenant entered into between the assessee-company and its director R. Srivatsan, as per which the said director agreed not to carry on his individual business of general insurance survey, loss assessment, valuation of assets, etc., for a period of seven years. In the instant case also, non-compete fee was paid for the acquisition of non-compete rights from ‘J’ for agreeing for not entering into or participate in any business which directly compete with the business of the assessee-company. It shows that the facts are similar and, therefore, this Tribunal decision cited by the revenue is applicable in the instant case, but at the same time, the subsequent decision of the Tribunal rendered in the case of ITO v. Medicorp Technologies India (P.) Ltd. [2009] 30 SOT 506 (Chennai) is also regarding the allowability of depreciation on non-compete fees paid by the assessee of Rs. 2 crores and in that case, the issue was decided by the Tribunal in favour of the assessee. It is now settled position of law that when there are two views possible, the view favourable to the assessee should be followed. Hence, this issue is decided in favour of the assessee by following the Tribunal decision rendered in the case of Medicorp Technologies India Ltd.(supra).

Non compete fees chargeable to tax as Business Income, not as Capital Gain

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INCOME TAX APPELLATE TRIBUNAL, MUMBAI

ITA No.3221/Mum/2011 – (Assessment Year: 2007-08)

Shri Rakesh Dungarmal Tainwala Vs. DCIT

Date of Pronouncement: 19.06.2012

Learned counsel for the assessee fairly submitted that identical issue has come up in the case of Ramesh D. Tainwala in ITA No. 3853/Mum/2010 wherein the ITAT “D” Bench Mumbai concluded that provisions of section 28(va)(a) would apply and consequently the amount received by that assessee would be chargeable to tax as business income and not under the head capital gains. The learned counsel for the assessee admitted that despite the case of the assessee that non-compete fees is assessable to tax under the head ‘Long Term Capital Gains’, in the light of the aforesaid decision the issue stands covered against the assessee.

RBI Master Circular on Corporate Governance

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Corporate Governance

Master Circular DNBS (PD) CC No. 288/03.10.001/2012-13, DATED 2-7-2012

In order to have all current instructions in one place, the Reserve Bank of India has consolidated all the instructions issued on the topic as at end of June 30, 2012. It may be noted that the Master Circular consolidates and updates all the instructions contained in the notifications listed in the Appendix in so far they relate to the subject. The Master Circular has also been placed on the RBI web-site (http://www.rbi.org.in).

I. Guidelines on Corporate Governance

As it is evident, the need for good corporate governance has been gaining increased emphasis over the years. Globally, companies are adopting best corporate practices to increase the investors confidence as also that of other stakeholders. Corporate Governance is the key to protecting the interests of the stake-holders in the corporate sector. Its universal applicability has no exception to the Non-Banking Financial Companies (NBFCs) which too are essentially corporate entities. Listed NBFCs which are required to adhere to listing agreement and rules framed by SEBI on Corporate Governance are already required to comply with SEBI prescriptions on Corporate Governance.

In order to enable NBFCs to adopt best practices and greater transparency in their operations following guidelines are proposed for consideration of the Board of Directors of all Deposit taking NBFCs with deposit size of Rs 20 crore and above and all non-deposit taking NBFCs with asset size of Rs 100 crore and above (NBFC-ND-SI).

1. Constitution of Audit Committee

In terms of extant instructions, an NBFC having assets of Rs. 50 crore and above as per its last audited balance sheet is already required to constitute an Audit Committee, consisting of not less than three members of its Board of Directors, the instructions shall remain valid.

In addition, NBFC-D with deposit size of Rs 20 crore may also consider constituting an Audit Committee on similar lines.

