Tax Guru

Highlight of Maharashtra State Additional Budget 2009

Jun 4, 2009 MVAT

As Maharashtra braces up for polls and celebrates its golden jubilee year, it tabled a revenue-deficit budget for the year 2009-10 on 4th June 2009 that focuses on infrastructure development and social sector. The major highlights and changes proposed are noted below :

• Penalty for late returns under MVAT Act reduced to Rs.5,000/- from Rs.10,000/-.

• Exemption from Profession Tax for salary income upto Rs.5,000/- i.e increase from Rs.2,500/-.

• Simplified VAT Refund Scheme for the dealers with refund below Rs.5 Lakhs.

• Relief to Tax Payers not yet enrolled under Profession Tax.

• Amnesty Scheme under Profession Tax for transport permit holders.

• Tax Concessions and reduction in Taxes -
  - Tax reduced from 8 percent to 5 percent for Hotel dealers under Composition Scheme.
  - Tax concession to timber upto 31st March 2010.
  - reduction in tax rate on Cotton Ginning and Pressing machinery
  - Tax reduced on Solar energy devices and CFL
  - Tax reduced on Plastic mats and Agarbatti.
  - Domestic LPG stoves, imitation jewellery, Shikakai and Ritha to have lesser rate
  - Reduced tax on composting machines
  - Reduced rate of tax on Medical Equipment

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Tags: AGREEMENTS, amnesty, amnesty scheme, Budget, deficit budget, developer, digitally, energy devices, Exemption, holders, infrastructure, infrastructure development, jewellery, maharashtra, mat, MVAT, Penalty, profession tax, professions, proposals, Refund, refund scheme, restructurings, Return, salary income, stamps, tax, tax amnesty, tax concession, tax concessions, Vat, vat refund

PWC was having business links with Satyam

May 30, 2009 Satyam

In a twist to the Satyam fraud case, a global IT research firm has revealed details which may point to a collusion between Price Waterhouse Coopers and Satyam Computers. The report, by Gartner, indicates that PwC was in a strategic partnership with Satyam till last year, even as its Indian arm was auditing the firm headed by the disgraced Rajus.

The US-based Securities and Exchange Commission does not allow such a relationship. Even Indian auditing guidelines do not accept that statutory auditors can have a relationship with the audited company.

An auditor in India, working with one of the global Big-4 audit firms told the Financial Chronicle: “Mind you, Satyam was SEC registered. And it is not allowed in accountancy norms to have the same firm as auditor and strategic partner”.

A questionnaire sent to PwC by Financial Chronicle did not elicit any response. A Satyam spokesperson said that the company would not be able to comment on this matter. Satyam was taken over by Tech Mahindra last month in an auction supervised by government-nominate d directors.

The Gartner report quotes PwC’s own official as saying that Satyam did its system integration business for Idearc— even while a five-year non-compete clause with IBM was in place after 2002. That year, PwC had sold a large part of its consulting practice to IBM for $3.5 billion, kicking in the clause.

A popular blog among auditing firm members internationally called `Re:The Auditors’ quoted the Gartner report to say that the roots of the Satyam fraud might be deeper. Francine Mckenna, the blogger, and a former Big-4 employee, told the Financial Chronicle: “The report is a clear indication of the fact that Satyam was a strategic partner to PwC globally enabling them to bypass both the constraints of their non-compete with IBM and to provide a viable solution for their lack of technical expertise and technical bench strength.”

She said that the relationship between the two was for IT work at Idearc, and perhaps other projects. This relationship, she said, allowed PwC to enable “via negligence or worse the humungous fraud that is Satyam.”

The report, published in July 2008 is titled: “PwC to World: `We Implement’”. Since Octobe 1, 2007, when the non-compete agreement expired, there had been speculation as to whether PwC would get back into the IT implementation business, the report said. It then goes on to quote PwC’s US Advisory Strategy Leader Joe Duffy who stated at the PwC’s Analyst Day: “With Idearc (a $3 billion Verizon spin-off), PwC was engaged through the full project life cycle.” The Gartner report comments that Much of this engagement occurred while PwC was still under the IBM non-compete agreement and Satyam Computer Services did much of the system integration work. PwC also helped Idearc shift to an IT strategy heavily dependent on outsourcing, which saved the new company millions of dollars.

