Cabinet approves amendment in Railways Act for expeditious land acquisition for special projects + Before PM's visit Cabinet gives nod to many pacts with China in areas like Railways, housing and geosciences;

New Chairman of Income Tax Settlement Commission is going to be J G Pendse; Name forwarded for ACC approval;

Chennai Airport Customs seizes ketamine worth Rs 30 lakhs at courier terminal;

FM okays one-month extension for CBDT Chairman; Similar extension to CBEC Chairman is still a question mark;

Bhopal leads the way on personal income tax collection front; Mumbai holds on to top slot for overall direct tax mop-up;

STPs seek extension of income tax exemption; IT Ministry backs them;

Govt may resort to Ordinance route to exclude 'disturbed states' from Delimitation exercise to redraw constituencies;

Govt approves three private hospitals for conducting medical examinations of Flight Crew - Max Health Care in Delhi, Nanavati in Mumbai & Apollo in Chennai;

Delhi HC imposes costs on Income Tax Department for mechanically filing frivolous appeals; says Revenue ' s attitude needs to be deprecated (Look for detailed coverage tomorrow);

2008-TIOL-22-ITAT-DEL.doc + amadeus story.doc

Business connection in India . As per the conjoint reading of Section 5(2) and Section 9(1)( i ) of the Act, only if the income is arising directly or indirectly through or from any business connection in India, can be taxed in India. The expression 'business connection' has a wide though uncertain meaning. It admits of no precise definition and the solution to the question must depend upon the particular facts of each case. There is a direct business connection established in India and hence in terms of section 9(1)( i ) the income in respect of the booking which takes place from the equipment in India can be deemed to accrue or arise in India and hence taxable in India.

If there is business connection in India, how much income is chargeable to tax in India As per section 9(1)( i ) of the Act, income accruing or arising whether directly or indirectly through or from any business connection in India shall be deemed to accrue or arises in India. As per clause (a) of Explanation 1 to section 9(1 )( i ) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. Thus in a given case if all the operations are not carried out in India, the income has to be apportioned between the income accruing in India and income accruing outside India. In the present case, only part of CRS system operates or functions in India . The extent of work in India is only to the extent of generating request and receiving end result of the process in India . The major functions like collecting the database of various airlines and hotels, which have entered into PCA with the appellant takes place outside India . The computer at Erding in Germany processes various data like schedule of flights, timings, pricing, the availability, connection, meal preference, special facility, etc. and that too on the basis of neutral display real time on line takes place outside India . The computers at the desk of travel agent in India are merely connected or configured to the extent that it can perform a booking function but are not capable of processing the data of all the airlines together at one place. Such function requires huge investment and huge capacity, which is not available to the computers installed at the desk of subscriber in India . The major part of the work or to say a lion's share of such activity, are processed at the host computer in Erding in Germany . The activities in India are only minuscule portion. The appellant's computer in Germany is also responsible for all other functions like keeping data of the booking made worldwide and also keeping track of all the airlines/hotels worldwide who have entered into PCA . Though no guidelines are available as to how much should be income reasonably attributable to the operations carried out in India , the same has to be determined on the factual situation prevailing in each case. However, broadly to determine such attribution one has to look into the factors like functions performed, assets used and risk undertaken. On the basis of such analysis of functions performed, assets used and risk shared in two different countries, the income can be attributed. Thus the initial cause of generation of income is in India also. On the basis of above facts Tribunal reasonably attributed 15% of the revenue accruing to the assessee in respect of bookings made in India as income accruing or arising in India and chargeable under section 5(2) read with section 9(1)( i ) of the Act.

If it is found that the income accruing in India is consumed by the payment made to the agents in India , whether any income still is left to be taxed in India . The activities of the appellant in India are entirely routed through the efforts of NMC namely Amadeus India Pvt. Ltd. ( AIPL ). AIPL is responsible for monitoring the activities of the subscribers enrolled in India . The request originated from the computers at the desk of travel agent is once again routed through the facility of processing such information at AIPL . If AIPL finds that the subscriber accessing the CRS is authorized to do so, the request is further forwarded. AIPL is also responsible for establishing connectivity of the computers of the subscribers and maintaining them. Thus in respect of the activities carried out in India and considering the income accruing in India , remuneration paid to the Indian agents consumes the entire income accruing or arising in India . It is also to be noted that the entire payment made by appellant to AIPL has been allowed as expenses while computing total income of the appellant. In such a situation in view of Circular No.23 of 23rd July 1969 no income can be further charged to tax in India . The Supreme Court has taken judicial note of said Circular in the case of Morgan Stanley & Co. and has held that once associated enterprise which is considered as PE of the non-resident assessee is remunerated at arm's-length, nothing further would be left to be attributed to the PE of the non-resident. In view of the above facts, no income is taxable in India for assessment year 1996-97.

