Case BriefsTribunals/Commissions/Regulatory Bodies

Appellate Tribunal for SAFEMA, FEMA, PMLA, NDPS & PBPT Act: A Coram of Manmohan Singh (Chairman), J. and G.C. Mishra (Member) set aside the Adjudicating Authority’s order allowing retention of seized property, on the ground of non-compliance of provisions of Prevention of Money Laundering Act, 2002.

An investigation was initiated on the basis of a notice issued by the Income Tax Department under Black Money Act, 2015 against one Sanjay Bhandari for not disclosing his foreign assets for the purpose of taxation before the tax authorities. Since the appellant had received a certain sum as legal fees for advice rendered to Sanjay Bhandari, a search and seizure was initiated against him pursuant to which the respondent prayed for retention of seized property. Appellant objected to the same stating that the seized material was not connected with the proceedings related to Sanjay Bhandari. Adjudicating Authority allowed retention of documents under Section 17(4) PMLA vide order dated 26-05-2017. Hence, the present appeal.

The Tribunal noted that neither any report against the appellant had been forwarded to the Magistrate, nor had any complaint against the appellant been filed before a Magistrate. It was observed that the prescribed period for filing prosecution complaint is ninety days. But in the present case, no prosecution complaint had been filed even after almost a year and ten months had passed. Further, Section 8(3)(a) of PMLA provides that attachment or retention of seized property shall continue during an investigation for a period not exceeding ninety days. The said prescribed period had already expired as more than a year had elapsed but the properties and records had not been returned so far which was in clear violation of the provisions of PMLA.

It was opined that if a particular thing is to be done in a particular manner, it must be done in that way and none other. Reliance in this regard was placed on Dipak Babaria v. State of Gujarat, (2014) 3 SCC 502.

In view of the above, the appeal was allowed directing the respondent to return seized documents/records to the appellant.[Sanjeev Kapoor v. Deputy Director, Directorate of Enforcement, Delhi, 2019 SCC OnLine ATPMLA 8, decided on 09-04-2019]

Case BriefsSupreme Court

Supreme Court: While examining the applicability of the turnover tax as defined under Section 6 B(1) of the Karnataka Sales Tax Act, 1957, the bench of AM Khanwilkar and Ajay Rastogi, JJ held:

“the expression ‘total turnover’ which has been incorporated as referred to under Section 6­B(1) is for the purpose of identification of the dealers and for prescribing different rates/slabs. The first proviso to Section 6­B(1) provides an exhaustive list of deductions which are to be made in computation of such turnover with a further stipulation as referred to in second proviso that except for the manner provided for in Section 6­B(1), no other deduction shall be made from the total turnover of a dealer.”

The Court said that the expression “total turnover” and “turnover” which has been used under Section 6­B has the same meaning as defined under Section 2(1)(u­2) and 2(v) of the Act. Under Section 6­B, reference is made on ‘total turnover’ and not the ‘turnover’ as defined under Section 2(v) of the KST Act and taking note of the exemption provided under first proviso clause(iii), exclusion has been made in reference to use of sale or purchase of goods in the course of inter­state trade or commerce.

It was contended before the Court that the ‘total turnover’ in Section 6­B(1) is to be read as ‘taxable turnover’ and the determination of the rate of the turnover tax is to be ascertained on the ‘taxable turnover’. The Court held that this submission was unsustainable and deserved outright rejection.

It said:

“the expression ‘total turnover’ has been referred to for the purpose of identification/classification of dealers for prescribing various rates/slabs of tax leviable to the dealer and read with first and second proviso to Section 6­B(1), this makes the intention of the legislature clear and unambiguous   that except the deductions provided under the first proviso to Section 6­B(1) nothing else can be deducted from the total turnover as defined under Section 2(u­2) for the purpose of levy of turnover tax under Section 6­B of the Act.”

[Achal Industries v. State of Karnataka, 2019 SCC OnLine SC 428, decided on 28.03.2019]

Case BriefsSupreme Court

Supreme Court: On the question relating to assessment of the taxable income of a Co-operative Society engaged in the business of production of sugarcane and sale thereof, the 3-judge bench Dr. AK Sikri, SA Nazeer and MR Shah, JJ said that the entire amount of difference between the Statutory Minimum Price (SMP) and State Advisory Price (SAP) per se cannot be said to be an appropriation of profit.

