TIOL-DDT 1166 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#660099" size="3">TIOL-DDT 1166 </font><br>
31.07.2009 <br>
Friday </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax - execution of power projects on turnkey basis – CBDT withdraws a 1989 Instruction </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CBDT</strong> has withdrawn Instruction No.1829 dated 21/9/1989 as the Board feels that the Instruction had been misused and misrepresented. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">According to the Board, the Instruction No. 1829/1989 </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Deals with the taxability of income arising to non-residents from the execution of power projects on turnkey basis involving activities to be carried out in India as well as outside India. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. analyses a hypothetical situation and taxability thereof. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. lays down the basis of taxation with regard to the four activities listed therein. With regard to the activity relating to profits from sale of equipments and materials on FOB basis, delivered at port outside India, where the payments are also made outside India, it instructs that on the given facts no part of the income will be deemed to accrue or arise in India. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But the Board found that in practice: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. the assessees rely on the instruction for not only the power projects but other projects as well. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Further, a single project is split into various components like offshore supply of equipments/services, onshore supply equipments and onshore services. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Sometimes, the contract is split even when only one contractor/supplier bid for the project. In such cases the contract is split into various components to be executed by the bidder and its associate concerns. Thus consortium of foreign companies is not in existence but is created to take advantage of the instruction. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. This is not the same case as “consortium of foreign companies” envisaged in the instruction. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. most of the profit is loaded in the offshore supply and the payments for the Indian portion of the contracts barely meets the expenses resulting into either losses in India or very low profit. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. The assessing officer's attempt to apportion profit correctly into various components of the overall project on the basis of functions, risks and assets is often resisted by the assessee taking recourse to the instruction. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7. even if it is proved that a part of the operations relating to supplies have taken place in India or the permanent establishment of the assessee had a role in offshore supply, the profit from offshore supply is claimed to be exempt under the instruction. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Thus, the Board found that, the instruction which was originally intended for only a particular type of turnkey power project, for a given situation, is being relied upon by assessees in all cases, in all situations, to align their business operation in a manner to avoid payment of taxes in India. This was never the purpose of issuance of this instruction. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So the instruction no.1829 dated 21.09.1989, is WITHDRAWN. And it took the Board twenty years to realise this! </font></p>
<p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=67&filename=notification/cbdt/2009/instruct0905.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CBDT Instruction No. 5/2009, Dated: July 20, 2009</strong></font></a></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Exchange Rates for August 2009 </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CBEC has notified the rate of exchange of conversion for Imported Goods and goods for Export for the month of August, 2009. Notification No. No. 68/2009-Customs (N.T.), dated the 26 th June, 2009 is superseded. </font></p>
<p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=24&filename=notification/custom/2009/cnt09_102.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Notification NO. 102/2009- Cus .,(N.T.), Dated: July 29, 2009</strong></font></a></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Beware of Fictitious Offers/Lottery Winnings/Cheap Fund Offers: RBI </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Reserve Bank of India has once again clarified that remittance in any form towards participation in lottery schemes is prohibited under the Foreign Exchange Management Act, 1999. Further, these restrictions are applicable also to remittances for participation in lottery-like schemes functioning under different names, such as, money circulation scheme or remittances for the purpose of securing prize money / awards, etc. The Reserve Bank has clarified that it neither maintains any account in the name of individuals / companies / trusts in India to hold funds for disbursal nor does it allow individuals to open an account to deposit money with the Reserve Bank. It also does not issue any certificates or advices or confirmations, evidencing receipt and holding of money in these accounts. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> The Reserve Bank has advised the public not to remit or deposit money in such accounts in response to fictitious offers/representations. The public may immediately bring the details of such offers to the notice of local police authorities for booking the culprits. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Reserve Bank advice came in the wake of many residents falling prey to such tempting offers and losing money in the recent past. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Reserve Bank of India has, on several occasions in the past, cautioned the members of public not to fall prey to fictitious offers / lottery winnings / remittance of cheap funds in foreign currency from abroad by certain foreign entities / individuals, including Indian residents acting as representatives of such entities / individuals. These offers are generally made through letters, e-mails, mobile phones, SMSs , etc. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Reserve Bank of India has stated that in addition to the typical modalities adopted in the past, the fraudsters have now resorted to issuing certificates, letters, circulars, etc., on letterhead that looks like that of the Reserve Bank of India's and purportedly signed by its executives / senior officials to make such offers look genuine. The fraudsters also convince the victims by impersonating as senior officials of the Reserve Bank with telephone numbers and/or fictitious e-mail IDs. Many fraudsters have even opened accounts with banks in India and advised public to deposit money in these accounts towards various charges, taxes, duties, etc. Once the money is deposited in their account, people mailing such offers withdraw the money and then vanish. The victim thus loses the money already paid. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Next time you get that mail informing you that you have won a big lottery, please delete that mail immediately. </font></p>
