Whether when franchisees conduct learning classes as per agreement with assessee, payment made in this regard is covered by the provisions of Sec 194C - NO, rules Delhi HC

THE issues before the Bench is - Whether when franchisees conduct learning classes as per agreement with assessee, payment made in this regard is covered by the provisions of Sec 194C and whether in the case of a contract for the carrying out of any work as is envisaged by Section 194C, there cannot be any use of a person’s trade name or goodwill or knowhow by the other. And the answers go against the Revenue.

Facts of the case

Applicability of TDS on payment made by assessee to its franchisees u/s 194C - The assessee provides its services across the country through education centres run by the assessee itself or by its franchisees. While completing the assessment, the AO noted that the assessee had debited a sum of Rs.6,38,64,018/- to the profit and loss account as payment made to franchisees. On a perusal of the agreement between the assessee and one of its franchisees, which was apparently taken as a specimen agreement, the AO took the view that the payment made by the assessee came within the provisions of Section 194(C) of the Act as a payment made for carrying out a work in pursuance of a contract and accordingly the assessee ought to have deducted tax from the payment at the applicable rates. He further took the view that since the assessee failed to deduct the tax as contemplated by Section 194C, the amount cannot be allowed as a deduction in view of the embargo placed by Section 40(a)(ia).
2009-TIOL-533-HC-DEL-IT). The Tribunal agreed with the assessee’s contention that the payment was not made by the assessee to the licensee/franchisee for any work and therefore neither Section 194C nor Section 40(a)(ia) was applicable. The AO was accordingly, directed to allow the payments.

On cross appeals by the assessee and the Revenue, the High Court held that,

To “make available” technical knowledge, mere provision of service is not enough; the payer must be enabled to perform the service himself

DIT vs. Guy Carpenter & Co Ltd (Delhi High Court)

The assessee, a UK based reinsurance broker, received commission from several Indian insurance companies for arranging reinsurance contracts. The AO & CIT (A) held that the commission was assessable to tax in India as “fees for technical services” u/s 9(1)(vii) & Article 13(4)(c) of the DTAA. However, the Tribunal (included in file), relying extensively on Raymond vs. DCIT 86 ITD 791 (Mum) & other judgements, held that “In order to fit the terminology “make available” in Article 13(4)(c), mere provision of technical services is not enough but the technical knowledge must remain with the payer, and he must be equipped to independently perform the technical function himself without the help of the service provider“. It was held that as the nature of services rendered by the assessee was not “technical or consultancy services which made available technical knowledge” etc to the payer, the commission was not assessable to tax. On appeal by the department, HELD dismissing the appeal:

Unaccounted expenditure to be set-off against unaccounted income despite Expl. to s. 37(1) & proviso to s. 69C. Govt. criticized for apathy towards black money

CIT vs. P. D. Abrahm (Kerala High Court)

Pursuant to a search u/s 132, an assessments u/s 158BC was made and various additions were made. One of the issues was whether if the AO makes an addition of unaccounted income on the basis of seized records, he is required to give a deduction for the unexplained expenditure shown in the same records. HELD by the Court:

Residence & Scope of Income In Cross Border Situations

 

INTRODUCTION

1. As a general principle, law of a State has effect only within its own boundaries. This general principle, however, has a very important exception. If a sufficient territorial nexus can be established between the person sought to be taxed and the country seeking to tax him, the income-tax law can extend to that person in respect of his foreign income also. This income has to be real and the basis of this can be established based on certain well-settled principles.

This write-up attempts to analyze the provisions relating to scope of total income & Residence in respect of cross border transactions under the Income-tax Act, 1961 (‘the Act’).

The main provisions relevant to our discussion today are sections 5 & 6 of the Act. While section 4 is the charging section, section 5 outlines the scope of total income for various categories of taxpayers depending on their residential status, which is provided by section 6. Broadly speaking, the world income of a resident is taxed while for the non-resident only income accruing or arising in India or received or deemed to be received in India is taxed.

