Three Imp Verdicts On Taxation Of Royalties + TDS, S. 254(2) MA Time Limit And S. 271(1)(c) Penalty

Google India Private Ltd vs. ACIT (ITAT Bangalore)

Royalty u/s 9(1)(vi) & Article 12: The Google Adwords advertisement module is not merely an agreement to provide advertisement space but is an agreement for facilitating the display and publishing of an advertisement to the targeted customer using Google's patented algorithm, tools and software. Google Adwords uses data regarding the age, gender, region, language, taste habits, food habits, etc of the customer so as to maximize the impression and conversion to the ads of the advertisers. Consequently, the payments to Google Ireland are taxable as "royalty" and the assessee ought to have deducted TDS thereon u/s 195   

Govt. notifies extension of dates for various declarations, including filing & revision of TRAN-1

Govt. notifies extension of period for submission and revision of Form GST TRAN-1 under Rule 117 and 120A of CGST Rules respectively, till November 30; Also notifies extension of time limit for submission of registration application in Form GSTR-26 till December 31, while time limit for intimation in Form GST CMP-03 of details of stock held before opting for composition levy has been extended till November 30; Declaration in Form GST ITC-04 in respect of goods dispatched to job-worker or received from job-worker or sent from one job-worker to another, during quarter July to September 2017, can be filed by November 30; Further, time limit for making declaration of entitlement to Input Tax Credit u/s 18(1) of CGST Act in Form GST ITC-01 has been extended till November 30; Notifies CGST (Eleventh Amendment) Rules 2017 amending inter alia Rule 24(4) to allow submission of application in Form GST REG-29 for cancellation of registration by December 31, while information relating to exports shall be furnished after return in Form GSTR-3B has been filed where date for Form GSTR-1 has been extended under Rules 96 & 96A : CBEC Notifications & Orders 

Video on GST Issues.

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When assessee discharges onus to prove that there was good and sufficient reason for failure to deposit TDS deducted, it does not warrant penalty u/s 221: HC

 THE issue before the Bench is - Whether when the assessee discharges the onus to prove that there was good and sufficient reason for failure to deposit TDS deducted, it does not warrant penalty u/s 221. YES is the answer.  

I-T Any investment made after furnishing of return, but before extended date available u/s 139(4), would not receive beneficial construction in view of express provision of section 54(2): ITAT

THE ISSUE BEFORE THE TRIBUNAL IS - Whether capital gain employed towards purchase of new asset before the actual date of furnishing return of income either u/s 139(1) or u/s 139(4), will be deemed to be sufficient compliance of section 54(2). YES is the answer.   

HC : Burnt coal residue from paper manufacture taxable as "Coal", not "residuary" article

Burnt coal residue from paper manufacturing process classifiable as “coal including coke in all its form….”, taxable at 4% under U.P. VAT Act as it retains its combustible properties; HC finds that during AYs 1999-2000, 2000-01 & 2001-02, said product was taxed at 4% but pursuant to HC decisions in Modi Spinning & Weaving Mills and British India Corporation Limited, same came to treated as “unclassified” residual article taxable at 10% from AY 2002-03 onwards; Observes that in case of Modi Spinning & Weaving Mills, the issue pertained to taxability of “coal cinder” whereas British India Corporation case dealt with taxability of “coal ash”, thus these cases cannot be understood or applied without bearing in mind the particular commodities under consideration therein; Noting that Revenue had not submitted any evidence to establish that residual commodity had lost all its combustible properties, HC remarks that “In issues of classification, the Department cannot be permitted to vacillate unless there be new material and evidence which may justify or warrant a change in stance”; Referring to Division Bench decision in District Cooperative Development Federation Ltd. which held that “coal dust” would classify as “coal” as both have same combustible properties and similar usage, HC rules in favour of assessee  : Allahabad HC