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Tags: Accounting, AGREEMENTS, Audit, audit firms, auditing, auditing firm, Auditor, audits, bench, benches, cases, clauses, commentators, COMMISSION, Computer, exchang, fraud, fraud case, gartner report, price waterhouse coopers, Satyam, satyam computers, securities and exchange commission, system integration business

Government Notified provisions of competition act, 2002

May 25, 2009 Government Policy

The Central Government has notified from on 20th May, 2009, the provisions of the Competition Act, 2002 relating to anti-competitive agreements (section 3) and abuse of dominant position (section 4) alongwith other related and miscellaneous provisions. This will enable the Competition Commission of India to enforce these provisions of the Competition Act, 2002.

The Central Government has also notified the establishment of Competition Appellate Tribunal which will be headed by Dr. Justice Arijit Pasayat, Judge (Retd.), Supreme Court of India. This Appellate Tribunal will deal with the appeals against the decisions of the Competition Commission of India and also adjudicate on compensation claims. Dr. Justice Pasayat joined as Chairperson, CAT on 20.05.2009.

Tags: AGREEMENTS, appellate tribunal, central, central government, COMMISSION, competition act, competition commission, dominant position, establishments, provision, supreme court of india, tribunal

Advance Ruling on nature of receipts derived by an Australian company from ONGC

May 24, 2009 Income Tax Case Laws

ADVANCE RULING  DETAILS

Tags: AAR, advance rulings, AGREEMENTS, australian company, benches, bombay, commercial knowledge, Computer, consultancy services, Deduction, derivatives, double taxation avoidance, DTAA, incorporation, indian operations, model plan, MoU, ongc, permanent establishment, relevant extracts, Royalty, royalty income, Software, surveys, taxation

Income from property leased to sister concerns is Income from House Property

May 23, 2009 Income Tax Case Laws

SUMMARY OF CASE LAW

Exploitation of the property by one of the group concerns cannot be construed as exploitation by the assessee-company; the commercial asset has to be exploited by the assessee in the course of its business activity for the purpose of claiming the income as business income. 

CASE LAW DETAILS
Decided by: ITAT, HYDERABAD BENCH `A’, In The case of: Margadarshi Housing Pvt. Ltd. v. ITO , Appeal No. : ITA NO. 64/Hyd/2005, Decided on: June 27, 2008

RELEVENT PARAGRAPH 

4. We have considered the rival submissions on either side and also perused the material available on record. The claim of the assessee is that construction of the dwelling units and leasing out the same to sister concerns amounts to exploiting of a commercial asst. In fact, the sister concerns which took the property on lease utilized the same for their business of producing films by exploiting the same. The assessee as owner let out the same to the sister concerns and received rental income. A copy of the rental agreement, said to have been executed with Margadarsi Apparels, is available at page 20 of the paper book. Even though the nomenclature was stated as “leave and licence agreement”, the terms of the agreement clearly show that it is only a lease and not a licence. The lease was granted for 10 years commencing from 1-10-2000. The rent was Rs. 3,000 per annum. Therefore, it is not a case of a temporary exploitation of a commercial property. In fact, it is a long term lease. The assessee, being the owner of the property, let out the building to the sister concern for a long term and received rental income, eve though the nomenclature in the agreement has been stated as a licence. It is also not in dispute that tax was deducted at source by the respective sister concerns while paying the so-called licence fee. The question that arises for consideration is, when the assessee leased out the property to sister concern and received rental income, whether such income has to be classified as income from house property or as income from business. As rightly pointed out by the learned departmental representative, the assessee was not doing any incidental service after letting out the property.

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Tags: AGREEMENTS, apparels, APPEAL, assets, benches, business activity, business income, commencement, commercial asset, Deduction, dwelling units, itat, landlord, lessee, rental agreement, sister concern, sister concerns, submissions, tax, term lease

Merely because agreement named as license agreement is not enough to attract section 194-I

May 23, 2009 Income Tax Case Laws

CASE LAW DETAILS

Decided by: ITAT, INDORE BENCH, INDORE, In The case of: J. C. Bansal v. TRO, Appeal No. : ITA Nos. 115 to 117/Ind/2005, Decided on: May 23, 2008 

