newsletter vol. 105

8/3/2019 Newsletter Vol. 105

1/21

CORRIDORS OF

COURT

QUERY

COUNTER

NORTH BLOCK

INTRODUCING

DTC

LEGAL

MAXIMS

TAX BEYOND

BORDERS

MONEY MATTERS

AROUND THE

WORLD

FUNNY BONE

DATES TO

REMEMBER

INVESTMENTS

CAC

EXCLUSIVE

WEBLINKSNINA KAPASI HARSHAL DEDHIA JASH KAPASI

DISCL A IM E R :Every effor t has been made to ensure accuracy in th e inform ation. T he publishers do not h old t hemselves responsible fo

errors that m ay have arisen. Please take professional advice for fur ther i mpl ementation. A ll r ights reserved.

STRICTL Y FO R PRIV A TE C IRCUL A TIO N B Y INV I TA TIO N

One hundred percent of our clients were informed that the due date for filling Ret

O f I ncom e was 31st July, 2011. The Governm ent of I ndi a, on i ts part, inf orm ed th e

payers of th e due date for fil li ng and i n addi tion , threatened the late fi lers of th e

consequences of delay. All these alerts and the penal consequences were found to

in suffi cient to discour age m ore than 50% of our client s from delaying the fil in

return. Not many of them were prevented by any serious compulsions and mos

them seriously lacked the discipline, even for an important matter like taxes wh

besid es death is the only certain t hi ng i n l if e of a civi li zed m an. W e are sur e that

lackadaisical app ro ach is all pervasive in I nd ia and i s no t restr icted to fil in g

return s in tim e. Th e dam age caused t o th e natio n on accoun t of un discipl in ed appro

when valued in monetary terms could outnumber the Gross domestic product of

countr y. It i s said that we m ust suffer on e of th e two th in gs: the pain of di scipli ne or

pain of r egret and d isappoi ntm ent t hat follow s for n ot being discipl in ed.

A person, a family, a race or a nation which aspires to be effective has to pract

respect and value discipline. Self discipline is the assertion of the will power over m

base desires and temptations and is understood to be a synonym for self control.

discipline reigns supreme in the nature and its behavior, it is also sacrosanct in

conduct of animals. Even in human race, the tribals are disciplined. It is believed t

more than half of our national reserve is used up by the mechanism adopted

ensurin g discipli ne or com pli ance. Thi s am oun t, if saved, may put our countr y as

am ongst the top in the world. Begin your part with f i l i ng next return in t im e. The

date for filing Return Of Income for Tax payers whose accounts are audited is

Septem ber, 2011. Di scipl in e is the bri dge between goals and accom pl ishm ent s wh ich

of u s have to cr oss and i t i s the tim e to cr oss the br id ge.

EDITORS DESK


2/21

P A G E 2

CORRIDORSOFCOUR

T

TO DECIDE WHETHER S. 148 NOTICE IS ISSUED IN TIME, DATE OF HANDING OVER BY AO TO PO

OFFICE TO BE SEEN

I n r espect of A Y 2003-04, the AO issued a no ti ce u/ s 148 dated 31.3.2010. H owever, the noti ce was given byA O to the post off ice for di spatch t o th e assessee on 7.4.2010 and i t w as delivered to th e assessee on 8.4.2010.

assessee fil ed a W ri t Peti ti on cont endin g that th ough th e not ice was dated 31.3.2010, it w as not issued ti ll it delivered to the post office on 7.4.2010 by which time the limitation period of 6 years from the end of

assessm ent year pr escrib ed in s. 149 had expir ed. HEL D up hold in g the plea that for pu rp oses of s. 149, expression notice shall be issued means that the notice should go out of the hands of the AO. On facts, thothe notice was signed on 31.3.2010, it was sent to the speed post center for booking only on 7.4.20

Considering the defin itio n of the word issue, merely signing the notices on 31.3.2010 cannot be equated wissuance of noti ce as contemplated u/s 149. Th e date of i ssue woul d be the date on w hich th e same was hanover for service to the proper officer, which in the present case would be the date on which the notices actually handed over to the post office for the purpose of booking for the purpose of effecting service on assessee. Till the point of time the envelopes are properly stamped with adequate value of postal stamps

cannot be stated that the process of issue is complete. As the notice was sent for booking to the Speed PCenter on 7.4.2010,the date of issue of the notice would be 7.4.2010 and not 31.3.2010, which is beyond

li m it ation p eriod . Consequent ly, the reassessm ent cannot be sustained.

