Friday, 29 March 2013

Whether when assessee is given many opportunities to explain how rental income has become business income as claimed in return, lack of response from assessee justifies re-assessment u/s 147 - YES: Bombay HC

THE issue before the Bench is - Whether when assessee is given many opportunities to explain how rental income has become business income as claimed in the return, lack of response from the assessee justifies re-assessment u/s 147. YES is the HC's answer.
Facts of the case

The assessee had been receiving rent from leasing its property for many years. Till A.Y. 2007-08, the rental income was declared by the assessee under the head of business income. From A.Y. 2008-09 the rental income was declared by the assessee as income from house property. Since the assessee had accepted from A.Y. 2008-09 that the rental income was taxable under the head - income from house property, the AO was of the view that the same view needed to be taken for A.Ys. 2006-07 and 2007-08. The AO had also stated that the rental income was treated as income from house property.

Before the HC the Assessee's Counsel submitted that the purported reopening of the

How to View Form 26AS

Income Tax Department facilitates a PAN holder to view its Tax Credit Statement (Form 26AS) online. Form 26AS contains
  • Details of tax deducted on behalf of the taxpayer by deductors
  • Details of tax collected on behalf of the taxpayer by collectors
  • Advance tax/self assessment tax/regular assessment tax, etc. deposited by the taxpayers (PAN holders)
  • Details of paid refund received during the financial year
Details of the High value Transactions in respect of shares, mutual fund etc.
The Tax Credit Statement (Form 26AS) are generated wherein valid PAN has been reported in the TDS statements.

Transfer Pricing: CBDT Circular On Research & Development Centres

F No. 500/139/2012
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
(Foreign Tax and Tax Research-I Division)

New Delhi 26th day of March 2013

Circular No. 03/ 2013

Subject: Circular on conditions relevant to identify development centres engaged in contract R&D services with insignificant risk

It has been brought to the notice of CBDT that there is divergence of views amongst the field officers

Transfer Pricing: CBDT Circular On Application Of Profit Split Method

F No. 500/139/2012
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
(Foreign Tax and Tax Research-Division)
New Delhi 26th day of March 2013

Circular No. 02/ 2013

Sub: Circular on application of profit split method

It has been brought to the notice of CBDT that clarification is needed for selection of profit split method (PSM) as most appropriate method. The issue has been examined in CBDT. It is hereby clarified that while selecting PSM as the most appropriate method, the following points may be kept in mind:

Thursday, 28 March 2013

ST-3 Q2 Return Software Free Download and e-Return steps.

Friends Service Tax Assessees who are registered on or after 01.07.2012 for 'All Taxable Services - Other than in the Negative List' or those who have amended their Registration by adding the description 'Other than in the Negative List', are required to file amendment to their Registration online to delete the said description and add the relevant description(s) of Taxable Services available in the drop-down list in the online amendment Form.

Steps for filing of ST-3 Return:

I. Fill up the Return data: Navigate to each field of every section in the sheet to provide applicable data in correct format. (Formats will get reflected while filling data.)

II. Validating Sheets: Click on the ''Validate this sheet" button to ensure that the sheet has been properly filled in and also data has been furnished in proper format. If there are some errors on the sheet, e-filing utility will prompt you to correct the same.

Process of Converting Form 26AS file into Excel file

Steps to convert Form 26AS .txt file to .xls file
1. File received in .txt format
2. Select the complete Text and copy
3. Selected Text Paste into MS Excel worksheet
4. Select Data
5.Select option Text to columns
6. Select the entire first column “A” in the worksheet
Then see the following screen and do as per instructions.


After completing this process press on "Finish" Button of next screen.

Now you will got MS Excel file.

Whether when assessee is given many opportunities to explain how rental income has become business income as claimed in return, lack of response from assessee justifies re-assessment u/s 147 - YES: Bombay HC

THE issue before the Bench is - Whether when assessee is given many opportunities to explain how rental income has become business income as claimed in the return, lack of response from the assessee justifies re-assessment u/s 147. YES is the HC's answer.
Facts of the case

The assessee had been receiving rent from leasing its property for many years. Till A.Y. 2007-08, the rental income was declared by the assessee under the head of business income. From A.Y. 2008-09 the rental income was declared by the assessee as income from house property. Since the assessee had accepted from A.Y. 2008-09 that the rental income was taxable under the head - income from house property, the AO was of the view that the same view needed to be taken for A.Ys. 2006-07 and 2007-08. The AO had also stated that the rental income was treated as income from house property.