The Court noticed that to the extent of the component of profit which will be a part of the final determination of the SAP and/or the final price/additional purchase price fixed under Clause 5A of the Sugarcane Control Order, 1966 would certainly be and/or said to be an appropriation of profit.

It further said:

“only that part/component of profit, while determining the final price worked out/SAP/additional purchase price would be and/or can be said to be an appropriation of profit and for that an exercise is to be done by the assessing officer by calling upon the assessee to produce the statement of accounts, balance sheet and the material supplied to the State Government for the purpose of deciding/fixing the final price/additional purchase price/SAP under Clause 5A of the Control Order, 1966.”

Mechanism of determining additional purchase price under Clause 5A

  • different prices may be fixed for different areas or different qualities or varieties of sugarcane. As per sub-clause 2 of Clause 3, no person shall sell or agree to sell sugarcane to a producer of sugar or his agent, and no such producer or agent shall purchase or agree to purchase sugarcane, at a price lower than that fixed under sub-clause 1 of Clause 3.
  • Clause 5A of the Control Order was inserted in the year 1974 on the basis of the recommendations made by the Bhargava Commission. The clause provides for an additional price to be paid for sugarcane purchased on or after 01.10.1974. Where a producer of sugar or his agent purchases 18 sugarcane, from a sugarcane grower during each sugar year, he shall, in addition to the minimum sugarcane price fixed under Clause 3, pay to the sugarcane grower an additional price, if found due in accordance with the provisions of the Second Schedule annexed to the Control Order, 1966.
  • Bhargava Commission had recommended payment of additional price at the end of the season on 50:50 profit sharing basis between growers and factories, to be worked out in accordance with Second Schedule to the Control Order, 1966.
  • The additional price is fixed/determined under Clause 5A at the end of the season and as per Second Schedule to the Control Order, 1966. Therefore, at the time when the additional purchase price is determined/fixed under Clause 5A, the accounts are settled, and the particulars are provided by the concerned cooperative society what will be the expenditure; what can be the profit etc.
  • So far as the SMP determined under Clause 3 of the Control Order, 1966 by the Central Government is concerned, it is at the beginning of the season and while determining/fixing the SMP by the Central Government, the afore-stated things are required to be considered. Therefore, the difference of amount between the SMP determined under Clause 3 and the SAP/additional purchase price determined under Clause 5A has an element of profit and/or one of the components would be the profit.

The Court, hence, said:

“the assessing officer will have to take into account the manner in which the business works, the modalities and manner in which SAP/additional purchase price/final price are decided and to determine what amount would form part of the profit and after undertaking such an exercise whatever is the profit component is to be considered as sharing of profit/distribution of profit and the rest of the amount is to be considered as deductible as expenditure.”

[CIT Bombay v. Tasgaon Taluka SSK Ltd., 2019 SCC OnLine SC 318, decided on 05.03.2019]

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of Dr. AK Sikri, SA Nazeer and MR Shah, JJ decided an issue relating to interpretation of Section 80HH of the Income Tax Act, 1961 referred to it by a division bench in 2014 and that the decision of the Court in Motilal Pesticides (I) Pvt. Ltd. vs. Commissioner of Income Tax, Delhi-II, (2000) 9 SCC 63, was erroneous.

The issue before the Court was”

“while computing the deduction whether it is to be available out of ‘income’ as computed under the Income Tax Act, 1961 or out of ‘profits and gains’, without deducting therefrom ‘depreciation’ and ‘investment allowance’.”

The Court discussed the scheme of the Act at length and said:

“Reading of Section 80HH along with Section 80A would clearly signify that such a deduction has to be of gross profits and gains, i.e., before computing the income as specified in Sections 30 to 43D of the Act.”

It said that the scheme itself draws distinction between the concept ‘income’ on the one hand and ‘profits and gains’ on the other hand. Below is the point-wise summary of how the Court explained the scheme of the Act in order to reach the abovementioned conclusion:

  • Insofar as computation of income under the head ‘profits and gains’ from business or profession is concerned, Section 28 of the Act mentions various kinds of incomes which are chargeable under this head.
  • Section 29 mentions the method of arriving at ‘income’ which is to be computed in accordance with the provisions contained in Sections 30-43D of the Act.
  • Sections 30-43D contain deductions of various kinds which are in the nature of expenditure or the like nature.
  • After providing the deductions admissible in these provisions, one arrives at the figure of net profits which would become the net income under the head ‘profits and gains of business or profession’.
  • Under Chapter VI-A of the Act certain deductions are given by way of incentives. Assessees may earn these deductions on fulfilling the eligibility conditions contained therein, even when they are not in the nature of any expenditure incurred by the assessee.
  • Section 80A of the Act provides that in computing the total income of assessee, there shall be allowed from his gross total income, in accordance with the subject of the provisions of this Chapter, the deductions specified in Sections 80C to 80U.
  • Section 80A itself uses the expression ‘from his gross total income’ as it states that deduction is to be allowed to an assessee ‘from his gross total income’.
  • Section 80HH specifically mentions that deduction @ 20% of ‘profits and gains’.

The Court, hence, overruled the verdict in Motilal Pesticides as it missed the marked difference in the terms ‘Income’ and ‘Gross Total Income’

[Vijay Industries v. Commissioner of Income Tax, 2019 SCC OnLine SC 299, decided on 01.03.2019]

Conference/Seminars/LecturesLaw School News

Indian Law Society is pleased to invite participation and submissions of Research paper for Remembering S.P. Sathe: 13th National Conference on Taxation Laws scheduled to be held on 09th and 10th of February 2019.

ILS Law College annually organises Remembering S. P. Sathe event, comprising of a Public Memorial lecture, a Conference and a Moot Court Competition, all based on a common theme, in fond and loving memory of its illustrious former Principal, Late Professor S.P. Sathe. The College has upheld this tradition for last 12 years with a unique theme of subject being taken up every year. The subject theme for this year is Taxation, both Direct and Indirect.

Taxation is perceived as a vast and highly complex subject and majority of students studying law dread studying Taxation laws. Even further, reluctance in taking up taxation as their areas of practice is pertinent. Consequentially, the practice of taxation is restricted to a small number of advocates even though taxation laws are one of the most extensively applicable laws in India. In order for the country to witness good taxation legal practitioners in future, it is imperative that the students are allowed a platform to understand and learn these vast and complex laws.

Through this Conference, the ILS Law College wishes to avail the opportunity of discussing and deliberating on Taxation Laws with invaluable inputs from the doyens in the field of taxation. This will help the students to appreciate the niceties of the subject and in our most humble belief, would also kindle interest in the minds of students of our college to take up further study or research or practice in taxation laws.

In the conference, we intend to cover certain core topics under the taxation laws which form the bedrock for understanding and appreciating taxation laws further. We sincerely believe that knowledge and clarity on these topics would provide them with various perspectives to this subject and would help them develop a holistic understanding.

Structure of the Conference: The Conference schedule is designed to commence with a Memorial Lecture on a topic of taxation followed by the discussions as a part of the Conference on various topics by the leading professionals in the field of taxation.

Submission guidelines: The participants should submit an abstract of maximum 300 words and full paper of 3000 to 4000 words dealing extensively with the topic chosen providing with legislative and judicial views, if any, on the subject. The Papers dealing with topical issues along with original views will be preferred. The paper shall be based on your observation and research. Plagiarized papers will not be accepted. The papers submitted must be original and not published or presented elsewhere.

Format & Mode of Submission: All submissions must be sent in word-format (.doc or .docx), formatted in Times New Roman, 12 point font size and 1.5 line spacing. References and footnotes shall be in the same font style, 10-point font size and 1.0 line spacing. Citations must be in the form of footnotes and conform to the latest edition of Harvard Bluebook.

Abstract of papers shall be submitted at spsatheconference@ilslaw.in before 15th January, 2019

Selected papers will be published in ILS Law Review; however, the submitted papers shall not be presented at the Conference. ILS reserves the exclusive right to publish the submitted and selected papers.

Last Date for Submission of selected papers & registration: 25/01/2019

Registration: for details on registration log onto www.ilslaw.edu

Registration Fees: Inclusive of Reading Material & lunch only.

Rs. 2500*/- (Two Thousand & five hundred Rupees)      –   with paper for Professionals & Law Teachers

Rs. 3000*/- (Three Thousand Rupees)                            –     without paper for professionals & Law Teachers

Rs. 600*/- (Six Hundred Rupees)                                    –           with paper for students

Rs. 1200*/- (Twelve Hundred Rupees)                –           without paper for students

*All registration fee include GST

Accommodation: Participants will have to make their own arrangements for accommodation. However, the Organizing Committee may assist in finding accommodation.