KANUBHAI M. PATEL HUF V. HIREN BHATT (GUJARAT HIGH COURT)

TRASNSACTIONSTRADING ACTIVITYORINVESTING ACTIVITY

T he assesses was engaged i n th e business of share tradi ng and in vestm ents and off ered in com e fro m sale of shby way of STCG and LTCG. The AO treated the STCG as business profits on the ground that there wsystematic and regular course of share trading activity, the scale of activity was frequent and huge and quantit y purchased and sold are huge and repetiti ve. It was also held that the ratio of pu rchase to openbalance and sales to cl osing balance m ade the assessee a tr ader in shares and n ot i nv esto r i n shares. On app

the CI T(A ) held th at the gain arising on shares held for m ore than 30 days was STCG whi le the gains on shheld f or less than 30 days was assessable as busin ess prof it s . On cross appeals, the M um bai T ri bun al held

favour of the assessee that The CIT(A)s view that the gains could be treated as either STCG or business prodependi ng on whether they had been held for a period of 30 days or shorter is not pr oper because the holdperiod i s only one of th e several cri teria that has to be appli ed to determ ine whether the tr ansaction is on tr ador investm ent account.

HITESH SATISHCHANDRA DOSHI V. JCIT (ITAT MUMBAI)

A N E W S L E T T E R B Y P R A D I P K A P A S I & C O . H O M E


3/21

P A G E 3

CORRIDORSOFCOUR

T

HUF IS A RELATIVE FOR GIFTS EXEMPTION U/S 56(2)(V), (VI) & (VII)

Th e assessee received a gift of Rs.60 lakhs from his H U F. The A O & CI T( A ) held t hat as H U F was not coveredthe definition of relative, the gift was chargeable to tax u/s 56(2)(v). The alternate submission that

was exem pt u/ s 10(2)was rejected o n t he basis that s. 10(2) applied onl y to amount s received out of i ncomth e estate on parti al or to tal parti tio n of t he H U F. On appeal by the assessee, it was held th at S. 56(2)(v) exemgifts fro m a relative. Th ough the definit ion of the term relative does not specifically includ e a H i

U ndi vided Fam ily, a H U F constitut es all persons lineally descended fr om a com m on ancestor and inclutheir m others, wives or w idow s and unm arried daughters. As all th ese persons fall in the definiti on of r elatian H U F is a gro up of r elatives. As a gift f ro m a relative i s exemp t, a gift fro m a grou p of r elati ves is exempt since the singular w ill i nclude the plural; The gift was also exempt u/ s 10(2) because the two conditirequi red t o be satisfied for relief vi z (1) t hat t he assessee is a member of t he H U F and ( 2) t hat he receives th e s

out of th e income of such H U F (m ay be of an earlier Year) were satisfied.

VINEETKUMAR RAGHAVJIBHAI BHALODIA VS ITO(ITAT RAJKOT)

TESTS TO DETERMINE WHETHER SHARES GAINS ASSESSABLE AS STCG OR BUSINESS PROFITS

The Supreme Court vide order dated 15.11.2010 dismissed the Departments Special Leave Petition againstju dgm ent of the Bom bay H igh Co ur t where i t was held that i t was op en to an assessee to m aintain two sepapor tfoli os, one relatin g to i nvestm ent and another r elating to business of dealin g in shares, that a fin din g of

had been arrived at by the Tribunal as regards the two distinct types of transactions namely, those by wayinvestm ent and th ose for t he purp oses of business, that t here should be unifor m ity in treatm ent and consistewhen facts and circumstances are identical particularly in the case of the assessee and that entries in bookaccount alone are not conclusive in determ ini ng th e natur e of incom e though th ey have a beari ng.

