1 Saturday, 29th June, 2013 Direct Taxes Refresher Course Vadodara Branch of WIRC of ICAI Vadodara Gujarat Pradip N. Kapasi Chartered Accountant Deemed Dividend- 1 2 Deemed dividend of earlier years –effect P. Company and license - MLA in financing business Krishna Gopal Maheshwari, 28 taxmann.com 13 (Agra) Credit by journal entries Satya Prasad, 141 ITD 403 (Visakhapatnam) Gurbinder Singh, 146 TTJ 60 (Chennai) Allotment of flat with occupancy rights - S. 2(22)(a) Shantikumar D Majithia, 140 ITR 251 (Mum) Pradip N. Kapasi Chartered Accountant Deemed Dividend- 2 3 Credit bal. of properiotor on conversion into company Loan in lieu of bank guarantee by MD Smt. G. Sreevidya, 24 taxmann.com 75 (Chennai) Holding co. channelling loans from/to subsidiaries Radhe Sham Jain, 28 taxmann.com 255 (Chd) Farida holdings (P.) Ltd., 21 taxmann.com 462 (Chennai) Advance salary to Managing Director N. Pramodh, 52 SOT 38 (Chennai) Pradip N. Kapasi Chartered Accountant Deemed Dividend- 3 4 Tax in the hands of shareholders or recipients Registered & Beneficial Owner Bhaumik Colour, 120 TTJ 865 (Mum.) (SB) Universal Medicare, 237 CTR 147 (Bom.) Hotel Hilltop, 217 CTR 527 (Raj.) Ankitech (P) Ltd., 242 CTR 129 (Del.) Where partnership is a recipient National Travel Service, 202 Taxman 327 (Del.) Chandmull Batia, 115 ITR 388 (Cal.) Where beneficiary; HUF, Trust, AOP, BOI, Two or more persons interest Pradip with N. Kapasi Pradip substantial N. Kapasi CharteredChartered Accountant Accountant None. Anyone. Proration Deemed Dividend- 4 5 Need for Economic benefit Swati Energy & Projects Pvt. Ltd., 11 ITR (Trib.) 705 (Mum.) Loan to a Debenture holder Anilkumar Agarwal, 132 ITD 314 (Mum.) Pradip N. Kapasi Chartered Accountant Minimum Alternative Tax- 1 6 Clause (i) in Expl 1 inserted w.r.e. from 2001 ‘provision’ and ‘erosion’ S. 80IB deduction and Book Profit Sankhala Polymers , 31 taxmann.com 166 (Karnataka) Capital gains on sale of property reflected in bal.sheet. Whirlpool of India Ltd., 31 taxmann.com 200 (Delhi) Forever Diamonds (P) Ltd. 31 taxmann.com 152 (Mum) Loan liability credited to profit and loss account Dream Shelters (P) Ltd. 56 SOT 440 (Agra) Pradip N. Kapasi Chartered Accountant Minimum Alternative Tax- 2 7 Provision for gratuity & MAT Provision for warranty & dimi. in value of assets Echjay Forgings (P) ltd., 251 ITR 15 (Bom) Rotork Controls India (P) Ltd. 314 ITR 62 (SC) Inox Leisure Ltd. , 351 ITR 314 (Guj) Becton Dickinson India (P) Ltd., 29 taxmann.com 80 Incremental liability for leave encashment not debited to P & L A/c but referred in notes K.K. Nag Ltd., 52 SOT 381 Pradip N. Kapasi Chartered Accountant Minimum Alternative Tax- 3 8 Agreed Additions Dream Shelter (P) Ltd., 56 SOT 440 Withdrawal of MAT & DDT exemption to SEZ promissory estoppel Priority of credit u/s 115JAA over SC & EC Classic Shares & Securities (Mum.), ITA No. 5869/Mum/2007 Depreciation at different rates Mindtree Ltd, 34 taxmann.com 250 (Karnataka) Malayala Manorama Ltd, 300 ITR 251 (SC) Dynamic Orthopedics, 321 ITR 300 (SC) Loss on reduction in share capital Sumi Motherson, 2010-TIOL-756-Delhi Pradip N. Kapasi Chartered Accountant Firm to Company 9 Appreciation on revaluation of Assets and capital gains tax Receipt of higher number of shares on revaluation Madan Mohan Chandak, 47 SOT 207 (Chennai) An income otherwise not taxable & violation of S. 47A(3) Nayan L. Mepani, 49 SOT 641 Slump sale by a proprietor