HC : Writ Court cannot review order passed in revision; Matter appealable to SC

HC refuses to exercise extraordinary writ jurisdiction under Article 226 of Constitution against its revision order passed u/s 11 of U.P. Sales Tax Act, 1948; Notes assessee’s grievance that demand for purchase tax was raised on foodgrains procured for sale to Food Corporation of India after the HC had finally decided its revision petition; Holds that order passed by the Court cannot be annulled or reviewed by invoking Article 226 inasmuch as the issue in question had been dealt, considered and decided against assessee; However, referring to SC decisions in Major General Shri Kant Sharma & Anr. and Mafatlal Industries Ltd. HC states that assessee can assail the revision order before SC  : Allahabad HC

CbyC Handbook

The OECD has published a handbook to help tax authorities in the effective use of CbC Reports which they will shortly be receiving, by incorporating them into a tax authority's risk assessment process.   The handbook contains:

·         a description of the role of tax risk assessment in tax administration, the core characteristics of an effective risk assessment system, and examples of the approaches used in different countries;

·         an outline of the information contained in CbC Reports, and the potential advantages CbC Reports have over data from other sources;

·         consideration of the ways in which CbC Reports can be incorporated into a tax authority's risk assessment framework and a description of some of the main potential tax risk indicators that may be identified using CbC Reports;

·         a description of some of the challenges that may be faced by a tax authority in using CbC Reports for tax risk assessment and how some of these may be dealt with;

·         an outline of some of the other sources of data that may be used by a tax authority alongside CbC Reports; and

·         an overview of how the results of a tax risk assessment using CbC Reports may be used and the next steps that should be taken.

There’s also a description of some of the main potential tax risk indicators and some innocent explanations.  The handbook is available in English, French and Spanish at http://www.oecd.org/tax/beps/country-by-country-reporting-handbook-on-effective-tax-risk-assessment.htm  

ITAT : Interest u/s 201(1A) not compensatory, applicable even when deductee has Nil tax liability

Visakhapatnam ITAT upholds levy of interest u/s 201(1A) for AY 2013-14 and 2014-15 in case of assessee failing to deduct tax at source u/s 194J, rejects assessee’s contention that since the deductee had filed nil return of income and had no tax liability, even after taking into account receipts from assessee, interest u/s 201(1A) was not leviable; Notes that proviso to Sec. 201(1A) inserted w.e.f July 1, 2012 makes it very clear that even though the assessee is not deemed to be 'assessee in default' under the first proviso to Sec. 201(1), the interest u/s 201(1A) shall be payable from the date on which such tax is deductible to the date of furnishing of return of income by such deductee; Holds that the tax liability in the hands of the deductee has no connection with charging of interest u/s 201(1A), distinguishes assessee's reliance on co-ordinate bench rulings as they pertained to AY prior to amendment to Sec. 201(1A); Relies on Calcutta  HC judgment in Kanoi Properties Pvt. Ltd to hold that charging of interest from the date on which the tax was required to be deducted till the date of furnishing of return of income by the deductee is automatic and mandatory; Rejects assessee’s contention that interest u/s 201(1A) was compensatory in nature relying on Madras HC decision in Chennai Properties & Investments Ltd.:ITAT 

HC : Condemns Revenue's rejection of some revised returns while passing re-assessment order, remands matter

HC sets aside re-assessment order passed by Assessing Authority (AA) accepting some monthly revised returns while rejecting some on ground of non-mention of additional tax liability and proof of payment thereof, however, refrains from deciding matter on merits; Criticises AA’s pedantic approach in adopting Division Bench’s order of this Court in Jones Lang Lasalle Property Consultant India (P) Ltd. wherein it was held that, any ‘additional tax liability’ would mean ‘additional net tax liability’ and that, there is no reason to not adjust input credit against additional tax liability; Remarks, judgments of Constitutional Courts have to be discussed in detail and Authorities should record their own reasons it they take a different view, else it would be utter disregard of their (i.e. Constitutional Court’s) judgments and may drag Authorities in realm of judicial indiscipline and consequent disciplinary action; Observes, “judgments of the Constitutional Courts can be altered, modified or reversed only by the superior Constitutional Courts of larger strength or hierarchy, but they are not allowed to be casually referred and forgotten…..Otherwise the very purpose of maintaining the hierarchical judicial discipline will be lost”; Consequently, stating that, Revenue has not fully discussed / understood ratio of said judgment, remands matter with a direction to pass fresh orders for each month / tax period after accepting all revised returns for re-assessed period  : Karnataka HC