Whether a Permanent Establishment Exists: The next question is whether the appellant has any permanent establishment in India within the meaning of Article 5 of DTAA between India and Spain . Paragraph 1 of the Treaty gives a general definition of the term "Permanent establishment" which brings out its essential characteristic of a permanent establishment in the sense of convention i.e. distinct sites, a fixed place of business through which the business of an enterprise is wholly or partly carried on. Thus what is to be seen is whether there is existence of a place of business i.e. a facility such as a premises or in certain instances machinery or equipment. Thus the appellant exercises computer control over the computes installed at the premises of the subscribers. In view of our discussion in the immediately preceding paragraph, this amounts to a fixed place of business for carrying on the business of the enterprise in India . But for the supply of computers, the configuration of computes and connectivity which are provided by the appellant either directly or through its agent AIPL will amount to operating part if its CRS system through such subscribers in India and accordingly PE in the nature of a fixed place of business in India. Thus the appellant can be said to have established a PE within the meaning of paragraph 1 of Article 5 of Indo-Spain Treaty.: DELHI ITAT;

2008-TIOL-21-ITAT-JODHPUR.doc

Income Tax - Assessee transfers a plot of land through an agreement - pays long-term capital gains - AO disagrees with the assessee on the consideration received for the transfer of the asset and refers the matter to the Asst Valuation Officer u/s 55A - Additions made - Assessee pleads against applicability of Sec 50 in the case - CIT(A) agrees with the AO - Since the asset transferred by an agreement was not registered with the State Authority, Sec 50C in such a case will not come into play and the addition made by invoking Sec 55A is not valid - Since the AO has not made any enquiry from the purchaser about the actual sale consideration and brought any evidence on record, the addition is set aside - Assessee's appeal allowed: JODHPUR ITAT;

2008-TIOL-20-ITAT-DEL.doc

Income Tax - Assessee receives about Rs 26 Cr as compensation from its counterpart in JV - AO treats it as revenue receipts - Assessee insists on capital receipts not exigible to tax - The amount so received represented share of loss which would arise from the contract undertaken by joint venture and would have been apportioned to the JV, thus, the transaction was made in the regular course of business to compensate the losses on the contracts undertaken to certain extent - the receipt was essentially receipt on revenue account liable to tax, and not a capital receipt - Revenue's appeal allowed: DELHI ITAT;

2008-TIOL-19-ITAT-DEL.doc

Income Tax - Assessee claims deduction for interest expenditure incured on borrowings - AO disallows as the assessee had given huge interest-free advances to its sister concern - Since the advances were not examined and no nexus was established by the Revenue between the advances made and the funds borrow, and in view of the Apex Court order in the case of S A Builders, what should be examined is the purpose of advances whether made out of commercial expediency - Matter restored to the AO's file for fresh examination from these angles : DELHI ITAT;

CENTRAL EXCISE SECTION

2008-TIOL-54-CESTAT-DEL.doc + pankaj story.doc

Central Excise - Aggrieved person – One cannot look for dung where cow has not browsed - Presumption contained in Section 12B of CEA'44 - mere fact that incidence of levy is being passed on to person who is not recognized under law as manufacturer confers no rights on appellant under the law - Appellant's appeal dismissed: DELHI CESTAT;

2008-TIOL-53-CESTAT-KOL.doc

Central Excise – classification - transmission line cannot be considered as electrical apparatus. Transmission lines carry electricity from one point to another, whereas electrical machinery and apparatus use electrical energy for performing specific functions and carrying out specific work. As such, the distinction between transmission line and electrical machinery/apparatus is very clear.: KOLKATA CESTAT;

2008-TIOL-52-CESTAT-MUM.doc

Matter heard by Joint Commissioner but order passed by Additional Commissioner – Violation of principles of natural justice - It is a settled law that when there is a change in adjudicating authority itself, it is incumbent upon the successor adjudicating authority to grant another personal hearing – Matter remanded to original adjudication authority for deciding afresh: MUMBAI CESTAT;

2008-TIOL-51-CESTAT-MAD.doc

Central Excise – penalty - revenue in appeal against the Commissioner's order for imposing the penalty under Section 11 AC – Since the issue was finally decided by the Tribunal on merits, the appeal can not be entertained.: CHENNAI CESTAT;

SERVICE TAX SECTION

2008-TIOL-50-CESTAT-MAD.doc

Service Tax – Business auxiliary service – Appellant paid service tax promptly when it became certain about its liability to pay service tax. Also, there being no suppression of facts penalty imposed set aside under Section 80. Appeal allowed. ( Para 3 ):CHENNAI CESTAT;

CUSTOMS SECTION

NOTIFICATION

ctariff08_005.doc + ctariff08_006.doc

Anti-dumping duty on Trimethoprim (TMP) extended by five years;

CIRCULAR

cuscir08_001.doc

CBEC hands over trade facilitation work to DGEP;

dgft07cir026.doc

Export of restricted/prohibited items – eligibility under export promotion schemes;

CASE LAWS

2008-TIOL-55-CESTAT-AHM.doc + epcg story.doc

Customs – EPCG Scheme – imported goods installed outside the factory of the importer – condition No 6 of the Notification 110/95 Cus violated – not eligible for exemption.

Limitation – since the goods were imported in terms of the bond relating to end use executed by the appellant, time bar is not applicable.: AHMEDABAD CESTAT;

ddt 10 jan.doc + dgstsafe.doc

Banking and other financial services – private safe deposit vaults – DGST missive – a major goof?

cob (web).doc

Changing contours of global business & challenges before Revenue Administration in 21st Century!

Special Column.doc

ONE WAY STREET !

mbuzz225.doc

Extending Sec 10B sops: Nath takes up issue with MoF;

mbuzz224.doc

Bharati Shipyard to build Green Field Shipyard in Dabhol, Maharashtra;

mbuzz223.doc

L&T bags Rs 2000 crore orders in Mumbai;

mbuzz222.doc

GAIL to implement Integrity Pact in all major procurement contract ;