Govt develops Alert-generating System to track down corporate frauds;

Govt says no proposal to replace existing Food Safety Act by new legislation;

USA puts pressure on India to hike FDI limit on Insurance and Defence sectors;

Govt develops Alert-generating System to track down corporate frauds;

Former Defence Secretary Vijay Singh takes oath as new UPSC Member;

Posts of Deputy Director (Compliance and Enforcement) and Deputy Director (Capacity Building) in WCO - applications called for (See 'DDT' Column);

International agencies meet to develop global strategy to combat wildlife crime;

TIOL COMMENTARY

ddt 19 nov.pdf

Income Tax - TDS on Software – the Famous Karnataka High Court Judgement – In TIOL Today;

cobweb.pdf

GST roll-out: Dual rate for goods and services may lead to systemic duel!

editorial.pdf

Disinvestment turns realpolitik under UPA Version II;

MIXED BUZZ

mbuzz1041.pdf

SFIO handles 70 cases since inception;

mbuzz1040.pdf

International agencies meet to develop global strategy to combat wildlife crime;

2009-TIOL-629-HC-KAR-IT.pdf + samsungstory.pdf

CIT, International Taxation, Bangalore Vs M/s Samsung Electronics Co Ltd (Dated: September 24, 2009)

Whether payments made to software vendors are not liable to tax in India and accordingly no withholding was required-whether it is only under section 195(2) and 195(3) that chargeability to tax of the vendor can be decided- whether payments for purchase of software can be considered as royalty.

In a bunch of cases, the assessees remitted payment for purchase of software to non-resident vendors without deduction of tax at source on the ground that the payments made for purchase of software were not in the nature of royalty subject to deduction of tax at source. The A.O and the CIT (A) did not accept the claim and treated the remitters as assessees in default and sought to recover the taxes from them under section 201 of the Income Tax Act.

In one of the cases i.e. in the case of Samsung Electronics, the Bangalore ITAT took the view that use of software, which is subject to a copyright, is different from the use of the copyright of such software. It was only a right to use a copy of the software, with the copyright retained by the developer of the software and hence the payment in respect of such use is not in the nature of royalty income in India and should not be subject to deduction of tax at source. Following the aforesaid order, other orders were passed by the ITAT allowing the appeals of the taxpayers.

On further appeal by the Department, the Karnataka High Court held that :

++ the Supreme court was directly involved in the exercise of understanding, interpreting and explaining the scope of the provisions of section 195 of the Act and the scheme of this provision and the manner in which the section works and has to be applied while deciding the appeal of the assessee in the case of TRANSMISSION CORPORATION OF A.P. Ltd.

++ the interpretation by the Supreme Court being in respect of a statutory provision, namely, section 195 of the Act that interpretation becomes the law declared by the supreme court within the meaning of Article 141 of the Constitution of India and such law will have to be necessarily applied to all cases and situations wherein arises the question of applying section 195 of the Act.

++ while under section 195[1] of the Act, an obligation on the part of the person responsible for paying to a non-resident does arise if and only if the payment partakes the character of income payment, in the sense that, if an amount is not in the nature of income payment at all then section 195[1] of the Act does not operate, the fact that section 195[1] of the Act is not a provision for assessing the tax liability of a nonresident can not be lost sight of.

++ obligation under sub-section (1) of section 195 springs up for every resident payer making a payment to a non-resident recipient in respect of any goods/service supplied by the non-resident, which the resident payer is making use of in the running of its business or any other activity, the payment to the non-resident recipient prima-facie bearing the character of an income in such cases.

++ that section 200 also covered cases of total failure to deduct tax at source. In fact, the heading of section 201 clearly indicates that it is a provision which springs into action as a consequential measure in situations of the assessee failing either to deduct or to pay.

++ section 195 of the Act is not at all a provision wherein the assessing officer is required to indulge in an exercise of determination of the income of a non-resident and that can be done only on the basis of a return of income filed by the non-resident who can definitely put forth the various contentions. The only scope and the manner of reducing the obligation for deduction imposed on a resident payer in terms of section 195 [1] of the Act is by the method of invoking the procedure contemplated under sub-section [2] of section 195 of the Act i.e., only when the person responsible for paying any such sum chargeable under this Act on a non-resident, considers that the whole of such sum would not be income chargeable in the case of the recipient, by making an application to the assessing officer to determine by general or special order the appropriate proportion of such sum so chargeable and upon such determination alone, being allowed the liberty of deducting the proportionate sum so chargeable to tax to fulfill the obligation cast under sub-section [1] of section 195 of the Act .