HC : Input credit disallowance to bona-fide purchaser for seller's tax deposit default, unconstitutional

Delhi HC holds Section 9(2)(g) of Delhi Value Added Tax, 2004 (“DVAT Act‟) to the extent it disallows Input Tax Credit (ITC) to purchaser due to default of selling dealer in depositing tax, as violative of Articles 14 and 19 (1) (g) of the Constitution of India; Accepts assessee’s plea that expression “dealer or class of dealers” occurring in Section 9(2)(g) should be read down as not including a purchasing dealer who has entered into bona fide purchase transactions with validly registered selling dealers who have issued tax invoices in accordance with Section 50 where there is no mismatch of transactions in Annexures 2A and 2B; States, a purchasing dealer cannot be expected to keep track of whether selling dealer has in fact deposited tax or adjusted it lawfully against output tax liability, and unless Commissioner has placed information in the public domain, it is impossible for purchasing dealer to ascertain selling dealer’s failure to make a correct disclosure of the sales made in his return; Moreover, Department is not helpless if the selling dealer commits a default as in view of Section 40A inserted w.e.f. November 16, 2005, a purchasing dealer acting in connivance with a selling dealer can be proceeded against; States, Cabinet note outlining purpose behind introducing Section 9(2)(g) in DVAT Act w.e.f. April 2009 strangely did not mention Section 40A and also did not took note of practical difficulty that would be faced by the purchasing dealer, which is a major omission of important factors having a bearing on ITC claimed by a dealer; Remarks, Section 9(2)(g) gives a free hand to the Department in deciding to proceed either against the purchasing dealer or selling dealer, however, in the situation envisaged by said section, clearly the defaulting party is the selling dealer for which the purchasing dealer is expected to bear the consequence; Notes assessee’s submission that, there is a distinction between those categories specified in Section 9(2)(a) to (f) of DVAT Act which disentitle grant of ITC and one u/s 9(2)(g), whereas conditions specified in clause (a) to (f) are within the control of and can be vouched for by the purchasing dealer, the condition under Section 9 (2) (g) is not within its control; Accordingly holds that, failure by Legislature to distinguish between bona fide and non-bona fide purchasing dealers, results in Section 9(2)(g) applying equally to both the classes of purchasing dealers, which would certainly be hit by Article 14 of Constitution; Relying on host of SC cases, concludes that there was need to restrict denial of ITC only to the selling dealers who had failed to deposit tax collected by them and not punish bona fide purchasing dealers who cannot be expected to do the impossible; Observes,“It is trite that a law that is not capable of honest compliance will fail in achieving its objective. If it seeks to visit disobedience with disproportionate consequences to a bona fide purchasing dealer, it will become vulnerable to invalidation on the touchstone of Article 14 of the Constitution”; Distinguishes, Bombay HC and Tamil Nadu HC decisions in Mahalaxmi Cotton Ginning Pressing & Oil Industries and Jayam & Co, respectively : Delhi HC

Video on Tax Treaties and Anti Treaty Shopping Initiatives

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Ahmedabad ITAT’s trailblazing go-green initiative aims at 'paperless' court

