applying to cases where the principal purpose or one of the principal purposes of the transaction is to obtain tax benefit.

Transcription

1 VOL. 21 NO. 11 / MAY 2018 C.V.O. CA S NEWS & VIEWS applying to cases where the principal purpose or one of the principal purposes of the transaction is to obtain tax benefit. Source: While India has not introduced a separate tax a la DPT, the provisions of Section 9(1)(i) have been amended vide Finance Act 2018 to address the issue of artificial avoidance of PE / business connection to some extent. Another amendment in the form of Explanation 2A to section 9(1)(i) has expanded the scope of business connection to include Significant Economic Presence (SEP) which seeks to rope in situations where a physical presence is avoided through use of technology and yet the digital activities of the foreign companies are significant enough to create a taxable presence. B] Digital Tax Digital Tax or Equalisation Levy is a recommendation of BEPS Action Plan 1, to tackle the taxation issues arising from the advent of digitalization of businesses. It seeks to tax the revenues of entities, which conduct their businesses in other countries digitally. Identifying the potential tax losses from growing e-commerce activities and digital transactions, India was quick to embrace the recommendation by introducing a 6% Equalisation Levy in Finance Act 2016 on online advertisement services and certain related services. The scope of this Levy has however not been further expanded since. In addition to DPT, Australia also levies 10% GST on digital products and imported services in certain cases. Further, Japan charges consumption tax at 8% on digital services provided by foreign suppliers. Most recently, the European Union has proposed a digital tax, also nicknamed as GAFA tax, to counter the tax evasions by Google, Apple, Facebook, Amazon and other tech giants. With digitalization of business, the need for physical presence is done away with. This has challenged the existing tax systems by eroding the tax base and impacting tax collections of consumer countries. Add to that the eyebrow-raising tax planning by some large multinationals, has resulted in near non-taxation of these companies, causing governments to squirm. Backed by the BEPS Action Plans, countries are increasingly expected to implement aggressive measures to claim back their fair share of taxes. It is the unilateral action, however, that will lead to double taxation, increased costs and heavy tax litigations across countries. 14

2 C.V.O. CA S NEWS & VIEWS VOL. 21 NO. 11 / MAY 2018 LEGAL UPDATES /DECISIONS 1. DIRECT TAXES UPDATE Compiled by : CA Haresh P. Kenia SECTION 92CA OF THE INCOME-TAX ACT, TRANSFER PRICING - ADVANCE PRICING AGREEMENT (APA) - INDIAN ADVANCE PRICING AGREEMENT REGIME MOVES FORWARD WITH SIGNING OF 16 APAs BY CBDT IN MARCH, 2018 CBDT PRESS RELEASE, DATED The Central Board of Direct Taxes (CBDT) has entered into 14 Unilateral Advance Pricing Agreements (UAPA) and 2 Bilateral Advance Pricing Agreements (BAPA) during the month of March, The 2 bilateral APAs have been entered into with the United States of America. With the signing of these Agreements, the total number of APAs entered into by the CBDT has gone up to 219. This includes 199 Unilateral APAs and 20 Bilateral APAs. A total of 67 APAs (9 Bilateral and 58 Unilateral) have been signed in the F.Y The 16 APAs entered into during March, 2018 pertain to various sectors of the economy like Telecommunication, Information Technology, Automobile, Pharmaceutical, Beverage, Trading, Manufacturing and Banking, Finance & Insurance. The international transactions covered in these agreements include payment of royalty fee, provision of business support services, provision of corporate guarantee, contract manufacturing, provision of marketing support services, provision of engineering design services, provision of engineering support services, merchanting trade of agro commodity, import/ export of components, provision of IT services, provision of IT enabled services, provision of investment advisory services, availing of technical services, etc. INCOME-TAX (SECOND AMENDMENT) RULES, AMENDMENT IN RULE 12 AND SUBSTITUTION OF FORM SAHAJ (ITR-1), FORM ITR-2, FORM ITR-3, FORM SUGAM (ITR-4), FORM ITR-5, FORM ITR- 6, FORM ITR-7 & FORM ITR-V NOTIFICATION NO. GSR 332(E) [NO.16/ 2018 (F.NO /1/2018-TPL], DATED The CBDT has notified the Income Tax Return Forms (ITR) - Form Sahaj (ITR-1), Form ITR- 2, Form ITR-3, Form Sugam (ITR-4), Form ITR-5, Form ITR-6, Form ITR-7 for the Assessment Year SECTION 16 