CIT V. GOPAL PUROHIT ( S C )



4/21

P A G E 4

CORRIDORSOFCOUR

T

DESPITE WRONG CLAIM , S. 147 REOPENING INVALID IF FAILURE TO DISCLOSE NOT ALLEGED

The AO reopened the assessment after the end of 4 years from the assessment year on the ground that assessee had wr ongly claimed deduction u/s 80IA and that long t erm capital gains had been w ron gly set-o

T here was no allegati on in th e record ed reasons th at th ere was any fail ur e on t he part of th e assessee to discful ly and tr uly all m ateri al facts necessary fo r t he assessm ent. T he assessee fi led a W ri t Petiti on t o challengereopening. It was held quashing the s. 148 notice that there is a well known difference between a wrong cla

made by an assessee after disclosing all the true and material facts and a wrong claim made by the assesseewit hhold ing t he material facts. It is only in the latter case that the A O is enti tled to proceed u/ s 147. The po

conferred by s. 147 does not provide a fresh opportunity to the AO to correct an incorrect assessment mearlier unless the mistake in the assessment so made is the result of a failure of the assessee to fully and trdi sclose all m ateri al facts necessary fo r assessm ent. Fur th er, it is necessary fo r th e AO to fi rst state that t herefailure to disclose fully and tr uly all m ateri al facts. If he does not r ecord such a failure he would not be enti tlepr oceed u/ s 147.

TITANOR COMPONENTS LIMITED V. ACIT ( BOMBAY HIGH COURT)

TRIBUNAL ENTITLED TO DO OWN RESEARCH & RELY ON NON-CITED CASES

T he assessees appeal on di sallowance m ade on account of shor t t erm capital lo ss and lon g term capit al loss decided by the T ri bunal by r elying on a decision of th e M um bai Bench i n M acint osh Fin ance Estates Ltd vs A

wh ich h ad not b een cit ed by eit her part y to th e appeal. T he assessee fi led a M A u/ s 254(2) claim in g that r eliaon a non -cited judgement was an apparent m istake which w as dismissed by t he Tr ibun al. On a W ri t Petitfil ed by t he assessee, it was held di sm issin g th e Peti tio n th at r eliance and reference to r eason s stated in anotdecision cannot be regarded as a mistake apparent from the record. It is not unusual or abnormal for Judgesadjudicators to refer and r ely upon judgments/decisions after making their own research.

GEOFIN INVESTMENT (P) LTD V. CIT ( DELHI HIGH COURT)



5/21

P A G E 5

QUE

RYCOUNTER


Q: How is the term income generally understood for t ax purposes?

A: Th e term incom e i s defined in inclusive m anner, which m eans that whatever i s defined as incomund er In come tax Act is an i ncome and also such receipts, which th ough n ot specifically included can term ed as incom e.The term incom e connot es a peri odical monetary return comin g in wi th some soof regularity, or expected regularity from definite sources. The source is not necessarily one which

expected to be contin uously produ ctive, but it m ust be one whose object is the produ ction of a definreturn . A ny t hin g whi ch can be properly described as incom e is taxable under t he Act, un less expres

exempted

Q: Is there any distinction between income accrued or arisen from a legal source and incom

A: IT he income- tax law do es not m ake any distin ction between i ncome accrued or arisen fr om a lesour ce and il legal source. By br in ging t he pro fit s of an i llegal bu sin ess to tax, it do es not becom e a partythe illegality. Incom e from sm uggling and d rug tr afficking is also taxable under the Act. H owever, a

expenses incur red by an assessee in carryi ng o n such business is not deducti ble. Explanation to section(1) p rovi des th at any expendi tu re incur red by an assessee for any pur poses wh ich i s an offence or wh ichpr ohi bit ed by law shall n ot be deemed to have been i ncur red for the pur pose of busin ess or p ro fession a

no deduction or allowance shall be m ade in r espect o f such expendit ur e.

Q: Whether such receipt has to be in the form of cash only for t reating t he same to be income?

A: In come m ay be received in cash or kin d. W hen incom e is received in kin d, its valuation is to be ma

according to the rules prescribed in the Income-tax Rules. If however, there is no prescribed rule, valuatthereof is made on the basis of m arket value. For exam ple, BM W given by a director to leadin g actor w ill

considered as incom e at FM V thou gh not r eceived thro ugh cheque or cash.