2. Constitution of Nomination Committee

The importance of appointment of directors with ‘fit and proper’ credentials is well recognised in the financial sector. In terms of Section 45-IA (4) (c) of the RBI Act, 1934, while considering the application for grant of Certificate of Registration to undertake the business of non-banking financial institution it is necessary to ensure that the general character of the management or the proposed management of the non-banking financial company shall not be prejudicial to the interest of its present and future depositors. In view of the interest evinced by various entities in this segment, it would be desirable that NBFC-D with deposit size of Rs 20 crore and above and NBFC-ND-SI may form a Nomination Committee to ensure ‘fit and proper’ status of proposed/existing Directors.

3. Constitution of Risk Management Committee

The market risk for NBFCs with Public Deposit of Rs.20 crore and above or having an asset size of Rs.100 crore or above as on the date of last audited balance sheet is addressed by the Asset Liability Management Committee (ALCO) constituted to monitor the asset liability gap and strategize action to mitigate the risk associated. To manage the integrated risk, a risk management committee may be formed, in addition to the ALCO in case of the above category of NBFCs.

4. Disclosure and transparency

The following information should be put up by the NBFC to the Board of Directors at regular intervals as may be prescribed by the Board in this regard:

♦ progress made in putting in place a progressive risk management system, and risk management policy and strategy followed

♦ conformity with corporate governance standards viz. in composition of various committees, their role and functions, periodicity of the meetings and compliance with coverage and review functions, etc.

5. Connected Lending

The Bank has received suggestions in the matter with reference to paragraph 2(vi) of the circular dated May 28, 2007 containing instructions on connected lending. The suggestions are being studied and the instructions contained in paragraph 2 (vi) of the said circular will become operational after final evaluation of the suggestions and modifications, if any considered necessary.

NBFCs shall frame their internal guidelines on corporate governance, enhancing the scope of the guidelines without sacrificing the spirit underlying the above guidelines and it shall be published on the company’s web-site, if any, for the information of various stakeholders.

II. Rotation of partners of the statutory auditors audit firm - with public deposits/deposits of Rs 50 crore and above

The need for good corporate governance has been gaining increased emphasis over the years. Globally, Companies are adopting best corporate practices to increase the investors confidence as also that of other stakeholders. Scrutiny of the books of account conducted by auditors rotated periodically would add further value in strengthening corporate governance.

2. In this context, it would be desirable if NBFCs with public deposits / deposits of Rs 50 crore and above, stipulate rotation of partners of audit firms appointed for auditing the company. The partner/s of the Chartered Accountant firm conducting the audit could be rotated every three years so that same partner does not conduct audit of the company continuously for more than a period of three years. However, the partner so rotated will be eligible for conducting the audit of the NBFC after an interval of three years, if the NBFC, so decides. Companies may incorporate appropriate terms in the letter of appointment of the firm of auditors and ensure its compliance.

APPENDIX

Sr. No.	Circular No.	Date
1.	DNBS (PD).CC. No. 61 / 02.82 / 2005-06	December 12, 2005
2.	DNBS.PD/ CC 94 / 03.10.042 /2006-07	May 8, 2007
3.	DNBS.PD/ CC 104 / 03.10.042 /2007-08	July 11, 2007

EPFO to launch Special Recovery Drive from 1st August, 2012

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EPFO issues an internal circular dated 13 July 2012 on ‘Special Recovery Drive from 1st August, 2012 to 30th September, 2012′.
The circular reiterates the launching of the special recovery drive to recover the arrears of provident fund from both un-exempted and exempted establishments and the actions that would be taken against the defaulting establishments under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952.