OF THE INCOME-TAX ACT, SALARIES - STANDARD DEDUCTION - CLARIFICATION ON APPLICABILITY OF STANDARD DEDUCTION TO PENSION RECEIVED FROM FORMER EMPLOYER CBDT PRESS RELEASE, DATED Finance Act, 2018 has amended Section 16 of the Income-tax Act, 1961 ("the Act") to provide that a taxpayer having income chargeable under the head "Salaries" shall be allowed a deduction of Rs. 40,000/- or the amount of salary, whichever is less, for computing his taxable income. Representations have been received seeking clarification as to whether a taxpayer, who receives pension from his former employer, shall also be eligible to claim this deduction. The pension received by a taxpayer from his former employer is taxable under the head "Salaries". Accordingly, any taxpayer who is in receipt of pension from his former employer shall be entitled to claim a deduction of Rs. 40,000/- or the amount of pension, whichever is less, under Section 16 of the Act. 15

3 VOL. 21 NO. 11 / MAY 2018 C.V.O. CA S NEWS & VIEWS SECTION 80-IAC OF THE INCOME -TAX ACT, DEDUCTIONS - IN RESPECT OF SPECIFIED BUSINESS - STARTUP INDIA - SUPERSESSION OF NOTIFICATION NO. GSR 501(E) [F.NO.5(91)/2015-BE-I], DATED NOTIFICATION NO. GSR 364(E) [F.NO.5(4)/2018-SI], DATED Detailed instructions for claiming deduction by start-up has been notified as per above citation. SECTION 139A OF INCOME TAX ACT, PERMANENT ACCOUNT NUMBER -REQUIREMENT FOR OBTAINING PAN CARD UNDER SECTION 139A EASED FOR CORPORATE ASSESSEES CBDT PRESS RELEASE, DATED In case of a company, an application for Incorporation, allotment of Permanent Account Number (PAN) and allotment of Tax Deduction and Collection Account Number (TAN) may be made through a Common Application Form submitted to the Ministry of Corporate Affairs (MCA). In these cases, the Certificate of Incorporation (COI) issued by MCA contains a mention of both PAN and TAN. Finance Act, 2018 amended section 139A of the Income-Tax Act, 1961 and removed the requirement of issuing PAN in the form of a laminated card. Hence, it is clarified that PAN and TAN mentioned in the COI issued by MCA shall also be treated as sufficient proof of PAN and TAN for the said company assessees. Our Association's mouthpiece "News & Views" has readership circulation of more than 1400 Chartered Accountant and Student members. We have now started accepting advertisement for staff vacancy. In case you have any vacancy at your office or at any of your client for qualified Chartered Accountants or Students or any administrative job, we will publish your requirement in the Journal. This will be at very nominal cost of Rs. 1,500 for quarter page advertisement per issue. We will be taking advertisement on first cum first serve basis. Kindly contact CVO CA Office on for more details. 2. UPDATE ON GST Compiled by : NOTIFICATIONS - CENTRAL TAX : CA Nitin D. Kenia CA Bharat K. Gosar Notification No. 21/2018-CENTRAL TAX- DATED 18th April, 2018 Vide this notification following Rules are amended in The Central Goods and Services Tax Rules, Rule 89(5): This sub rule is newly substituted. Under the Sub rule, formula is prescribed in the case of refund on account of inverted duty structure. Now new formula is prescribed to include grant refund in case of inverted duty structure for services also which hitherto was restricted for goods only. Rule 97: The rule is newly substituted and same is related to Consumer Welfare fund. # Minor amendment is made to Form GST ITC - 03 for calculating the value of capital goods. # Form GSTR-10 is prescribed of Final return. Every registered person whose registration is cancelled is required to furnish a final return within three months of the date of cancellation or date of order of cancellation, whichever is later. CIRCULARS : CGST : Circular No. 40/14/2018-GST-dated 6th April, In the Circular following clarification on issues related to furnishing of Bond/Letter of Undertaking for exports are given: * The Exporters shall fill and submit FORM GST RFD-11 (online LUT) on the common portal. An LUT shall be deemed to be accepted as soon as an acknowledgement for the same, bearing the Application Reference Number (ARN), is generated online. * No document needs to be physically submitted to the jurisdictional office for acceptance of LUT. * If it is discovered that an exporter whose LUT has been so accepted, was ineligible to furnish an LUT in place of bond as per Notification No. 37/2017-Central Tax, then the exporter's LUT 16