WHO IS A RESIDENT/NON-RESIDENT?

2. A non-resident is defined by section 2(30) of the Act as a person who is not a “resident and for the purposes of sections 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of section 6(6)”. Similarly as per section 2(42) “resident” means a person who is resident in India within the meaning of section 6.

2.1 RESIDENTIAL STATUS OF AN INDIVIDUAL – An individual is considered as a resident in India if he fulfils any of the following conditions:

(i) if he is in India in the relevant year for a period aggregating to 182 days or more; or

(ii)  if he is in India for a period aggregating to 60 days or more in the relevant year and has been in India for an aggregate period of 365 days or more in the preceding 4 years.

But there are two important exceptions to this rule :

(i) in case of an individual, who is a citizen of India and who leaves India in any previous year for the purpose of employment outside India, the period of 60 days in second condition shall be substituted by 182 days. The same rule will be applicable for the crew of the Indian ship. However this relaxation is not available:-

a.    To  person touring abroad wrt his/her employment in India

b.    To a person, who after employment outside India, comes back to India for an employment in India

c.  To a foreign citizen

Employment (although not defined in Act) may be interpreted as doing business/profession outside India, as one can employ himself/herself as well.

(ii)  in case of an individual, who is a citizen of India, or is a person of Indian origin, period of 60 days in the second condition given above, will be substituted by 182 days. Therefore, he shall not be a resident unless his stay in India is at least of 182 days during the relevant previous year in which he visits India. 

2.2 Additional conditions [Section 6(6)] - An individual will be treated as resident and ordinarily resident, if he is able to satisfy both of the following two additional conditions -

(i)  Resident in India [in accordance with basic conditions] in at least 2 out of 10 previous years immediately preceding the relevant previous year; and

(ii)  Presence in India for at least 730 days during 7 years immediately preceding the relevant previous year.

2.2.1 REASONS FOR CHANGE IN SECTION 6(6)

The Govt. to overcome the tax planning measures of assesses took this decision through amendment in Finance Act 2003 .What used to happen in pre 2003 period was that the Assessee used to go in Tax free Countries like Dubai on say 20^th September 2000 and comeback in India on 5^th October 2001 and declare that being non resident in previous year 1999-2000 and 2000-2001 their income earned outside India was not taxable in India. Also as per definition of sec 6(6) prevalent at that time they were entitled to being resident but not ordinary resident for the 9 years and hence income accruing or arising out of India as per section 5(1)(c) was exempt.

2.3 RESIDENTIAL STATUS OF COMPANIES - A company is said to be resident in India if:

(i)  It is an Indian company; or

(ii)  The control or management of its affairs is situated wholly in India.

A company is said to be a non-resident company if it is not resident in India as defined above. The term ‘Indian company’ refers to a company formed and registered under the Indian Companies Act, 1956.

(For changes in residential status of companies as per DIRECT tax code, kindly read last para)

Scope of Total INCOME of Non-Residents

3. The provisions of section 5 provide as under:-

(1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which—

(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or

(b) accrues or arises or is deemed to accrue or arise to him in India during such year ; or

(c) accrues or arises to him outside India during such year

Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India.

(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which—

(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or

(b) accrues or arises or is deemed to accrue or arise to him in India during such year.

Explanation 1. — Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.

Explanation 2. — For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.

The distinctive features of sections 5 as enumerated from various decided case laws are as follows:-

(a)   The other provisions of the Act will have an overriding effect on the provisions of section 5. [CIT vs. Nippon 233 ITR 158]. That means provisions of sections 10-13A and sections 80 HH to 86 and section 90 [CIT vs Vishakhapatnam port Trust 144 ITR 146, CIT vs Davy Ashmore 19 ITR 626] may have the effect of exempting income which would otherwise be chargeable under this section.

