TIOL-DDT 1890
29.06.2012
Friday

TODAY is the last day that better sense can prevail and the new negative list regime with its solitary goal of harassing genuine taxpayers is deferred. There are rumours that Vodafone may get relief from the retrospective amendment of Income Tax Act, with Pranab Da out of the scene, but thousands of small time assessees of Service Tax are destined to face the cruel fate of an unclear law making their lives miserable. Lakhs of Gulf Indians are deeply worried that there would be a tax on their remittances to India. All the Gulf newspapers are full of stories on the plight of poor Indians in Gulf sending a little money to their poor relatives. Member of Parliament Shashi Tharoor has already written to the Prime Minister about this short-sighted measure, which would divert remittances to hawala channels and tempting otherwise law-abiding citizens to indulge in undesirable malpractices.

There is nobody to tell them that the Service Tax is not on the amount of remittance but on the fee charged by the agencies for money transfer. For example, if the fee is one percent of the amount to be transmitted, for 10,000 rupees, the fee would be Rs. 100/-. On this, the tax would be Rs. 12/-. But Tharoor says, it would be Rs. 1236/-.

There is nobody in the CBEC to explain these things. Board doesn't seem to have a PR wing or if it has one, it is shy of making its views known to the Public.

There is nothing positive about the negative list - everyone is confused; and that includes Departmental officers and the consulting fraternity; there is no clarity.

And the Government is going to lose Education Cess on Service Tax from 1st July. Is this mad rush necessary? Can't we set things right and then start or do we start in chaos and allow things to settle by themselves after years of litigation?

An irresponsible Government with an irresponsive attitude can cause irreparable damage. A few more hours of today are still left for the Government to have a look before the leap. Will they do it?

Draft Guidelines for GAAR

CBDT had constituted a Committee to give recommendations for formulating the guidelines for proper implementation of General Anti Avoidance Rules (GAAR) and to suggest safeguards to these provisions to curb the abuse thereof. The Committee has made several important recommendations.

1. Monetary threshold: in order to avoid the indiscriminate application of the GAAR provisions and to provide relief to small taxpayers, there should be monetary threshold for invoking the GAAR provisions. But the Committee has not suggested the threshold limit

2. Time Limit: It may be prescribed that in terms of section 144BA(4), the CIT should make a reference to the Approving Panel within 60 days of the receipt of the objection from the assessee and in case of the CIT accepting the assessee's objection and being satisfied that provision of chapter X-A are not applicable, the CIT shall communicate his decision to the AO within 60 days of the receipt of the assessee's objection as prescribed under section 144BA(4) r.w.s. 144BA(5). No action u/s 144BA(4) or (5) shall be taken by the Commissioner after the period of six months from the end of the month in which the reference under sub-section 144BA(1) was received by the Commissioner.

3. Approving Panel:

a. To begin with, there should be one Approving Panel, which shall be situated at Delhi. Subsequently, the CBDT should review the number of approving Panels required on the basis of the workload in the FY 2014-15

b. The Approving Panel should comprise of three members, out of which, two members should be of the level of Chief Commissioners of Income Tax and the third member should be an officer of the level of Joint Secretary or above from the Ministry of Law. All the members should be full time members.

c. The Approving Panel should be provided the secretariat staff along with appropriate budgetary and infrastructure support by the CBDT. The secretariat should be headed by an officer of the level of Joint/Additional Commissioner of Income Tax.

4. Special provisions for Foreign Institutional Investors (FII's)

Where a Foreign Institutional Investor (FII) chooses not to take any benefit under an agreement entered into by India under section 90 or 90A of the Act and subjects itself to tax in accordance with the domestic law provisions, then, the provisions of Chapter X-A shall not apply to such FII or to the non-resident investors of the FII.

Where an FII chooses to take a treaty benefit, GAAR provisions may be invoked in the case of the FII, but would not in any case be invoked in the case of the non-resident investors of the FII.

5. Clarity regarding retrospective/prospective operations of the GAAR provisions: The provisions of GAAR will apply to the income accruing or arising to the taxpayers on or after 01.04.2013.

6. Interplay between Specific Anti-Avoidance Rules (SAAR) and General Anti Avoidance Rules (GAAR).

While SAARs are promulgated to counter a specific abusive behavior, GAARs are used to support SAARs and to cover transactions that are not covered by SAARs. Under normal circumstances, where specific SAAR is applicable, GAAR will not be invoked. However, in an exceptional case of abusive behavior on the part of a taxpayer that might defeat a SAAR, GAAR could also be invoked.

GAAR provisions:

1. The provisions relating to GAAR appear in Chapter X-A (sections 95 to 102) of the Act. The provisions allow the tax authority to, notwithstanding anything contained in the Act, declare an ‘arrangement' which the assessee has entered into, as an ‘impermissible avoidance arrangement'. Once an ‘arrangement' has been declared as an ‘impermissible avoidance arrangement', the consequence as regards the tax liability would also be determined.

2. The provisions give a wide definition of the term ‘arrangement'. An ‘arrangement' means any step in or a part or whole of any transaction, operation, scheme, agreement or understanding, whether enforceable or not. It also includes the alienation of any property in such a transaction etc. The onus of proving that there is an impermissible avoidance arrangement is on the Revenue.

3. An ‘arrangement' would be an ‘impermissible avoidance arrangement' if,

(a) its main purpose is to obtain a ‘tax benefit', and,

(b) it also has one of the following characteristics:

(i) it creates rights and obligations, which are not normally created between parties dealing at arm's length;

(ii) it results in misuse or abuse of the provisions of the tax law;

(iii) it lacks commercial substance;

(iv) it is carried out by means or in a manner which is normally not employed for an authentic (bona fide) purpose.