4 C.V.O. CA S NEWS & VIEWS VOL. 21 NO. 11 / MAY 2018 will be liable rejection. In case of rejection, the LUT shall be deemed to have been rejected ab initio. Circular No. 41/15/2018-GST-dated 13th April, Section 68(1) of the CGST Act, 2017 stipulates that the person in charge of a conveyance carrying any consignment of goods of value exceeding a specified amount shall carry with him the documents and devices as prescribed in this behalf. The Circular in details explains the procedure for interception of conveyances for inspection of goods in movement, and detention, release and confiscation of such goods and conveyances. Circular No. 42/16/2018-GST-dtaed 13th April, The Circular in details gives clarification regarding procedure for recovery of arrears under the existing law ( i.e. central excise duty /service tax and CENVAT credit thereof, CENVAT credit carried forward erroneously and related interest, penalty or late fee payable arising as a result of the proceedings of assessment, adjudication, appeal etc.). Circular No. 43/17/2018-GST- dated 13th April, Circular No. 36/10/2018-GST-dated 13th March,2018 dealt with Processing of refund applications for entities having Unique Identity Number. This circular has further clarified regarding processing of refund application for UIN Agencies. Circular No.44/18/2018-CGST-dated 2nd May, The Circular in details has dealt with Issue related to taxability of 'tenancy rights' under GST. 3. UPDATE ON SEBI AND CORPORATE LAW Compiled by : SEBI A. REGULATIONS: CA. Neha Gada CA. Rajen Gada 1. Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2018 India vide Circular No. LAD-NRO/GN/2018/04 dated April 02, Clearing Corporation, with regard to Commodity Derivatives, will be required to guarantee for settlement of trades including good delivery. 2. Securities and Exchange Board of India (Foreign Portfolio Investors) (Amendment) Regulations, 2018 India vide Circular No. SEBI/LAD-NRO/GN/ 2018/05 dated April 05, SEBI (Foreign Portfolio Investors) Regulations, 2014 has been amended in regards to the some of the following regulations: i. Category I foreign portfolio investor as eligibility for registration; ii. Non applicability of this regulation for Category I or Category II foreign portfolio investor; and iii. Result of Exit of some investors from a broad based fund. ORDERS : CGST: Order No. 2 / GST- dated 31st March, For bringing uniformity in the rate of GST applicable for all kinds of supply of food and drinks made available in trains, platforms or stations, it is clarified that the GST rate on supply of food and/or drinks by the Indian Railways or Indian Railways Catering and Tourism Corporation Ltd. or their licensees, whether in trains or at platforms (static units), will be 5% without ITC. B. MASTER CIRCULAR 1. Master Circular for Debenture Trustees (DTs) India vide Circular No. SEBI/HO/MIRSD/DOP2/ CIR/P/2018/ dated April 09, This Master Circular is a compilation of the circulars/communications issued by SEBI up to March 31,

5 VOL. 21 NO. 11 / MAY 2018 The Master Circular is a compilation of all the existing/applicable circulars issued by the Market Intermediaries Regulation and Supervision Department of SEBI to Debenture Trustees. C. CIRCULARS 1. Risk Management norms for commodity derivatives India vide Circular No. SEBI/HO/CDMRD/ DRMP/CIR/P/2018/52dated March 21, SEBI has provided following risk management norms in detail for commodity derivatives: 1. Minimum Liquid Net-worth and Base Minimum Capital 2. Acceptance of Fixed Deposit Receipts (FDRs) as collateral 3. Margin provisions for intra-day crystallised losses. 2. Due diligence and reporting requirements under Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS) India vide Circular No.IMD/FPIC/CIR/P/2018/ 53 dated March 21, This is in continuation of SEBI circulars No. CIR/MIRSD/2/2015 dated August 26, 2015 and No. CIR/MIRSD/3/2015 dated September 10, 2015 wherein SEBI has informed all intermediaries regarding due diligence and reporting requirements under Rules 114F to 114H of the Income-Tax Rules and Guidance Note on FATCA and CRS issued by the CBDT, New Delhi, vide F.No.500/137/2011- FTTR-III dated August 31, The same is available at legal/circulars/mar-2018/due-diligence-andreporting-requirements-under-foreign-accounttax-compliance-act-fatca-and-commonreporting-standards-crs-_38339.html 3. Circular on Prevention of Unauthorised Trading by Stock Brokers C.V.O. CA S NEWS & VIEWS India vide Circular No. SEBI/HO/MIRSD/DOP1/ CIR/P/2018/54 dated March 22, A consolidated Master Circular is issued to provide requirements / obligations with regard to Prevention of Unauthorised Trading by Stock Brokers prescribed under different circulars. 