rnm alert vol xxxxiv august 2012

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  • Dear Readers, The recent announcements by the Government in regard to pro-economic measures to liberalise the FDI regime in Multi-brand retail, Broadcasting and steps towards disinvestment of Public Sector Units have brought a big cheer from India Inc. which is clamouring for even more bold steps to revitalize a flagging economy. Pro-active policy steps by the Government to bring the various State Governments on board for the speedy introduction of the GST regime would give

    a great impetus to economic growth and pundits are hoping that with the gumption back in the corridors of power, further steps would be taken. RBI in its recent Credit Policy review on September 17, 2012 has reduced the Cash Reserve Ratio (CRR) rate by 25 bps. CRR stipulates the minimum proportion of deposits that banks must hold with the central bank. The CRR cut should provide a further stimulus to improve the sentiment,eventhough India Inc. was expecting a repo rate cut to really charge up the economic batteries. I am pleased to inform you that RNM had along with Berkeley Homes, U.K., the largest real estate company of UK as per market capitalization, hosted an event on 5th September in New Delhi in regard to the London property market and overseas direct investment by Indians there. The event was well covered by the media and a report prominently quoting, Mr. Raghu Marwah, Partner was published in the Economic Times on 11thSeptember, 2012. Persons interested in making such investments in a Central London property may contact our Corporate Finance Team. The last date for filing annual Income Tax Returns of 30th September for corporates and large partnerships is fast approaching. I also hope that all assessees have filed their advance tax as per the due date on 15th September. I would like to wish in advance all our readers a happy Gandhi Jayanti on 2nd October.


    U.N. Marwah

    For and behalf of the RNM Alert Editorial Board


    ISSUE NO.44 AUGUST, 2012

    RNM ALERT Thinking of the Bottom Line Think of Us

  • Issue No. 44: August, 2012 Page 2 of 28

    CONTENTS Direct Tax

    - Case Laws

    - Deemed Dividend & transfer u/s 2(22(e)) 4 - International Taxation & Charitable Trust 4 - Expenditure in relation to income not includible in total income 5 - Profit & Loss from Business and Profession 5-6 - Capital Gain 6-7 - Cash Credit 7 - Assessment Procedure 8-9 - Appellate Procedure 10 - Penalty 11

    Indirect Tax Service Tax

    - Case Laws - Refund of Cenvat Credit 12 - Amalgamation of Cos 12 - Cenvat Credit of Premium of insurance policy 12

    - Notification/Circular - Payment of service tax under reverse charge 12 - Service tax on vocational education service 12-13

    Central Excise/Custom

    - Case Laws - Clandestine Removal 13 - Honing stones as capital goods 14 - Refund of excess paid duty 14 - Document for availing cenvat credit 14 - Coke transfer car as cenvat credit 14

  • Issue No. 44: August, 2012 Page 3 of 28


    Company Law Updates - Circular/ Notification/ Guidance

    - Gazette notification GSR 534(e) dated 14/7/11 - Clarification 15 - Clarification on para 46A of notification no GSR 914(e) dated 29/12/11 15

    on accounting standard 11 relating to The effects of changes in foreign exchange rates - Applicability of service tax on commission payable to non-whole time directors 15

    of the Co. u/s 309(4) of Cos. Act 1956 - Amendment to the Cos, Rule 1999 15-16 - Imposing fees on certain e-forms filled with ROC, RD or MCA under MCA-21 16

    where at present no fees is prescribed - Filing of B/S and P/L A/c by Cos. In non XBRL for 16

    accountingyr commencing on or after 1/4/11 - Investor education & Protection fund rules 2012 16

    RBI & SEBI Updates - Circular

    - Foreign Investment by qualified foreign investors (QFIs) Hedging Facilities 17 - NR guarantee for non-fund based facilities entered between tow resident entities 17-18 - FDI by citizen/entity incorporated in Pakistan overseas 18 - Direct Investment Rationalization of Form ODI 18 - Manner of Dealing with audit reports filed by listed Cos. 19

    Corporate Finance - Latest News

    - Pivate Equity 20-21 - Venture Capital 21-25 - Mergers & Acquisition 25-26

    New Appointment 27

  • Issue No. 44: August, 2012 Page 4 of 28

    DIRECT TAX Case Laws Deemed Dividend and Transfer u/s 2(22(e)) Sec. 2(22) - Deemed Dividend Loan advanced by company to its Managing director as per her pre-condition of granting bank guarantee and a collateral security for benefit of company would not partake character of deemed dividend. [Source: ACIT vs. Smt. G. Sreevidya - [2012] 24 taxmann.com 75 (Chennai - Trib.)]