++ the assessing authority and the first appellate authority while are correct to the extent of holding that there was an obligation on the part of the resident payers in effecting a deduction from out of the payments made by them in favour of the non-resident recipients even as consideration for acquiring what is known as 'shrink wrapped software' and even assuming it had partaken the character of goods for the purpose of determination of the tax liability under the provisions of Andhra Pradesh General Sales Tax Act, 1957 as held by the supreme court in 'TATA CONSULTANCY SERVICES case , all such questions recede to the background while examining the question of the obligation of a resident payer in terms of section 195 [1] of the Act.

++ Section 195 [2] of the Act is only for extending a limited concession in favour of the resident payer when things are very clear or does not involve any doubt or ambiguity such as in a situation where the non-resident recipient of the amount, has filed a return of his income as one arising from such a transaction with the resident payer and the assessing officer has actually examined the nature of payment and has indicated in an assessment order passed on the return of income filed by the non-resident that no part of the receipt is taxable under the provisions of the Act [for whatever reason] and if so based on this settled/undisputed factual/legal position, the resident payer by quoting the assessment order passed by the assessing officer on the return of income filed by the non-resident for any earlier year seek for granting the commensurate relief from the obligation for deduction of the percentage of payment to the non-resident.

++ Also an erroneous order and demand being raised by the assessing officer under section 201 of the Act, such as an incorrect description of the resident payer or incorrect computation of the amount to be deducted from out of the payment made by the resident payer either by employing a wrong percentage for deduction, at variance with the rate as indicated in the Finance Act or such arithmetical or factual errors committed by the assessing officer, without involving the question of actual determination of the tax liability of the non-resident etc., alone can constitute the subject matter for appeal under section 246-A of the Act [clause [h-a] of sub-section 1 of section 246-A of the Act).

++ The Tribunal was clearly in error in enabling a resident payer to seek for determination as to the extent of the tax liability of the non-resident recipient, even in a situation wherein an application is made obligation under section 195 [1] of the Act not by recourse to the provisions of section 195 [2] of the Act but as though the exercise was one of determining the tax liability of the non-resident recipient which is clearly in the teeth of the law declared by the supreme court in TRANSMISSION CORPORATION OF A.P. LTD.,'S case and therefore ail the orders passed by the tribunal are not sustainable.

++ In another bunch of appeals, the first appellate authority had dismissed the appeal filed under section 248 of the Act at the threshold, only for the reason that the assessee/resident remitter had not availed the procedure of making an application under section 195(2) of the Act, seeking for determination of the proportionate amount in the payment to the non-resident constituting the taxable part of the payment or to put in other words income part of the payment. Here, the Court held that where a resident payer/assessee who had in fact deducted the amount in terms of sub-section (1) of Section 195 and remitted the amount to the account of the Revenue, but is nevertheless disputing such liability, the appeal under section 248 is certainly maintainable. However, here also, it was pointed out that insofar as the scope of examination of an appeal under Section 248 is concerned, the view expressed by the Court has to be kept in mind while deciding the issue. : KARNATAKA HIGH COURT;

2009-TIOL-627-HC-DEL-IT.pdf + dlf story.pdf

CIT, Delhi-IV Vs DLF Power Ltd (Dated: October 9, 2009 )

Income tax - when opinion of the AO was plausible, merely because the CIT was of different opinion could not be a ground to pass an order under Section 263 of the Act – In a situation like this, under no circumstance, order under Section 263 could be passed to revise the order passed by the AO. In any event, in view of the decision of the Supreme Court in Malabar Industrial Co. Ltd . the exercise of power by the Commissioner under Section 263 of the Act is not warranted, if it is assumed that two views are possible on the issue. Further, even if two views were possible, and the view taken by the AO was plausible one, that would not provide sufficient ground for the CIT to assume jurisdiction under Section 263 of the Act merely because he had a different view.

