Tax, Accounting and other updates

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Tax, Accounting and other updates

Complied by Task Advisory and Law LLP Contents 1.

Direct Taxes 1.1 1.2

2.

Important Notifications/Circulars Case laws

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VAT/CST 3.1

4.

2-4 4-5

Service tax 2.1 2.2

3.

Important Notifications/Circulars Case laws

Page No.

Important Notifications/Circulars – Delhi

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Corporate Laws and others 4.1 4.2

Important Corporate Law Notifications/Circulars Others

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Issue No. 2/2016

Task Advisory and Law LLP

1.1 Income tax notifications/circulars i) Issue of notice, summons, order etc. through Email – Notification No. 89/2015 dated 2 December 2015 Pursuant to the CBDT’s directives regarding ‘Paperless Assessment Proceedings‘, the CBDT vide above notification has amended the Income-tax Rules, 1962, to provide that for purposes of section 282(1) of the Act, service of notice, summons, requisition, order and any other communication under the Act, may be done by email. ii) CBDT enhances monetary limit for filing appeals by the department – Circular No. 21/2015 dated 10 December 2015 As a measure of reducing litigation, CBDT has increased the monetary limits for filing appeals /application s by the dept. The appeals/SLPs shall not be filed in cases where the ‘tax effect’ does not exceed the monetary limit given hereunder: S.No. Appeals in income tax Monetary Limit matters 1. Before Appellate Tribunal 10 lakh 2. Before High Court 20 lakh 3. Before Supreme Court 25 lakh "Tax effect" means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed. However the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. The notable aspect is that the instruction shall apply retrospectively to pending appeals before High Court and Tribunals and that all appeals below the specified tax limits should be withdrawn/ not pressed. However, appeals before the Supreme Court will be governed by the instructions on this subject, operative at the time when such appeal was filed.

iii) New facility of pre-filling TDS data while submitting online rectification – Press release dated 10 December 2015 CBDT has simplified the process of online rectification of incorrect TDS details filed in the income tax return. Taxpayers were required to fill- in complete details of entire TDS schedule while applying for rectification on the e-filing portal of Income-tax department. Errors due to incomplete TDS details in rectification applications were leading to delays in processing of such applications thereby causing hard ship to the tax payers. To avoid the inconvenience, a new facility has been provided for pre-filing of TDS schedule while submitting online rectification request on the efiling portal to facilitate easy correction or updating of TDS details. This is expected to considerably ease the burden of compliance on the taxpayers seeking rectification due to TDS mismatch. iv) No CA Certificate in Form 15CB for payment to non-residents upto Rs. 5 Lakh vide G.S.R. 978(E) dated 16 December 2015 CBDT vide its above notification has introduced 21st (Amendment) Income tax Rules 2015 for Rule 37BB relating to ‘Furnishing of Information for payment to non-resident, not being a Company, or to a foreign company. These rules have been amended to strike a balance between reducing the burden of compliance and collection of information under section 195 of the Act. As per the amended rules, now - No Form 15CA and 15CB will be required to be furnished by an individual for remittance which do not requiring RBI approval under its Liberalised Remittance Scheme (LRS) - Further list of payments of specified nature mentioned in Rule 37BB which do not require submission of Forms 15CA and 15CB has been expanded from 28 to 33 including payment for imports. - A CA Certificate in Form 15CB will be required to be furnished only in respect of such payments made to non-residents which are chargeable to tax and the amount of payment during the year exceeds Rs. 5 lakhs. The above rules shall be applicable w.e.f 1 April 2016.

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v) Draft guiding principles for determination of Place of Effective Management (POEM) of a Company Prior to amendment to Section 6(3) by the Finance Act, 2015, a company was said to be resident in India in any previous year only if it was an Indian Company Issue No. 2/2016

Task Advisory and Law LLP or if during that year, the control and management of its affairs was situated wholly in India. A company can easily avoid becoming a resident by simply holding a board meeting outside India. This encourages creation of shell companies which are incorporated outside but are controlled from India. To address these concerns, section 6(3) was amended vide the Finance Act, 2015 to provide that a company is said to be resident in India, if it is an Indian company or its place of effective management ('POEM') in that year is in India.