(b)   Source of Income is not relevant

The Supreme Court in Performing Right Society Ltd. v. CIT, pointed out that even if the source of income was the agreement entered into in England, the question as to the source of income was not relevant because section 5(2) provides that all income ‘from whatever source derived’ is to be included in the total income of the non-resident assessee, if the income accrued or arose in India during the relevant year

(c)      Actual vs Constructive receipt-

· In Raghava Reddi v. CIT [1962] 44 ITR 720, the Apex Court held that income was received in India when it found that the Japanese company instructed its Indian party not to remit the commission due to it but to credit the same to its account for disposal according to its instructions from time to time. The Supreme Court while holding that such credit effectively constitutes receipt, set store, rightly, by the fact that the amount belonged to the Japanese company and was at its disposal. In other words, every credit entry in favour of a non-resident will not automatically expose him to tax liability in India on the ground that such credit tantamounts to receipt of income in India unless such credit is explicitly at the instance of the creditor and is at his disposal.

· It is possible that a person may be at once both a creditor and debtor and it is well possible that he may use his credit to wipe out the debit that may spring on account of supplies having been made to him. As per the ratio of the SC verdict in Raghava Reddi’s case (supra), in such circumstances the credit entry to square off the debit is effectively receipt of income in India.

· The Apex Court in CIT v. Toshoku Ltd. [1980] 125 ITR 525, correctly pointed out that unlike in Raghava Reddi’s case (supra), where the income was placed at the disposal of and was under the control of the non-resident, in the instant case there was only  passing of credit entry unaccompanied by any act that vested the entry with the character of a deposit.

(d)       First receipt: Income cannot be received twice Receipt of income refers to first occasion when the recipient gets the money under his control. Income after first receipt moves as remittance only. The position remains same even if at first instance the money is received by an agent (bank etc). Same income cannot be received twice {Keshav Mills Ltd v CIT [1953] 23 ITR 230 (SC)}.A non-resident is taxed on his foreign income only if it is ‘received in India’ ie received for the first time from the foreign source. If the NR has already received the income outside India ,he would not be chargeable when he remits or transmits it to India. Mere signing of receipt is not conclusive proof of receipt of income in India.

(e)   When and where income is received

· In case of money paid to a banker, broker or other agent of the assessee the time and place of payment to the banker, broker or other agent are the time and place of receipt by the purpose of this Act.

· SC held in CIT vs SKF Ball Bearing Co.Ltd.40 ITR 444 that where a commission agent effects sales and services and receives the proceeds in India on behalf of the foreign principal, the latter’s profits are received and taxable in India.

· The fact that assesse is unable to operate on income immediately on account of some legal restriction ,shall have no bearing on the question of date of receipt.

(f)  Is Income received at place where cheque posted?

· Yes, as per CIT vs Ogale Glass Works Ltd. 25 ITR 529(SC) if the mode of sending it by post is adopted at express or implied request of recipient, the post office acts as an agent of the addressee.

· In other cases the receipt would be at the place where the cheque is delivered to the addressee.

· However in later case of CIT vs Patney & Co. it was held that where there is an express agreement, that the payment should be made at a certain place, then there is no question of express or implied request of recipient to send the same by post.

(g)   Income accruing or arising in India or deemed to accrue or arise in India

Income, which accrues or arises in India, is chargeable to tax for all categories of persons, whether ‘resident’ or ‘non-    resident’. Like income accruing in India, income that is deemed to accrue or arise in India is also chargeable to tax for all categories of persons, whether resident or non-resident. Generally speaking, the following income is deemed to accrue or arise in India per sec 9(1) :—

• Income through, or from, any business connection in India;

• Income through, or from, any property in India;

• Income through, or from, any asset or source of income in India;

• Income through the transfer of a capital asset situated in India;

• Dividend paid by an Indian company outside India;

• Income payable by way of royalty or fees for technical services by an Indian company or from an Indian source; and

• Income by way of salary, if it is earned in India.