AO had passed rectification order even before CIT's Revision order – Revenue takes frivolous appeal to High Court - ends up paying costs of Rs. 25,000: in the facts of the present appeal, it is not even necessary to into this question inasmuch as even as per the revisional order passed by the CIT under Section 263 of the Act, the benefit under Section 80- IA should have been restricted to Rs.1962.55 lacs , which had been done by the AO by passing rectification order under Section 154 of the Act. Appeal dismissed with costs quantified at Rs.25 ,000:DELHI HIGH COURT;

2009-TIOL-717-ITAT-MUM.pdf

Panatone Finvest Ltd Vs DCIT-2(2), Mumbai (Dated: October 5, 2009)

Income tax - Sec 57(iii), 37 - Assessee is a subsidiary of Tata Sons Ltd - engaged in the business of investment and finance - borrows funds in order to buy shares of VSNL to attain controlling stake for the Tata Sons - claims deduction for interest expenditure incurred - AO disallows on the ground that the assessee does not treat the same as stock-in-trade nor earns any income from the same as it gets nothing from the telecom business and it is simply used as a special purpose vehicle by the Tata Sons to acquire controlling stake in the VSNL - CIT(A) agrees with the AO - held, it is evident that the assessee-company acquired controlling stake of VSNL only to serve the holding company's interest by acting as Special Purpose Vehicle to bid for the acquisition of shares of VSNL and not with a dominant object of earning income, either directly or indirectly. Since the investment was not for earning dividend income, deduction is not allowable - assessee's appeal dismissed :MUMBAI ITAT;

2009-TIOL-716-ITAT-BANG.pdf

M/s ABB Limited Vs CIT, (LTU), Bangalore (Dated: August 13, 2009)

Income tax - Sec 32(1)(iia) - Assessee is a manufacturer - claims additional depreciation on technical knowhow - AO allows it but CIT invokes powers u/s 263 to disallows the same - held, since neither the AO nor the CIT(A) has made inquiry as to whether it was a technical knowhow for manufacture of goods or relating to installation of machinery which is treated as 'plant', the matter is remanded for fresh examination:BANGALORE ITAT;

2009-TIOL-715-ITAT-BANG.pdf

24/7 Customer Pvt Ltd Vs CIT, Bangalore (Dated: August 7, 2009)

Income tax - Sec 10A - Assessee has two STPI units at Bangalore and Hyderabad - since the Hyderabad unit was making losses it opted out of exports benefits scheme by filing a declaration u/s 10A(8) - claims deduction of Bangalore STPI units u/s 10A - AO allows it - CIT invokes powers u/s 263 and directs the AO to adjust the unabsorded depreciation and brought forward business losses of earlier years - Assessee argues that since the Hyderabad unit had opted out to be non-STPI unit and had filed a declaration for assessment under normal provisions of the I-T Act, their losses cannot be set off against the profits of the STPI units - held, in view of the settled laws that the losses of non-STPI units cannot be adjusted against the profits of STPI units for claiming deduction u/s 10A, the CIT order u/s 263 is not sustainable - Assessee's appeal allowed :BANGALORE ITAT;

grant_certificate_WCO.pdf

International Customs Day- Certificate of Merit from World Customs Organisation (WCO)- reg;

vacancies WCO.pdf

Filling up the vacancies of Deputy Director (Compliance and Enforcement) and Deputy Director (Capacity Building) in the World Customs Organisation (WCO)-reg;

SERVICE TAX SECTION

2009-TIOL-623-HC-KAR-ST.pdf

M/s We Help Vs Assistant Commissioner Of Central Excise, Service Tax And Eou Division, Mangalore (Dated: October 30, 2009)

Service Tax - Condonation of Dealy - Tribunal dismisses appeal as the assessee fails to argue the matter despite the grant of 14 adjournments - held, although the petitioner's conduct cannot be approved but the Tribunal directed to give one more opportunity to the assessee by condoning the delay - Assessee's appeal allowed : KARNATAKA HIGH COURT;

2009-TIOL-1890-CESTAT-AHM.pdf

M/s URVI Construction Vs CST, Ahmedabad (Dated : October 26, 2009)

ST - Commercial and industrial construction service - Assessee is a sub-contractor - Revenue raises demand - Assessee pleads since the tax has been paid by the contractor, they are not liable to pay tax again on the same service - held, issue is no longer res integra as it is already settled in favour of the assessee:AHMEDABAD CESTAT;