Participation open: for Law Students, Professors, Professionals such as Lawyers, Chartered Accountants, Company Secretaries, Cost and Management Accountants, students of such professions and other tax practitioners.

Faculty Coordinators: Ms. Swatee Yogessh, Ms. Smita Sabne and Ms. Pronema Bagchi

Student Coordinator :

  • Hrucha Dhamdhere (III LLB) – (+91) 8087446542
  • Vasudevan Gurumurthy (III LLB)- (+91) 9717528535
  • Ishwari Pendse (III LLB)- (+91) 8983696138
  • Shubhangi Sharma (III LLB) (+91) 9314888860

Contact details: spsatheconference@ilslaw.in

For detailed schedule logon www.ilslaw.edu

For more details, refer Conference-_Call_for_papers Final with logo-pdf

Law School NewsMoot Court Announcements

ILS Pune is organising Remembering S.P. Sathe: The 13th National Moot Court Competition, 2018-19 from 7th-9th March, 2019.

This Year’s theme for Remembering S.P. Sathe events is – “Taxation laws”

Taxation is perceived as a vast and highly complex subject and majority of students studying law dread studying Taxation laws. Further, reluctance in taking up taxation as their areas of practice is pertinent. Consequentially, the practice of taxation is restricted to a small number of advocates even though taxations laws are one of the most extensively applicable laws in India. In order for the country to witness good taxation legal practitioners in future, it is imperative that the students are allowed a platform to understand and learn these vast and complex laws.

This Moot aims at allowing the students with an opportunity to study the niceties of the subject and acquaint themselves with the ambiguities in policies and rules pertaining to taxation through an intersection of constitutional law provisions. It also aims at encouraging academic creativity for challenging the existing gaps in the laws and rules with regard to the taxation policies and their implementation. This will help the students to appreciate the niceties of the subject and in our most humble belief, would also kindle interest in the minds of students to take up further study or research or practice in taxation laws.

For more details, refer 13th-National-Moot-Court-Competition-2018-19

Taxation

The existing regime has led to significant erosion in tax base resulting in revenue loss and the problem has been further compounded by abusive use of tax arbitrage opportunities created by the exemptions for long term capital gains arising from transfer of long term capital assets, being equity shares of a company or a unit of equity oriented fund or a unit of business trust exempted under Section 10(38). However, transactions in such long-term capital assets are liable to securities transaction tax (STT). In a bid to minimize economic distortions and curb tax-base erosion and in an attempt to withdraw these exemptions and introduce a new Section 112A in the Income-tax Act, 1961 (‘The Act’), vide clause 31 of the Finance Bill, 2018, the Government has proposed to impose 10 per cent tax on such above-mentioned gains arising from transfer of such long-term capital asset exceeding Rs 1 lakh.

The Central Government, answering to the sundry queries has released a set of Frequently Asked Questions (FAQs) on the taxation of long term capital gains proposed in Finance Bill, 2018. The responses to these queries are provided below.

As per the FAQ, the Central Government had exempted certain modes of acquisition of equity shares for the purposes of Section 10 (38) of the Act vide Notification No. 43/2017 dated 05-06-2017. Sub-clause (5) of clause 31 of the Finance Bill, 2018, inter alia, provides that the long-term capital gain will be computed without giving effect to the provisions of the second provisos of Section 48. Accordingly, it is clarified that the benefit of inflation indexation of the cost of acquisition would not be available for computing long-term capital gains under the new tax regime.

The proposed new tax regime will apply to transfer made on or after 01-04-2018 and the existing exemption providing regime under Section 10 (38) of the Act will continue to be available for transfer made on or before 31st March, 2018. Also, the Board further clarified that as the fair market value on 31-01-2018 will be taken as cost of acquisition, (except in some typical situations as explained in Answer No. 7 of the FAQs), the gains accrued up to such date, will continue to be exempt.

Q 1. What is the meaning of long term capital gains under the new tax regime for long term capital gains?

Ans 1. Long term capital gains mean gains arising from the transfer of long-term capital asset. The Finance Bill, 2018 proposes to provide for a new long-term capital gains tax regime for the following assets–

i. Equity Shares in a company listed on a recognised stock exchange;

ii. Unit of an equity oriented fund; and

iii. Unit of a business trust.

