TIOL-DDT 958 · 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 958</font><br>
24.09.2008<br>
Wednesday</strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Excise duty and sales tax being indirect taxes cannot form part of the “turnover” – ITAT – Yesterday's order with you today – the TIOL way</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We are breaking our own records – today we bring you a classic order of the ITAT – delivered yesterday! And this is a 112 page order with more than 40,000 words – and today we bring you the order with our analysis – another first in the field of law reporting! Until we came into the scene, the ITAT cases used to be reported a couple of years after they were delivered. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Highlights of this classic ITAT decision:-</font></p>
<div align="justify">
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Deduction claimed by the taxpayer on account for provision for warranty holding the same to be an ascertained liability upheld.<br>
</font>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Excise duty and sales tax being indirect taxes cannot form part of the “turnover” and the same therefore have to be excluded from “total turnover” for the purpose of computing deduction u/s 80HHC.</font>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The miscellaneous income of the taxpayer was eligible for inclusion in the profits of the business for the purpose of computing deduction u/s 80HHC.</font>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The liability arising out of contracts had already accrued the minute the contract was entered into and the mere postponement of the payment of such liability to a future date would not extinguish the same so as to render it notional or contingent</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">.</font>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In a case where a taxpayer has acquired any capital asset from abroad for the purpose of his business or profession on credit or on deferred payment terms or against a loan in foreign currency and the whole or part of the cost of such asset or of the loan in foreign currency is outstanding as on the date on which there was a change in the rate of exchange of currency, the original actual cost to the taxpayer of such asset is required to be increased or as the case may be reduced correspondingly, <em>inter alia </em>, for the purposes of depreciation.</font>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Provision for doubtful debts is not an unascertained liability but the same is the provision created for diminution in the value of assets and the same, therefore, cannot be added/disallowed while computing the book profit u/s 115JB.</font>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The notice pay received by the taxpayer company from its employees was not eligible for deduction u/s 10A.</font>
</ul>
<ul>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Deduction on account of the expenditure incurred by the taxpayer on account of retrospective price revision, allowed.</font>
</div>
</ul>
<div align="justify">
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Deduction at 20% for various differences on account of intangibles, research and development, risk factors, working capital, etc allowed.</font></li>
</ul>
</div>
</div>
<div align="justify">
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify"> Benefit
of the second limb of the proviso of Sec 92C(2) is available to all taxpayers
irrespective of the fact that price of international transaction disclosed
by them exceeds the margin provided in the provision</font></li>
</ul>
</div>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">See our <strong>Breaking News </strong> for more details.</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax- J&K – extended date for filing tax return</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Central Board of Direct Taxes has extended the last date of filing of income tax returns and obtaining tax audit report under section 44AB of the Income Tax Act, 1961, due by 30 th September 2008, to 30 th November 2008 in the state of Jammu & Kashmir in view of the dislocation caused due to law and order problem in the state.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=67&filename=notification/cbdt/2008/instruct0813.htm" target="_blank">CBDT Press Release NO. No. 402/92/2006-MC (44 of 2008) , Dated: September 23, 2008</a></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax – Agents of Non- Residents need not file electronic returns</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It has been brought to the notice of the CBDT that the agents of non-residents, within the meaning of section 160(1)(i) of the Income-tax Act, are facing difficulties in electronically furnishing the returns of non-residents. This is because of the reason that there may be more than one agent for a non-resident in India for different transactions or a person in India may be an agent of more than one non-resident. Such situations are not covered by the existing software which functions on the principle of one assessee – one PAN – one return.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Accordingly, it has been decided by the Board that it will not be mandatory for agents of non-residents, within the meaning of section 160(1)(i) of the Income-tax Act, to electronically furnish the returns of non-residents for assessment year 2008-09. A circular has been issued by the Board (Circular no. 8/2008 dated 22.09.2008) to clarify the above position.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All our efforts to trace this circular failed. We will bring it to you later in the day.</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Hyderabad Open House – The Department answers Trade Questions – Chief Commissioner accessible to the trade any time</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Hyderabad Chief Commissioner of Customs, Central Excise and Service Tax, Jasdeep V Singh organised an Open House with her assessees on Saturday. The Department answered 46 questions sent in by anxious trade. <strong>TIOL </strong> requested the Chief Commissioner to give us the questions and answers for the benefit of a larger audience who could not be present at the “Open House”, to which she readily agreed. Today we bring you the answers given by the Department – as given by the Department – without our comments or editing.