Is one-time membership fees paid to be treated as revenue or capital expenditure?
Answer
- Revenue expenditure.
ITA NO.3017/MUM/2016 MUM-TRIB order dt. 27/04/2018
Is
recurring club expenses paid for business purposes allowable as expenses u/s
37(1)?
Answer - Yes.
ITA No. 798/Chd/2019
·
Chennai
CESTAT in the case of SAKSOFT held that there cannot be any service tax on IT
services prior to 2008 by way of classification as manpower service. However, Madras High court have different view in the case of Talking
Technology services (P) Limited.
·
Mumbai Tribunal allows tax holiday benefit to an
amalgamated company with respect to eligible undertakings vested with it
pursuant to an amalgamation post 1 April 2007
The increase in global trade and dependency on the foreign capital for the purposes of conduct of business in India has led to various transactions with the entities which are situated outside India. The business is conducted with such entities in the foreign currency unlike the Indian currency which is used for conduct of trade with entities located in India. As all are aware that since the rate of foreign currency is market driven, there may always be a difference in the value of foreign currency at which the transaction takes place and at which the transaction gets settled or closed for the purposes of accounting at the Indian entity. The difference arising from such value between the transaction date and settlement/closure date would give raises to gains or losses depending upon the rate of foreign currency on both such dates. The treatment of such foreign exchange (for brevity ‘forex’) gain/loss from the perspective of provisions of Income Tax Act, 1961 (for brevity ‘IT Act’) is the main object of this article. Let us proceed, to understand the treatment of forex gain/loss under the various provisions of IT Act.
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Exemption if:-
The Supreme Court (SC) had taken suo motu cognisance of the challenges faced by litigants due to the COVID-19 pandemic across the country in filing their petitions/applications/suits/appeals/all other proceedings within the period of limitation prescribed under the general law of limitation or under Special Laws (both central and/or state). Therefore, the apex court had ordered that the period of limitation in all proceedings shall stand extended, with effect from 15 March 2020, till further orders, irrespective of the limitation prescribed under any law.
Ø
Asset Protection- One of the most important benefit of creating
holding company is to protect
your business assets.
In today’s world, every business
operates in an uncertain environment. There is no surety about the success
of business, particularly in start-ups. So, it is
beneficial if company create a holding company
and carve out assets of the group in such holding company so that in
case of bankruptcy like situation,
creditors can’t claim on the assets of your holding company. Placing operating
companies and the assets they use in separate entities
provides a liability
shield. The debts
of each subsidiary belong to that subsidiary. A creditor of the subsidiary cannot
reach the assets of the holding company or another subsidiary.
Recent amendments in Section 254 (2A) of the Income tax Act, 1961 (‘the Act’) by the Finance Act, 2020 seeking to dilute the powers of the ITAT to grant stay of demand by mandating payment of 20% of tax demand, have been subject matter of substantial debate and anxiety amongst the taxpayers, more particularly taxpayers in whose cases ITAT had granted stay prior to the amendment.
In a recent landmark decision, Delhi ITAT vide order
dated 15th February, 2021 in the case of Maruti Suzuki India Limited
(‘MSIL’) held that amendments shall only apply to cases where stay is sought and granted for the first time on or after
01.04.2020; in other words, the amendments do not apply qua extension
of stay sought after
01.04.2020, where stay was
originally granted prior to
that date.
Section 254(2A) of Act statutorily recognizes inherent
powers of the ITAT to grant stay against the
recovery of outstanding demand arising for a period not exceeding one
hundred and eighty days (180 days).
In the event that the appeal is not disposed within the period of stay granted,
the Tribunal may, on application made
by assessee and on being satisfied that the delay in disposal of the appeal is
not attributable to the assessee,
extend the stay for a further period
or periods as it may deem fit, so, however,
that the aggregate
period of stay originally allowed and the period or periods so extended or allowed do not in any case exceed three hundred
and sixty five days (365 days).
Third proviso to section 254(2A)
of the Act further provides
that if the appeal is not disposed
within 365 days, the ITAT is not empowered to grant
any further stay even if the delay in disposal of the appeal is not attributable to the assessee. The
said third proviso has, however, been read down by the Courts in various cases to hold that ITAT may extend
stay granted beyond 365 days, if delay in disposal of the appeal is not attributable to the
assessee. (The issue is sub judice before the Supreme Court and likely to be
heard soon).