The proposed regime applies to the above assets, if–

a. the assets are held for a minimum period of twelve months from the date of acquisition; and

b. the Securities Transaction Tax (STT) is paid at the time of transfer. However, in the case of equity shares acquired after 1.10.2004, STT is required to be paid even at the time of acquisition (subject to notified exemptions).

Q 2. What are the modes of acquisition of equity shares which are proposed to be exempted from the condition of payment of STT?

Ans 2. The Central Government had exempted certain modes of acquisition of equity shares for the purposes of clause (38) of section 10 of the Act vide notification no. 43/2017 dated 5th of June, 2017. This notification is proposed to be reiterated for the purposes of clause 31 of the Finance Bill, 2018 after its enactment.

Q 3. What is the point of chargeability of the tax?

Ans 3. The tax will be levied only upon transfer of the long-term capital asset on or after 1st April, 2018, as defined in clause (47) of section 2 of the Act.

Q 4.  What is the method for calculation of long-term capital gains?

Ans 4.  The long-term capital gains will be computed by deducting the cost of acquisition from the full value of consideration on transfer of the long-term capital asset.

Q 5. How do we determine the cost of acquisition for assets acquired on or before 31st January, 2018?

Ans 5. The cost of acquisition for the long-term capital asset acquired on or before 31st of January, 2018 will be the actual cost.

However, if the actual cost is less than the fair market value of such asset as on 31st  of January, 2018, the fair market value will be deemed to be the cost of acquisition.

Further, if the full value of consideration on transfer is less than the fair market value, then such full value of consideration or the actual cost, whichever is higher, will be deemed to be the cost of acquisition.

Q 6. How will the fair market value be determined?

Ans 6. In case of a listed equity share or unit, the fair market value means the highest price of such share or unit quoted on a recognized stock exchange on 31st  of January, 2018.

However, if there is no trading on 31st January, 2018, the fair market value will be the highest price quoted on a date immediately preceding 31st of January, 2018, on which it has been traded.

In the case of unlisted unit, the net asset value of such unit on 31st of January, 2018 will be the fair market value.

Q 7. Please provide illustrations for computing long-term capital gains in different scenarios, in the light of answers to questions 5 and 6.

Ans 7. The computation of long-term capital gains in different scenarios is illustrated as under –

Scenario 1 – An equity share is acquired on 1st of January, 2017 at Rs. 100, its fair market value is Rs. 200 on 31st of January, 2018 and it is sold on 1st of April, 2018 at Rs. 250.

As the actual cost of acquisition is less than the fair market value as on 31st  of January, 2018, the fair market value of Rs. 200  will be taken as the cost of acquisition and the long-term capital gain will be Rs. 50 (Rs. 250 – Rs. 200).

Scenario 2 – An equity share is acquired on 1st of January, 2017 at Rs. 100, its fair market value is Rs. 200 on 31st of January, 2018 and it is sold on 1st of April, 2018 at Rs. 150.

In this case, the actual cost of acquisition is less than the fair market value as on 31st  of January, 2018. However, the sale value is also less than the fair market value as on 31st  of January, 2018. Accordingly, the sale value of Rs. 150 will be taken as the cost of acquisition and the long-term capital gain will be NIL (Rs. 150– Rs. 150).

Scenario 3 – An equity share is acquired on 1st of January, 2017 at Rs. 100, its fair market value is Rs. 50 on 31st of January, 2018 and it is sold on 1st of April, 2018 at Rs. 150.

In this case, the fair market value as on 31st of January, 2018 is less than the actual cost of acquisition, and therefore, the actual cost of Rs. 100 will be taken as actual cost of acquisition and the long-term capital gain will be Rs. 50 (Rs. 150 – Rs. 100).

Scenario 4 – An equity share is acquired on 1st of January, 2017 at Rs. 100, its fair market value is Rs. 200 on 31st of January, 2018 and it is sold on 1st of April, 2018 at Rs. 50.

In this case, the actual cost of acquisition is less than the fair market value as on 31st January, 2018. The sale value is less than the fair market value as on 31st of January, 2018 and also the actual cost of acquisition. Therefore, the actual cost of Rs. 100 will be taken as the cost of acquisition in this case. Hence, the long-term capital loss will be Rs. 50 (Rs. 50 – Rs. 100) in this case.

Q 8. Whether the cost of acquisition will be inflation indexed?