to a company & eligibility Alta Inter-chem Industries 32 taxmann.com138 (Ahd) Umicore Finance Luxembourg, 189 Taxman 250 Delay in allotment of shares on conversion and S. 47 (xiv) Sanjay Singh, 50 SOT 67 (Delhi) Pradip N. Kapasi Prakash Electric Co., 118 TTJ 539 (Bang.) Chartered Accountant Amalgamation & Demerger-1 10 Benefit of S. 47(v) only to wholly owned subsidiary Reserves representing gains on amalgamation Spencer & Co., 148 TTJ 421 (Chennai) Holding and subsidiary company - sole shareholder Sunaero Ltd., 345 ITR 163 (Delhi) Credit Suisse (Int), 349 ITR161 (AAR) Gift of shares of Indian Co. By foreign company to its Indian subsidiary Orient Green Power Pte. Ltd., 346 ITR 557 (AAR) Pradip N. Kapasi Chartered Accountant Amalgamation & Demerger-2 11 ‘Appointed day’ approved by the court & AO Indus Fila Ltd., 142 ITD 296 (Bom) Marshal & Sons, 223 ITR 809 (SC) Torrent P. Ltd, 354 ITR 34 (Guj.) BIFR’s power to grant benefit of S. 72A without consulting CBDT after 1.4.2000 Orient Vegetax Pro Ltd., 210 Taxmann 1(Delhi) Indian Shaving Products Ltd., 218 ITR 140 (SC) Directions of BIFR are binding on AO Kirloskar N. Kapasi Oil Engines Ltd., Chartered 54Pradip SOT 201(Pune) Accountant Amalgamation & Demerger-3 12 Demerger and tax savings S. 72A & c/f and set off of S. 35 expenditure Mahyco Vegetable Seeds Ltd., 123 ITD 40 (Mum) Deduction for bad debts of predecessor company Vodafone Essar Ltd. 24 taxmann.com 323 (Guj) Times Business Solutions, 33 taxmann.com 173 (Delhi) Set-off of losses of amalgamated company Reverse merger Wrigley India (P) Ltd., 142 TTJ 23 (Del.) Pradip N. Kapasi Chartered Accountant Amalgamation & Demerger – 4 13 S.47(vii) and s.2(19AA) W.e.f. 01.04.2013, A.Y. 2013-14 Saving from allotment of shares in consideration Where concerned company a shareholder Prospective application, only Pradip N. Kapasi Chartered Accountant Buy back of shares-I s.10(34A) & Chapter XII DA & s.115QA to QC, 14 Introduction w.e.f. 01.06.2013 Present position Not a dividend u/s 2(22) Taxable as capital gains u/s 46A No specific provision for dealer in shares No tax on company Amendment Tax on Domestic company buying back shares Tax @20% +SC+EC Deduction for amount received for shares - Premium Provisions for payment and recovery Pradip Kapasi & Co. Shares of company not listed on recognized SE Buy back of shares-II s.10(34A) & Chapter XII DA & s.115QA to QC, 15 Applicable to: All unlisted companies All shares -Preference shares All shareholders Buy back as per s.77A of Companies Act,1956 Tax not deductible for company Pradip Kapasi & Co. Buy back of shares-III s.10(34A) & Chapter XII DA & s.115QA to QC, 16 Parallel provisions of s.46A Cost of acquisition of shareholder Treatment of losses Exemption in hands of shareholder of receipts Where tax paid by company u/s 115QA No credit for taxes paid for shareholders Pradip Kapasi & Co. DDT- s.115-O (IA) 17 W.e.f. 01.07.2012 One cascading effect of DDT on Dividend relaxed Distribution by recipient domestic company eligible for relief Need not be an ultimate holding company May be subsidiary of another upstream company Concession only for group companies Amendment w.e.f. 01.06.2013 Further relief from cascading effect Receipt of dividend by Indian company From foreign subsidiary co Tax payable u/s. 115BBD Pradip N. Kapasi One time reduction Chartered Accountant Dividend from Foreign Co - s.115BBD 18 Amendment w.e.f. AY 2014-15 Receipt