RELEVENT PARAGRAPH 

20. On examination of the license agreement and schedule attached with the same, we find that entire factory building along with plant & machinery have been given under the agreement by M/s. Ramco Ind. Ltd. to the assessee for taking over the production facilities. The agreement as a whole has to be considered. As per the agreement between licensee and licensor, there was a definite obligation of the assessee to make minimum licence fees of Rsy40 lakh and the rest was dependant on the production respectively for permitting the licensee to utilize all production facilities provided in the premises of the licensor including use of all facilities, utility, machine, factory, office premises, spare parts, tools and equipments, essential for efficient running of the said unit along with residential quarter also. The assessee is entitled to sub-let or under-let the whole or part of the factory building or plant ft machinery. It would therefore, clearly prove that entire factory building including plant ft machinery for manufacturing facilities have been given through the agreement to the assessee and the minimum payment was definitely a consideration for use of entire facility including land and building including factory building and furniture and fittings and plant ft machinery. The agreement in question is therefore, composite agreement for the whole factory building including plant & machinery and residential quarters and the consideration paid is for the entire factory building including plant ft machinery. The assessee has not clarified as to how it can b use effectively the plant & machinery without using the factory building. The details of gross block of fixed assets on 31.3.2003 as filed at PB-A/13 shows that the total gross value of land, building and plant & machinery was Rs.9,35,08,298/ – out of which, the value of plant & machinery is Rs.6,94,04,216/ . It would therefore, prove that the value of land and building, furniture fittings, factory building was also having substantial value which cannot be given to be assessee without any consideration for use and occupation. Schedule A (PB-13) attached with the agreement also prescribed that entire factory building of pipe plant excluding warehouse have been handed over by M/s. RIL to M/s. KSGML This would also support the findings of the authorities below that the agreement in question is a composite agreement to give entire factory building including plant ft machinery to the assessee subject to consideration. Since entire factory building is given to the assessee and the licensor had no control over the factory building, therefore, ft cannot be believed that it was a case of licence agreement. In the case of (ease, the creation of interest in the rented property is there, which we find in this case because the right to enjoyment in the entire property has been created in favour of the assessee : therefore, it falls within a definition of rent as prescribed in Explanation (i) of sec. 194-1 of the IT Act. The assessee has not made out any case that it was getting the goods manufactured from the licensor on job basis. The Id. counsel for assessee submitted that the words plant & machinery have been included in the definition of rent in sec. 194-f after the amendment w.e.f. 13.7.2006. However, this would not prove contention of Id. Counsel for assessee because Id. Counsel for assessee himself referred to circular no. 715 (supra) in which, in answer to question no.24, it was clarified that if the composite agreement is in essence, the agreement for taking the premises on rent, the tax will be deducted u/s 194-1 from payment thereof. This would put the assessee under liability to deduct the tax at source. Ld. CIT(A) relied upon decision of Calcutta High Court in the case of Smt. Visakha Sarkar (supra) in which, Hon’ble High Court examined the scope word “rent” for the purpose of sec. 194-1 and it was held “the definition for the purpose of this act of the nomenclature rent as expounded in the explanation column of this sec. itself, amply reveals that the same is projected as the generic turn which includes within its ambit payment made on any account whatsoever for occupation of a tenanted portion. It appears to be a composite concept. Once the rent is comprehended as a composite concept then it is not capable of being fragmented.” Ld. CIT(A) also referred to the decision of Hon’ble AP High Court in the case of Krishna Oberai and others (supra) in which, the word “rent” in context of sec. 194-1 has been examined and it was held that the rent has been defined in a wider sense to include not only consideration paid under a lease or sub-lease or tenancy but also the consideration paid under any other agreement or arrangement for the use of any (and or building etc; was further held that the assessee was engaged fn running^ of five star hotel and customers are provided -furnished rooms and other facilities for consideration which is known as room charges. However, certain cos. entered into agreement to utilize hotel services for accommodating their officials and lesser amount is charged, in that context, the petitioner approached the corporate customers requesting them not to deduct TDS u/s 194-1. It was therefore, held that the charges paid to the petitioner by its customers for use and occupation of hotel rooms should be regarded as rent within the meaning of sec. 194-I. Ld. CIT(A) also noted that after this decision the Board clarified that so long as the accommodation has been taken on regular basis in a hotel, the same would be subjected to TOS. The findings of Id. CIT(A) based upon on these decisions have not been contradicted through any material on record. The same would therefore, support the findings of the AO.

21. Ld. counsel for assessee relied upon order in the case of National Panasonic India P. Ltd. (supra) in which, the payment to C ft F agents was not a rent u/s 194-1 because the C&F agent has to store the goods during inventing period and then the C&F agent sold the goods in the interregnum. The distribution agreement between the manufacturer and the C&F agent was not found to be converted into an agreement as may be obtaining between a landlord and tenant. Ld. counsel for assessee also relied upon order fn the case of Kamat Hotels (I) Ltd. (supra). In this case, in effect the agreement was not for renting out the premises but for managing and conducting the restaurant/food outlet on payment of royalty/commission on which, the owner had complete control- In the case of Ganesh Aloo Bhandar (supra), the payment made for use of old storage was held to be not subjected to deduction u/s 194-1. These decisions are clearly distinguishable on facts of the present case.