2009-TIOL-1889-CESTAT-AHM.pdf

CCE, Rajkot Vs M/s V M Engineering Works (Dated : October 23, 2009)

ST - Penalty - Assessee deposits tax belatedly - Commissioner (A) reduces penalty under Sec 76 - held, Commissioner(A) observes that it was the first lapse till date and the fact that the assessee is a small unit, there is no infirmity in the Commissioner(A)'s oder taking lenient view - Revenue's appeal dismissed : AHMEDABAD CESTAT;

2009-TIOL-1888-CESTAT-DEL.pdf

CCE, Raipur Vs Shri Ajay Kumar Agarwal (Dated : September 1, 2009)

ST - refund - Assessee pays tax under protest by one TR-6 challan - Commissioner(A) sanctions part refund - held, since the assessee had paid the tax by one TR-6 challan, the commissioner (A) has granted part refund, there is no justification to deny the same - Revenue's appeal dismissed : DELHI CESTAT;

CENTRAL EXCISE SECTION

2009-TIOL-1895-CESTAT-MUM.pdf + Executive Engineer Story.pdf

The Executive Engineer, Rcc Pipe Factory Vs CCE, Pune (Dated : October 6, 2009)

Change of status of undertaking notified in the Gazette - Even if the fact is suppressed as contested by the department, the fact remains that there could not have been any intention to evade payment of duty by changing status of undertaking – Demand time barred - CESTAT. :MUMBAI CESTAT;

2009-TIOL-1894-CESTAT-DEL.pdf

M/s Shivalik Cotsyn Ltd Vs CCE, Meerut-I (Dated : September 14, 2009)

Central Excise – Yarn consumed in manufacture of sewing thread liable to duty at single ply stage – Quantity of yarn captively consumed for manufacture of sewing thread not accounted and returns not filed properly, extended period invokable and liable for mandatory penalty equivalent to duty under Sec. 11AC – Appellate Commissioner order reducing penalty set aside – Penalty under Rule 25 not justified – Lower authority to re-quantify duty, interest and penalty under Sec. 11AC – Impugned order modified:DELHI CESTAT;

2009-TIOL-1893-CESTAT-MUM.pdf

CCE & CC, Aurangabad Vs OM Sairam Steel & Alloys Pvt Ltd (Dated : August 28, 2009)

Duty paid before issuance of show cause notice – Penalty under section 11AC of the CEA, 1944 – provisos to section 11AC to be given meaningful interpretation – if assessee pays duty demanded within 30 days of adjudication order, penalty is only 25% - appellant directed to pay 25% amount within 30 days of communication of CESTAT order – Appeals disposed of.: MUMBAI CESTAT;

2009-TIOL-1892-CESTAT-MAD.pdf

M/s KKP Textiles Ltd Vs CCE, Salem (Dated : July 24, 2009)

Central Excise – Cenvat Credit – Credit cannot be denied on capital goods on the ground that intermediate product is exempted.: CHENNAI CESTAT;

CUSTOMS SECTION

2009-TIOL-628-HC-MUM-CUS.pdf + cus story.pdf

CC (Import) Vs M/s GEM Nuts And Produce Exports Co Pvt Ltd (Dated: October 14, 2009 )

Customs – attachment of property – At the time of receipt of advance for property, even the Department not aware of fraud – Property not attachable: the Appellate Tribunal had recorded a finding of fact that at the time the money was paid by way of any earnest money deposit, the applicants themselves were not aware of the fraud and as such the respondent would not be aware that the money received was a part of the fraud. The money must have been paid by cheque or draft as the law requires such payment to be so done. Considering the ratio of the Supreme Court in State Bank of India, it is thus material to show that the respondent had knowledge of the fraud and, therefore, that money could be recoverable in the hands of the respondent. Even otherwise, what is attached is not the money but the immovable property of the respondent.:BOMBAY HIGH COURT;

2009-TIOL-1891-CESTAT-DEL.pdf

CC, Amritsar Vs Sharman Woollen Mills (Dated : June 23, 2009)

Customs – Import of acrylic tow and levy of anti-dumping duty – Anti-dumping duty levied only on acrylic fibre under Chapter 5501.30 or 5503.30 and not acrylic tow under Chapter 5501.30 in terms of Notification No. 133/2001-Cus – No reason to interfere with Appellate Commissioner's order : DELHI CESTAT;