TIOL-DDT 1018 · the untouched capture
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1018</font><br>
24.12.2008<br>
Wednesday</strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>'Charitable Purpose' - Commercial Activities - CBDT explains</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Section 2(15) of the Income Tax Act defines "charitable purpose" to include the following:</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) Relief of the poor</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) Education</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii) Medical relief, and</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iv) the advancement of any other object of general public utility.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10 (23C) of the Act.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Government had realised that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of 'charitable purpose'.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So Section 2(15) was amended by Finance Act, 2008 by adding a proviso which states that the 'advancement of any other object of general public utility' shall not be a charitable purpose if it involves the carrying on of -</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a) any activity in the nature of trade, commerce or business; or</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) any activity of rendering any service in relation to any trade, commerce or business; for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Implications of the amendment:</strong></font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. This will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute 'charitable purpose' even if it incidentally involves the carrying on of commercial activities.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. <strong>'Relief of the poor' </strong> encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Similarly, entities whose object is 'education' or 'medical relief' would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' i.e. the fourth limb of the definition of 'charitable purpose' contained in section 2(15).</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. Where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2(15).</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board concludes, "In the final analysis, however, whether the assessee has for its object 'the advancement of any other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is 'charitable purpose' within the meaning of Section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business."</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Will this have any Service Tax implications?</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=36&filename=notification/cbdt/2008/it08cir11.htm" target="_blank">CBDT Circular No. 11/2008, Dated: December 19, 2008</a></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Import of Trucks/Tippers/Dumpers etc. under EPCG Scheme</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT has clarified that import of Tippers/Dumpers and spares thereof including tyres are allowed to be imported as mining equipment under EPCG Scheme by mining establishments subject to the following conditions:</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) The Tippers/Dumpers imported under EPCG Scheme will be registered in the name of authorization holder for use in mining activities only;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) The Tippers/Dumpers <strong>will be installed </strong> and utilized for production related activities <strong>within the mining area </strong> as declared by authorization holder at the time of submission of application for issuance of EPCG authorization;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii) The Tippers/Dumpers will neither be registered as public vehicles nor transferred (including in the premises of Group Company); and</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iv) Such Tippers/Dumpers will, therefore, not ply on public roads.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Import of Railway Wagons and Tractors are not permitted under EPCG Scheme.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is also clarified that import of Trucks/Tippers/Dumpers and spares thereof, under EPCG Scheme by any other sector except for the mining sector is not permitted.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Tippers and Dumpers are movable vehicles and how can one install these?</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=46&filename=notification/dgft/2008/dgft08cir048.htm" target="_blank">DGFT Circular No. 48/ (RE-2008/2004-09), Dated: December 19, 2008</a></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Anti Dumping Duties - Commerce MOS explains</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Under the work programme of Doha Round of WTO Negotiations, negotiations are held in the Negotiating Group on Rules (NGR) which are aimed at clarifying and improving disciplines under the Anti Dumping Agreement (AD Agreement) and the Agreement on Subsidies and Countervailing Measures (ASCM).</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Article 2.4.2 of the AD Agreement contains provisions for determination of dumping margin in an anti dumping investigation by use of three kinds of comparison methodologies.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Zeroing is understood to mean where an investigating authority, while determining dumping margin, does not take into account those transactions where the export price exceeds the normal value and instead assigns a zero dumping margin value in such comparisons. This leads to an inflated dumping margin determined for the product as a whole.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">India has been opposed to the use of zeroing methodology as it leads to inflated dumping margin and consequently higher anti dumping duty. The Chairman of the NGR has issued a draft text on 30 November, 2007 proposing amendments, inter-alia, in the AD Agreement by introducing a new Article 2.4.3 whereby zeroing can be used in certain comparison methodologies. Similarly, in the provisions relating to collection of anti dumping duties covered under Article 9 of AD Agreement, the draft text of the Chairman of NGR proposes certain changes which allow the use of zeroing. During the discussions on the Chair's draft text in the NGR, India, Japan, Brazil, several ASEAN Members, China and several other Members have opposed the NGR Chair's proposed amendment in the text to allow zeroing and have requested for issue of a revised text.<br>