Wednesday, 27 March 2013

Whether Explanation in Sec 80IA(4) having retro-operation is unconstitutional, although it only attempts to clarify that deduction would not be available in case of execution of works contracts - NO: HC

THE issues before the Bench are - Whether Explanation introduced in Section 80IA(4) by the Finance Act, 2009 having retrospective operation w.e.f 1.4.2000 is unconstitutional, although it only attempts to clarify that deduction under section 80IA(4) of the Act would not be available in case of execution of works contracts; Whether the intrinsic difference between developing an infrastructure facility and executing a 'works contract' was already made clear in the amendment itself introduced in the year 2002; Whether the amended Section 80IA(4) with effect from 1.4.2002 could be construed as not including execution of 'works contract' as one of the eligible activities for claiming deduction and Whether when the intention of the legislature is clear from the substantive provision of a Section, can an explanation later introduced in the same Section be interpreted as something different, from a mere clarification. And the verdict goes in favour of the Revenue.

S. 32: Special Bench verdicts on Sale & Lease Back & lease finance are not good law

Development Credit Bank Ltd vs. DCIT (ITAT Mumbai)






The assessee, a Bank, bought assets from its customers and leased it back to them (“sale and lease back”). It also purchased assets identified by its customers and leased it to them (“finance lease”). The assessee claimed depreciation on the assets on the ground that it was the owner and had used the assets for business purposes. The AO, relying on MidEast Portfolio Management 87 ITD 537 (Mum) (SB) and IndusInd Bank 135 ITD 165 (Mum) (SB), disallowed depreciation on the ground that the transactions were an “eyewash” and “colourable device”. The CIT(A) partly confirmed the disallowance. On appeal by the assessee to the Tribunal, HELD allowing the claim:

Tuesday, 26 March 2013

HAPPY HOLI




S. 272A(2)(k): Delay in filing TDS return through NSDL is a technical breach

Branch Manager, UCO Bank vs. ACIT (ITAT Cuttack)







The AO imposed penalty u/s 272A(2)(k) for delay in filing the TDS return u/s 200(3). The assessee’s argument that the delay was due to a shortage of staff was rejected on the ground that the same was not reasonable cause. The CIT(A) confirmed the penalty. On appeal by the assessee to the Tribunal, HELD allowing the appeal:


TDS on Provision for Expenses

FILE ST-3 RETURN FOR THE PERIOD JULY-SEP 2012

Service Tax Return (ST 3) for the period 1st July-30th September, 2012 is now available in a modified format for e-filing in ACES. Only offline version is available and there is no online version.

The utility needs to be downloaded afresh from 'DOWNLOADS' section of ACES website, www.aces.gov.in or after logging in, under the navigational path RET-> e-Filing -> Download eFiling Utility.

Before filling-in the Return, please go through the FAQs available under HELP Section of ACES Website under the navigational path: https://www.aces.gov.in > Help > Frequently Asked Questions > Returns > ST 3 Return for July-September, 2012.

How Do I Calculate Fixed Assets Depreciation Under IFRS?

How Do I Calculate Fixed Assets Depreciation Under IFRS?

 

IAS 16 (of the IFRS) provides for two acceptable alternative approaches to accounting for fixed assets. The first of these is the cost model, under which an item of fixed asset is carried at its cost minus its accumulated depreciation. “So, how do I calculate fixed assets depreciation under the IFRS?” you may ask.

Whether when particular asset is not included in definition of 'assets', but rental income from said asset has been offered as income from house property, same can be treated as income from business

THE issues before the Bench are - Whether when the AO has reopened the assessment on the basis of cogent evidences on record, no fault can be found with such reopening; Whether the assessment can be reopened merely on the basis of audit objections and Whether when a particular asset is not included in the definition of 'assets', and the rental income from letting out of the said properties has been offered by the assessee as income from house property, the same can be considered as income from business. And the verdict goes against the assessee.
Facts of the case
A) Assessee is a company. It had for the AYs 2005-06 and 2006-07, not filed any return of net wealth u/s 14(1). During assessment, the AO noted that the assessee had received rental income by letting out its business premises. The AO also noted that the premises let out by the

CENVAT Credit on Mobile Phones


Cenvat Credit is allowed to output service provider in respect of service tax paid on input services, which are consumed in providing output service.