Ans 8. Sub-clause (5) of clause 31 of the Finance Bill, 2018, inter alia, provides that the long-term capital gain will be computed without giving effect to the provisions of the second provisos of section 48. Accordingly, it is clarified that the benefit of inflation indexation of the cost of acquisition would not be available for computing long-term capital gains under the new tax regime.

Q 9. What is the date of commencement of the proposed new tax regime?

Ans 9. The proposed new tax regime will apply to transfer made on or after 1st  April,2018. The existing regime providing exemption under clause (38) of section 10 of the Act will continue to be available for transfer made on or before 31st March, 2018.

Q 10.  What will be the tax treatment of accrued gains upto 31st January 2018?

Ans 10. As the fair market value on 31st January, 2018 will be taken as cost of acquisition (except in some typical situations explained in Ans 7.), the gains accrued upto 31st January, 2018 will continue to be exempt.

Q 11. What will be the tax treatment of transfer of share or unit between 1st February 2018 to 31st March 2018?

Ans 11. As replied in answer 9, the new tax regime will be applicable to transfer made on or after 1st  April, 2018, the transfer made between 1st  February, 2018 and 31st March, 2018 will be eligible for exemption under clause (38) of section 10 of the Act.

Q 12.  What will be the tax treatment of transfer made on or after 1st April 2018?

Ans 12. The long-term capital gains exceeding Rs. 1 Lakh arising from transfer of these asset made on after 1st April, 2018 will be taxed at 10 per cent. However, there will be no tax on gains accrued up to 31st January, 2018 as explained in Ans 10.

Q13. What is the date from which the holding period will be counted?

Ans 13. The holding period will be counted from the date of acquisition.

Q 14. Whether tax will be deducted at source in case of gains by resident tax payer?

Ans 14. No. There will be no deduction of tax at source from the payment of long-term capital gains to a resident tax payer.

Q 15. Whether tax will be deducted at source in case of payment of long-term capital gains by non-resident tax payer (other than a Foreign Institutional Investor)?

Ans 15. Ordinarily, under section 195 of the Act, tax is required to be deducted on payments made to non-residents, at the rates prescribed in Part-II of the First Schedule to the Finance Act.  The rate of deduction in the case of capital gains is also provided therein. In terms of the said provisions, tax at the rate of 10 per cent. will be deducted from payment of long-term capital gains to a non-resident tax payer (other than a Foreign Institutional Investor). The capital gains will be required to be computed in accordance with clause 31 of the Finance Bill, 2018.

Q 16. Whether tax will be deducted at source in case of payment of long-term capital gains by Foreign Institutional Investors (FIIs)?

Ans 16. No. There will be no deduction of tax at source from payment of long-term capital gains to a Foreign Institutional Investor in view of the provisions of sub-section (2) of section 196D of the Act.

Q17. How will the gains in the case of FIIs be determined?

Ans 17. The long-term capital gains in case of FIIs will be determined in the same manner as explained in earlier answers in the case of resident tax payers.

Q 18. What will be the treatment of the gains accrued upto 31st January 2018 in the case of FIIs?

Ans 18. In case of FIIs also, there will be no tax on gains accrued upto 31st January, 2018 as explained in Ans 10.

Q 19. What will be the tax treatment of transfer of share or unit between 1st February 2018 to 31st March 2018 in the case of FIIs?

Ans 19. As  explained  in  Ans  11,  in  case of  FIIs  also,  the transfer made between 1st February, 2018 and 31st March, 2018 will be eligible for exemption under clause (38) of section 10 of the Act.

Q 20. What will be the tax treatment of transfer made on or after 1st April 2018 in case of FIIs?

Ans 20. As explained in Ans 12, in case of FIIs also, the long-term capital gains exceeding Rs. 1 Lakh arising from transfer of these asset made on after 1st April, 2018 will be taxed at 10 per cent. However, there will be no tax on gains accrued upto 31st January, 2018 as explained in Ans 10.

Q 21. What will be the cost of acquisition in the case of bonus shares acquired before 1st February 2018?

Ans 21. The cost of acquisition of bonus shares acquired before 31st January, 2018 will be determined as per sub-clause (6) of clause 31 of the Finance Bill, 2018. Therefore, the fair market value of the bonus shares as on 31st January, 2018 will be taken as cost of acquisition (except in some typical situations explained in Ans 7), and hence, the gains accrued up to 31st January, 2018 will continue to be exempt.