A ‘tax benefit' has been defined to mean

(i) a reduction or avoidance or deferral of tax or other amount payable under the Act or as a result of a tax treaty;

(ii) an increase in a refund of tax or other amount that would be payable under the Act or as a result of tax treaty; or

(iii) a reduction in total income including an increase in loss.

4. The onus of proving that

(A) there is an arrangement,

(B) the arrangement leads to a ‘tax benefit',

(C) the main purpose or one of the main purposes of the ‘arrangement' is to obtain a ‘tax benefit', and

(D) the arrangement has one of the characteristics listed at (i) to (iv) at (b) of 3 above

is on the revenue.

Draft Guidelines for GAAR

CBDT Invites Comments on Draft Guidelines for GAAR

DG, International Taxation has invited comments/suggestions on the Draft Guidelines on GAAR. They may be sent to

Ram Mohan Singh, IRS
Additional Director of Income Tax.
(International Taxation), Range-1,
4th Floor, Room No. 402,
Drum Shape Building, I.P. Estate,
New Delhi - 110001
or emailed to rammohan.irs@gmail.com

F. No. DGIT (Intl.Tax)/2012-13/644; Dated June 28 2012

Customs - Exemption for Mega Power Projects - Bank Guarantee Accepted

GOODS required for setting up mega power projects are exempted from Customs duty vide Sl. No. 507 of the Table in Notification No. 12/2012-Cus dated 17.03.2012. Similarly, there is a concessional rate of duty for goods required for expansion of existing mega power projects.

One of the conditions for availing this exemption is:

In case of imports for a project for which certificate regarding Mega Power Project status issued by an officer not below the rank of Joint Secretary to the Government of India in the Ministry of Power is provisional, the importer furnishes a security in the form of a Fixed deposit Receipt from any Scheduled Bank for a term of thirty six months or more in the name of the President of India for an amount equal to the duty of customs payable on such imports but for this exemption, to the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, at the time of importation and if the importer fails to furnish the final mega power status certificate within a period of thirty six months from the date of importation, the said security shall be appropriated towards duty of customs payable on such imports but for this exemption .

Now, Bank Guarantee will also be accepted instead of Fixed Deposit.

Notification No. 43/2012-Cus., Dated: June 27, 2012

Central Excise - Exemption for Mega Power Projects - Bank Guarantee Accepted

THERE is a similar exemption in Central Excise vide Sl. Nos. 337 and 338 of the Table to Notification No. 12/2012-CE dated 17.03.2012.

Here also Bank Guarantee is to be accepted in addition Fixed Deposit Receipt.

Notification No. 28/2012-CX., Dated: June 27, 2012

DDT Cartoon

Jurisprudentiol - Monday's cases

Central Excise

In ER1 returns only duty payable amount, credit taken and duty paid are indicated - From details given, no one can make out whether credit of tax availed is correct or not and whether it is in respect of a dutiable or exempted product - prima facie it cannot be claimed that there is no suppression: Pre-deposit ordered: CESTAT

DUTY Drawback on Re-export of Industrial Enzymes - Petitioner claimed duty draw back under Section 74 of the Customs Act, 1962 - Department directs petitioner to produce non-availment of CENVAT Certificate/Declaration and Bank Realisation Certificate/GR Waiver. Petitioner produced CENVAT Certificate Vide letter dated 24.12.2009 and produced Bank Realisation Certification on 03.11.2010. Respondent returns claim treating it as “Claim not Filed”. Petitioner filed Writ Petition - High Court directs grant of duty draw back.

Income Tax

Whether profits from sale of plot can be included in income of assessee when neither sale deed has been registered nor possession has been handed over to purchasers - NO: ITAT

THE  issues before the Tribunal are - Whether an accounting method followed by an assessee continuously for a given period of time can be presumed to be correct, untill the AO has reasons to believe that system does not reflect true and correct profit; Whether in terms of section 145, AO is required to establish any illegality or facts creating hurdles in computing the correct income, before rejecting the principle of accounting; Whether when res judicata not being applicable to income-tax proceedings, principle of consistency can still be followed unless there is material change in the fact; Whether the sale value of the plots/flats can be included in the revenue of the assessee, when the assessee has rightfully assigned the allotment rights of such flats/plots in favour of its sister concern and Whether expenses not claimed by the assessee can be added back during the computation of the income of the assessee. And answers to all these questions go in favour of the assessee.

Service Tax

Applicants have taken over activities of managing/running Hotel themselves - If they themselves are managing affairs of organization,  prima facie , it does not fall under ‘Management Consultancy Service' - Pre-deposit of Rs. 8 Crores of adjudged dues waived and stay granted: CESTAT

ON going through the definition of ‘Management Consultancy Service', it is clear that a person who is engaged in providing any service in connection with the management of any organization which means he should provide a service for managing the day to day affairs of the organization. If he himself is managing the affairs of the organization, prima facie, it does not fall under the ‘Management Consultancy Service'. The issue was dealt by this Tribunal in the case of Basti Sugar Mills Co. Ltd. wherein this Tribunal has held that “the appellant engaged in sugar manufacture took over management of another sugar mill. The agreement was treated as management consultancy and service tax demanded.

See our columns Monday for the judgements

Until Monday with more DDT

Have a Nice Weekend

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