<br>
The overall conduct of the negotiations under the Doha Round is supervised by the Trade Negotiating Committee (TNC). Negotiations are held in various negotiating groups or bodies such as Market Access for Non-Agricultural Products (NAMA) for industrial products, Negotiating Group on Rules in respect of Anti Dumping Agreement and Subsidies Agreement, Special Session of the Agriculture Committee for negotiations in Agriculture, Services Council for negotiations in Services, Council for Trade Related Aspects of Intellectual Property Rights for IPR related issues, Special Session of the Dispute Settlement Body (DSB) in respect of the Dispute Settlement Understanding, Trade and Environment Committee in respect of environment related issues.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Proposals are made by the Members in the respective negotiating group or body related with the subject. In the Negotiating Group on Rules, some of the proposals made by India related to</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) Mandatory application of lesser duty in respect of Anti Dumping Agreement,</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) Effective Special and Differential Treatment (S&D) for developing countries in the proposed disciplines of Fisheries Subsidies;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii) Amendment in the method of determination of export competitiveness reached by developing countries for the purpose of Article 27.5 and 27.6 of the Subsidies Agreement;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iv) Proposal to consider India's system of fixation of Standard Input Output Norms (SION) as a reasonable verification system for the purpose of the Subsidies Agreement.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This information was given by Mr. Jairam Ramesh, Minister of State for Commerce, in a written reply in the Lok Sabha yesterday.</font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600">- Friday's cases</font></strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><strong><strong><strong><strong><strong><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"></b></strong></strong></strong></strong></strong></strong></strong></font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Misdeclaration - Copies of 'relied upon documents' not given to the party - A person charged with mis -declaration is entitled to know the ground on which he would be penalized - principles of natural justice violated - Supreme Court</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> statutory authorities under the Act exercise quasi-judicial function. By reason of the impugned order, the properties could be confiscated, redemption fine and personal fine could be imposed. In the event, a finding as regards violation of the provisions of the Act is arrived at, several steps resulting in civil or evil consequences may be taken. The principles of natural justice, therefore, were required to be complied with. Justice, as is well known, is not only be done but manifestly seem to be done.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Rent
- govt-tenant enhances it in 1994 with retrospective effect from 1987 -
taxability - reassessment <b><span style='mso-bidi-font-style:italic'>- <b>Explanation
2(c) to Sec 147 is applicable in this case and notice u/s 148 is not vitiated: HC
Larger Bench</b>
<o:p></o:p>
</span></b></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>RENT </strong>from
house property is a well established head of income. But its taxability has
consistently been a legal potpourri. When too many interpretations rented
the air, the CBDT inserted Sec 25B in the Income Tax Act vide Finance Act,
2000, to make it clear that if any arrears or rent, other than what has already been taxed under Section 23, are received in a subsequent year, the same will be taxed in the year of receipt whether the property is owned by the assessee in the year of receipt or not. A deduction of sum equal to one-fourth of such amount of rent shall be allowed towards repairs and collection of rent. But the problem is that this amendment is prospective w.e.f 2001. What about earlier assessment years?</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Valuation - Cost of gift articles like gold and silver coins put inside containers of lubricating oil or sunglasses and watches given as gifts with lubricating oil containers is required to be included in Assessable value of lubricating oil - Revenue also wins claim of equivalent penalty before Tribunal</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SUPPLY</strong> of free gifts have been held, both by the Tribunal and the Apex Court, in a series of decisions cited by the SDR, as an element of expenses which acts as incentive for sales promotion and is, therefore, an item of sale expenses, whose cost is required to be included in the cost of production as the Central Excise duty is chargeable on the price at which the goods are sold.</font></p>
<p align="center"><font size="6"><strong><font color="#3399FF" face="Verdana, Arial, Helvetica, sans-serif">Merry Christmas</font></strong></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See our columns on Friday for the judgements</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Friday with more<strong> DDT</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice Day.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p>
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