POEM has been defined as a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are in substance made. Now the CBDT has issued draft guidelines for determination of POEM. The process of determination of POEM would primarily depend on whether or not the company is “engaged in active business outside India”. If company is engaged in “active business outside India” then its POEM shall be presumed to be outside India if majority of board meetings are held outside India. A company shall be deemed to be engaged in "active business outside India" if following conditions are satisfied: (i) Passive income is not more than 50% of its total income and, (ii) (ii) less than 50% of its total assets are situated in India; and (iii) (iii) less than 50% of total number of employees are situated in India or are resident in India; and (iv) (iv) The payroll expenses incurred on such employees is less than 50% of its total payroll expenditure. For the purpose of determining whether the company is engaged in active business outside India the average of the data of the previous year and two years prior to that year shall be taken into account. In case the company has been in existence for a shorter period, data of such period shall be considered.

Issue No. 2/2016

vi) AO to issue scrutiny cases along with questionnaire to convey compliance requirementInstruction No. 19/2015 dated 29 December 2015 It was noticed that while issuing the initial/first notice for cases selected under scrutiny, Assessing Officer (‘AO’) do not convey the specific compliance requirements like production of accounts, furnishing of documents, information, evidences etc. Thus, CBDT, directs AO to send the scrutiny notice under section 143(2) along with notice under section 142(1) and questionnaire containing details of specific documents or information or evidences etc. that are required to be furnished by taxpayer in connection with scrutiny.

vii) Procedure for handling ‘limited scrutiny’ cases Instruction No. 20/2015 dated 29 December 2015 The cases selected for scrutiny through CASS – Computer Assisted Scrutiny Selection will be of two types: ‘Complete Scrutiny’ and ‘Limited scrutiny’. The assessee concerned shall be intimated about their case falling either in ‘Limited scrutiny’ or ‘Complete scrutiny’ through notice issued under section 143(2) of the Income-tax Act, 1961. The procedure for handling limited scrutiny case shall be as under: - Reasons for ‘limited scrutiny’ shall be forthwith communicated to the assessee concerned. - Questionnaire shall remain confined to only specific issue/enquiry for which case has been picked up for scrutiny. Also, the scope of enquiry shall be restricted to the ’Limited Scrutiny’ issue. - Cases should be completed expeditiously in a limited no. of hearings. - If there is a reason that there is escapement of income exceeding Rs. 10 lakh, then case may be converted to manual scrutiny with prior approval of CIT/P CIT.

viii) Electronic filing of first appeal before CIT(appeals) is mandatory – Press release dated 30 December 2015 It is the Endeavour of the Income tax dept. to digitize various function functions of the dept. for providing efficient tax payer services. As another step in this direction, electronic filing of appeal before CIT(Appeals) is being made mandatory for the persons who are required to file the return of income electronically. Electronic filing of appeal along with the documents relied upon before CIT (Appeals) will remove human interface, reduce paperwork and decrease the transaction cost for the taxpayer. It would ensure consistent and error free service as validations will be inbuilt resulting in fewer deficient appeals. Online filing will also facilitate fixation of hearing of appeals electronically. The existing Form 35 for filing of first appeal is being substituted by a

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Task Advisory and Law LLP new Form. The new format for filing of appeals is more structured, objective, systematic, and aligned with the current provisions of the Income-tax Act. With these changes, the burden of compliance on the taxpayers in appellate proceedings will be significantly reduced.