It should be noted that the income, which is deemed to accrue or arise in India, is wholly taxed in India. That being a separate topic as a whole which needs to be dealt with separately.

(h)   Income accruing or arising outside India

• In the case of Performing Right Society Ltd. v. CIT, it was held that although the society was a non-resident company and it received the income out of the agreement which was executed in England and not in India, the income undoubtedly accrued or arose in India.
• The Court pointed out that determination of whether a certain income accrued or arose in India within the meaning of section 5(2), is a question of fact which should be examined and decided upon in the light of common sense and plain thinking.
• The Supreme Court approved the decisions of the lower authorities that it is a matter of fact that the income derived from broadcast of copyright music from the stations of AIR arose in India.
• The provisions of section 9 which deem income to accure or arise in India, though actually accruing elsewhere, would not be relevant since income in the instant case has in fact accrued in India.
• As per sec 220(7) in case of income arising in foreign country the laws of which prohibit or restrict the remittance money to India, proceedings cannot be taken against the assessee for recovery of tax assessed and due in respect of such foreign income till the income cannot be brought into India .
• Only income accruing or arising outside India and not income deemed to accrue or arise outside India is taxable.

TAXATION OF NON-RESIDENT COMPANIES

4. The principles of residential status and receipt and accrual of income as discussed above are fully applicable in case of foreign business entities also. For taxation purposes, the various types of legal entities will broadly fall in any of the following two categories depending on the residential status of the concerned company :

(i)  A Foreign Company

(ii)  An Indian Company

Foreign company - Foreign company is defined under the Indian Income-tax Act as a company, which is not a domestic company. A domestic company means an Indian company or any other company, which has made prescribed arrangements for the declaration and payment of dividend in India.

A non-resident company is one which is neither an Indian company nor does its control and management lie wholly in India. Thus, in effect, in almost all cases a foreign company will be a non-resident company.

Indian company - A foreign company may operate in India through an Indian company either as a 100 per cent subsidiary of the foreign company or as an Indian Joint-Venture Company. Such companies are liable to be taxed as Indian companies. Their income will be determined by applying various provisions of the Indian Income-tax Act. They will be liable to pay tax at the rates applicable to Indian companies.

CHANGES PROPOSED IN DTC

It was proposed in the original draft of DTC that a foreign company will be treated as resident in India if, at any time in the financial year, if the control and management of its affairs is situated “wholly or partly" in India (unlike wholly situated in India, as at present).

It was pointed out to the Tax Authorities that under the new test for determining residence in the DTC, a foreign company whose control and management is partly in India say by holding a single meeting of the Board of Directors in India, will be treated as a resident of India and thus liable for taxation in India on its global income. 

Also, a foreign company owned by residents in India could be held to be resident in India as part of the control of such company may be in India.

In the new draft DTC released recently it has been proposed that a foreign company will be treated as resident in India if Place of effective management is situated in India. “Place of effective management of the company means-

(i) The place where the board of directors of the company or its executive directors, as the case may be, make their decisions; or

(ii) In a case where the board of directors routinely approve the commercial and strategic decisions made by the executive directors or officers of the     company, the place where such executive directors or officers of the     company perform their functions.”

The Concept of POEM ie Place of effective management is an internationally recognized concept for determination of residence of a company incorporated in a foreign jurisdiction.  Most of Indian tax treaties recognize the concept of “place of effective management for determination of residence of a company as a tie-breaker rule for avoidance of double taxation.

Simply speaking POEM provides that it is the place where key management and commercial decisions that are necessary for the conduct of the entity's business as a whole, are, in substance, made.

This concept is lot more practical and accepted universally than the original originally mooted. There are still some clarifications needed in this cyber age regarding the holding of meetings through teleconferencing etc. Let’s all hope that clarifications required are included in the final draft.

Appendix-1

Residence in India.