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the ‘Open House', a delegate requested the Chief Commissioner to fix a time when the trade can meet her. She replied that she has not fixed any particular time as she was accessible to the Trade at any time.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please see our <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=7911" target="_blank">Special Column</a> </strong> for the questions and answers:</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CESTAT Kolkata Bench – Space for the BAR</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Assistant Registrar of CESTAT, East Zonal Bench, Kolkata informs that adequate space has been provided to accommodate Members of the Bar including Advocate, C.A.s and Consultants who appear before CESTAT, Kolkata. The space provided is also sufficient to house a Library for use of the Members of the Bar-Some basic furniture including a few cupboards has also been provided in the space allocated by the Registry of CESTAT. The Bar is taking steps to acquire more furniture, books etc. from their own sources.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It if felt that this will go a long way to meet a long felt need of the Members of the Bar Association who earlier used to face a lot of inconvenience in the absence of proper accommodation during their visit to CESTAT, Kolkata. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CESTAT should consider providing more facilities like OHP, Computer and printer in the Court so that justice can be dispensed more efficiently. <strong>TIOL </strong> will be happy to provide complimentary CDs of our XCuSE.</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>RBI operationalises Foreign Currency Exchangeable Bonds Scheme</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“Issue of Foreign Currency Exchangeable Bonds (FCEB) Scheme, 2008” was notified by the Government of India, Ministry of Finance, Department of Economic Affairs vide Notification G.S.R.89 (E) dated February 15, 2008 and the RBI has decided to operationalise the Scheme.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“Foreign Currency Exchangeable Bond” means a bond expressed in foreign currency, the principal and interest in respect of which is payable in foreign currency, issued by an Issuing Company and subscribed to by a person who is a resident outside India, in foreign currency and exchangeable into equity share of another company, to be called the Offered Company, in any manner, either wholly, or partly or on the basis of any equity related warrants attached to debt instruments. The FCEB may be denominated in any freely convertible foreign currency.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Eligible Issuer: </strong> The Issuing Company shall be part of the promoter group of the Offered Company and shall hold the equity share/s being offered at the time of issuance of FCEB.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Offered Company: </strong> The Offered Company shall be a listed company, which is engaged in a sector eligible to receive Foreign Direct Investment and eligible to issue or avail of Foreign Currency Convertible Bond (FCCB) or External Commercial Borrowings (ECB). </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Entities not eligible to issue FCEB : </strong> An Indian company, which is not eligible to raise funds from the Indian securities market, including a company which has been restrained from accessing the securities market by the SEBI shall not be eligible to issue FCEB.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Eligible Subscriber: </strong> Entities complying with the Foreign Direct Investment policy and adhering to the sectoral caps at the time of issue of FCEB can subscribe to FCEB . Prior approval of Foreign Investment Promotion Board, wherever required under the Foreign Direct Investment policy, should be obtained.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Entities not eligible to subscribe to FCEB : </strong> Entities prohibited to buy, sell or deal in securities by the SEBI will not be eligible to subscribe to FCEB.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>End-use of FCEB proceeds:</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Issuing Company:</strong></font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) The proceeds of FCEB may be invested by the issuing company overseas by way of direct investment including in Joint Ventures or Wholly Owned Subsidiaries abroad, subject to the existing guidelines on overseas investment in Joint Ventures/Wholly Owned Subsidiaries.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) The proceeds of FCEB may be invested by the issuing company in the promoter group companies.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Promoter Group Companies:</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Promoter Group Companies receiving investments out of the FCEB proceeds may utilise the amount in accordance with end-uses prescribed under the ECB policy.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>End-uses not permitted: </strong> The promoter group company receiving such investments will not be permitted to utilise the proceeds for investments in the capital market or in real estate in India.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>All-in-cost: </strong> The rate of interest payable on FCEB and the issue expenses incurred in foreign currency shall be within the all-in-cost ceiling as specified by Reserve Bank under the ECB policy.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Pricing of FCEB : </strong> At the time of issuance of FCEB the exchange price of the offered listed equity shares shall not be less than the higher of the following two:</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) The average of the weekly high and low of the closing prices of the shares of the offered company quoted on the stock exchange during the six months preceding the relevant date; and </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) The average of the weekly high and low of the closing prices of the shares of the offered company quoted on a stock exchange during the two week preceding the relevant date.