Q 22. What will be the cost of acquisition in the case of right share acquired before 1st February 2018?

Ans 22. the cost of acquisition of right share acquired before 31st January, 2018 will be determined as per sub-clause (6) of clause 31 of the Finance Bill, 2018. Therefore, the fair market value of right share as on 31st January, 2018 will be taken as cost of acquisition (except in some typical situations explained in Ans 7), and hence, the gains accrued upto 31st January, 2018 will continue to be exempt.

Q 23. What will be the treatment of long-term capital loss arising from transfer made between 1st February, 2018 and 31st March, 2018?

Ans 23. As the exemption from long-term capital gains under clause (38) of section 10 will be available for transfer made between 1st February, 2018 and 31st March, 2018, the long-term capital loss arising during this period will not be allowed to be set- off or carried forward.

Q 24. What will be the treatment of long-term capital loss arising from transfer made on or after 1st April, 2018?

Ans 24. Long-term capital loss arising from transfer made on or after 1st April, 2018 will be allowed to be set-off and carried forward in accordance with existing provisions of the Act. Therefore, it can be set-off against any other long-term capital gains and unabsorbed loss can be carried forward to subsequent eight years for set-off against long-term capital gains.

[F. No. 370149/20/2018-TPL]

Ministry of Finance

Hot Off The PressNews

Supreme Court: The bench of R.K. Agrawal and A.M. Sapre, JJ agreed to examine a plea of the income tax department whether the North Okhla Industrial Development Authority (NOIDA) is a corporation established by the Uttar Pradesh government under the state industrial development law or not. The Court said that it will look into the appeal filed by the IT department against an order of the Allahabad High Court which held that NOIDA is a corporation established under the Act and, therefore, banks are not liable to deduct income tax at source on fixed deposits.

The issue arose in 2013, when the IT department imposed a tax liability on the banks for non- deduction of TDS on the interest income on fixed deposit receipts (FDRs) of NOIDA. The banks, hence, preferred an appeal before the Commissioner of Income Tax (Appeals) (CIT-A), saying the NOIDA is a corporation established by the state law and banks are not under the statutory obligation to deduct and pay the income tax.

The IT department approached the Court against the order of the High Court and sought for determination of the issue as to whether NOIDA is a corporation entitled for exemption from deduction of income tax at source under the provisions of a notification issued in 1970 under the Income Tax Act.

Source: PTI

Case BriefsSupreme Court

Supreme Court: Holding that Formula One World Championship Limited (FOWC) is liable to taxation for organising the Formula One Grand Prix of India event for a consideration of US$ 40 million, the Court said that FOWC has a ‘permanent establishment’ (PE) in India i.e. a fixed place of business in the form of physical location, i.e. Buddh International Circuit, through which it conducted business.

The Court noticed that not only the Buddh International Circuit is a fixed place where the commercial/economic activity of conducting F-1 Championship was carried out, one could clearly discern that it was a virtual projection of the foreign enterprise, namely, Formula-1 (i.e. FOWC) on the soil of this country.

The Court also rejected the arguments of the appellants that it is Jaypee who was responsible for conducting races and had complete control over the Event in question and held that FOWC is the Commercial Right Holder (CRH). Explaining further, the Court said that these rights can be exploited with the conduct of F-1 Championship, which is organised in various countries. In order to undertake conducting of such races, the first requirement is to have a track for this purpose. Then, teams are needed who would participate in the competition. Another requirement is to have the public/viewers who would be interested in witnessing such races from the places built around the track. Again, for augmenting the earnings in these events, there would be advertisements, media rights, etc. as well. The Court noticed that it is FOWC and its affiliates which have been responsible for all the aforesaid activities, hence, mere construction of the track by Jaypee at its expense will be of no consequence.

The Bench of Dr. A.K. Sikri and Ashok Bhushan, JJ said that a PE must have three characteristics: stability, productivity and dependence and all characteristics are present in this case. Hence, aesthetics of law and taxation jurisprudence leave no doubt that taxable event has taken place in India and non-resident FOWC is liable to pay tax in India on the income it has earned on this soil.