6. For the purposes of this Act,—

(1) An individual is said to be resident in India in any previous year, if he —

(a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more ; or

(b) [* * *]

(c) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.

 [Explanation.—In the case of an individual,—

 (a) being a citizen of India, who leaves India in any previous year [as a member of the crew of an Indian ship as defined in clause (18) of section 3 of the Merchant Shipping Act, 1958 (44of 1958), or] for the purposes of employment outside India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted ;

(b) being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of section 115C, who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and [eighty-two] days” had been substituted.]

(2) A Hindu undivided family, firm or other association of persons is said to be resident in India in any previous year in every case except where during that year the control and management of its affairs is situated wholly outside India.

(3) A company is said to be resident in India in any previous year, if—

(i) it is an Indian company ; or

(ii) during that year, the control and management of its affairs is situated wholly in India.

(4) Every other person is said to be resident in India in any previous year in every case, except where during that year the control and management of his affairs is situated wholly outside India.

(5) If a person is resident in India in a previous year relevant to an assessment year in respect of any source of income, he shall be deemed to be resident in India in the previous year relevant to the assessment year in respect of each of his other sources of

income.

[(6) A person is said to be “not ordinarily resident” in India in any previous year if such person is—

(a) an individual who has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less; or

(b) a Hindu undivided family whose manager has been a nonresident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to,seven hundred and twenty-nine days or less

All about LLP

 

A Limited Liability Partnership (LLP) is a form of business organisation where the liability held by each of the partners is limited by law.

 

It provides the benefits of limited liability of a company, but allows its members the flexibility of organising their internal management on the basis of a mutually arrived agreement, as is the case in a partnership firm.

 

It is a corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in a flexible, innovative and efficient manner.

 

LLPs are increasingly becoming the preferred vehicle of business for small and medium enterprises, particularly in the service industry & organisations involving professionals.

 

Limited Liability Partnerships in India  

In India, the Parliament enacted the Limited Liability Partnership Act in 2008 which received the assent of the President on 7th January, 2009.

 

LLPs combine the advantages of ease of running a partnership, with the separate legal entity status and limited liability aspect of a company. Since LLPs contain elements of both 'a corporate structure' as well as 'a partnership firm structure' they are a hybrid between a company and a partnership.

 

Features:

The main feature of a LLP is that it is a separate legal entity, liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP. But no partner is liable on account of the independent or un-authorised actions of other partners, thus individual partners are shielded from joint liability; while mutual rights and duties of the partners within a LLP are governed by an agreement between the partners.

 

Thus LLPs enable professional/technical expertise and initiative to combine with financial risk taking capacity in an innovative and efficient manner.

 

Requirements:

The most important requirement for formation of an LLP is that a minimum of two partners are required; there is no limit to the maximum number of partners. Additionally, a corporate body may be a partner of an LLP.

 

The mutual rights and duties of the LLP and its partners are governed by the agreement between the partners or between the LLP and the partners, known as 'LLP agreement'. In the absence of an agreement as to any matter, the mutual rights and liabilities shall be as provided under Schedule I of the LLP Act.

 

Audit, Filing & Other Requirements:

An LLP is under obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A "Statement of Accounts and Solvency" in prescribed form shall be filed by every LLP with the Registrar every year. Every LLP is required to file annual return in Form 11 with Registrar of Companies within 60 days of closer of the financial year. The annual return is available for public inspection on payment of prescribed fees to the Registrar. Central Government has the authority to appoint inspectors to investigate the affairs of an LLP.

 

Procedure for Forming a LLP

A Limited Liability Partnership may be incorporated online.

 

Online Registration:

Register on www.llp.gov.in, the website developed by the Ministry of Corporate Affairsfor LLP services.

 

Reservation of Name of LLP:

For reservation of the name of an LLP, Any partner or designated partner in the proposed LLP may fill up 'Form-1' where up to six choices can be indicated.