4. Investor Grievance Redress Mechanism - New Policy Measures India vide Circular No. SEBI/HO/OIAE/IGRD/ CIR/P/2018/58 dated March 26, Vide the above stated circular SEBI has stated a revised procedure for filing and redressing the investor grievances using SCORES, Effective from August 01, Investors who wish to lodge a complaint on SCORES are requested to register themselves on by filling in the basic details. 2. Upon successful registration, a unique user id and a password shall be communicated to the investor through an acknowledgement / SMS. 3. The complainant may use SCORES to submit the grievance directly to companies / intermediaries and the complaint shall be forwarded to the entity for resolution. The entity is required to redress the grievance within 30 days, failing which the complaint shall be registered in SCORES 4. In order to enhance ease, speed & accuracy in redressal of investor grievance, the investor may lodge a complaint on SCORES within three years from the date of cause of complaint, where the investor is not statisfid with resolving of its complaint. 5. Orders per second limit and requirement of empanelment of System Auditors for algorithmic trading in commodity derivatives India vide Circular No. SEBI/HO/CDMRD/ DRMP/CIR/P/2018/60 dated April 03, 18

6 C.V.O. CA S NEWS & VIEWS VOL. 21 NO. 11 / MAY 2018 Exchange shall ensure a particular limit on the numbers of orders per second from a particular CTCL ID/ATS User-ID. It has also been decided to do away with the requirement of empanelment of System Auditors by the exchanges for system audit of algorithmic trading. 6. Monitoring of Foreign Investment limits in listed Indian companies India vide Circular No. IMD/FPIC/CIR/P/2018/ 61dated April 05, FEMA prescribes the various foreign investment limits in listed Indian companies. These include the aggregate FPI limit, the aggregate NRI limit and the sectoral cap. The RBI Master Direction (FED Master Direction No. 11/ ) dated January 04, 2018 provides a compilation of the instructions issued on Foreign Investment in India and its related aspects under FEMA. SEBI in consultation with RBI has decided to put in place a new system for monitoring the foreign investment limits under this circular. The new system for monitoring foreign investment limits in listed Indian companies shall be made operational on May 01, Measures to strengthen Algorithmic Trading and Co-location / Proximity Hosting framework India vide Circular No. SEBI/HO/MRD/DP/CIR/ P/2018/62 dated April 09, SEBI and Secondary Market Advisory Committee (SMAC) of SEBI has decided to introduce the following measures in connection with algorithmic trading and co-location / proximity hosting framework facility offered by stock exchanges: a. Managed Co-location Service b. Measurement of Latency for Co-location and Proximity Hosting c. Free of Charge Tick-By-Tick Data feed (TBT Feed) d. Penalty on Order to Trade Ratio (OTR) e. Unique Identifier for Algorithms / Tagging of Algorithms f. Testing Requirement for Software and Algorithms 8. Clarification on clubbing of Investment limits of Foreign Government/ Foreign Government related entities [Issued by the Securities and Exchange Board of India vide Circular No. SEBI/HO/IMD/FPIC/ CIR/P/2018/66 dated April 10, SEBI has clarified on the clubbing of investment limits to be applied to Foreign Government/ its related entities under this circular. Few of them are mentioned below in this regard: a. Investment limit as Foreign Portfolio Investors (FPI) b. Investor group c. Can two or more Foreign Government related entities can be permitted to acquireequity shares in an Indian company up to the prescribed limit of 10%. d. Investment by a Foreign Government Agency e. Should World Bank group entity viz.ibrd, IDA, MIGA and IFC be clubbed with the investment from a Foreign Government having ownership in such World Bank group entity. f. Separate investment funds by Provinces/ States of some countries with federal structure shall not be clubbed. g. Consequences of breach of the permissible limit 9. Know Your Client Requirements for Foreign Portfolio Investors (FPIs) India vide Circular No. CIR/IMD/FPIC/CIR/P/ 2018/64 dated April 10, SEBI has made certain amendments to Know Your Client (KYC) requirements of eligible Foreign investors classified as category I, II and III investing under Portfolio Investment Scheme (PIS) route. 10. Performance disclosure post consolidation /Merger of Schemes 19