Q: Can you advice whether reimbursement of actual t ravelling expenses for of ficial purposes to

employee is to be considered as income or not ?

A: Reimbursement of actual travelling expenses for official purposes to an employee will not be conside

as in com e for t ax pur poses as m ere relief or reim bur sement o f expenses is not t reated as in com e.


6/21

P A G E 6

QUE

RYCOUNTER


Q: Mr. A and B prepared an article for publication i n Weekly magazine on the understanding th

remuneration wi ll be shared equally. The article was publ ished in June 4th

, 2011 issue of t

Weekly magazine.On July 24th

, 2011 Mr. A received the entire remuneration of Rs. 14,000 (

per practi ce of t he magazine, the remunerati on is paid t o the first author). Mr. A latt er on ga

A: In the above case, the enti re remun eration received to M r.A amount ing to Rs. 14,000 wil l n ot be taxable

his hands. The payment of Rs. 7,000 ( being 50 per cent of Rs. 14,000) by M r. A to M r. B is diversion income by overriding title. The taxable incom e of M r.A wil l be Rs. 7,000 ( payment of Rs. 7,000 to M rwil l not be treated as incom e of M r. A as it i s diverted by an overri din g title). Any expenditur e investm ent by M r. A ou t of hi s incom e of Rs. 7,000 will be an application of in come.

Q: Does the Income Tax Act, provide that whatever is received by a person must be regarded

income liable to tax?

A:Section 4 of t he Act i m poses a general liability to t ax upon all incom e. But the In come Tax A ct does provide that whatever is received by a person must be regarded as income liable to tax. In all caseswhich a receipt is sought to be taxed as income, the burden lies upon the Income-tax Department

pro ve that it is withi n th e taxing pr ovision. W here, however, a receipt is in th e natur e of income, burd en of provi ng that it is not taxable because it falls wit hin an exem pti on pr ovided by the A ct, lies up

the assessee.

Q: During t he F.Y. 2010-11, Mr. X had incurred loss in his business. Does income include loss? Wil

A: In come in cludes loss. W hile in come and pr ofit s and gains represent plus incom e losses represent m inincome. Loss also represents negative income and in calculation of total income of an assesseebonegative and positive incom e should be taken in to account.H ence in t he above case, loss incur red by M r

in h is business wil l be included while comput ing hi s total incom e


7/21

P A G E 7

NORTHBLOCK


DIRECT TAX

AN INDIVIDUAL HAVING INCOME NOT EXCEEDING RS. 5 LACS FROM SALARIES/OTHER SOURCES F

A.Y. 2011-12 IS NOT REQUIRED TO FILE RETURN U/ S 139(1)

Notif icat ion no. 36/2011, dated 23.06.2011

In exercise of t he powers conferred by sub-section (1C) of section 139 of t he In come-tax A ct, 1961 (43 of 19the Central Government has exempted the following class of persons, subject to the conditions specif

hereinafter, from the requirement of furnishing a return of income under sub-section (1) of section 139 for assessm ent year 2011- 12, nam ely :

Class of Persons

An Individual whose total income for the relevant assessment year does not exceed five lakh rupees and consof on ly in come chargeable to incom e-tax und er t he followin g head,(A ) "Salaries";

(B) "In come from other sources", by way of int erest fr om a savings account i n a bank, not exceedin g

th ousand ru pees.

Conditions

Th e ind ividu al referred to in para 1,

( i ) has reported to his emp loyer hi s Perm anent Account N umber (PAN );( i i ) has report ed to his em ployer, the incomes from a savings account i n a bank and th e em ployer has deduc

the tax th ereon;

( i i i ) has received a certi ficate of tax deduction in Form 16 from his em ployer whi ch mentio ns the PAN , detaiincom e and the tax deducted at source and deposited to the credit of the Central Governm ent;( i v) has discharged h is total tax liabilit y for the assessm ent year thr ough t ax deduction at source and its depby the em ployer to the Centr al Governm ent;(v) has no claim of r efund of taxes due to hi m for the incom e of the assessm ent year; and

(vi ) has received salary fr om o nly on e empl oyer for t he assessm ent year.