However, accepting the argument that the portion of the income of FOWC, which is attributable to the said PE, would be treated as business income of FOWC and only that part of income deduction was required to be made under Section 195 of the Income Tax Act, 1961, the Court said that it would be for the Assessing Officer to adjudicate upon the aforesaid aspects while passing the Assessment Order, namely, how much business income of FOWC is attributable to PE in India, which is chargeable to tax. [Formula One World Championship Ltd v. Commissioner of Income Tax, 2017 SCC OnLine SC 474, decided on 24.04.2017]

Case BriefsSupreme Court

Supreme Court:  In the matter where the first proviso to Rule 3(2)(c) of the Karnataka Value Added Tax Rules, 2005 was being interpreted to facilitate the determination of taxable turnover as defined in Section 2(34) of the Karnataka Value Added Tax Act, 2003 in interface with Section 30 of the Act and Rule 31 of the Rules, the Court said that the interpretation to be extended to the proviso involved has to be essentially in accord with the legislative intention to sustain realistically the benefit of trade discount as envisaged. Any exposition to probabilise exaction of the levy in excess of the due, being impermissible cannot be thus a conceivable entailment of any law on imperative impost.

The Court further said that to insist on the quantification of trade discount for deduction at the time of sale itself, by incorporating the same in the tax invoice/bill of sale, would be to demand the impossible for all practical purposes and thus would be ill-logical, irrational and absurd. Trade discount though an admitted phenomenon in commerce, the computation thereof may depend on various factors singular to the parties as well as by way of uniform norms in business not necessarily enforceable or implementable at the time of the original sale. To deny the benefit of deduction only on the ground of omission to reflect the trade discount though actually granted in future, in the tax invoice/bill of sale at the time of the original transaction would be to ignore the contemporaneous actuality and be unrealistic, unfair, unjust and deprivatory. While, devious manipulations in trade discount to avoid tax in a given fact situation is not an impossibility, such avoidance can be effectively prevented by insisting on the proof of such discount, if granted.

The bench of Dipak Misra and Amitava Roy, JJ said that the requirement of reference of the discount in the tax invoice or bill of sale to qualify it for deduction has to be construed in relation to the transaction resulting in the final sale/purchase price and not limited to them original sale sans the trade discount. However, the transactions allowing discount have to be proved on the basis of contemporaneous records and the final sale price after deducting the trade discount must mandatorily be reflected in the accounts as stipulated under Rule 3(2)(c) of the Rules. The sale/purchase price has to be adjudged on a combined consideration of the tax invoice or bill of sale as the case may be along with the accounts reflecting the trade discount and the actual price paid. The first proviso has thus to be so read down, as above, to be in consonance with the true intendment of the legislature and to achieve as well the avowed objective of correct determination of the taxable turnover. [Southern Motors v. State of Karnataka, 2017 SCC OnLine SC 42, decided on 18.01.2017]

 

Case BriefsSupreme Court

Supreme Court: Writing down a long judgment of 883 pages, the 9-judge bench, by a 7:2 majority, upheld the validity of the entry tax imposed by the States on goods imported from other States. It was held that taxes simpliciter are not within the contemplation of Part XIII of the Constitution of India and that the word ‘Free’ used in Article 301 does not mean “free from taxation”.

T.S. Thakur, CJ and Dr.  A.K. Sikri, S.A. Bobde, Shiva Kirti Singh, N.V. Ramana, R. Banumathi and A.M. Khanwilkar, JJ, giving the majority view said that States are well within their right to design their fiscal legislations to ensure that the tax burden on goods imported from other States and goods produced within the State fall equally. Such measures if taken would not contravene Article 304(a) of the Constitution. Only such taxes as are discriminatory in nature are prohibited by Article 304(a). It follows that levy of a non-discriminatory tax would not constitute an infraction of Article 301. A tax on entry of goods into a local area for use, sale or consumption therein is permissible although similar goods are not produced within the taxing state.

It was further explained that Clauses (a) and (b) of Article 304 have to be read disjunctively. A levy that violates 304(a) cannot be saved even if the procedure under Article 304(b) or the proviso there under is satisfied. It was held that Article 304 (a) frowns upon discrimination of a hostile nature in the protectionist sense and not on mere differentiation. Therefore, incentives, set-offs etc. granted to a specified class of dealers for a limited period of time in a non-hostile fashion with a view to developing economically backward areas would not violate Article 304(a). [Jindal Stainless Ltd v. State of Haryana, 2016 SCC Online SC 1260, decided on 11.11.2016]