TIOL-DDT 1223 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1223 </font><br>
26.10.2009 <br>
Monday</strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income deemed to accrue or arise in India – CBDT withdraws forty year old Circular </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=36&filename=notification/cbdt/1969/it69cir23.htm">CIRCULAR
NO. 23/1969</a>, Dated: July 23, 1969, the CBDT had clarified <em>inter alia </em> that: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Section 9 provides, inter alia, that income accruing or arising, directly or indirectly, through or from any business connection in India, shall be deemed to be income accruing or arising in India and, hence, where the person entitled to such income is a non-resident, it will be includible in his total income. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Clarifications issued in the past by the Board have been consolidated and restated in CIRCULAR NO. 23/1969, Dated: July 23, 1969 for the information and convenience of the public. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(1) NON-RESIDENT EXPORTER SELLING GOODS FROM ABROAD TO INDIAN IMPORTER </strong>- (i) No liability will arise on accrual basis to the non-resident on the profits made by him where the transactions of sale between the two parties are on a principal-to-principal basis. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(2) NON-RESIDENT COMPANY SELLING GOODS FROM ABROAD TO ITS INDIAN SUBSIDIARY - </strong> In such a case, if the transactions are actually on a principal-to-principal basis and are at arms length and the subsidiary company functions and carries on business on its own, instead of functioning as an agent of the parent company, the mere fact that the Indian company is a subsidiary of the non-resident company will not be considered a valid ground for invoking section 9 for assessing the non-resident. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(3) SALE OF PLANT AND MACHINERY TO AN INDIAN IMPORTER ON INSTALMENT BASIS - </strong>Where the transaction of sale and purchase is on a principal-to-principal basis and the exporter and the importer have no other business connection, the fact that the exporter allows the importer to pay for the plant and machinery instalments will not, by itself, render the exporter liable to tax on the ground that the income is deemed to arise to him in India. The Indian importer will not, in such a case, be treated as an agent of the exporter for the purposes of assessment. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(4) FOREIGN AGENTS OF INDIAN EXPORTERS - </strong> A foreign agent of Indian exporter operates in his own country and no part of his income arises in India. His commission is usually remitted directly to him and is, therefore, not received by him or on his behalf in India. Such an agent is not liable to income-tax in India on the commission. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(5) NON-RESIDENT PERSON PURCHASING GOODS IN INDIA </strong>- A non-resident will not be liable to tax in India on any income attributable to operations confined to purchase of goods in India for export, even though the non-resident has an office or an agency in India for this purpose. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(6) SALES BY A NON-RESIDENT TO INDIAN CUSTOMERS EITHER DIRECTLY OR THROUGH AGENTS - </strong> Where a non-resident allows an Indian customer facilities of extended credit for payment, there would be no assessment merely for this reason provided that (i) the contracts to sell were made outside India; and (ii) the sales were made on a principal-to-principal basis. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(7) EXTENT OF THE PROFIT ASSESSABLE UNDER SECTION 9 </strong> - Section 9 does not seek to bring into the tax net the profits of a non-resident which cannot reasonably be attributed to operations carried out in India. Even if there be a business connection in India, the whole of the profit accruing or arising from the business connection is not deemed to accrue or arise in India. It is only that portion of the profit which can reasonably be attributed to the operations of the business carried out in India, which is liable to income-tax. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">After six years, Board issued a further clarification in <em><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=36&filename=notification/cbdt/1975/it75cir163.htm">CIRCULAR
NO. 163/1975</a>, Dated: May 29, 1975 </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">By virtue of clause (b) of the Explanation to section 9(1)(i) of the Income-tax Act, 1961, the correct legal position is that in the case of non-resident, no income shall be deemed to accrue or arise in India through or from operations which are confined to purchase of goods in India for the purpose of export. Accordingly, the mere existence of an agency established by a non-resident in India will not be sufficient to make the non-resident liable to tax, if the sole function of the agency is to purchase goods for export. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">After another twenty five years, Board issued yet another clarification to the 1969 Circular. <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=36&filename=notification/cbdt/2000/it00cir786.htm">Board's
Circular No: 786</a> Dated <strong>: </strong>February 7, 2000, clarified that: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Subject </strong> : Deduction of tax u/s 195 and the <strong><font color="#663399">taxability of export commission payable to non-resident agents</font> </strong>rendering services abroad - clarification regarding. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The deduction of tax at source under section 195 would arise if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No 23 dated 23.7.1969 is drawn, where the taxability of ‘Foreign Agents of Indian Exporters" was considered along with certain other specific situations. It had been clarified then that where the non-resident agent operates outside the country, no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments were therefore held to be not taxable in India. The relevant sections, namely section 5(2) and section 9 of the Income-tax Act, 1961 not having undergone any change in this regard, the clarification in Circular No 23 still prevails. No tax is therefore deductible under section 195 and consequently the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure. </font></p>
<p><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>And nine years later, all the above circulars are withdrawn. Why? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While withdrawing the Circular, the Board cautiously clarifies that </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Even when the Circular was in force, the Income-tax Department has argued in appeals, references and petitions that - </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. the Circular does not actually apply to a particular case, or </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. that the Circular cannot be interpreted to allow relief to the taxpayer which is not in accordance with the provisions of section 9 of the Income-tax Act or with the intention behind the issue of the Circular. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. the withdrawal of the Circular will in no way prejudice the aforesaid arguments which the Income-tax Department has taken, or may take, in any appeal, reference or petition. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Why to give a Circular, then take a different stand before the judiciary and then withdraw it? Now is this circular withdrawn with retrospective effect? Does the Income Tax Department plan to argue that the Circular never existed? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We will bring you a detailed analysis of the Circulars and the story of their withdrawal soon. </font></p>
