TIOL-DDT 2523
22 01 2015
Thursday

CBDT has yesterday issued Explanatory Notes to the Provisions of the Finance (No.2) Act, 2014 which came into effect on 6.8.2014. What is the purpose of explaining the Finance Act six months after enactment? But the CBDT does that every year. Maybe it takes about six months for the budget makers to understand the budget. Some of the explanations are given below:

Capital gains exemption in case of investment in a residential house property: The sub-section (1) of section 54 of the Income-tax Act, before its amendment by the Act, inter alia, provided that where capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house, then, the amount of capital gains to the extent invested in the new residential house is not chargeable to tax under section 45 of the Income-tax Act.

The provisions contained in sub-section (1) of section 54F of the Income-tax Act, before its amendment by the Act, inter-alia, provided that where capital gains arises from transfer of a long-term capital asset, not being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house, then, the portion of capital gains in the ratio of cost of new asset to the net consideration received on transfer is not chargeable to tax.

Certain courts had interpreted that the exemption is also available if investment is made in more than one residential house. The benefit was intended for investment in one residential house within India. Accordingly, sub-section (1) of section 54 of the Income-tax Act has been amended to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India.

Similarly, sub-section (1) of section 54F of the Income-tax Act has been amended to provide that the exemption is available if the investment is made in one residential house situated in India.

Enabling CBDT to relax provisions relating to levy of fee under section 234E of the Income-tax Act: As per the existing provisions of the Income-tax Act, a deductor/collector is required to furnish periodical tax deducted at source (TDS)/tax collected at source (TCS) statements (quarterly) containing the details of deduction/collection of tax made during the quarter by the prescribed due date. Delay in furnishing of TDS/TCS statement results in delay in granting of credit of TDS/TCS to the deductee/collectee and consequently leads to delay in issue of refunds to the deductee/collectee or raising of infructuous demand against the deductee/collectee.

In order to provide effective deterrence against delay in furnishing of TDS/TCS statement, the Finance Act, 2012 inserted section 234E in the Income-tax Act to provide for levy of fee of Rs.200 per day for late furnishing of TDS/TCS statement from the due date of furnishing of TDS/TCS statement to the date of furnishing of TDS/TCS statement. The levy of fee under section 234E of the Income-tax Act has proved to be an effective tool in improving the compliance in respect of timely submission of TDS/TCS statement by the deductor/collector. However, the levy of fee under section 234E of the Income-tax Act could not be waived / reduced even in the cases where the delay in filing of TDS/TCS statement was due to circumstances beyond the control of the deductor/collector.

For removing the genuine hardship faced by the deductors/collectors due to levy of fee mandated by the section 234E of the Income-tax Act, section 119 (2)(a) of the Income-tax Act has been amended to enable the CBDT to relax the provisions of the section 234E of the Income-tax Act in suitable cases.

Power of Survey

The provisions contained in section 133A of the Income-tax Act enable the Income-tax authority to enter any premises in which business or profession is carried out for the purposes of survey. An income-tax authority acting under this section may impound and retain in his custody any books of account or documents inspected by him during the course of survey. However, prior to its amendment by the Act, the said section provided that such income-tax authority shall not retain in his custody any such books of account or document for a period exceeding ten days (exclusive of holidays) without obtaining the approval of the Chief Commissioner or Director General therefor, as the case maybe.

Section 133A has further been amended to provide that an income-tax authority may, for the purpose of verifying that tax has been deducted or collected at source in accordance with the provisions of Chapter XVII-B or Chapter XVII-BB, as the case may be, enter any office, or a place where business or profession is carried on, within the limits of the area assigned to him, or any such place in respect of which he is authorised for the purposes of the said section by such income-tax authority who is assigned the area within which such place is situated where books of account or documents are kept.

It has also been provided that an income-tax authority while acting under sub-section (2A) of section 133A, may place marks of identification on the books of account or other documents inspected by him and take extracts and copies thereof. He may also record the statement of any person which may be useful for, or relevant to, any proceeding under the Income-tax Act.