It is argued that CENVAT Credit is not allowed on Service Tax paid on mobile phones. Argument is backed by Circular No. 59/8/2003 dated 20.06.2003.
According to me Cenvat credit is available on mobile bills also. I am supporting my viewpoint by following two arguments

Monday, 25 March 2013

How Auditors Treat Uncorrected Misstatements under US GAAP

How Auditors Treat Uncorrected Misstatements under US GAAP

 

Misstatements sometimes left uncorrected, particularly when the financial statements preparer detects them after the statements have been produced and distributed. Using an auditor perspective, how do you treat uncorrected misstatements?
Before discussing type of misstatements, how to evaluate and treat uncorrected misstatements, let us have a look at why uncorrected misstatements occur.

Deduction U/s. 80DDB, U/s. 80U & person with disability.

The deduction u/s 80DDB is available if the expenses for the medical treatment of specified disease or ailment is incurred by assessee on himself or on dependant. The specified disease for the purpose of section 80DDB is prescribed in Rule 11DD as under:
11DD. (1) For the purposes of section 80DDB, the following shall be the eligible diseases or

Complete Procedure to Check OLTAS Challan Status ?

Challan Status Enquiry for Tax Payers :
Using this feature, tax payers can track online the status of their challans deposited in banks.This offers two kind of search.
a) CIN based view :
On entering Challan Identification Number (CIN i.e. details such as BSR Code of Collecting Branch, Challan Tender Date & Challan Serial No.) and amount (optional),the tax payer can view the following details:

Exchange Rate effective from 22/03/2013

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

DEPARTMENT OF REVENUE

CENTRAL BOARD OF EXCISE AND CUSTOMS


Notification No. 31/2013-Customs (N.T.)


DATED THE 21st March, 2013

30 Phalguna, 1934(SAKA)


S.O. (E). – In exercise of the powers conferred by section 14 of the Customs Act, 1962 (52 of 1962), and in super session of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No.28/2013-CUSTOMS (N.T.), dated the 7th March, 2013 vide number S.O.574(E), dated the 7th March, 2013, except as respects things done or omitted to be done before such super session, the Central Board of Excise and Customs hereby determines that the rate of exchange of conversion of each of the foreign currency specified in column (2) of each of Schedule I and Schedule II annexed hereto into Indian currency or vice versa shall, with effect from 22nd March, 2013 be the rate mentioned against it in the corresponding entry in column (3) thereof, for the purpose of the said section, relating to imported and export goods.


SCHEDULE-I


S.No.
Foreign Currency
Rate of exchange of one unit of foreign currency equivalent to Indian rupees
(1)
(2)
(3)
(a)
(b)
(For Imported Goods)
(For Export Goods)
1.
Australian Dollar
57.30
55.75
2.
Bahrain Dinar
148.75
140.40
3.
Canadian Dollar
53.75
52.30
4.
Danish Kroner
9.55
9.25
5.
EURO
71.05
69.25
6.
Hong Kong Dollar
7.10
6.95
7.
Kenya Shilling
65.60
61.70
8.
Kuwait Dinar
197.20
185.45
9.
New Zealand Dollar
45.50
44.15
10.
Norwegian Kroner
9.50
9.20
11.
Pound Sterling
83.25
81.25
12.
Singapore Dollar
44.05
42.95
13.
South African Rand
6.05
5.70
14.
Saudi Arabian Riyal
14.95
14.10
15.
Swedish Kroner
8.55
8.30
16.
Swiss Franc
58.30
56.70
17.
UAE Dirham
15.25
14.40
18.
US Dollar
54.95
54.00


SCHEDULE-II


S.No.
Foreign Currency
Rate of exchange of 100 units of foreign currency equivalent to Indian rupees
(1)
(2)
(3)
(a)
(b)
(For Imported Goods)
(For Export Goods)
1.
Japanese Yen
58.05
56.55



[F.No.468/03/2013-Cus.V]



(ABHINAV GUPTA)

UNDER SECRETARY TO THE GOVT. OF INDIA

TELE: 2309 4610

Saturday, 23 March 2013

UNDERSTANDING TAXATION OF SALARY WITH LATEST CASE LAWS:



                                                                                                           

The common people who earns his livehood by the way of employment requires to pay tax on his earning, hence it is very important to them to understand the tax implications on salary by given below case laws:

 

·         Interest free Rental deposit :  Interest free security deposit given for employee residence on rent is  not a perquisite. Refer, CIT V Vijay Singh, 323 ITR 446.  Same also confirmed in the case of  CIT v. Shankar Krishnan, 207 Taxman 233 (Bom) (High Court).