22 Considering the facts and circumstances noted above, we are of the view that the agreement in question is a composite agreement for renting out the entire factory building including plant h machinery, tools, and residential quarters subject to minimum payment of Rs.40 lakh. Merely, because the name of agreement is given as licence agreement is not enough to thwart the provisions of sec. 194-1 of the IT Act. In this view of the matter, we do not find’ any infirmity in the orders of authorities below. Provisions of sec. 194-1 are applicable to this case. We therefore, confirm the orders of authorities below and dismiss ground no. 1 in all the appeals of the assessee.

Tags: accommodation, accountants, agent, AGREEMENTS, amendments, APPEAL, assets, authorities, bench, benches, circulars, COMMISSION, contention, converter, corporates, customs, Deduction, Examination, Examinations, india, Interest, itat, job, jobs, landlord, liabilities, obligation, office, premises, provision, quarters, Royalty, storage, tax, TDS, wordings

Principle of mutuality where the income of the mutual concern is the contributions received from its contributors

May 17, 2009 Income Tax Case Laws

SUMMARY OF CASE LAW

The principle of mutuality as enunciated by the Courts in various cases is applicable to a situation where the income of the mutual concern is the contributions received from its contributors. 

CASE LAW DETAILS

Decided by: HIGH COURT OF DELHI, In The case of: Yum! Restaurants (Marketing) Pvt. , Ltd.  v. CIT , Appeal No. :  ITA No. 1433/2008, Decided on:  April 1, 2009 

RELEVENT PARAGRAPH 

8. Having heard the learned counsel Mr C.S. Aggarwal, Sr. Advocate for the assessee-company and Ms Prem Lata Bansal for the Revenue we are of the view that the judgment deserves to be sustained. The principle of mutuality as enunciated by the Courts in various cases is applicable to a situation where the income of the mutual concern is the contributions received from its contributors. The expenses incurred by the mutual concerns are incurred from such contributions and hence on the principle that no man can do business with himself, the excess of income over expenditure is not amenable to tax. However, in the present case the authorities below have returned a finding of fact that the fund as contributors such as Pepsi Food Ltd which do not benefit from the APM Activities. Moreover, the principle of mutuality is applicable to those entities whose activities are not tinged with commercial purpose. As a matter of fact in the instant case the parent company i.e., YRIPL which has also contributed to the brand fund is under the agreement under no obligation to do so. The contributions of YRIPL are at its own discretion. Thus, looking at the facts obtaining in the present case, it is quite clear that the principle of mutuality would not be applicable to the instant case. This was the only stand taken by the appellant before the authorities below. In these circumstances we are of the opinion that the impugned judgment of the Tribunal does not call for interference. The authorities below have returned pure findings of fact which are not perverse to our minds. No substantial question of law arises for our consideration. Resultantly, the appeal is dismissed. 

Tags: aggarwal, AGREEMENTS, APPEAL, authorities, bansal, benefit, case law, cases, commercial purpose, discretion, expenditures, finding of fact, food ltd, high court of delhi, income, interference, judgment, judgments, learned counsel, man, matter of fact, mr c, mutual concern, mutual concerns, mutuality, obligation, parent company, pepsi, perversity, prem, principle, pvt ltd, Return, tax, tribunal, yum restaurants

Concessional ticket to travel Agents cannot be termed as commission

May 17, 2009 Income Tax Case Laws

SUMMARY OF CASE LAW

The relationship between the assessee-airlines and the travel agent is one of principal and agent; the supplementary commission which is the amount retained by the travel agent is commission within the meaning of section 194H read with Explanation (i) to the said section; the difference between the full value of the ticket and the concessional ticket cannot be termed as `commission’ because the concessional ticket may have been given to the travel agent for carrying out his function as an agent; however, the transaction between the two is that of principal to principal.

CASE LAW DETAILS
Decided by: HIGH COURT OF DELHI, In The case of:  CIT v. Singapore Airlines Ltd. , Appeal No. :  ITA Nos. 306/2005 & 123/2006, Decided on: April 13, 2009

RELEVENT PARAGRAPH

1. In these batch of appeals, which have been preferred by the Revenue, there are three issues which require consideration of this Court.