7 VOL. 21 NO. 11 / MAY 2018 India vide Circular No. SEBI/HO/MRD/DP/CIR/ P/2018/67 dated April 12, In case where there is consolidation / merger of schemes the performance of the retained schemes needs to be provided. 11. Investments by FPIs in Government and Corporate Debt Securities India vide Circular No. SEBI/IMD/FPIC/CIR/P/ 2018/70 dated April 12, SEBI has in terms of AP DIR Circular of RBI, revised the Corporate Debt investment limits and limits of longer term FPIs in Government Securities and State Development Loans. 12. Guidelines for issuance of Debt Securities by Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs)" India vide Circular No. SEBI/HO/DDHS/ DDHS/CIR/P/2018/71dated April 13, SEBI has provided guidelines for issuance of Debt securities, such securities to be issued by SEBI (Real Estate Investment Trusts) Regulations, 2014 ("REIT Regulations") and SEBI (Infrastructure Investment Trusts) Regulations, 2014 ("Inv IT Regulations") under the provisions of SEBI (Issue and Listing of Debt Securities Regulations), Strengthening the Guidelines and Raising Industry Standards for RTA, Issuer Companies and Banker to an Issue India vide Circular No. SEBI/HO/MIRSD/DOP1/ CIR/P/2018/73 dated April 20, For Strengthening the Guidelines and Raising Industry Standards for RTA, Issuer Companies and Banker to an Issue, SEBI has provided guidelines in this respect to cover the following broad areas: a. Provisions with respect to Payment of dividend/interest/redemption; b. Provisions with respect to Transfer/ Transmission/ Correction of errors etc; and c. Compulsory Internal Audit of RTAs. CORPORATE LAW A. RULES C.V.O. CA S NEWS & VIEWS 1. Notification dated March 21, 2018 regarding the National Financial Reporting Authority (Manner of Appointment and other Terms and Conditions of Service of Chairperson and Members) Rules, 2018 dated [Issued by Ministry of Corporate Affairs vide notification no. G.S.R.(E) dated March 21, The Central Government has made rules for Section 132 (3) of the Companies Act, 2013 relating to "Constitution of National Financial Reporting Authority". Accordingly, the Central Government has made The National Financial Reporting Authority (Manner of Appointment and other Terms and Conditions of Service of Chairperson and Members) Rules, Notification dated March 23, 2018 regarding Companies (Incorporation) Second Amendment Rules, 2018 [Issued by Ministry of Corporate Affairs vide notification no. G.S.R. (E) dated March 23, The Central Government has made amendment in the Rule 9 of Companies (Incorporation) Rules, 2014 relating reservation of name. 3. Notification dated April 10, 2018 regarding Companies (Share Capital and Debentures) Amendment Rules, 2018 [Issued by Ministry of Corporate Affairs vide notification no. G.S.R. (E) datedapril10, The Central Government has made amendment in the Rule 5(3) of Companies (Share Capital and Debentures) Rules, The same has been substituted as follows: "(3) Every certificate shall specify the shares to which it relates and the amount paid-up thereon and shall be signed by two directors or by a director and the company secretary, wherever 20

8 C.V.O. CA S NEWS & VIEWS VOL. 21 NO. 11 / MAY 2018 the company has appointed company secretary: Provided that in case the company has a common seal it shall be affixed in the presence of persons required to sign the certificate." Explanation: a. For One Person Company: Certificate is to be signed by a director and the company secretary or any other person authorised by the Board for the purpose. B. CIRCULAR 1. Relaxation of additional fees and extension of last date of filing of AOC-4 XBRL E- Forms using Ind AS under the Companies Act, 2013 India vide Circular No.2/2018 dated March 28, In continuation to the Ministry's General Circular No. 13 /2017 dated 26/10/2017, the last date of filing of AOC - 4 XBRL E-forms using Ind AS under the Companies Act, 2013 has been extended to till April 30, 2018 without additional fees for all the eligible companies who are required to prepare or voluntarily prepare their financial statements in accordance with Companies (Indian Accounting Standards) Rules, 2015 for the financial year Condonation of Delay Scheme 2018 India vide Circular No.2/2018 dated March 28, In continuation to the Ministry's General Circular No. 16/2017 dated 29/12/2017 in regards to Condonation of Delay Scheme, 2018, the Ministry has decided to extend the Condonation of Delay Scheme, 2018 upto April 30, C. NOTIFICATIONS 1. Notification dated March 21, 2018 regarding commencement of Companies Amendment Act 2017 [Issued by Ministry of Corporate Affairs vide notification no. S.O. 630 (E) dated February 09, As per Section 1(3) of the Companies Act, 2013, the Central Government appoints