ix) PAN mandatorily to be quoted on transactions exceeding Rs. 2 Lakhs w.e.f 1 January 2016 regardless of the mode of payment. –Notification no. 95/2015 dated 30 December 2015 CBDT vide Twenty Second Amendment Rules, 2015 substituted Rule 114B, 114C, 114D and 114E. These rules shall come into force w.e.f 1 January 2016 except Rule 114E which shall come into force w.e.f 1 April 2016. As per Rule 114B, every person shall quote his PAN No. in all the documents pertaining to the 18 transactions specified in the Rule. Person not having PAN shall make a declaration in Form 60. These Rules shall not apply to Central/State govt. and the consular offices. For the complete notification refer the below link: http://incometaxindia.gov.in/communications/n otification/notification95_2015.pdf x) No Penalty under section 271(1)(c) where in additions/disallowances made under normal provisions of the Income Tax Act, 1961but tax levied under MAT provisions under section 115JB/115JC for cases prior to AY 2016-17 – Circular no. 25/2015 dated 31 December 2015 Delhi High Court in case of Nalwa Sons Investment Ltd (2010), held that when the tax payable on income computed under normal provision is less than the tax payable under the deeming provisions of Section 115JB of the Act, then penalty u/s 271(1)(c) of the Act could not be imposed with reference to addition/disallowances made under normal provisions. Subsequently, Explanation 4 to section 271(1) have been substituted by Finance Act 2015, which provide for method of calculating the amount of tax sought to be eavaded for situations even where the income determined is less than the income declared for the purpose of MAT. The substituted Explanation 4 is applicable prospectively w.e.f 1 Apr 2016. The above settled position is to be followed in respect of section 115JC of the Act also. Accordingly, the board directs that no appeals may henceforth be filed on this ground and alleals already filed, if any, on this issue before various courts/Tribunals may be withdrawn/not pressed upon. Issue No. 2/2016

1.2 Case Laws : Income tax i) No need to deposit in capital gain scheme if house is purchased within the time limit of Section 54F Ashok Kapasaiwala Vs ITO [2015] taxmann.com 284 (Ahemdabad Tribunal)

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Facts of the case: The assessee had sold his office on 8 January 2008 and had invested entire amount in residential property on 5 October 2009. - The ITO denied assessee‘s claim of deduction under section 54F on the ground that assessee had not deposited the amount in the ‘Capital gain Account Scheme’ as prescribed under section 54F(4).

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Conclusion: Under section 54F (1), the exemption would be available if the assessee purchased the residential house within two years after the date when transfer took place. In a case it is not utilized for the purpose of aforesaid and within the period aforementioned, section 54F(4) mandates the assessee to deposit such amount before due date of filing of return under section 139(1). Therefore, there is no ambiguity in the provision; so far deposit of the unutilized amount is concerned, it has to be deposited in a specified capital gain account before the due date of filing of return under section 139(1). The Karnataka High Court in the case of CIT v. K. Ramachandra Rao [2015] 56 taxmann.com 163/230 Taxman 334 held that when the assessee had invested the entire sale consideration in construction of a residential house within the three years from the date of transfer, he could not be denied exemption under section 54F on the ground that he did not deposit the said amount in capital gain account scheme before the due date prescribed under section 139(1). In the case in hand, there is no dispute with regard to the fact that the assessee had purchased within two years a new asset on 5-10-2009 from the date of transfer of the

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Task Advisory and Law LLP original asset. Therefore, following the ratio laid down by the Karnataka High Court in the case of K. Ramachandra Rao (supra), the impugned order is set aside and the Assessing Officer is directed to recompute the assessed income after granting the benefit of section 54F to the assessee.

ii) GVK Industries Ltd. Vs. Income Tax Officer [2015] 54 taxmann.com 347 (Supreme Court)

Facts of the case: - The assessee-company was incorporated for the purpose of setting up a 235 MW gas based power project. With the intention to utilize the expert services of qualified and experienced professionals who could prepare a scheme for raising the required finance and tie-up the required loan, assessee sought services of a consultant and eventually entered into an agreement with NRC, a Switzerland based company. - The services rendered by NRC includes inter alia, financial structure and security package to be offered to the lender, making an assessment of export credit agencies worldwide and obtaining commercial bank support on the most competitive terms. - After successful rendering of services, the NRC sent invoice to the assessee-company for payment of success fee amounting to Rs.5.4 crores. The assessee-company thereupon approached the Assessing Officer, for issuing a 'No Objection Certificate' to remit the said sum duly pointing out that the NRC had no place of business in India; that all the services rendered by it were from outside India; and that no part of success fee could be said to arise or accrue or deemed to arise or accrue in India attracting the liability under the provisions of the Act. - The Assessing Officer took a view that services rendered by NRC would come within scope of technical service under section 9(1)(vii) and, thus, amount of success fee was taxable in India. - The writ petition filed by assessee was dismissed by the High Court. Conclusion: As the factual matrix in the case at hand, would exposit the NRC had acted as a consultant. It had the skill, acumen and knowledge in the specialized field i.e. preparation of a scheme for required finances and to tie-up required loans. The nature of service referred by the NRC, can be said with certainty would come within the ambit and sweep of the term 'consultancy service' and, therefore, it has