The Finance Act, 2020 with effect from 01.04.2020
amended the first proviso and substituted the
existing second proviso to section 254(2A) of the Act to dilute the
powers of the ITAT to grant stay. First proviso
as amended provides
that the ITAT may grant
stay subject to the condition
that the assessee
deposits not less than twenty per cent of the amount of tax, interest,
fee, penalty, or any other sum payable
or furnishes security of equal amount in respect thereof. The amended second
proviso further provides that the ITAT shall not extend stay unless the assessee makes an
application and has complied with the conditions referred to in the
first proviso and the ITAT is satisfied that delay in disposal of the appeal
is not attributable to the assessee.
In the aforesaid background, the issue that has been bothering
the taxpayers is whether the amendments shall also cover cases of extension of
stay without requiring such payment, where stay was originally granted
prior to 1.04.2020?
In case of MSIL, stay had been granted in appeals for assessment years
2010-11 to 2015-16,
which was also extended from
time to time on being satisfied that delay in disposal was not attributable to
MSIL. Application was filed for
extension of stay, wherein the Revenue, relying upon the above amendments contended that MSIL should be directed to
pay 20% of the demand, notwithstanding that the stay originally granted
for each of the years did
not mandate such a condition.
On behalf of MSIL, it was argued that amendments made to
Section 254(2A) of the Act are applicable only to stay(s) granted
for the first time on or after 01.04.2020 and not to mere extension
for stay granted
before the said date. It was alternatively argued that substantial amount of outstanding demand pertained to issues which stood covered in its
favour by orders passed for earlier year(s) and therefore, the same could not,
in any case, be recovered2
even as per the amended law.
The Department, inter
alia, contended that the amendments in the first and second proviso to
section 254(2A) of the Act are
independent of each other and are applicable even to extension of stay being granted
on or after 01.04.2020. It was argued
that the law providing for payment
of 20% of the demand
or furnishing adequate security comes into force at the time of passing
order for extension of stay and cannot, therefore, be said to be not applicable, only for the reason that stay was originally granted
under the unamended law.
The ITAT held that since majority of the demand was
arising on account of issues covered in favour of the assessee, it
would be unfair to direct payment thereagainst.
In respect of fresh issues, the ITAT held that the
amended provisions are applicable only to stay sought and granted for the first time on or after 01.04.2020 and
cannot be applied qua mere extension
of stay granted post that date in respect of stay originally
granted before 01.04.2020. In coming to the said conclusion, the ITAT agreed with MSIL’s contention that the
second proviso requiring compliance of condition
for payment of 20% of demand mandated in the first proviso, only applies where
stay had originally been sought and granted under the first proviso.
The aforesaid decision
of Delhi ITAT now brings
clarity on the prospective applicability of the amended
provisions to stay sought and granted for the first time and not to
extension(s) of stay granted before 01.04.2020.
Lot of clarity is, however, still
awaited from the judiciary on applicability of amended provisions to fresh stays sought on or after 01.04.2020,
viz., whether the amended provisions are mandatory or directory; what kind
of security is contemplated by the amended
provisions and so on.
This Tax Alert summarizes a
Mumbai Tribunal decision in the case of Ultratech Cement Ltd.[1] (Taxpayer) v. DCIT, wherein one of the issues
that arose was whether Taxpayer being amalgamated company is entitled to claim
tax holiday in respect of profits earned from eligible undertakings which
vested with the Taxpayer pursuant to the scheme of amalgamation for residual
tax holiday period. If yes, whether the eligibility of the amalgamated company
to claim tax holiday was dependent on the specific enabling provision[2] contained in the Income-tax Act, 1961 (ITL) and
consequently whether the withdrawal of such enabling provisions in respect of
amalgamation undertaken post 1 April 2007, would result in denial of tax
holiday to the amalgamated company.
The Tribunal held that the preponderant judicial view prior to the enabling
provision was that the tax holiday benefit was linked to the eligible
undertaking and not to the owner. Basis this, the tax holiday benefit was
available to the amalgamating company up to the date of amalgamation and to the
amalgamated company post the date of amalgamation. The Tribunal, therefore,
held that the enabling provision merely clarified what was otherwise implicit
in the statute albeit in an explicit manner. Further, the Tribunal held that
the enabling provision in fact restricted the eligibility of the amalgamating
company to claim tax holiday in the year of amalgamation, but it did not
restrict the right of the amalgamated company to claim tax holiday benefit.
Hence, the withdrawal of the enabling provision also did not result in denial
of tax holiday benefit to the amalgamated company, but it merely restored the
position that existed prior to inclusion of the enabling provisions. Hence, the
Tribunal held that the Taxpayer being amalgamated company is eligible to claim
tax holiday benefit on profits from eligible undertaking taken over under the
scheme of amalgamation for the residual period