Mode of acceptance or repayment of loans and deposits: e-loans allowed. The provisions contained in section 269SS of the Income-tax Act, before its amendment by the Act, inter-alia, provided that no person shall take from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft, if the amount of such loan or deposit or aggregate of such loans or deposits is twenty thousand rupees or more. Similarly, the provisions of section 269T of the Income-tax Act, before amendment made by the Act, inter-alia, provided that no loan or deposit shall be repaid otherwise than by an account payee cheque or account payee bank draft, if the amount of such loan or deposit together with interest or the aggregate amount of such loans or deposits together with interest, if any payable thereon, is twenty thousand rupees or more.

In the present times many banking transactions take place by way of internet banking facilities or by use of payment gateways. Accordingly, the provisions of the said sections 269SS and 269T have been amended to provide that acceptance or repayment of any loan or deposit by use of electronic clearing system through a bank account shall not be prohibited under the said sections if the other conditions regarding the quantum etc. are satisfied.

CBDT Circular No. 01/2015., Dated: January 21, 2015

Thousand Rupee Notes can now be taken to Nepal and Bhutan

AS per the Foreign Exchange Management (Export and Import of Currency) Regulations, 2000 , Indian currency notes of denomination above Rs. 100 cannot be taken or sent to Nepal and Bhutan. Though our 500 and 1000 rupee notes are in great demand in Nepal and Bhutan, they are actually banned there - at India's request.

Regulation 8 of the above Regulations reads as:

Export and import of currency to or from Nepal and Bhutan:-

Notwithstanding anything contained in these regulations, a person may -

i) take or send out of India to Nepal or Bhutan, currency notes of Government of India and Reserve Bank of India notes (other than notes of denominations of above Rs.100 in either case);

ii) bring into India from Nepal or Bhutan, currency notes of Government of India and Reserve Bank of India notes (other than notes of denominations of above Rs.100 in either case)

Now the sub-regulation (i) above is amended as:

"take or send out of India to Nepal or Bhutan, currency notes of Government of India and Reserve Bank of India notes (other than notes of denominations of above Rs.100/- in either case);

provided that an individual travelling from India to Nepal or Bhutan can carry Reserve Bank of India currency notes of denomination Rs.500/- and/or Rs.1000/- up to a limit of Rs. 25000/-".

Sometime back a Minister from Nagaland was detained in Nepal for carrying 1000 rupee notes.

FEMA Notification No. 331/2014-RB, Dated: December 16, 2014

Payments into Government Account through Debit / Credit cards and Net banking: permissible period for remittance - RBI Norms

AS per the instructions of the Controller General of Accounts, Ministry of Finance, Government of India, agency banks are required to adhere to the following norms for payment of government revenue through Debit / Credit cards and Net banking:

1. Remittance norms of T + 1 working day, including the Put Through date should be strictly followed, where "T" is the day when money is available with the receiving bank branch.

2. Penal interest will be levied on delayed remittances of e-receipt into government account, i.e., on delay beyond T+1 working day, if any, and

3.  The settlement should conform to the provisions contained in the Payment and Settlement Systems Act 2007 and the rules and regulations framed thereunder.

RBI/2014-15/416 DGBA.GADNo.H-3203/42.01.011/2014-15., Dated: January 21, 2015

CBEC Awards WCO Certificate of Merit

CBEC has announced the names of 13 officers who are awarded the ‘World Customs Organisation (WCO) Certificate of Merit'. These certificates will be distributed on 27th January 2015 at New Delhi. The list includes two Commissioners, 6 ADC/JC rank officers and 5 AC/DC level officers and not a single officer from the lower cadres. They used to give these awards to persons from the business world also, but obviously they don't find enough people in this country to be bestowed with this honour.

CBEC F.No.21000/1/2015., Dated: January 21, 2015

Death is a Taxable Event

PRESIDENT Obama proposes to tax death - rather the income accrued on somebody's death. The President's fact-sheet states,

The largest capital gains loophole - perhaps the largest single loophole in the entire individual income tax code - is a provision known as "stepped-up basis." Stepped-up basis refers to the fact that capital gains on assets held until death are never subject to income taxes. Not only do bequests to heirs go untaxed, but the "tax basis" of inherited assets used to compute the gain if they are later sold is immediately increased ("stepped-up") to the value at the date of death - making the capital gain income forever exempt from taxes. For example, suppose an individual leaves stock worth USD 50 million to an heir, who immediately sells it. When purchased, the stock was worth USD 10 million, so the capital gain is USD 40 million. However, the heir's basis in the stock is "stepped up" to the USD 50 million gain when he inherited it - so no income tax is due on the sale, or ever due on the USD 40 million of gain. Each year, hundreds of billions in capital gains avoid tax as a result of stepped-up basis.