of dividend by a Indian Co From foreign subsidiary co( 26 per cent) Tax @ 15% Benefit extended once more to FY 2013-14 Pradip Kapasi & Co. Public Offer & Exemption u/s 10(38) 19 Amendment of Finance Act, 2012 for STT Offer for sale of unlisted equity shares to public in an IPO STT @ 0.2% by lead Merchant Banker form Seller Subsequent Listing on recognized Stock Exchange Pradip N. Kapasi Chartered Accountant Securitization Trusts -I s.10(23DA), 10(35A) & Chapter XII EA s.115TA to 115TC 20 Amendment w.e.f. 01.06.2013 New provision for exemption for Secu. Trust Income from activity of securitization Trust regulated by RBI or SEBI Additional tax on distribution of income on Trus Tax@25% plus SC+EC Tax@30% plus SC+EC Nil where investor is exempted from tax Tax on distribution Provisions for payment return and recovery Exemption for Beneficiaries(Investor) DDT for Investor Pradip Kapasi & Co. Securitization Trusts -II s.10(23DA), 10(35A) & Chapter XII EA s.115TA to 115TC 21 Material difference from s.10(23FB) Tax on income after deductions Treatment of losses of investor Securitization company Pradip Kapasi & Co. Insurance Policies s.10(10D)&s.80C(3A) 22 Amendment w.e.f. A.Y. 2014-15 Exemption u/s 10(10D) for receipt under a LIP Deduction u/s 80C for premium under LIP Relaxation for Disabled or Diseased Recipient Premium <= 10% of sum assured Premium <= 15% of sum assured No exemption for sum received under a KIP KIP assigned before maturity Rajan Nanda, 349 ITR 8(Del.) Amendment for continued treatment as a KIP Pradip Kapasi & Co. Investment Allowance -I s .32AC 23 Introduction For A.Y. 2014-15 & A.Y. 2015-16 New Allowance only for companies Engaged in business of manufacture or production New P&M acquired and installed After 31.03.2013 but before 01.04.2015 Actual cost of new assets to exceed Rs. 100 crore Article or thing During 1.4.2013 to 31.3.2015 Usual exclusions Pradip Kapasi & Co. Investment Allowance -II s .32AC 24 Not to reduce WDV and quantum of depreciation No provisions for Reserve and Utilization No provision for carry forward of allowance Book Profit unaffected- MAT leviable No transfer within 5 years of installation Deemed income of year of transfer Exception for amalgamation and/or demerger Pradip Kapasi & Co. Investment Allowance -III s .32AC 25 Investment=cost of purchase + installation expenses Advance/WIP before 1.04.2013 Allowance @ 15% of Actual cost A.Y. 2014-15 only if cost exceeds Rs.100 crore A.Y. 2015-16 on entire cost Reduced by cost for which ded. allowed in A.Y. 2014-15 Pradip Kapasi & Co. Commodity Derivatives & CTT S.36(1)(xvi)& 43(5) 26 Introduction w.e.f. 2014-15 Commodity derivative Non speculative u/s 43(5) Eligible transaction & Compliance Commodity Transaction Tax Eligible for deduction Where income included in business income Pertains to taxable commodities transactions Pradip Kapasi & Co. Employment of New workmen s.80JJAA,cl.18 27 Amendment w.e.f. AY 2014-15 Deduction to cos for wages to new workmen New stipulations Deduction for profits and gains derived from ‘Factory’ in place of ‘Industrial Undertaking’ ‘Manufacture’ in place of ‘Manufacture or production’ ‘Gods’ in place of ‘Article or thing’ ‘Hive off or transfer or acquired on amalgamation of IU’ in place of ‘formed by splitting up or reconstruction or amalgamation of a company’ Panacea Biotec Ltd, 121 TTJ 959(Del.) Texas Instruments (India)P. Ltd, 115 TTJ 976 (Bang) Pradip