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Average Maturity: </strong> Minimum maturity of FCEB shall be five years. The exchange option can be exercised at any time before redemption. While exercising the exchange option, the holder of the FCEB shall take delivery of the offered shares. Cash (Net) settlement of FCEB shall not be permissible.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Parking of FCEB proceeds abroad : </strong>The proceeds of FCEB shall be retained and/or deployed overseas by the issuing/promoter group companies in accordance with the policy for the ECB.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It shall be the responsibility of the issuing company to ensure that the proceeds of FCEB are used by the promoter group company only for the permitted end-uses prescribed under the ECB policy. The issuing company should also submit audit trail of the end-use of the proceeds by the issuing company / promoter group companies to the Reserve Bank duly certified by the designated Authorised Dealer bank.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Operational Procedure – </strong> Issuance of FCEB shall require prior approval of the Reserve Bank under the Approval Route for raising ECB . The Reporting arrangement for FCEB shall be as per extant ECB policy.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/print_subcat.php?subCatDisp_Id=280&filename=notification/rbi/2008/rbi08cir017.htm" target="_blank">A.P. (DIR Series) CIRCULAR No. 17/ RBI ., Dated: September 23, 2008</a></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">– Tomorrow's cases</font></strong></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><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></strong></font>Income Tax</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Incentive deduction under section 80HHE in respect of profits of business of software exports – not eligible for foreign companies – no discrimination - ITAT</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A</strong> careful analysis of the scheme of Section 80HHE does show that the differentiation is on the basis of residential status of a taxpayer and not on the basis of place of incorporation of the company. Section is quite specific that so far as persons other than companies, i.e. non corporate taxpayers, are concerned only residents are eligible for deduction under section 80HHE , and that, by implication, non residents are not eligible for deduction under section 80HHE . Coming to the question of eligibility of the companies or corporate taxpayers, it is to be noted that the expression 'Indian company is also neatly defined under the Act, under Section 2 (26) of the Act, as a company formed and registered under the Companies Act' and includes certain other categories of other entities formed or incorporated in India. So far as the companies, i.e. corporate taxpayers, are concerned, this Section provides <strong>, </strong> that only Indian companies are eligible for deduction. By implication, it would appear that, while Indian companies are eligible for this deduction irrespective of their residential status, the foreign companies are not eligible for this deduction. </font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>No liability can be incurred only by making advance payment; Deduction not allowable on pre-paid rent relating to next financial year: ITAT Special Bench</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> an interesting decision the Special Bench of the Tribunal has held that<strong> a claim for deduction for pre-paid lease rent relating to next financial year cannot be allowed in the current AY. And the rationale is that a deduction can be allowed only when a liability is incurred. And under the mercantile system of accounting, a liability can be said to have arisen only when an enforceable debt is created against the assessee. And, since in the present case, a payment has been made in advance even before a liability is incurred by the assessee, it cannot be allowed as deduction in the current AY.</strong></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>Very fact that applicants indicate 'Manufacturing date' on 1kg pack, branded ' Sika Noleek ' shows that they themselves recognize process undertaken by them as manufacture – No strong <em>prima facie </em>case – Tribunal orders pre-deposit</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong>issue involved in the instant case is whether the repacking of the Talc powder obtained in bulk into small packs of 1Kg and putting the brand name of “ Sika Noleek ” of the applicants amounts to manufacture or not.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The applicant was of the firm belief that this activity does not take him any where near the Central Excise Tariff and the Excise officers but the <strong>Revenue wanted to plug the Revenue leak </strong>– hence they demanded Central Excise duty on “Noleek” saying that it is the outcome of a manufacturing process.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Computer training institute – Eligible for exemption prior to 16.6.2005 – notification not to have retrospective effect: CESTAT</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>"COMMERCIAL OR COACHING"</strong> services were brought into the service tax net w.e.f. 1st July 2003. Notification No. 9/2003-ST effective from 01/1/2003 exempted the taxable services provided in relation to commercial training or coaching, by a vocational training institute, a computer training institute or a recreational training institute. The said exemption benefit was extended time to time. Thereafter, Notification No. 24/2004-ST dated 10/9/2004 exempted the taxable services in relation to commercial training or coaching, by "a vocational training institute", or "a recreational training institute".</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Tomorrow for the judgements</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow 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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