March 21, 2018 as the date on which the provisions of Section 132 (3) and Section 132 (11) of the said Act will come into force. The aforementioned Sections are with regards to Constitution of National Financial Reporting Authority which has been notified on March 21, Notification dated regarding amendments in the notification number S.O. (E). [Issued by Ministry of Corporate Affairs vide notification no. S.O. (E) dated April 02, As per Notification No. S.O. 529(E) dated , provisions of Accounting Standard 22 or Indian Accounting Standard 12 relating to Deferred Tax Asset or Deferred Tax Liability shall not apply, for seven years with effect from the 1st April, 2017, to a Government Company. However, under this Notification, the words "for seven years" has been omitted. 3. Notification dated regarding amendments in the notification number GSR. (E). [Issued by Ministry of Corporate Affairs vide notification no. GSR. (E) dated April 10, The Central Government has amended Schedule I and substituted paragraph in regards to Rule 5(3) of Companies (Share Capital and Debentures) Rules, 2014 [as mentioned above in Notification dated April 10,. Under this notification, along with above mentioned amendment, an explanation has been added as follows: "For the purposes of this sub-paragraph it is hereby clarified that on and from the commencement of the Companies (Amendment) Act, 2015 (21 of 2015), i.e. with effect from the 29th May, 2015, company may not be required to have the seal by virtue of registration under the Act and if a company does not have the seal, the provisions of this sub-paragraph shall not be applicable." 21

9 VOL. 21 NO. 11 / MAY 2018 C.V.O. CA S NEWS & VIEWS 4 FEMA UPDATES Compiled by : CA. Manoj Shah Liberalised Remittance Scheme for Individuals - Daily Reporting of Transactions A.P. (DIR Series) Circular No. 23 dated April 12, 2018 In order to improve monitoring and ensure compliances with LRS Limits, AD banks will be required to upload daily transaction wise information undertaken by them under LRS at the close of business of the next working day. In case no data is to be furnished, AD banks shall upload a 'NIL' report. Foreign Exchange Management (Cross Border Merger) Regulations, 2018 Notification No. FEMA.389/2018-RB dated March 20, 2018 Reserve Bank of India has notified regulation relating to Merger, Amalgamation and Arrangement between Indian Companies and Foreign Companies vide notification dated 20th March Full notification can be accessed at - CBM E18A1D866A47F8A20201D6518E468E.PDF Foreign Investment in India Notification No. FEMA.20(R)(1)/2018-RB dated March 26, 2018 Amendment to Regulation 16.B The existing sub-regulation 5 shall be substituted with new sub-regulation. Accordingly, foreign investment in investing companies not registered as NBFC and in core investing companies both engaged in activity of investing in the capital of other Indian Companies will require prior government approval. Foreign Investment in investing companies registered as NBFC will be 100% under automatic route. RBI has also made amendments in relation to Sectoral limits and Sector specific conditions in certain Sectors. Amendment has also been made to Schedule 1, whereby issue of capital instruments against swap of capital instruments, import of capital goods / machinery / equipment (excluding second hand machinery) or preoperative / pre-incorporation expenses will be under automatic route if the investee company is in an automatic sector. Government Approval shall be obtained if Indian Investee company is engaged in sector under Government Approval route. Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India), Regulations, 2018 In supersession of Notification No. FEMA 21/2000-RB dated May 3, 2000, as amended from time to time, the Reserve Bank of India notifies revised regulations. The revised regulation can be accessed at - NTF21R AB07CBE A91BB19E46B81F3D5.PDF 22