 

Incorporation of LLP:

Once the name is reserved by the Registrar, next is the filing of Incorporation documents, consent of Partners and declaration, electronically through the medium of e-forms prescribed with the Registrar of LLP for incorporation of the LLP on payment of prescribed fees given in Annexure A of the LLP Rules, 2009, on the total monetary value of contribution of partners in the proposed LLP.

 

Filing of LLP Agreement & Partners' Details:

Form 3 (Information with regard to LLP agreement and changes, if any made therein) and Form-4 (Notice of Appointment of Partner/Designate Partner, etc.) may be filed with the prescribed fee simultaneously at the time of filing Form-2 or within 30 days of the date of incorporation or within 30 days of such subsequent changes.

 

Taxation of Limited Liability Partnerships  

Since the taxation related matters in India are provided under Tax Laws, the taxation of LLPs has not been provided in the LLP Act. The Finance Bill, 2009 has made provisions in this regard, pursuant to which the taxation scheme of LLPs has been proposed to be introduced in the Income Tax Act.

 

Conversion of Other Entities into LLPs

Other business entities like a firm or a company may convert themselves into an LLP. The LLP Act 2008 contains enabling provisions pursuant to which a firm (set up under Indian Partnership Act, 1932) and private company or unlisted public company (incorporated under Companies Act) would be able to convert themselves into LLPs. But, the LLP Act bars an LLP from converting it into a company despite provisions in the Companies Act, 1956 which enable an LLP to convert itself into a company.

 

Merger and Winding-Up of Limited Liability Partnerships  

Provisions of section 60 to 62 of the LLP Act provide for the manner in which compromises or arrangements including mergers and amalgamations involving LLPs shall be allowed.

 

The sections provide the provisions and procedures required to be complied with when the affairs of LLPs are to be wound up and dissolved.

 

Offences & Penalties

Offences and penalties arising out of the non-compliance with the provisions of the LLP Act have been defined along with substantive provisions themselves. However, for defaults/non-compliance on procedural matters such as time limits for filing requirements, penalties have been provided for application in a non-discretionary manner, through the levy of a default fee for every day for which the default continues.

 

The Act contains provisions empowering the Union Government to compound any offence punishable with fine only by collecting a sum not exceeding the amount of maximum fine prescribed for the offence.

 

Though most of the offences in the Act provide for punishment by way of charging fine, imprisonment too has been provided for in respect of violations.

 

Enabling provisions have also been made in the Act in respect to protection to "whistle blowers".

 

Taxable Perquisite in Respect of Interest at a Concessional Rate

The benefit of interest free loan or loan at concessional rate of interest is given to an employee (or to any member of his household) is chargeable to tax.
The value of benefit provided to an employee shall be determined as the sum equal to the interest calculated at the rate charged per annum by the State Bank of India (i.e. leading bank), as on the 1^st day of the in respect of the loans advanced by it for the same purpose. This rate shall be applied to the maximum monthly balance outstanding.previous year
Moreover, interest shall be calculated on the outstanding balance as on the last day of each month.
Maximum Monthly balance outstanding: Aggregate outstanding amount for each loan as on the last day of each month.
For Example: If the housing loan is taken for FY 2012-13, then the only housing interest will be at the rate charged p.a by the SBI as on 1.4.2012.
Further, the amount of perquisite shall be reduced by the amount of expenses reimbursed by the employee or the member of the household.
For this purpose member of household includes:

• Spouse;
• Children and their spouses;
• Parents;
• Servants and dependents;