12. In order to come to a definite conclusion whether section 194H of the Act would be applicable to the assessee-airline in respect of transaction, in issue, we propose to first look at the scope and ambit of section 194H of the Act and then analyse the transaction as to whether it falls within the purview of the said Section. In this context, it would be necessary to extract the relevant portions of Section 194H of the Act.

The said provision reads as under:-

“194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft of by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten percent:

Provided xxxx

Provided xxxx

Provided xxxx

Explanation. – For the purposes of this section, -

(i) “Commission or Brokerage ” includes any payment received or receivable, directly or indirectly, by a person acting on behalf of nother person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities;

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Non-compete right’ acquired by an assessee is eligible for depreciation under clause (ii) of section 32(1) of IT Act

May 10, 2009 Income Tax Case Laws

CASE LAW DETAILS
Decided by:. ITAT, BENCH `A’ CHENNAI, In The case of: ITO v Medicorp Technologies India Ltd., Appeal No. : ITA No. 2328/Mds/2007, Decided on: January 16, 2009

SUMMARY OF CASE LAW

Capability to have a market value, assignability, transferability, diminution in value, are no more the touch stones on which the admissibility for depreciation under section 32 has to be tested; consequently, if the business/commercial right of a patent, copy right, trade mark, license and franchise fulfills the conditions of being intangible asset as mentioned in clause (ii) of section 32(1), then surely the business/commercial right by way of non-compete right acquired by the assessee also fulfills that condition, by way of a logical corollary.

RELEVENT PARAGRAPH
12.2 One can see very clearly that the clause (ii), introduced in section 32(1), w.e.f.01-04- 1999, not only extended the benefit of section 32 to the `intangible assets’ but also gave therein an `inclusive’ definition of the `intangible assets’, for this purpose.

15.4 It becomes clear from the above discussion that capability to have a market value, assignability, transferability, diminution in value, are no more the `touch stones’ on which the admissibility for depreciation u/s 32 of the Act has to be tested. We are living in the commercial world of `e-banking’, `e-commerce’ , and `e-governance’ , the old, archaic, traditional concepts have undergone a sea change, and our law-makers have truly kept pace with the change.

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Tags: AGREEMENTS, APPEAL, assets, benefit, consequences, Depreciation, e banking, Examination, Examinations, export business, intangible asset, itat, job, medicorp, objection, objections, particulars, patent, patent copy, principle, registrations, section 32, touch stones

When information available in public domain is not sufficient to make the comparisons possible, then some approximations and reasonable assumptions are to be made

May 10, 2009 Income Tax Case Laws

CASE LAW DETAILS

Decided by:. ITAT, PUNE `A’ BENCH, PUNE , In The case of: Skoda Auto India Pvt. Ltd. v ACIT, Appeal No. : ITA No. 202/PN/07, Decided on: March 12, 2009

SUMMARY OF CASE LAW

It is permissible in principle to make adjustments in the costs and profits in fit cases; the Assessee cannot be expected to get the details and particulars of the comparable concerns, which are not in public domain; when information available in public domain is not sufficient to make the comparisons possible, it is inevitable that some approximations and reasonable assumptions are to be made. 

RELEVENT PARAGRAPH

19. One of the things which is clearly discernable from the facts of this case is that so far as the year before us is concerned, which was incidentally first full year of assessee’s operations, the import content of the raw materials was as high at 98.95%. This is materially different from the import content of the raw material in the cases of the comparables selected by the revenue authorities. The import content of raw material in these cases ranged from 26% to 56.83% [Hindustan Motors- 31%; Honda Siel -48.2%; Hyundai Motors – 25.29%; General Motors 56.83% and Maruti Udyog – 26%]. This variation is particularly important since the business model of a car maker having 98.5% import content in raw material normally cannot be the same as of a car maker having import content of 26% to 56.84%. While the latter show substantial indigenous inputs in the raw material, the former is virtually an assembly job of the imported knocked down kits. These business models are so fundamentally different that, in our understanding, no comparisons are possible unless the impact of the import contents are eliminated, or unless it is the case, as was the case before the Tribunal in Sony India Limited (supra], that the

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Tags: accountability, AGREEMENTS, Assessment, business models, commercial considerations, comparator, Computer, contention, Examinations, hindustan motors, honda siel, hyundai motors, maruti, merits, revenue authorities, skoda auto india, sony india, submissions, warrants