 

·         Uniform Allowance : Attire Allowance is exempt. Refer, CIT v Micro Land Limited, 323 ITR 670 Kar.

 

·         LTA : There is no need to verify LTA details. Refer, CIT V Larsen & Toubro Limited, 313 ITR 1 SC.

 

·         Restrictive Payment : Value of shares issued to the assessee-director by the employer company as consideration in terms of restrictive covenant whereby the assessee agreed to desist from participating in a similar or competitive business for a period of ten years after termination of his employment or association with the company assessable as “profit in lieu of salary”. Receipt cannot be construed as capital receipt. Refer, Neville Tuli vs. ITO, (2010) 38 DTR 325 (Mum.).   

 

However, in the case of CIT vs. A. K. Khosla, 39 DTR 82 (Mad.), it was held that Non compete fee received by assessee from the employer company on his retirement for not to take up any employment is a capital receipt and it can not come under the term “profits in lieu of salary”. Section 17(3)(iii) inserted by Finance Act 2001, w.e.f. 1st April 2002, is prospective and applicable only to Asst. Year 2002-03 onwards.

 

Assessee took up post retirement as secretary of a club for a period of three years. Club also provided accommodation to assessee. Disputes arose between club and assessee. Assessee filed a police complaint for forcibly removing from club premises. Employment was terminated after end of first year. Termination provided withdrawal of allegations vacate premises allotted to assessee as service accommodation and club would pay Rs 7.5 lakhs which was equivalent to salary for rest of period of three years. Assessee claimed said amount as exgratia as capital receipt. The Tribunal held that since the amount given to assessee for compensating loss of salary for 25 months . same would fall with in the ambit of expression “ any compensation” used in sub clause (i) of section 17 (3) relating to “profits in lieu of salary” and taxable under said provisions.( A.Y. 2001-02). Refer, Yatinder Kumar v ITO, 133 ITD 237 ( Pune) (Trib).

 

·         Value of Accommodation:  Salary for purpose of valuation of perquisite value of accommodation is based on Annual salary from one or two or more employers. Refer, Pratim B Mekerjea V ACIT, ITA Nos. 2628  MUM / 2005 dated 17-2-2010.

 

·         ESOP : Conversion of warrants into equity shares under scheme ,benefit extended to assessee by virtue of employment hence difference between price of shares at time of exercise of option and predetermined price is liable to tax as perquisite u/s. 17(2)(iiia). Refer, Tripti Sharma (Smt.), (2010) 1 ITR 471.

 

Further, Warrant issued in February 1999 and assesse exercising option in April 1999. Perquisites arise and taxable in financial year 19992000 relevant to assessment year 20002001. Date of exercise of option is date of acquisition of shares and not date of certificate. Refer, Dy CIT v Vijay Gopal Jindal, 11 ITR 451 TRB.

 

·         Voluntary Retirement : It was held that amounts up to five lakhs of rupees received on voluntary retirement entitled to exemption u/s. 10(10C). Amount in excess of five lakhs of rupees was entitled to relief u/s. 89. Refer, Koodathil Kallyatan Ambujakshan, (2009) 309 ITR 113.

 

·         Transport : Pick-up and drop facility to employees between the specified points is not a perquisite. Refer, WNS Global Services (P) Ltd., 33 SOT 445.

 

·         Club : Club membesrship expenses should considered as perquisites. Refer, CIT v Wipro Systems, 325 ITR 234.

 

·         Discounted Loan: Where loan was granted by an employer at rate of interest less than lending rate of State Bank of India, such a loan is to be regarded as a concessional loan and consequently, value of perquisite thereon is to be calculated. Refer, All India Punjab National Bank Officer’s Association vs. Chairman-cum-Managing Director, Punjab, 190 Taxman 221 (MP).

