CRITICAL ISSUESS IN CORPORATE TAXATION

Report
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







[email protected]% plus SC+EC
[email protected]% 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.

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