The exemption from the requirement of furnishing a return of income-tax shall not be available where a nounder section 142(1) or section 148 or section 153A or section 153C of the Income-tax Act has been issuedfil in g a retur n of i ncom e for th e relevant assessm ent year.

QUOTING OF PAN

Notif icat ion no. 27/2011, dated 26-5-2011

The Central Board of Direct Taxes has recently amended Rule 114B of the Income Tax Rules extending

requirement of mandatory quoting of the PAN in documents relating to following transactio

1. Paym ent of li fe insurance premi um to an i nsurance comp any in excess of Rs.50,000 in a year.2. Paym ent for pu rchase of bu lli on or jewellery in excess of Rs.5,00,0003. Ap pli cati on t o any bank seeking i ssue of a debit card

4. Cash paym ent in conn ectio n w it h for eign tr avel in excess of Rs. 25,000Quoting of PAN will become mandatory in all documents pertaining to the above transactions with effect fr

1st July 2011.


8/21

P A G E 8

NORTHBLOCK


I-T department tells EPFO to t ax premature PF wi thdrawals

W ith drawin g provident f und balances prematur ely could becom e an expensive prop osition . The Incom

department has asked the 3,70,000 crore Employees' Provident Fund Organization (EPFO) to tax all withdraw

wor kers wit h less th an fi ve years of PF savin g.

Though tax laws also spell out a five-year lock-in period for PF savings, the EPFO has never levied any

wit hdr awals before thi s period. Th e organization r ecently f ound that over 70% of it s m em bers pull ou t th eir PF befor e com pleting t hree years of contin uous service and PF contr ibuti ons.

Income Tax Not if ication No. 12/2011 Dated 25th February, 2011

U ni ted Stock Exchange of I nd ia Lim it ed noti fied as a recognized stock exchange for the pur pose of sectio n 43(5) (i i) of t he I ncom e tax Act , 1961. W it h th ese, deriv ative transactio ns on U ni ted stock exchange wi ll be con sid

non-speculative transactions.

Revised Schedul e VI to Companies Act, 1956

Th e M ini stry of Co rpor ate affairs (M CA ) has released t he Revised Schedule VI to C om panies A ct, 1956. This wil

to all th e com panies uni form ly for the financial statem ents to be prepared for the financial year 2010-11 and onw


9/21

P A G E 9

INTRODICINGDTC


Persons, entit y or funds not liable to income-tax

In the previous installment we had discussed Nature of Income exempted from tax as per Schedule Six of the vid e section 10.In this volume a list of persons whose income is not taxable by virtue of provisions of Section 11 & 90 is g

T hese persons are listed i n t he Sevent h Schedule of th e DT C.

1. Statutor y Boards like Coffee Board, Rubber Board, Tea Board, T obacco Board, Spices Board,

Board.

2. Prime M inisters funds for N ational rel ief, Folk art and Students.

3. M utual Funds, Provident Fund, Pension T rust, Super A nnuation, Gratuity Funds and ESIC fun

4. Panchayat, M uncipal i ty and Cantonment Board.

5. Relating body for Endowm ents, trust and Societies.

6. IRD A , KV IC and Corp oration s established for th e benefit of Schedule Casts, Schedule Tri bBackward Classes or M inor ity Co m m uni ty and for welfare of ex-servi ce m en.

7. A PM C]

8. Any noti f i ed NPO of publ i c impor tance.

9. Au thorit i es appointed for export of m arine, agricultural and processed foods.

10. Incom e of an approved Electoral Tru st.

11. Central Electrici ty Regulatory Comm ission.

It is signifi cant to k now that th e exem pti on here is conferred wit h r eference to the status of the persons and th

for e the incom e of such l isted p ersons from any sour ces is exem pt fro m tax.

The exemption is however maybe subjected to procedural compliances like registration, approvals, maintenan

accounts, audit, and investm ent of fun ds and fil i ng of r eturn regularly.


10/21

P A G E 1 0

INVES

TMENTS


TAX SAVING INVESTMENTS

D ur in g th e tax-saving season , people are so d esperate to save Rs30,900 in taxes by i nvesti ng t heir hard -earn ed

lakh i n certain ki nd s of savin gs, that even t he most r isk-averse person start s taki ng r isks. M aybe th e tax-sm oney con fers a sense of secur ity. So, investor s easily walk in to var iou s traps.