Ahmedabad ITAT initiates series of steps on an experimental basis with immediate effect, as part of its go-green initiative, invites suggestions and feedback from stakeholders; Directs that no hard copies of the orders will be issued for the DRs, CIT(A)s and the DRPs henceforth, further directs that registry to not accept any paper book containing copies of judicial precedents reported in recognized journals and databases; Similarly directs that registry to not accept any paper-books containing any of the documents, copies of which are statutorily required to be filed anyway along-with the appeal itself, e.g. assessment order, CIT(A)’s order, DRP order, form 35, form 35A, form 36, grounds of appeal etc.; Ahmedabad ITAT also encourages use of paper on both the sides in every document and paper-book filed, to the extent possible and practicable to do so, further keeps a cap of 12.5 for font size and 1.5 lines for internal spacing; Requires that soft copy of the cause lists / constitution of benches to be placed on ITAT’s official website and twitter account, in addition to hard copies which shall be used only for limited internal communications; States that a guidance note regarding the operations of the paperless court and use of soft copies of the paperbooks, will be issued by December 15th, 2017 

CBEC to redistribute cases in jurisdictions to reduce pendency with Commissioner (Appeals)

CBEC decides to reassign cases pending as on June 30, 2017 at Commissioner (Appeals) level, among all other jurisdictional officers of the rank of Commissioner (including Principal Additional Director General / Additional Director General), as a measure to reduce huge pendency of litigation; Accordingly, vests such Central Excise Officers with power of passing order-in-appeal w.r.t. appeals u/s 35 of Central Excise Act and Section 85 of Finance Act that were filed on or before June 30; While laying down administrative guidelines for Principal Chief Commissioners / Chief Commissioners to formulate proposals for reallocation of pending appeals, CBEC states, “In no event should the assessees be put to inconvenience by creating situations where they have to travel to other towns and cities to attend hearings.”; Further states, “Proposals for redistribution should be done in such a manner so that officers who are relatively familiar with the relevant law are assigned cases. In particular officers without a background knowledge of service tax law should not be assigned service tax cases.”; Warns Commissioner (Appeals) of a serious view in the event of mechanical remanding or hasty dismissal for nonappearance or ex parte orders, or a mechanical upholding of order-in-original, merely in order to achieve disposal : CBEC Notification & Circular 

Govt. notifies "deemed exports"; Clarifies issues relating to goods supplied on approval basis

Govt. notifies supply of goods against advance authorization, supply of capital goods against EPCG authorization, supply of goods to EOU and supply of gold by bank / PSU against advance authorization as “deemed exports”; As per the Explanation, “advance authorization” means an authorization for import / domestic procurement of inputs on pre-import basis for physical exports, while EOU means EOU / EHTP / STP / BTP unit;  Amends CGST Rules to provide that refund in terms of Rule 89 may be filed by recipient of deemed export supplies or by supplier in cases where recipient does not avail ITC thereon and furnishes an undertaking to the effect that supplier may claim refund; Govt. further issues clarification w.r.t. movement of goods within State or from State of registration to another State for supply on approval basis; States that such goods can be moved on the basis of delivery challan along with e-way bill wherever applicable, and invoice may be issued at time of delivery; Person carrying goods for such supply can carry invoice book with him so that invoice can be issued once supply is fructified; Also clarifies that where goods are carried from one State to another, same will be inter-state supplies attracting IGST; Moreover, Govt. authorizes Assistant / Deputy Commissioner to approve or reject application for enrolment as GST Practitioner, while clarifying that applicant is at liberty to choose either Centre / State as enrolling authority : CBEC Notifications & Circulars 

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ITAT : Share broker's loss on shares held as investments, a 'speculation loss’, not STCL