Kapasi & Co. Receipt of shares by CHC & Firm -I s.56(2)(viia) 28 Receipt of shares of a non s. 2(18) company By ‘firm’ and ‘company’ recipients s. 2(18) company excluded LLP included With/out consideration > Rs. 50,000, whole FMV as per Rules 11U & 11UA By or From –Resident or not COA in hands of recipient – s.49(4) Substantive not clarificatory Shares Preference shares included – CD not included Rights not included - Shares subsidiaries Pradip N. of Kapasi Chartered Accountant Receipt of shares by CHC & Firm -II s.56(2)(viia) 29 Exclusion for transfers s. 47(via),(vic),(vicb),(vid),(vii) Amalgamation, demerger, co-op. bank succession No exclusions Similar to s. 56(2)(vii) – Relative, etc. For stock-in-trade For shares of foreign companies For other exempted transfers For deemed transfers Adjustment in purchase cost W.e.f. 01.06.2010 Pradip N. Kapasi Chartered Accountant Receipt of ‘premium’ by CHC s.56(2)(viib) 30 Issue of shares by closely held company, A.Y. 2013-14 Receipt’ by a ‘CHC’ from a ‘resident’ Consideration for ‘issue’ of ‘shares’ Where exceeds face value Tax on excess over FMV of shares -Rs.50,000 Exemption for issue by VCC, VCF and VCU FMV as per prescribed method or satisfaction of A.O. Non resident, R&NOR Preference shares Income of the company Pradip N. Kapasi Chartered Accountant Share Capital and s.68- Amendments -I 31 Three Amendments of FA, 2012- w.e.f. A.Y. 2013-14 Law of cash creditors up to A.Y. 2012-13 Provisions. Essentials. Case Laws. Rate S. Hastimal, 49 ITR 273 (Mad.) –Source of source Lovely Exports (P) Ltd., 216 CTR 195 (SC) Shareholders Steller Investment Ltd., 115 Taxman 99 (SC) Non- genuine (Owners of Funds) Divine Leasing, 158 Taxman 440 (Del.) Non- name & address genuine (Owners of Funds) Onus shifted to AO Pradip to examine capacity N. Kapasi Chartered Accountant Share Capital and s.68- Amendments-II 32 Expanding and extending onus for certain receipts Onus to explain sources of source of receipt Share capital. Share premium. Like receipts From resident- VCC & VCF excluded Closely held company Payer to offer explanation- nature & source Satisfaction of AO On notice by AO to Payer Relevance of satisfaction of Payer’s AO Consequence Income of CHC Tax at 30% u/s 115BBE Pradip N. Kapasi Absence of discretionChartered Accountant Liquidation s. 46 33 COA of asset in the hands of shareholder FMV on the date of distribution Not to be reduced by Deemed dividend S. 49 (1)(iii)(c) and s. 55(2)(b)(iii) - applicability T.R.Srinivasan, 133 TTJ 49(Chennai) Piecemeal taxation and deduction of COA Cable and Wireless Ltd., 90 ITR 84 (Bom) Inland Agencies (P) Ltd., 143 ITR 186 (Mad) Benefit of reinvestment Ruby Trading Co. P. Ltd., 259 ITR 54 (Raj) Brahmi Investment P. Ltd., 48 TTJ 326(Ahd.) Exemption – distribution of qualifying asset ‘Purchase’ or not for s. 54F Distribution of stock - ‘other asset’ Taxability of capital gains Pradip N. Kapasi Applicability of s. 50C Chartered Accountant Deemed Speculation 1 34 Application to a Broker Excl. of speculation loss for deciding applicability Virendrakumar Jain, 42-A BCAJ 169(Mum.) Expl. to s.73 inapplicable to profit Paramount Info. Systems P.Ltd., 42-A BCAJ 169(Mum), Set-off of Expl. loss and amendment of 2006 Priyasha Mever Finance P.Ltd., 5 ITR 441 (Mum)(Trib.) Appollo Vikas Steels (P.) Ltd., 214 Taxmann 642 (Guj.) Order of set off against current years spec. profit Ashok Mittal, 213 Taxmann 197 (Delhi) Pradip N. Kapasi Chartered Accountant Deemed Speculation 2 35 F& O Losses not covered by Expl. to s.73 Madanlal Ltd, 51 SOT 188 (Kol.) Exception to apply after set off within the business head Darshan Securities Ltd., 341 ITR 556 (Bom.) Pradip N. Kapasi Chartered Accountant ESOP & DOA 36 Admissibility as business expenditure S.S.I. Industries , 85 TTJ 1049 (Chennai) Ranbaxy Laboratories Ltd, 124 TTJ 771 (Del.) PVP Ventures Ltd, 211 Taxman 554 (Mad.) Date of offer or grant or allotment Dr. Dhurjati Gupta, 127 TTJ 356 (Hyd.) Pramod H. Lele, 143 TTJ 721 (Mum.) Amrish Kumar Jhamb, 32 taxmann.com 210 (Del.) Pradip N. Kapasi Chartered Accountant Method of Accounting, AS & Company 37 S.209 of Companies Act Cash system of accounting Stup Consultants Pvt. Ltd., 13 ITR (Trib) 468 (Mum.) Pradip N. Kapasi Chartered Accountant Income during Construction Period 38 Tuticorin Alkali, 227 ITR 172 (SC)-Interest Bokaro Steel, 236 ITR 315 (SC)-Rent Neha Proteins Ltd, 306 ITR 102 (Raj.)- Set-off Winsome Dyeing, 10 DTR 207 (HP) -Taxable L.G. Electronics, 309 ITR 265 (Del.)-Set-off Pradip N. Kapasi Chartered Accountant Corporate expenses -I 39 S.35 (2AB)(1), SRE – outsourced Cadila Fereebies by Pharmaceutical companies Healthcare Ltd., 31 taxmann.com 300 (Guj) Circular 5 of 2012 S. 35DDA - VRS Scheme in accordance with R. 2BA Implication of non-compliance Warner Lambert, 143 TTJ 571 (Mum.) Sony India Ltd., 141 TTJ 432 (Del.) Pradip N. Kapasi Chartered Accountant Corporate expenses -II 40 Brand Building expenes Fine Jewellery , 56 SOT 226(Mum.) Non-compete fees Payer’s perspective Revenue or capital Depreciation- tangible or intangible Payee’s perspective Capital receipts- capital gains, s. 55(2) Business income s.28(va) Pradip N. Kapasi Chartered Accountant Loan to Subsidiary- s.36(1)(iii) 41 Interest free and investment in shares commercial expediency S.A. Builders, 288 ITR 1 (SC) Tulip star Hotels Ltd. (SC) Effect of s.14A on investment in shares Pradip N. Kapasi Chartered Accountant Fluctuation in Rate of Exchange 42 Currency translations – year end Maruti Udyog Ltd., 320 ITR 729 (SC) Woodward Governor , 312 ITR 254 (SC) Forex forward contracts Open ended Nature of loss Accounting Taxation Panchmahal Steel Ltd., 33 taxmann 10 (Guj) S.Vinodkumar Diamonds Pvt.Ltd. ,ITA No. 506/M/2013(Mum.) Circular No.3 of 2010 dt. 23.03.2010 Pradip N. Kapasi Chartered Accountant Disallowance u/s 40(a)(ia) & TDS-1 43 ‘Paid’ and ‘Payment’ S. 40 (a)(ia), tax not deducted but paid Rana Builders, 31 taxmann.com, 372(Rajkot) Short withholding, rate or section Sikander N. Tumken --- taxmann.com --- (Guj) Crescent Exports (Cal), 33 taxmann.com 250 (Kol) Md. Jakir Hossain Mondal 33 taxmann.com 123 (Cal) Merilyn Shipping,146 TTJ 1 (Vizag) (SB) Chandabhoy & Jassobhoy, 49 SOT 448 (Mum.) Beekaylon Synthetics, 6506/M/2008 (Mum.) Not credited, not paid, Pradip N. Kapasi Pranik Shipping & Services Ltd. 135 ITD 233 (Mum.) Chartered Accountant Disallowance u/s 40(a)(ia) & TDS-2 44 Second proviso and retrospectivity Bharati Shipyard, 132 ITD 53 (Mum.) (SB) Virgin Creations, ITA No. 302 of 2011 (Cal.) Rajamahendi Shipping, 51 SOT 242 (Vizag) Marginal relief for initial assessment years Kotak Securities Ltd., 340 ITR333 (Bom.) DICGC Ltd., 14 ITR (Trib) 194 (Mum.) Dynamic Vertical Software, 332 ITR 222 (Del.) FA, 2012 Amendment Relief & Retrospectivity Pradip N. Kapasi Chartered Accountant 45 THANK YOU Pradip Kapasi & Co.