V ariou s tax-savin gs pr odu cts have diverse featur es and th ey appeal to di fferent people, dependi ng on th eir agincome structure. In general, mutual funds and term policies are considered better options compared to

Linked Insurance Policies (ULIPs). But there cannot be a thumb rule for tax planning. It depends on indivcases. Som e people will benefit from Public Provident Fund (PPF), som e from term plans (if th ey are not i nsand so on. The product has to suit individual requirements. Taxpayers often go in for ULIPs, unknowingly

ju st as we say don t m ix investm ent s and insur ance (l i ke in U LI Ps), do n t put reti r ement fu nds or lo ng-savings into risk products just because you are running out of time for the tax return fil ing deadlineunderstand the importance of this, lets look at a product which is an obvious winner: ELSS. Long-term caappreciation and divi dends from ELSS are tax-fr ee. Th ough th is seem s like an attr active investm ent opti ocareful before you invest. If you sink your funds into ELSS at the wrong time, your returns could be low. Y

m oney is locked i n f or thr ee years, irr espective of t he perform ance of th e market. A s an investor, you r statube reduced to t hat of a mut e spectator, despit e the market falling or wor se, shooti ng up. You can neither wit h

m oney to cut losses nor to book pro fits. The vari ation in perform ance is huge. It w ould not be wise if you welose a part o f your pr in cipal simp ly because you are sharp ly focused on saving taxes. Equi ty in vestm ents shoucarefully planned, using a systematic investment plan or even by a system of value averaging and maintain

long-t erm view of the investm ent, beyond t he three-year lock- in p erio d.

Old Is Gold

So, how should on e plan their investm ents for tax savings?Firstly, one must remember that their tax-savings instruments have to fit into ones overall financial profile

compl em ent their oth er investm ents. Second, be clear about wh at you want that in vestm ent to d o for youpartly d epends on your age. Th ird , decide for how long you can leave that mon ey to w ork for you. On ce yoable to answer t hese th ree questi ons, the task of zero in g in o n t he ri ght i nvestm ent pr odu cts becom es easier. are som e pointers based on your age, and poin t of your life cycle.

Up to Your 30s: This is the time to buy a term insurance cover and also take advantage of long-

compou ndi ng of r etur ns. If you h ave already taken a hom e loan, then your preferred tax-saving opti ons shouthe tax deduction you get to wards the repayment of t he prin cipal amou nt up t o Rs1 lakh and also in terest

From 30s to Mid-40s: For the m arried salaried employee with chi ldr en, the Em ployees Provid ent Fund (

contribution takes care of a part of the 80C tax concession amount. Then, you have your home loan princrepayment amount, insurance premium, and full-time students (who is your dependent) education fees.shou ld ensure th at the Rs. 1 lakh li m it is exhausted. If n ot, th e balance that you have can be invested in PPF, and so on. T he self-emp loyed have no EPF or V olun tary Provi dent Fun d ( V PF); they can explore PPF and E

On e needs to plan for their t ax savings fro m the beginni ng of t he (fiscal) year and not at the end. D ebt i nvestmwi ll start accum ulati ng in terest, ELSS can also be invested in t hr ough a systemati c investm ent plan. M or e

plan your i nvestm ents from a long-term point of view.


11/21

P A G E 1 1

INVES

TMENTS


Late 40s to 60: If you are in your late 40s and you are looking for stable and secure investments from

retirement point of view, you ought to consider ELSS, PPF, VPF, National Savings Certificates (NSCs), SeCi ti zens Savings Scheme (SCSS) o r five-year tax- saving f ixed d eposit s with banks. Al l t hese investm ents have

own pros and con s.