Mumbai ITAT treats loss suffered by assessee-company (engaged in share broking business) on sale of shares held by it as investments, as speculation loss for AY 2012-13, upholds Revenue’s invocation of Explanation to Sec. 73; Rejects assessee’s stand that Explanation was not applicable as loss was offered as short term capital loss [‘STCL’] in the return of income and thus, cannot be assessed as ‘speculative loss’; ITAT clarifies that considering the word ‘any’ used in the explanation, restrictive meaning  should not be given to phrase 'any part of the business', holds that as assessee was not covered by exclusions contemplated therein, Explanation to Sec. 73 was clearly attracted, cites Calcutta HC ruling in Arvind Investments Ltd.; Distinguishes assessee’s reliance on  Gujarat HC ruling in Apollo Vikas (P) Ltd. wherein  the adjudication was in context of 'income' earned by assessee on sale of shares and it was held that Sec. 73 was applicable only in context of losses; Separately, with respect to loss on F&O transaction, ITAT finds force in assessee’s contention that F&O transactions cannot be categorized as speculative transactions in light of amendment to Sec. 43(5)(d), however, in absence of evidence on record to prove that transactions qualify as 'eligible transactions' as contemplated by Expl (1) to Sec. 43(5), restores matter back to CIT(A)directing assessee to substantiate its claim.:ITAT 

Excess land exchanged for locational advantage and dispersed nature of holding, does not require specific disclosure in books, failure to which will attract Section 69B: HC

THE ISSUE BEFORE THE COURT IS - Whether value of excess land acquired under an exchange, if not recorded in books, would result in additions u/s 28(iv) or 69B, without factoring in adjustment for locational advantage and dispersed nature of holding. NO is the verdict.

FACTS of the case: The assessment in the case of Assessee for AY 2006-07 was completed u/s 143(3) on total income of Rs. 15,87,03,349/- against return income of Rs. 6,55,453/-. The reasons for such addition was that the Assessee had shown purchase of land of Rs. 40,36,91,100/-. The documents filed by Assessee showed that it had acquired 17.81 acres of land at Ullawas and Behrampur villages in exchange for 16.16 acres of land at Badshahpur village. According to AO, the Assessee thus acquired 1.65 acre of land in excess for which no value was shown in the books of account. The AO sought explanation from Assessee, and in its reply the Assessee stated that it had not made any sale/purchase of the land but had merely exchanged the land as a result of which no profit or gain had arisen. However, the differential amount, according to the AO, had been withheld by Assessee and accordingly additions were made by invoking Section 69B. On appeal, the CIT(A) deleted the addition. Thereafter, in an alternative submission before the CIT(A), the Revenue urged that even if Section 69B could not have been invoked, the differential amount could be brought to tax u/s 28(iv) of the Act. Repelling this contention, the CIT(A) held that since the stamp valuation authorities would not have determined the value of any land without factoring in demand and supply, locational advantage, proximity to public facilities, infrastructure, the determination of fair value by Assessee of land at Behrampur and Ullawas at the same rate after adjustment for locational advantage and dispersed nature of holding, could not have been faulted. Parity in the market rates and the rate determined by the stamp valuation authorities at the two locations was given more so when evidences were not on record to indicate that Assessee paid more as against the documented price as part of the exchange.

HIGH COURT held that,

++ it is seen that when the Revenue went before the ITAT pleading its contentions, the ITAT concurred with the findings of CIT(A) and held that there was exchanges of Land in the same locality and the duration of purchase of land and its exchange i.e. four-five months was very short. Furthermore, land rates are never uniform as in the share market and the A0 has not brought on record any allegation, material, evidence or document on record supported by proof of any rate variation resulting in a profit and addition has been made purely on the estimate basis and the stand of the A0 taken in the case of Golden View Builders Pvt. Ltd, which has dismissed by the Tribunal's order. In absence of any material or evidence or documents to establish that the assessee has made investment and amount expended on making such investments or acquiring land exceeds the amount recorded in this behalf in the books of accounts, which has been properly audited and accepted by the department. Having heard counsel for the parties, the Court is of the view that no substantial question of law arises inasmuch as the revenue has been unable to persuade the Court that the aforementioned factual finding of the CIT (A), concurred with by the ITAT, suffers from perversity.

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