TIOL-DDT 2294 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body> <p><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><font color="#006600"><strong><strong><strong><strong><strong><strong><strong><strong><strong><img width="115" height="125" border="0" align="right" src="image/ddt/10yearsDDT.jpg" alt="" /></strong></strong></strong></strong></strong></strong></strong></strong></strong></font></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><font color="#006600"><strong><strong><strong><strong><strong><strong><strong><strong><strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=17063"><img width="175" hspace="5" height="120" border="0" align="right" src="http://www.taxindiaonline.com/RC2/image/stories/limca_book2013.jpg" alt="DDT in Limca Book of Records" /></a></strong></strong></strong></strong></strong></strong></strong></strong></strong></font></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></font><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT 2294</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br> 14.02.2014<br> Friday</font></strong></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income Tax - Disallowance of expenses under Section 14A - CBDT Clarifies </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SECTION</strong> 14A was inserted in the Income Tax Act, 1961 (the Act), by the Finance Act, 2001, with effect from 1.4.1962, in order to clarify, that any expenditure incurred in relation to income not includible in total income will not be allowable as a deduction. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A controversy has arisen in certain cases as to whether disallowance can be made by invoking section 14A of the Act even in those cases where no income has been earned by an assessee, which has been claimed as exempt during the financial-year. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBDT has examined the matter and notes that <em>legislative intent is to allow only that expenditure which relatable to earning of income and it therefore follows that the expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial-year or not. </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board further notes, “The above position is further clarified by the usage of term 'includible' in the Heading to section 14A of the Act and also the Heading to Rule 8D of the I.T. Rules, 1962 which indicates that it is not necessary that exempt income should necessarily be included in a particular year's income, for disallowance to be triggered. Also, section 14A of the Act does not use the word "income of the year" but "income under the Act". This also indicates that for invoking disallowance under section 14A, it is not material that assessee should have earned such exempt income during the financial year under consideration.” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Therefore Central Board of Direct Taxes, in exercise of its powers under section 119 of the Act clarifies that <em><strong>Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income.</strong></em></font></p> <p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=36&filename=notification/cbdt/2014/it14cir05.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBDT Circular No. 5/2014 in F. No. 225/182/2013-ITA.II., Dated: February 11, 2014 </font></strong></a></p> <p align="center"><strong><font color="#336600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income Tax - Distributed Income - Section 115R - No tax on redemption, bonus - MF units -CBDT Clarifies</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SECTION</strong> 115R of the Income-tax Act, 1961 provides for levy of additional income-tax on distributed income to unit holders (‘additional income-tax'). </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It has been reported that some field authorities are taking a view that mutual funds/specified companies are required to pay additional income tax under sub-section (2) to section 115R of the Act not only on income distributed by way of dividend but also on payments made at the time of redemption/repurchase of units as well as at the time of allotment of bonus units to existing investors. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board has examined the issue and notes:- </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Sub-section (2) of section 115R of the Act provides that any amount of income distributed by (i) a specified company, or (ii) a mutual fund to its unit holders shall be chargeable to tax and such entities shall be liable to pay additional income tax on such distributed income at the rates prescribed therein. However, redemption of units or repurchase of units would not attract levy of tax under sub-section (2) to section 115R of the Act as such income is not of the nature of income ‘distributed” to the unit holders and hence lies outside the purview of this section. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Further, the income so distributed by the mutual fund or specified company in the hands of the recipient unit holder is specifically exempt from tax under section 10(35) of the Act. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Similarly, bonus units at the time of issue would not be subjected to additional income tax under section 115R of the Act since issue of bonus units is not akin to distribution of income by way of dividend. </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, the CBDT clarifies that <em>additional income-tax under sub-section (2) of section 115R of the Act is to be levied on income distributed by way of dividend to unit-holders of mutual funds or specified companies and receipts from redemption/repurchase of units or allotment of additional units by way of bonus units <strong>would not be subjected to levy of additional income tax</strong> under that section</em>. </font></p> <p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=36&filename=notification/cbdt/2014/it14cir06.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBDT Circular No. 6/2014 in F. No. 225/182/2013-ITA.II., Dated: February 11, 2014 </font></strong></a></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">CENVAT Credit - Wrong Credit - Penalty - validity of Rule 15 upheld - HC </font></strong></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AS </strong>per Rule 15 of the CENVAT Credit Rules: </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(1) If any person, takes or utilises CENVAT credit in respect of input or capital goods or input services, wrongly or in contravention of any of the provisions of these rules, then, all such goods shall be liable to confiscation and such person, shall be liable to a penalty not exceeding the duty or service tax on such goods or services, as the case may be, or two thousand rupees whichever is greater. </em></font></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(2) In a case, where the CENVAT credit in respect of input or capital goods or input services has been taken or utilized wrongly by reason of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of the Excise Act or the rules made thereunder with intent to evade payment of duty, then, the manufacturer shall also be liable to pay penalty in terms of the provisions of section 11AC of the Excise Act. </font></em></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Recently, the validity of Rule 15(2) was challenged as ultra vires the Central Excise Act, 1944. The grounds were that section 37 does not authorise the delegated legislation to frame any rules for recovering penalty. In absence of specific powers for framing rules for levying penalty, the delegated legislation exceeded its limits of delegation in framing such rules. The penalty is also in the nature of compulsory exaction of tax of course of penal nature. In view of Article 265 of the Constitution, there could be no levy of tax without the authority of law. It was contended that with introduction of CENVAT regime whenever found necessary, the legislation did make changes in section 37 itself. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court observed that <em>there is always a presumption of constitutionality of statutory provision. Such presumption is available also in cases of delegated legislation. A piece of delegated legislation does not enjoy the same level of immunity as the Act of State or Central legislature. However, there are well laid down parameters within which a delegated legislation can be questioned. </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court noted that<em> Sub-section (1) of section 37 permits the Central Government to make rules to carry into effect the purpose of the Act, which would include collection of duty and penalty when the occasion so arises. Clause (d) of sub-section (4) of section 37 authorises the rule making body to frame rules for confiscation and collection of penalty when it is found that any manufacturer, producer or licensee of warehouse has contravened the provisions any provisions of such rule with intent evade payment of such duty. </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, the High Court did not find any substance in the challenge raised by the petitioner to the rule 15(2) of the CENVAT Credit Rules, 2004. </font></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The petition was therefore, dismissed. </font></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We bring you this High Court Order today.</font></p> <p><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> Please see <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=19751" target="_blank">Breaking News</a>.</font></strong></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Indian Currency in Demand - Pakistani arrested in Sri Lanka with Indian Rupees </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> Customs in Sri Lanka yesterday arrested a Pakistan National with Indian currency worth 15 lakhs. The passenger had arrived from Karachi. Indian currency being smuggled in foreign countries!</font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Pepper Spray </font></strong></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/pepper.gif" alt="Legal Corner Icon" width="125" height="225" hspace="5" border="0" align="left">You can buy Pepper Spray online from Apollo Pharmacy at Rs. 360 for 35 gms.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Pepper spray is an effective counter attack in the West, on people trying to commit crimes - it is used not just by women, but also by police, Customs, owners of establishments and Parliamentarians inside Parliament in some countries. It's non-lethal, but effective and <strong>legal</strong>. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In India, the use of Pepper Spray is not well known though its use inside Parliament has been effectively demonstrated.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There is Rajyalakshmi Rao, a former Judge offering pepper spray free of cost to any woman. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In some countries pepper spray is classified under heading 9304 - other arms. In Canada import of pepper spray for use on human beings is prohibited. In India there seems to be no such prohibition and it seems it is classified under 3304 - beauty preparations. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In US, there is a device that combines a flashlight, pepper spray and an alarm and the US Customs has classified this as a flashlight. </font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DDT Cartoon </strong></font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/150_Improvement.jpg" alt="Legal Corner Icon" width="424" height="479" hspace="5" border="0" align="center"><br> </font></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"> – Monday's cases</font></strong></font></strong></font></p> <p><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><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">Central Excise </font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">CENVAT - Credit taken not utilized and reversed - Penalty not imposable, but interest liability exists in view of Apex Court decision in Ind-Swift Laboratories: HC </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> Adjudicating Authority imposed penalty and demanded interest on the ineligible credit of Rs. 51,833/- taken by the assessee. Before the Tribunal, the assessee contested only the penalty and interest on the ground that credit was taken but not utilised. The Tribunal agreed and set aside the penalty and interest. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The provision of Rule 14 read with Section 11 AB is clear and does not leave to any ambiguity in its understanding, more so, in the context of the decision of the Hon'ble Supreme Court in Ind-Swift Industries. Held: in the context of the decision in Ind-Swift Industries, irrespective of the utilization of the credit and going by the provisions, interest on the wrong credit is called for, as per Rule 14 read with Section 11AB and in the circumstances on the aspect of leviable interest, the order of the Tribunal set aside and Revenue appeal allowed. </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income Tax </font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Whether when assessee has earned capital gains on transfer of land to developer, not filing income tax return merely because relevant documents were missing, and also fact that no appeal was filed after AO made additions, warrant penalty - YES: ITAT </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A</strong> survey u/s 133A was conducted in the case of ‘B' Pvt Ltd in which assessee was the managing director. It was noticed in survey that assessee had not filed his return of income. AO initiated penalty proceedings. In response to the said proceedings, assessee contended that the reason for not filing the income tax returns was that the information pertaining to the details of purchase of property given for development and will deed in which his mother gifted property to him was misplaced by his staff. Thus, due to lack of information return could not be filed within due date. In the absence of the same, it was not possible to compute capital gain and pay tax on it. In survey proceedings, revenue officials assured that if tax was paid, no penalty would be levied. The revenue officials advised to pay tax and file return despite the documents being lost. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The issue before the Bench is - Whether when the assessee has earned capital gains on transfer of land to developer, not filing income tax return merely because relevant documents were missing, and also the fact that no appeal was filed after the AO made additions, warrant penalty. And the answer goes against the assessee. </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax </font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">In appeal memorandum, Revenue seeks classification under BAS - since in SCN classification under BAS has not been raised at all, appeal has no merits, hence dismissed: CESTAT</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong>respondent assessee is engaged in providing e-commerce transaction services through website which facilitates sale and purchase of goods over internet and they were charging a commission from sellers for successful e-commerce transactions. In addition, they were also charging a “listing fee” towards “banner advertising” on the web site wherein the advertisements were flashed on the web site without any creative work involved. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Because of the e-commerce transaction services offered, the Revenue viewed that the activity would be exigible to service tax under the category of ‘online data access and/or retrieval service' as defined in Section 65(105)(zh) of the Finance Act, 1994 and accordingly, a show-cause notice dated 27/01/2005 was issued to the appellant demanding service tax of Rs.80,85,217/- for the period July 2001 to August 2004. </font></p> <p><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our Columns Monday for the judgements</font></strong></p> <p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Monday with more DDT</font></p> <p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice weekend.</font></p> <p><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"><strong>vijaywrite@taxindiaonline.com </strong></a></font></p> </body> </html>