Issue No. 2/2016

been rightly held that the tax at source should have been deducted as the amount paid as fee could be taxable under the head 'fee for technical service'. Once the tax is payable/paid the grant of 'No Objection Certificate' was not legally permissible. Ergo, the judgment and order passed by the High Court are absolutely impregnable.

2.1 Service tax notifications/circulars

i) Seed testing and all ancillary activities thereto are not liable to service tax – Circular No. 189/8/2015 dated 26 November 2015 It came to the notice of the CBEC that certain field formations have taken a view that all activities incidental to seed testing are leviable to Service tax and only the activity in so far it relates to actual testing has been exempted in the Negative List. After elaborate interpretation of the words in the Statute, the CBEC vide above circular has issued clarification that all testing and ancillary activities to testing such as seed certification, technical inspection, technical testing, analysis, tagging of seeds, rendered during testing of seeds, are covered within the meaning of ‘testing’ as mentioned in sub-clause (i) of clause (d) of Section 66D of the Finance Act. Therefore, such services are not liable to Service tax under Section 66B of the Finance Act.

ii) Services received by Apparel exporters in relation to fabrication of garments – Circular No. 190/8/2015 dated 15 November 2015 It came to the notice of CBEC that certain field formations have taken a view that services received by apparel exporters from third party for job work is of manpower supply and thus leviable to service tax. The essential characteristics of man power supply service are that supplier provides manpower which is at the disposal and temporarily under effective control of the service recipient during the period of contract. Deployment of manpower normally rests with the service recipient. The value of service has

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Task Advisory and Law LLP direct correlation to man power deployed, manpower deployed multiplied by rate. On the other hand, in case of Job work, service provider is assigned a job e.g. fabrication, stitching, labeling etc. of garments in case of apparel. Service recipient is only concerned about the job work and not the manpower. The value of service is quantum of job work undertaken, i.e. no. of pieces fabricated. It is immaterial whether the job worker under takes the work in his premises or in the premises of service receiver. Basis above, the CBEC has issued a clarification that services received by the apparel exporters from the job worker involved in the process amounting to manufacture or production of goods would fall under negative list [section 66D(f)] and hence would not attract service tax.

iii) CBEC enhances monetary limit for filing appeals – Instruction F. No. 390/Misc./163 dated 17 December 2015 The Central board of excise and custom fixes the following monetary limit below which appeal shall not be filed in the Tribunal, High Court and the Supreme Court: S.No. Appellate Forum Monetary Limit 1. CESTAT 10 lakh 2. High Court 15 lakh 3. Supreme Court 25 lakh

2.2 Case laws : Service tax

i) Cenvat credit is admissible even though the Appellant was not registered with the service tax department at the time of availing input service India Housing Vs Commissioner of Central Excise, Lucknow [2015 (11) TMI 1422 – CESTAT New Delhi] Facts of the Case: India Housing (“the Appellant”), a service provider, took Cenvat credit on certain input services. The Department denied the Cenvat credit on the ground that the Appellant has taken Cenvat credit on the documents which are not the correct documents as per the Rule 9(2) of the Credit Rules. Few invoices were rejected on the ground that that Appellant was not registered at the time of issuance of invoices, few on the ground that the invoices are not in the name of Appellant etc. Conclusion: The honorable CESTAT New Delhi, after following the decision of the Tribunal in case of Imagination Technologies India P. Ltd, held that, as regards the claim of CENVAT credit on the input service received prior to the registration by the appellant, there is no

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provision in the CENVAT Credit Rules specifically prohibiting availment of CENVAT Credit in respect of input/input service which have been received prior to their registration as an output service provider. So long as they can establish that they have borne the incidence of duty on the input/input services, they are eligible for the tax credit on the inputs/input service. In respect of invoices which are not in the name of appellant, CENVAT credit for the same will not be available as per Rule 9(2) of Cenvat Credit Rules.