But, perquisite shall not be taxable if:
a)      Loan is taken for of specified diseases. But if any amount under medical insurance scheme is reimbursed to the employee then no exemption will be availed.medical treatment
b)      If the aggregate of original loan does not exceed Rs. 20,000.
This can be well understood with examples:
1)      The loan of Rs.2, 00,000 is given to employee on 1-7-2012 by the employer.
(SBI Rate on 1-7-2012 is 12% & on 1-4-2012 is 11%).
Solution:
Taxable value of perquisite in respect of interest of loan:    
For July 2012 – March 2012           Rs. 2, 00,000*11%*9months =   Rs.16, 500.
Since, rate of SBI as on 1^st day of previous year (1-4-2012) for July-March (9 months) is considered.
2)      Employer gives loan of Rs.30, 000 is given to employee on 1-4-2012, where employee repays Rs.12, 000 on 1-7-2012(Rate of SBI 11%).
Solution:
Taxable value of perquisite in respect of interest on loan:
For April 2012- June 2012             Rs.30, 000*11%*3months = Rs.825
For July 2012- March 2013            Rs.18, 000*11%*9months = Rs.1485
Therefore, Total taxable amount = Rs.2310 (Rs. 825+ Rs.1485)
Since in this case, original loan exceeds Rs.20, 000 then perquisite value will be computed even if outstanding balance i.e. Rs. (30,000-12,000) falls below Rs.20, 000.
3)      Employer gives medical loan of Rs.2, 00,000 for specified disease to employee on 1-10-2012. Employee gets insurance claim of Rs.80, 000 on 1-1-2013 but the same was not repaid to the employer.(SBI Rate 11% p.a)
Solution:
 Taxable value of perquisite in respect of interest on loan:
For Oct 2012- Dec 2012              Rs. Nil
For Jan 2013-Mar 2013               Rs. 80,000*11%*3months = Rs.2200
Since, in this case amount under medical insurance scheme is not reimbursed to the employer then Rs.2200 will be taxable in the hands of employee.

Taxability of free meals or concessional meals received from the employer

Free meals or concessional meals benefit provided by the employer gets taxable in the hands of the employees as perquisites. Perquisites are the non monetary benefits provided by the employer to his employees in addition to their salary. Some of the perquisites are taxable in the hands of employees and some are fully exempt in their hands.

Taxable value of free meals, food & non-alcoholic beverages provided by the employer to its employee is valued as mentioned below:

PARTICULARS	AMOUNT
Amount of expenditure incurred by the employer	XXX
Less:
Exemption of Rs. 50 per meal.	XXX
Any amount recovered from the employee	XXX
Taxable Value	XXX

But, exemption of Rs. 50 per meal is allowed only if the meal is provided at office premises/office hours or through non-transferable paid vouchers.

Relevant Points:

The value of perk is not applied or the same is not taxable:

• If tea or snacks is provided by the employer during working hours.
• If the free meals or non- alcoholic beverages is provided in a remote area or at off-shore installation

Services provided by the Agricultural Produce Marketing Committee (APMC) /Board-- regarding.

F.No.354/234/2011-TRU

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise & Customs

(Tax Research Unit)

153, North Block,

New Delhi, 27^th April, 2012

Circular No. 157/8 /2012-ST

 

To

Chief Commissioner of Customs and Central Excise / Central Excise & Service Tax (All)

Director General of Service Tax /Central Excise Intelligence /Audit; Commissioner of Customs and Central Excise/ Central Excise and Service Tax/ Service Tax (All)

Madam/Sir,

Subject:   Services provided by the Agricultural Produce Marketing Committee (APMC) /Board-- regarding.

            Representations have been received, seeking clarification regarding the levy of service tax on certain services provided by the Agricultural Produce Marketing Committee (APMC)/Board, using the ‘market fee’, in the light of Notification No.14/2004-ST. The representations have been examined. 

2.         APMCs are statutory bodies created with a view to regulate agricultural produce markets. APMCs charge market fee for issuing licenses to whole sale trader-cum-commission agent, wholesale traders, commission agent, mill / factory / cold storage owners or any other buyers of agricultural produce, for an agricultural year. The amount so collected by the APMC, from the licensees, is used for providing among other things facilities like roads, drinking water, weighing machines, storage places, street lights, etc. in the market area.  These services are not provided on one-to-one basis i.e. in consideration or as an obligation to the persons who have tendered the license fee. Some of these services may be capable of being used more conspicuously by the licensees but they do not form part of any contractual obligation to any of the licensees.