    International Taxation and Charitable Trust S.9(1)(vii): Income deemed to accrue or arise in IndiaFees for technical services Technical repairsFees for routine technical repairs not assessable as fees for technical services. [Source: ADIT v. BHELGEGas Turbine Servicing (Hyd.)(Trib.) www.itatonline.org] Upfront appraisal fees Upfront appraisal fees charged by foreign company was business income and neither interest nor Fee for Technical Services (FTS) under Double Taxation Avoidance Agreement (DTAA). However, since the respondent did not have Permanent Establishment (PE) in India, same could not be charged to tax. [Source: DIT (Intl. taxation) vs. Commonwealth Development - [2012] 24 taxmann.com 154 (Bombay)] AAR not bound by own rulings Authority for Advance Ruling (AAR) not bound by own rulings. Transfer Pricing andReturn of Income (ROI) filing provisions apply despite no income. Foreign company is liable for MAT u/s 115JB. In Re Castleton Investment Ltd (AAR) Promotion of vegetarianism is undoubtedly a charitable activity Whether since promotion of vegetarianism is undoubtedly a charitable activity, business of preparing vegetarian food items and selling same was very much incidental to object of assessee trust and such business could be conducted by a charitable trust as per provisions of section 11(4A) - Held, yes - Whether, therefore, assessee's claim for exemption under section 11 was to be allowed - Held, yes [In favour of assessee] [Source: Sri SriRadhaDamodar Charitable Trust - [2012] 24 taxmann.com 141 (Mumbai - Trib.)]

    S.4: IncomePrinciple of mutuality Cooperative Housing Society TDR Premium TDR Premium received by Coop Hsg. Society from its members is exempt on ground of mutuality [Source: CIT v. Jai Hind CHS Ltd (Bom.) (High Court) www.itatonline.org]

  • Issue No. 44: August, 2012 Page 5 of 28

    Expenditure in relation to income not includible in total income Sec14A: Sec14A applies even if the securities are held as stock-in-trade Sec14A talks of making disallowance of expenses incurred in relation to an income not chargeable totax. No exception, such as the dividend being main or incidental income, has been carved out in theprovision. The relation of expenses for disallowance is with the exempt income irrespective of thesource or nature of the exempt income. When the legislature in its wisdom has not spelt out anyexception coming in the way of applicability of s. 14A, it is wholly impermissible to artificially find anysuch exception contrary to the language of the provision and the intention of the legislature.Accordingly. s. 14A applies even if the securities are held as stockintrade (CIT v LeenaRamachandran(Smt)(2011)339 ITR 296 (Ker) (High Court)distinguished). (AY 199798) [Source: JCIT v. American Express Bank Ltd. (Mum.)(Trib.) www.itatonline.org]

    Profit and gain from Business and Profession Deduction wrongly claimed under section 10B instead of section 10A eligible for deduction in revised return if original return filed within due date. [Source: Hyd. ITAT 24 taxmann.com 207] Sec 28: Non Compete Fee whether Business Income Where assessee, promoter and shareholder of another company, transferred its shares and controlling interest in said Company, amount received by assessee, on per share basis as non-compete fee in said transaction, was liable to tax as 'business income' and not as 'capital gains'. [Source: Sterling Re-rolling Mills (P.) Ltd.v. ACIT (ITAT Mum.) [2012] 23 taxmann.com 394 (Mum.)]

    Sec32:Depreciation GoodwillIntangibleGoodwill is an intangible asset eligible for depreciation. [Source: CIT v. Smifs Securities Ltd. (SC) www.itatonline.org.]

    Sec32(2):Depreciation Set off Una