<p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=36&filename=notification/cbdt/2009/it09cir07.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CIRCULAR NO. 7 /2009, Dated: October 22, 2009 </font></strong></a></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise - SSI exemption - Packing materials 11C Notification issued </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Printed cartons of paper or paper board, metal containers, high density polyethylene woven sacks, adhesive tapes, stickers, pilfer proof caps, crown corks, metal labels; Plastic bags, Printed laminated rolls, manufactured by a unit availing benefit of SSI Notifications, affixing the brand name or trade name of another person who was not eligible for the grant of exemption under the notification and that such goods were liable to duty of excise which was not being levied according to the practice during the period, is now exempted, from 1987. </font></p>
<p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2009/exnt09_24.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification No: 24 /2009-Central Excise(N.T.) Dated: October 21, 2009 </font></strong></a></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Import of diamonds for certification and grading and re-export - procedure </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A new scheme 2 has been introduced in the Foreign Trade Policy 2009-2014 (FTP) for import of diamonds for certification and grading and re-export thereof. Procedure has also been specified under paragraph 4A.14 of Handbook of Procedure Volume I (HBP). The salient feature of this scheme and procedure in this regard are. </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) This scheme is presently allowed to the authorized offices/ agencies in India of Gemological Institute of America (GIA) in India only; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) GIA shall furnish a general bond to the satisfaction of the Asstt./Dy Commissioner of Customs at the port of import, undertaking to properly account for the diamonds, to follow the specified procedure and to re-export diamonds within the prescribed period; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii) The import shall be allowed under bill of entry having the detailed description of the diamonds, including <em>inter alia</em>, the dimensions, weight, colour, caratage, specification, approximate value etc of each piece of diamonds; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iv) The bill of entry should carry the endorsement “only for certification and grading”; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(v) GIA, while taking the diamonds in their unit, shall allot a unique 'control number' for identification purposes and maintain a separate account for such diamonds; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(vi) After the grading/certification, the diamonds shall be re-exported under a shipping bill containing the detailed description as was mentioned at the time of import; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(vii) Cross reference of B/E shall be endorsed in the shipping bill; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(viii) The onus of certification shall solely rest with the GIA, i.e. the diamonds being re-exported are the same as those imported. GIA shall submit a certificate to this effect, along with the S/B, at the time of re-export; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ix) GIA shall obtain GR waiver in respect of import and re-export as per the procedure laid down by RBI and realize the foreign exchange for the service charges in terms of RBI guidelines; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(x) The premises of GIA can be visited by Custom officers for surprise audit or checks. The Commissioner should devise a system of random audit at least twice a year; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(xi) The diamonds imported for certification/grading are to be re-exported within a period of 3 months from the date of import; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(xii) The importer shall submit a quarterly statement by 25th of the month succeeding quarter. The statement should reflect the B/E No. & date, details of diamonds and details of re-exports etc; and </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(xiii) Re-export shall be allowed only from the port through which import took place. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The DGEP wants wide publicity to be given to these instructions and difficulties, if any, in implementation of these instructions, to be brought to the notice of the Directorate General of Export Promotion. </font></p>
<p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=25&filename=notification/custom/2009/cuscir09_030.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBEC Circular No. 30/2009-Cus: Dated: October 22, 2009 </font></strong></a></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><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"> – Tuesday's cases</font></strong></font></strong></font></p>
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color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax </strong></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Appellant ‘renting' their buses to ITDC and Garhwal Vikas Nigam Ltd and registering themselves as ‘Rent-a-Cab' operator w.e.f 01.06.2007 – No cause to classify them as ‘Tour Operator' for prior period and demand Service Tax – Prima facie case - CESTAT grants stay. </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The appellant receives ‘rental' for their <strong>buses </strong>which were allowed to be used by M/s India Tourism Development Corporation Ltd. (ITDC) and Garhwal Vikas Nigam Ltd. With effect from 01.06.2007, they have registered themselves with the Service Tax department and are paying Service Tax under the head “Rent-a-Cab” Operator. </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"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Assessee
is real estate developer - borrows funds in cash to buy a plot of land
- violation of Sec 269SS - Penalty u/s 271D - Since ready cash-backing
helps in negotiating land deals, a reasonable cause existed u/s 273B -
Penalty not sustainable: ITAT Third Member </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">IN all Income tax related disputes, Revenue is mandatorily one of the parties. Does it mean that by the virtue of its status in all disputes, it is an adversary of the assessees. Not necessarily. It has a unique status as it is expected to grant the relief to an assessee even if one has not claimed it out of ignorance. In other words, Revenue is expected to collect revenue only as per the law, and not to disprove a particular business practice and deny the concessions granted by the legislature. This is what happened in this case when the assessee, a real estate developer, could not resist the temptations to buy a piece of land at an attractive price, and decided to have the backing of hard cash to negotiate a better deal. For the deal the assessee borrowed cash from a trusted source and went ahead with the negotiations. But the deal fell through and the assessee had to deposit the cash in its bank account and issue a cheque for the same amount to the source which lent him the cash from his cash book register. </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"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">When assessee informed department manner in which they intended to value P & P medicaments after introduction of MRP based assessment, Revenue ought to have taken action immediately – Strong prima facie case on limitation – Pre-deposit dispensed with and Stay allowed unconditionally. </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The appellants are engaged in the manufacture of P&P medicaments in respect of which assessment based on MRP was introduced from January 2005. The assessee submitted letter to the Assistant Commissioner intimating that they had calculated the assessable value based on the MRP as per the DPCO order and not on the basis of MRP printed on the medicaments. </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Tomorrow for the judgements </font></strong></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more<strong> DDT </strong></font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day. </font></p>
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