3.         Reportedly some field formations are inclined to take a view that services provided by the APMCs are in the nature of Business Support Service (BSS), and hence the exemption made available for BAS in relation to agriculture vide Notification No.14/2004-ST will not be applicable. As a consequence, service tax becomes leviable on the ‘market fee’ popularly known as ‘mandi shulk’, collected by the APMC.

4.         When examined with reference to its constitution and functions, the services provided by APMC out of the ‘market fee’ collected from the licensees, do not appropriately fall under the category of BSS.  The distinction between BSS and BAS is explained in the instructions dated 28.02.2006 issued from F.No.334/4/2006-TRU. In the light of the above instruction, the service provided by APMC out of the market fee is not in the nature of ‘outsourced service’.   It is not possible to hold that the licensees have outsourced the development and maintenance of agricultural market to the APMC, which could have been otherwise undertaken by them, solely in their business interest. Development and maintenance of agricultural market infrastructure undertaken by APMC in accordance with the statute, is for the benefit of all users, rather than an activity solely in the interest of licensees. Hence, APMC cannot be said to be rendering ‘business support service’ to the licensees. ‘Market fee’ is not in the nature of consideration for such BSS.

5.         As statutory bodies, APMCs provide basic facilities in the market area out of the ‘market fee’ collected from the licensees, mainly to facilitate the farmers, purchasers and others. APMCs provide a host of services to the licensees in relation to the procurement of agricultural produce, which are ‘inputs’ in terms of the definition given in section 65(19) of the Finance Act, 1994 itself. To that extent the meaning of ‘input’ is much wider in scope than the meaning assigned in rule 2(k) of Cenvat Credit Rules, 2004. Therefore, it is clarified that the services provided by the APMC are classifiable as BAS and hence covered by the exemption under Notification 14/2004-ST.

6.         However, any other service provided by the APMCs for a separate charge (other than ‘market fee’) to either the licensees or farmers or any other person, e.g. renting of shops in the market area, etc. would be liable to tax under the respective taxable heads. This Circular may be communicated to the field formations and service tax assessees, through Public Notice/Trade Notice. Hindi version to follow.

(Samar Nanda)

Under Secretary, TRU

Tel/Fax: 011-23092037

Taxes- Due Date Alert for the month May 2012

Your kind attention is invited to the table given below which contains the due date for Tax compliance in respect of TDS/TCS, IT/WT, ST/VAT on different dates during the month MAY  2012.

Sr No	Due Date	Related to	Compliance to be made
1	05.05.2012 (Saturday)	Service Tax	Payment of Service Tax for the Month of April 2012.
2	07.05.2012 (Monday) .	TDS/TCS (Income Tax)	·        Deposit TDS for payments of Salary, Interest, Commission or Brokerage, Rent, Professional fee, payment to Contractors, etc. during the month of April 2012. ·        Deposit TDS from Salaries  deducted during the month of April 2012 •   Deposit TCS for collections made under section 206C including sale of scrap during the month of May April, if any •    Deliver a copy of Form 15G/15H, if any to CCIT or CIT for declarations received in the month of April 2012, if any
3	15.05.2012 (Tuesday)	TDS/TCS (Income Tax)	Furnish quarterly statement of tax deducted at source (TDS) and tax collected at source (TCS) for the quarter ended December 2011 in Form 24Q / 26Q / 27Q / 27EQ
4	20.05.2012 (Sunday)	VAT	Payment of VAT & filing of monthly return for the month of April 2012
5	30.5.2012 (Wednesday)	TDS/TCS (Income Tax)	Issue of TDS Certificate - Non Salary for Q4 FY and Salary  in FY 2011-12