10 C.V.O. CA S NEWS & VIEWS VOL. 21 NO. 11 / MAY 2018 Gist of some Compounding Orders passed by Reserve Bank of India No. Subject Matter Contraventions Compounded 1. Foreign Investment in India - Consideration for Foreign Investment by Foreign FEMA Notification No. 20 Company in Indian Company was received from third party intermediary i.e. a Transfer wise. Receipt of sale consideration through channels other than banking channels is a contravention. 2. Foreign Investment in India - Non-resident investors had invested in 2010 in FEMA Notification No. 20 equity shares of Indian Company which was a power exchange registered with Central Electricity regulatory Commission (Power Market) Regulations, At the time of investment it was under automatic route. Subsequently in 2012, foreign investment in power exchanges was limited to 49% provided no nonresident investor will hold more than 5%. Non-resident investors applied for post facto approval. FIPB directed the company to bring down the shareholding pattern in line with FDI Policy within one year. Whereas the company did not comply the conditions as stipulated for receiving foreign investments in the company. This was in contravention to Regulation 5(1)(i) of FEMA Notification No. 20. Foreign Company opened a NRO account with bank in India. 3. Overseas Direct Investment related - Indian Company was engaged in business of FEMA Notification No. 120 providing management and consultancy services to organizations in various sectors such as Healthcare, Mining, Entertainment and Media. The Company made Overseas Direct Investment in an entity in Singapore. This Singapore entity raised funds overseas and invested the same in another Indian Company resulting in ODI-FDI structure. FDI through ODI is not a bonafide business activity and is in contravention of Regulation 6(2)(ii) of FEMA 120. It further contravened provisions relating to delay in reporting of Step down investment by WOS in Singapore and there was also delay in filing of Annual Performance Reports also. 23

11 VOL. 21 NO. 11 / MAY 2018 UNREPORTED DECISIONS INCOME TAX Contributed by : Paras S. Savla, Advocate (a member of the association) he can be reached at parassavla@gmail.com C.V.O. CA S NEWS & VIEWS Contributed by : CA Bhakti Maru (a member of the association) she can be reached at bhakti@bhadreshdoshi.com 1. Sec. 22 : Computation of Income from House Property - land does not belong to the assessee but the superstructure belongs to the assessee - Assessee received composite rent for land and building - rent paid to the land owner can be reduced from the composite rental income. The assessee had let out two properties during the year under consideration. The first property is situated at Karuna Enclave and the second at Sputank Road. In respect of both the properties, the assessee had taken land on lease and constructed buildings thereon. Assessee reduced rent paid to the land owner from the rental income received in respect of both the properties. However the Assessing Officer did not accept the deduction of rent pertaining to land. CIT(A) confirmed the Assessment Order. On further Appeal, assessee submitted that rent received by the assessee in respect of land was diverted by overriding title to the landlord. Therefore, Assessing Officer is not justified in taking the rent which relates to land on which the superstructure was standing. Further, referring to Section 53A of Transfer of Property Act, 1982, assessee submitted that in relation to immovable property, for the purpose of transfer, there should be a registered document. In this case, there was no registered document, therefore, there was no transfer at all. Placing reliance on the judgment of Apex Court in Balbir Singh Maini (398 ITR 531), it was submitted that the assessable income from house property is only after reducing the lease rental for acquiring the sub-lease. According to the Ld. D.R., the lease amount said to be paid to the original landlord cannot be construed like taxes paid to the local authorities in respect of the property, therefore, that cannot be reduced while computing the income from house property as per Section 23 of the Act. Further the Parliament has allowed 30% statutory deduction in respect of the annual rent and also interest, if any, for acquiring the property and apart from that, the assessee cannot claim any deduction while computing the income from house property. The Tribunal observed that all the lease agreements of vacant land was less than 12 years as provided in Section 269UA(f) of the Act. Therefore, it cannot be construed as a transfer within the meaning of Section 27(iiib) of the Act and thus the assessee is not the owner of the land both in respect of Karuna Enclave and in respect of the property at 10, Spurtank Road. The Tribunal further observed that under common law, land may belong to one person and building may belong to another person. Therefore, when the assessee took the land on lease and put up construction and let out the building for lease, the lease rent paid or payable in respect of the land to the land owner has to be excluded while computing the annual value of the property. In respect of the lease, what was transferred to the assessee is a right to occupation