Let us hope the Indian Finance Minister doesn't borrow this idea.

Tax Benefit for earning Couples

PRESIDENT Obama proposes to bestow a benefit on working couples. His Statement says,

Two-earner couples can face high penalties for working. When both spouses work, the family incurs additional costs in the form of commuting costs, professional expenses, childcare, and, increasingly, elder care. When layered on top of other costs, including federal and state taxes, these work-related costs can contribute to a sense that work isn't worth it, especially for parents of young children and couples caring for aging parents. While women, including married women, are increasingly family breadwinners, the fact remains that they are still much more likely to be the ones who withdraw from the labour force in these circumstances, taking a toll on their future job options and earnings, and hurting our overall economic growth.

The President proposes a new second earner credit that recognizes the additional costs faced by families in which both spouses work. A total of 24 million couples would benefit from this proposal, which would provide a new, simple second earner credit of up to USD 500.

Let us hope the Indian Finance Minister does borrow this idea. 

Jurisprudentiol-Friday's cases

Customs

Proper Officer - Show Cause Notice issued by Deputy Commissioner of Central Excise for recovery of Customs duty in terms of Rule 8 of Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 is invalid - No error in order of Tribunal: HC

RULE 8 of the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 reads:

Rule 8. Recovery of duty in certain case.- The Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise shall ensure that the goods imported are used by the manufacturer for the intended purpose and in case they are not so used take action to recover the amount equal to the difference between the duty leviable on such goods but for the exemption and that already paid, if any, at the time of importation, alongwith interest, at the rate fixed by notification issued under Section 28AB of the Customs Act, 1962, for the period starting from the date of importation of the goods on which the exemption was availed and ending with the date of actual payment of the entire amount of the difference of duty that he is liable to pay.

The assessee challenged the demand under the above Rule on the ground that the Deputy Commissioner of Central Excise is not proper officer to demand duty of customs under Section 28 of the Customs Act, 1962. Tribunal allowed the appeal of the assessee and the revenue is in appeal before the High Court.

Income Tax

Whether LCD Monitor is an information and communication technology device and its manufacturer is eligible to claim Sec 80IC benefits - YES: HC

THE assessee is proprietor of entity carrying on the business in the name and style of M/s Concept Industries engaged in the manufacturing of electronic goods. It had claimed deduction u/s 80-IC. A notice u/s 143(2) was served on him. The assessment order was passed by the AO u/s 143(3), who had deleted the claim of deduction in the sum of Rs.71,99,594/- u/s 80IC on the ground that assessee was engaged in the business of manufacture of electronic goods in the industrial area. The AO recorded the view that no manufacturing activities were being carried out and in fact the business involved only trading under the brand name of the parent company "NACVOX". It was also found that there was no adequate plant or machinery or infrastructure to carry out the manufacturing activities. In his view, the LCD Monitor claimed to be manufactured by the assessee was not covered under Schedule XIV. It had further observed that the assessee had not employed adequate number of local workers as was requisite under the relevant permission by the local authorities.

The issue is - Whether LCD Monitor is an information and communication technology device and its manufacturer is eligible to claim Sec 80IC benefits. And the answer favours the assessee.

Customs

Optical Fibre Cables merit classification under CTH 9001 and not under CTH 8544 - benefit of notfn. 24/2005-Cus not available - importer loses on classification issue but wins on ground of time bar: CESTAT

THE Commissioner of Customs (Imports), Nhava Sheva classified the optical fibre cables imported by the appellant under CTH 9001 and denied the benefit of notification No. 24/2005-Cus dated 1-3-2005 claimed by the appellant by classifying the product under CTH 8544.

Consequently, the adjudicating authority confirmed a differential duty demand of Rs.2.68crores and also confiscated the Optical Fibre Cables. Penalties were also imposed.

After considering the elaborate submissions made by both sides the CESTAT observed that there are two issues for consideration -

See our Columns tomorrow for the judgements

Until tomorrow with more DDT

Have a nice day.

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