Companies to file XBRL Return without additional fee/ penalty up to 15.11.2012

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MCA’s Fresh Mandate on Filing of Balance Sheet (B/s) and Profit and Loss (P/L) Account in Extensible Businessreporting Language (XBRL) Mode

The Ministry of Corporate Affairs has decided to further mandate the following select class of companies to file their Balance Sheet and Profit & Loss Account in XBRL mode for the financial year commencing on or after 1.4.2011 :

(i) all companies listed with any Stock Exchange(s) in India and their Indian subsidiaries; or
(ii) all companies having paid up capital of Rupees five crore and above; or
(iii) all companies having turnover of Rupees one hundred crore and above; or
(iv)all companies who were required to file their financial statements for FY 2010-11, using XBRL mode.
However, banking companies, insurance companies, power companies and Non-Banking Financial Companies (NBFCs) are exempted from XBRL filing till further orders.
The applicable taxonomy as per Schedule VI of the Companies Act, 1956 has already been placed on the Ministry’ s website www.mca.gov.in . The Business Rules, validation tools, etc. required for preparing the financial statements in XBRL format ,as per the revised Schedule-VI and Accounting Standards, are under preparation and would soon be made available by the Ministry. The actual date for enabling XBRL filing will be intimated separately.
Additional Fee Exemption: All companies referred to in the 1st Para, will be allowed to file their financial statements in XBRL mode without any additional fee/ penalty up to 15th November, 2012 or within 30 days from the date of their AGM, whichever is later.
Training Requirement: Stakeholders are advised to visit the Ministry’s websitewww.mca.gov.in/ XBRL/ index.html regularly to have training in XBRL on taxonomy related issues.
It may be noted that, Vide Companies (Filing of documents and forms in Extensible Business Reporting Language) Rules, 2011 notified vide GSR No. 748E dated 5.10.2011, select class of companies were required to file their Balance Sheet and Profit & Loss Account and other documents as required u/ s 220 of Companies Act , 1956 with the Registrar of Companies for the financial year ending on or after 31st March, 2011.

Comprehensive guidelines on Offer For Sale (OFS) of Shares by Promoters through the Stock Exchange Mechanism

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CIRCULAR no. MRD/DP/18/2012, dated 18-7-2012

This has reference to Circular Nos. MRD/DP/05/2012 dated February 1, 2012, MRD/DP/07/2012 dated February 23, 2012 and MRD/DP/8/2012 dated February 27, 2012 on the captioned subject.

Several representations/suggestions have been received from the market participants on few provisions of the above circulars. After due examination and deliberation with the market participants it has been decided to replace the procedures and instructions contained in the aforementioned circulars by the following:

1. Eligibility

(a) Exchanges

The facility of offer for sale of shares shall be available on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

(b) Sellers

(i) All promoter(s)/promoter group entities of such companies that are eligible for trading and are required to increase public shareholding to meet the minimum public shareholding requirements in terms Rule 19(2)(b) and 19A of Securities Contracts (Regulation) Rules, 1957 (SCRR), read with clause 40A(ii)(c) of Listing Agreement.

(ii) All promoter(s)/promoter group entities of top 100 companies based on average market capitalization of the last completed quarter.

For (i) and (ii) above, the promoter/promoter group entities should not have purchased and/or sold the shares of the company in the 12 weeks period prior to the offer and they should undertake not to purchase and/or sell shares of the company in the 12 weeks period after the offer. However, within the cooling off period of +12 weeks, the promoter(s)/promoter group entities can offer their shares only through OFS/Institutional Placement Programme (IPP) with a gap of 2 weeks between successive offers.

The above shall also be applicable on promoter(s) /promoter group entities who have already offered their shares through OFS/IPP.

(c) Buyers

All investors registered with the brokers of the aforementioned stock exchanges other than the promoter(s)/promoter group entities.

2. Definitions

(a) “Single Clearing Price” is the price at which the shares are allocated to the successful bidders in a proportionate basis methodology.

(b) “Multiple Clearing Prices” are the prices at which the shares are allocated to the successful bidders in a price priority methodology.

(c) “Indicative Price” is the volume weighted average price of all the valid/confirmed bids.

(d) “Floor Price” is the minimum price at which the seller intends to sell the shares.

3. Size of Offer for sale of shares

The size of the offer shall be a minimum of Rs. 25 crores. However, size of offer can be less than Rs. 25 crores so as to achieve minimum public shareholding in a single tranche.