3.1 Delhi VAT notifications/ circulars

i) Reduction of tax credit in case of Tobacco products and lubricants – Notification no. F.3.(25)/Fin(Rev-I)/2015-2016 dated 18 December 2015 - In sub rule (1) of rule 7, in clause (b) for the existing proviso, the following proviso has been substituted,

“Provided that in case of following goods, tax credit shall be reduced by 100% a) Un-manufactured tobacco, tobacco and tobacco products in all forms such as cigarettes, chewing tobacco, gutkha, cigars, hooka tobacco, khaini, zarda, surti, bidis etc. b) All kinds of lubricants. -

For sub rule (5), the following sub-rule is substituted: “for the purpose of section 9(10) and 10(3), in case of following goods tax shall be reduced by {(R-2)100/R} percents, where R is rate of tax applicable as per section 4: c) Un-manufactured tobacco, tobacco and tobacco products in all forms such as cigarettes, chewing tobacco, gutkha, cigars, hooka tobacco, khaini, zarda, surti, bidis etc. d) All kinds of lubricants. - For sub rule (5), the following sub-rule is substituted:

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Task Advisory and Law LLP ii) Effective date of Form Delhi Sugam -2(DS2) is 8 January 2016 – Notification no. F.7(433)/PolicyII/VAT/2012/PF/1259-70 : Delhi Government has provided that 08.01.2016 will be effective date from which form Delhi Sugam-2 (DS2) needs to be one of the documents to be carried by the owner , driver or person in charge of the goods vehicle who is bringing the goods into Delhi and produce the same as hard copy or in electronic form before any officer in charge of a check-post or barrier or any other officer empowered by the Commissioner.

4.1 Corporate laws notifications/ circulars

i) Amendment in Section 143 (12) of the Companies Act, 2013 vide applicability of Section 13 of the Companies Amendment Act, 2015 w.e.f 14th December 2015 [Notification No. S.O. 3388(E)] Notwithstanding anything contained in this section, if an auditor of a company in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving such amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed. Provided that in case of a fraud involving lesser than the specified amount, the auditor shall report the matter to the audit committee constituted under section 177 or to the Board in other cases within such time and in such manner as may be prescribed: Provided further that the companies, whose auditors have reported frauds under this sub-section to the audit committee or the Board but not reported to the Central Government, shall disclose the details about such frauds in the Board's report in such manner as may be prescribed.

ii) Amendment in Section 177(4)(iv) of the Companies Act, 2013 vide applicability of Section 14 of the Companies Amendment Act, 2015 w.e.f 14th December 2015 [Notification No. S.O. 3388(E)] The government has allowed "omnibus approval" of related party transactions by companies' audit committees. Such approvals would be subject to certain conditions, including the maximum aggregate value of transactions which can be allowed under this route in a particular year. "All related party transactions shall require approval of the Audit Committee and the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company in a particular financial year." Besides, the audit committee is required to decide the maximum value per transaction that can be allowed through the omnibus route, extent of disclosures that need to be made at the time of seeking approval.

"Omnibus approval shall be valid for a period not exceeding one financial year." Further, approvals through the omnibus route would not be allowed for transactions in respect of selling or disposing of the undertaking of the company. In situations, where the need for related party transactions cannot be foreseen, the audit committee can allow omnibus approval provided that value of each transaction does not exceed Rs 1 crore. While putting in place the criteria for making such approvals, the Ministry said the audit committees should take into account factors such as "repetitiveness of the transactions (in past or in future) and justification for the need of omnibus approval". At intervals, the audit committee would have to review related party transactions entered into by the company following each omnibus approval, as per the rules.

4.2 Others

i) Removal of Grace Period for payment of PF contribution Circular No. WSU/9(1)2013/settlement dated 8 January 2016 With reference to above circular, Employee’s Provident Fund Organisation has withdrawn the grace period of 5 days and payment of Provident Fund Contribution has to be mandatorily made before 15th of the following month w.e.f month of Jauary 2016, i.e PF contribution for the month of January 2016 should be paid on or before 15th February 2016. Issue No. 2/2016

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Issue No. 2/2016

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