<p><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=wnew/rbi_notification.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>RBI Press Release : 2009-2010/168 Dated 30 July 2009 </strong></font></a></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>LAX
LAWS OF CUSTOMS - When North Pole is discovered you will find a Custom
House broker doing business there </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">That there are loopholes in the United States Custom House laws large enough to permit the Government being deprived of revenues to an almost unlimited amount was explained in an after-dinner speech delivered at the annual banquet of the Export Club. The speaker was Harry Robison one of the oldest Custom House brokers in this city. His topic was “The Custom House Proposition.” </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">He said: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The export business of the United States is a growing business. Make no mistake; this country already possesses all the qualifications for becoming the greatest exporting country on earth. We are even now beginning to dispute the supremacy in the markets of the world with older manufacturing countries, and we have just only begun at that. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We have all the resources, and all we need to take the lead in this respect is the bringing to near upon our export trade of more scientific methods, more actual knowledge of trade conditions and customs laws in other countries. It goes without saying that an organization of this kind is a step in the right direction. But we have a great deal to learn, and the sooner we learn it the better. One thing, for instances, that this club ought to have is a foreign department where its member could find at their fingers ends all available literature on trade conditions of and customs regulations in foreign countries in good plain English. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If it may not seem presumption on my part, I would like to give you a piece of advice. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When
you export goods to foreign countries, <strong>do not consult the United
States Consulates or other officials</strong>, no matter what their experience
or their ability, if you look for the best results. It will pay you to consult
a good Customs House broker, and be sure you get the best available, even
if it should cost you 30 cents more. It will pay you to do it, and you will
have no difficulty in finding one for the Custom House broker is omnipresent.
When the North Pole is discovered you will find a Custom House broker doing
business there. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This is no reflection on the United States Consuls abroad. They or at least the majority of them are capable and honest. But they change with the political fortunes and do not get time enough to familiarize themselves with matters it is essential they should know, while the Custom House broker stays. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Now, there is no Custom House broker who cannot beat the law of any land. </strong> There is no proposition so tough that he cannot get over it and if he cannot get over it he crawls under it. If I wanted to do crooked business I could make a million dollars a year easily, simply by taking advantage of the loopholes in the law. And there is only one way in which the Government under the present system can get over the defects of the law- that is, by taking the Customs House broker into partnership. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">I can make $10,000 or $50,000 or any amount in a day for any of you who will employ me, and I can and will give you an instance. John Doe of Paris ships ten boxes of very fine lace-worth, say. $40,000 to New York in bond for Titusville, Penn. When it gets to New York there is nothing in the law to prevent you, if the goods are shipped to you from substituting the ten boxes of laces for ten boxes of cheap French wine which cost $2 a box. The trick does not imply the connivance of any Customs House official. All that is necessary is that the boxes that are substituted should be marked in the same way as the boxes that you have imported. I could manage it at any time. </font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>This was published in the New York Times on September 10, 1903 – more than a hundred years ago. </strong></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">–</font></strong></font><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Monday's cases</strong></font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When used empty glass bottles and crates are removed, it is not possible to identify whether they are the same glass bottles and crates in respect of which the credit was availed by the unit when purchased as new glass bottles and crates. It was submitted that as the receiver of glass bottles and plastic crates, which are used as inputs, the Wada unit is entitled to take the credit, because the inputs were accompanied by the duty paying documents and duty had actually been paid by Nashik unit. </font></p>
<p align="justify"><font color="#660099" 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>Prosecution - discretion to withdraw from the prosecution is that of the Public Prosecutor and none else – Court cannot ask for permission from Government to the PP – High Court </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is the bounden duty of the Magistrate to apply his mind as to whether such a prayer for getting consent from the Court for withdrawal; is genuine or actuated by extraneous considerations </font></p>
<p align="justify"><font color="#660099" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>APGST </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>‘Base turnover' would refer to the turnover of the quantity in goods and not its monetary value: An exemption notification should be given a literary meaning. – Supreme Court </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The exemption notification must be construed having regard to the purpose and object it seeks to achieve. The Government sought for increase in industrial development in the State. Such a benevolent act on the part of the State, unless there exists any statutory interdict, should be given full effect. </font></p>
<p align="justify"><strong><font color="#660099" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Monday for the judgements </font></strong></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Monday with more <strong>DDT</strong></font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice Weekend. </font></p>
<p align="justify"><font color="#FF6666" 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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