and enjoyment on the land. The other rights relating to ownership continues to remain with the original owner. What is received or receivable by the assessee has to confine in respect of the ownership of the building since, admittedly, the land belongs to third party. Therefore, the amount payable / paid as a lease rent for occupation and enjoyment of the land, which belongs to third party, has to be necessarily reduced while computing annual rental value under Sections 22 and 23 of the Act. Shri UppuKarunasesh vs JCIT, Chennai ITAT, ITA Nos.978 And 979/Chennai/2015, order dt.27th April, Sec 41 -Waiver of loan - Section 41(1) does not apply if as the loan is taken not a trading liability and assessee has not claimed any deduction u/s 36 (1) (iii) of the IT Act for interest paid - it cannot be taxed u/s 28(iv) as it does not apply if the 24

12 C.V.O. CA S NEWS & VIEWS VOL. 21 NO. 11 / MAY 2018 receipts are in the nature of cash or money. The assessee had taken loan from Kaiser Jeep Corporation (for short 'the KJC') for procurement of equipments. Later on assessee was informed that the American Motor Corporation (AMC) had taken over the KJC. AMC also agreed to waive the principal amount of loan advanced by the KJC. The Assessing Officer held that waiver of principal amount was taxable u/s 28 or u/s 41. The CIT(A) upheld the order of Assessing Officer. The Tribunal and High Court decided in favour of the Assessee. Hence the Revenue filed appeal before Supreme Court. The Supreme Court observed that creditor or his successor may exercise their "Right of Waiver" unilaterally to absolve the debtor from his liability to repay. After such exercise, the debtor is deemed to be absolved from the liability of repayment of loan subject to the conditions of waiver. The waiver may be a part waiver i.e., waiver of part of the principal or interest repayable, or a complete waiver of both the loan as well as interest amounts. Hence, waiver of loan by the creditor results in the debtor having extra cash in his hand. It is receipt in the hands of the debtor/ assessee. In order to invoke the provision of Section 28 (iv) of the IT Act, the benefit which is received has to be in some other form rather than in the shape of money. In the present case, as a matter of record that the amount of Rs. 57,74,064/- was received as cash receipt due to the waiver of loan. Therefore, the very first condition of Section 28 (iv) of the IT Act which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied, hence, cannot be taxed under section 28 (iv). As far as taxability u/s 41(1) is concerned, it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, if the creditor remits or waives any such liability, then the assessee is liable to pay tax under Section 41 of the IT Act. The objective behind this section is simple i.e. it ensured that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. In the case before Supreme court the Assessee had been paying interest at 6 % per annum to the KJC as per the contract but it never claimed deduction for payment of interest under Section 36 (1) (iii) of the IT Act. The deduction claimed by the assessee in previous assessment years was due to the depreciation of the machine and not on the interest paid by it. Further the equipments were capital assets of the assessee. The purchase of equipments had not been debited to the trading account or to the profit or loss account in any of the assessment years. The Supreme Court held that there is difference between 'trading liability' and 'other liability'. Section 41 (1) of the IT Act particularly deals with the remission of trading liability. Whereas in the instant case, waiver of loan amounts to cessation of liability other than trading liability. Hence, it cannot be taxed under section 41 (1) also. CIT vs Mahindra and Mahindra Ltd. (2018) (SC) (Civil Appeal Nos of 2004 &others, Order dt ) 3. Sec. 249-Appeal before the CIT(A) - Appeal manually filed - CIT(A) rejected the appeal on the ground that there is delay in e- filing of appeal - Appeal to be heard on merits and delay should be condoned. The assessee company filed its return of income for assessment year on declaring total income at Rs.23,53,105/-. Assessment was completed under section 143(3) on determining the total income of Rs.38,53,105/-. Aggrieved by the assessment order the assessee preferred Appeal before the Ld. CIT(A). The assessee filed its appeal manually in Form No.35 on The Ld.CIT(A) dismissed the appeal filed by the assessee by holding that the appeal filed by the assessee is not maintainable as the Central 25