 

·         Tax on perquisite: Tax borne by employer on perqusite of Employees would constitute Non Monetary Benefits and as such same is exempted u/s 10 (10CC). Refer, Tranocean Discover LLC v ACIT, 6 taxmann.com 18 - Delhi – ITAT.  Same had also confirmed in the case of Mitsubishi Corporation v CIT, 200 Taxman 372 and Isaco Sakai v. Jt. CIT, 49 SOT 154 (Delhi)(Trib.).  

 

In an appeal before the High Court the revenue raised the question whether the tax paid by the employer (Japan Airlines International Company Ltd ) is a Perquisite within the meaning of section 17(2) and, therefore , in terms of rule 3 of the IncomeTax Rules 1962 , cannot be taken in to consideration for computing the value of the perquisite rent free accommodation. While dismissing the appeal of revenue the court held that payment of incometax by the employer is payment of employee who has taxable income as an assessee is liable to pay tax. His income is chargeable to tax. It is the obligation of the employee as an assessee to pay tax . Its this obligation which is being discharged and paid by the employer .Therefore , it would fall within the ambit of section 17(2) (iv). Thus the tax component paid by the employer towards and as incometax , when an employee is entitled to tax free salary , is a perquisite within the meaning of section 17 (2) and the monetary value of such tax free salary , that is tax component could not be included in computing the perquisite value of rent free accommodation provided by the employer to the employees. Refer, CIT v. Telsuo Mitera, 345 ITR 256.

 

·         MP Remuneration : Remunerations received by the MLAs and MPs cannot be taxed under the head income from salary but can only be taxed under the head income from other sources. Refer, M. Venkata Subbaiah vs. ITO, 47 DTR 403 (Visakha)(Trib.).

 

·         Tips  : Payment of banquet and restaurant tips to the employees of assessee in its capacity as employer constitutes salary with in the meaning of section 15 read with section 17 (3) . Refer, CIT v ITC Ltd, 59 DTR 312/ 243 CTR 114 (Delhi) (High Court).

 

·         School Fees : Assessee school was providing free educational facilities to wards of teachers / staff members and cost of education was less than Rs 1000 per month per child, assessee was entitled to benefit of proviso to rule (3) ( 5) and consequently , could not be treated as assessee in default. Refer, CIT v Delhi Public School, 203 Taxman 81/ 63 DTR 325 (Delhi) (High Court).

 

·         Flexible Payment :  The salary packages are flexible and often designed keeping in account interest of individual employees or section of employees and variable component assume a sizeable sum. The variable component assumes various forms of reimbursements and payments. in a sequel to yesterday’s report viz a viz Delhi High Court ruling in CIT (TDS) v. American Express Bank Ltd. in ITA No. 75/2003 dated 21.12.2011 under heading ‘’employee reimbursements’’ it may be advisable to have a built in softer mechanism either in the employee contract or some kind of employer liability insurance cover (if its exists or even if not it should be fought for) which would provide a safeguard for possible recovery of any sum from the employee as arrears of TDS or otherwise from the insurance company for any liability arising in future upon the employer or company by invoke of s.201 provisions for short deduction viz a viz reimbursements/variable pay. The Court in their order has gone straight in writing that in case the employees of the assessee have paid the taxes as per their individual returns/assessments, then no amount towards tax would be payable to that extent by the assessee. In the rarest of the rare cases an employee would go against the estimate made by the employer in which case the liability would only fall on the employer. In this case the year of default is as old as financial year 1992-93 and it would be now impossible for the employer and even almost difficult for the AO to gather employee record of taxes paid in which case the liability will remain that of the employer only.

 

·         Key-man Insurance: Surrender value cannot be taxed as profit in lieu of salary.( 2(24(xi), 56 ). Refer, CIT v.Rjan Nanda, 249 CTR 141/69 DTR 250 (Delhi) (High Court).

 

·         Hypo Tax: “Hypothetical Tax” of expatriate employee is not assessable as income. Refer, CIT v. Jaydev H. Raja, Mumbai HC.

 

·         Repairs of House Property : Expenditure on repair of residential accommodation occupied by employee  is perquisite Rule 3. Scott R. Bayman v. CIT, 76 DTR 113 (Delhi)(High Court).

 

I hope that you will able to understand the taxation of Salary. However, in case you need more detail for any specific provision, please mail me at taxbymanish@yahoo.com  and also visit my blog at http://taxbymanish.blogspot.in/// for latest updates on taxes.

Thank you.