4. Advertisement and offer expenses

(a) Advertisements about the offer for sale of shares through stock exchange(s), if any, shall be made after the announcement/notice of the offer for sale of shares to the stock exchanges in accordance with para 5(b) below and its contents shall be restricted to the contents of the notice as given to the stock exchange under Para 5(b).

(b) All expenses relating to offer for sale of shares through stock exchange(s) shall be borne by the seller(s).

5. Operational Requirements

(a) Appointment of Broker

The Seller(s) will appoint broker(s) for this purpose. The Seller’s broker(s) may also undertake transactions on behalf of eligible buyers.

(b) Contents of the announcement/Notice of the Offer for sale of shares

Seller(s) shall announce the intention of sale of shares at least one clear trading day prior to the opening of offer, along with the following information:

(i) Name of the seller(s) (promoter/promoter group) and the name of the company whose shares are proposed to be sold.

(ii) Name of the Exchange(s) where the orders shall be placed. In case orders are to be placed on both BSE and NSE, one of them shall be declared as the Designated Stock Exchange (“DSE”).

(iii) Date and time of the opening and closing of the offer.

(iv) Allocation methodology i.e. either on a price priority (multiple clearing prices) basis or on a proportionate basis at a single clearing price.

(v) Number of shares being offered for sale.

(vi) The maximum number of shares that the seller may choose to sell over and above the offer made at point (v) above. The name of the broker(s) on behalf of the seller(s).

(vii) The date and time of the declaration of floor price, if the seller(s) chooses to announce it to the market. Alternatively, a declaration to the effect that the floor price will be submitted to the DSE in a sealed envelope that shall be disclosed post closure of the offer.

(viii) Conditions, if any, for withdrawal or cancellation of the offer.

(c) Floor price

(i) In case the seller chooses to disclose the floor price, the seller(s) shall declare it after the close of trading hours and before the close of business hours of the exchanges on T-1 day else the seller(s) shall give the floor price in a sealed envelope to DSE before the opening of the offer. (T day being the day of the offer for sale)

(ii) The floor price if not declared to the market, shall not be disclosed to anybody, including the selling broker(s).

(iii) Sealed envelope shall be opened by the DSE after the closure of the offer for sale and the floor price suitably disseminated to the market.

(d) Timelines

(i) The duration of the offer for sale shall be as per the trading hours of the secondary market and shall not exceed one trading day.

(ii) The placing of orders and funds on the exchange system shall take place only during trading hours.

(iii) In case of institutional trades, the custodians shall conclude the confirmation of bids with the available funds not later than the end of the half an hour post close session.

(e) Order Placement

(i) A separate window for the purpose of offer for sale of shares shall be created by stock exchanges. Modification/Cancellation of orders/bids will be allowed during the duration of the offer only for bids for which 100% upfront margin has been received. However, modification/cancellation of orders/bids shall not be allowed during the last 60 minutes of the duration of the offer.

(ii) Cumulative orders/bid quantity information shall be made available online by the exchanges at specific time intervals. The indicative price shall be disclosed by the exchanges only during the last 60 minutes of the duration of the offer for sale.

(iii) If the security has a price band in the normal segment, the same shall not apply for the orders placed in the offer for sale. Stock specific tick size as per the extant practice in normal trading session shall be made applicable for this window.

(iv) In case of shares under offer for sale, the trading in the normal market shall also continue. However, in case of market closure due to the incidence of breach of ‘Market wide index based circuit filter’, the offer for sale shall also be halted.

(v) Only limit orders/bids shall be permitted.

(vi) Multiple orders from a single buyer shall be permitted.

(vii) In case floor price is disclosed, orders/bids below floor price shall not be accepted.

6. Risk Management

(a) Clearing Corporation/Clearing house shall collect 100% of the order value in cash from non-institutional investors at the order level for every buy order/bid. Institutional investors shall have an option to pay either 25% of the order value or 100% of the order value in cash at the order level for every buy order/bid to the Clearing Corporation/Clearing house. Such funds shall neither be utilized against any other obligation of the trading member nor co-mingled with other segments.

(b) Modification/Cancellation of orders/bids will be allowed only for bids for which 100% upfront margin has been received. In case of order/bid modification/cancellation, such funds shall be released/collected on a real time basis by the stock exchange.

(c) The seller(s) shall deposit the entire quantity of shares offered for sale including the additional shares disclosed at Para 5(b)(vi) as pay-in with the clearing corporation/clearing house of DSE prior to the commencement of the offer. No other margin shall be charged on the seller(s).

7. Allocation

(a) Minimum of 25% of the shares offered shall be reserved for mutual funds and insurance companies, subject to allocation methodology. Any unsubscribed portion thereof shall be available to the other bidders.

(b) The orders shall be cumulated by the DSE immediately on close of the offer. Based on the methodology for allocation to be followed as disclosed in the notice, the DSE shall draw up the allocation. i.e. either on a price priority (multiple prices) basis or on a proportionate basis at a single clearing price.

(c) No allocation will be made in case of order/bid is below floor price.

(d) No single bidder other than mutual funds and insurance companies shall be allocated more than 25% of the size of offer for sale.

(e) The allocation details shall be shared by the DSE with the other exchange after the allocation is crystallized.

8 (i) Settlement

a. The allocation and the obligations resulting thereof shall be intimated to the brokers on T day.

b. The settlement shall take place similar to trade for trade basis and shall be completed on T + 1 day. There shall be no netting of settlement at broker’s end.

c. Funds collected from the bidders who have not been allocated shares shall be released after the download of the obligation.

d. On T+1 day, to the extent of obligation determined, the clearing Corporation/Clearing house of DSE shall transfer such number of shares to the clearing corporation/clearing house of the other stock exchange, without consideration of money. Excess shares, if any, shall be returned to seller broker(s).The direct credit of shares shall be given to the demat account of the successful bidder provided such manner of credit is indicated by the broker/bidder.

(ii) Handling of default in pay-in

a. In the event of default in pay-in an amount of 10% of the bid value shall be forfeited as a penalty and shall be credited to Investor Protection Fund. The balance amount shall be returned to the bidder.

b. The price at which allotments have been made based on the allocation on T day shall not be revised as a result of any default in pay-in.

c. Issuer shall have the option to cancel in full or conclude the offer.

d. Allotment details after settlement shall also be disseminated by the exchange.

e. Allocation details after settlement shall be consolidated by the DSE and excess shares, if any, shall be returned by the respective Clearing Corporation/Clearing house to the seller(s) broker(s).

f. Settlement Guarantee Fund shall not be available for OFS through stock exchange mechanism.

9. Issuance of Contract Notes

The brokers shall be required to issue contracts note to its clients based on the allotment price and quantity in terms of conditions specified by the exchange.

10. Withdrawal of offer

The offer for sale may be withdrawn prior to its proposed opening. In such a case there will be a cooling off period of 10 trading days from the date of withdrawal before an offer is made once again. The stock exchange(s) shall suitably disseminate details of such withdrawal.

11. Cancellation of offer

Cancellation of offer shall not be permitted during the bidding period. If the seller(s) fails to get sufficient demand at or above the floor price, he may choose to either conclude the offer or cancel it in full. The seller may also choose to conclude the offer or cancel it in full, in case of defaults in settlement obligation.

12. This circular shall supersede the Circular Nos. MRD/DP/05/2012 dated February 1, 2012, MRD/DP/07/2012 dated February 23, 2012 and MRD/DP/8/2012 dated February 27, 2012.

13. Stock Exchanges are advised to:

a. take necessary steps and put in place necessary systems for implementation of the above.

b. make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision.

c. bring the provisions of this circular to the notice of the member brokers of the stock exchange and also to disseminate the same on the website.

14. This circular is being issued in exercise of powers conferred under section 11(1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.