EPF and VPFTwo Good Bets

Equity is stil l th e best op tion for long-t erm asset gr owth . But f or salari ed emp loyees, two of t he best o ptio nEPF and VPF. These two options are real savings products unlike the surreal savings options offered by insurcompanies. The money you want to protect for retirement can grow on a compounded basis over the y

Employees are made to contribute 12% of their basic salary; employers contribute an equal amount. You can put in an addition al contri bution of u p t o 100% of your basic salary p lus dearness allow ance towards V PF. emp loyers contri bution w il l be l imit ed to t he mandatory amount; thi s wil l n ot m atch your voluntary contribu

V PF is dir ectly lin ked to your EPF account . H owever, do n ote that you shoul d be prepared to have your mlocked in ti l l th e time of your retirement. But t he best part i s that the int erest th at you will earn on it over all

years is also tax-f ree

Inf rastructure Bonds80CCF

You can bring your taxable income down by up to Rs20,000 if you invest in long-term infrastructure bonds,amount is over and above the Rs1 lakh limit under Section 80C. These carry a lock-in period of five y

(maturity at 10 years from the deemed date of allotment) with a buyback option after five years. The intearned on these bonds is taxable. Putting money in infrastructure bonds is not a great option, if you have alrinvested a lot of m oney in debt in str um ents. Wh at you wi ll gain by w ay of saving on taxes, you wi ll lo se oreturns.

Mediclaim Premium Deductib le under 80D

You can claim deductions of up to Rs 15,000 in case you have taken a medical insurance plan for yourself, spouse, dependent parents or children. You get an additional Rs 15,000 for your parents medical insurance u

Section 80D for premiums paid. This limit has been enhanced to Rs 20,000 for senior citizens. For 80Dsavings, mediclaim p remiu m (payment) i s a good opt ion. Even if th e em ployer offers a group p olicy, it is bettgo for in divid ual policy (not a floater) fr om a long-term perspective.


12/21

P A G E 1 2

LEGALMAXIMS


RES IPSA LOQUITOR

(The thing speaks for it self)

There is a general rule of evidence, that a person has to produce proof before he can get the courts judgeme

his favour. Notwithstanding this general rule, in certain cases, the mere fact that a particular accident has tplace may become prima facie evidence of negligence. Such cases are referred to as RES IPSA LOQUITO

Latin.Conn otation of th is maxim has been explained thus, W here the thin g is shown t o be und er t he managem ent odefendant or his servants, and the accident is such, as in the ordinary course of things, does not happen if those

have the management use proper care, it affords reasonable evidence, in the absence of any explanation b

defendan t, th at t he accident arose from wan t of care.

Eg. If a hammer falls out of a window, it could be a case of somebodys negligence or even mischief. But it is case of RES IPSA LO QU IT OR as it is not un usual for sm all thin gs to f all out. But i f a chair or a cupboard or afalls out of a win dow , sur ely such art icles never fall, or shoul d fall, li ke that. Th is very f act is it self clear evid en

somebodys gross negligence.Th e follow ing are the three pri ncipal requirement for the application of t he maxim:

1. The thing causing the damage should be under the control of the defendant or h is servants.2. Th e accident m ust be such as would n ot, in the ordin ary cour se of thi ngs, have happened withou t neglige

3. There must be no evidence of the actual cause of the accident.Follo wi ng are a few il lustr ative cases relatin g to the maxim :

Byrne v. Boadle: (1863) 2 H. & C . 722I n t hi s case, th e plainti ff w as passin g alon g the str eet, and w hen he cam e near t he defend ants shop , was in jur ethe fall of a barr el of fl our whi ch roll ed out of a win dow o n th e second floo r. T here was no evidence on t he p

the plaintiff as to how the accident happened, beyond the facts that, while on the road, he was knocked dowth e barr el and was in jur ed. It w as held t hat th e accident w as a prim a facie case of negligence.

The AnnotLyle : 11 P.D. 114H ere, when a ship in m otion collided wit h a ship which was anchored, it w as held that such collision is pri m a

evidence of t he negligence of t he mov in g shi p.

Crisp v. Thomas: (1891) 63 L.T .R. 756In thi s case, the blackboard o f a classroom slipped dow n and fell, injur ing on e of the students. It w as held tham ere fall of t he blackboard was no t evidence of t he teachers negli gence.

State of Punjab v. V.K. Kalia :A .I.R. 1969 P & H 172

In this case, the Superintendent of Police, while on an official tour received injuries as a result of the accidethe offi cial jeep r egistered i n h is name and und er contr ol of a constable dri ver. T he jeep w as not, at th at tim eroad-worthy condition. The cause of the accident was established to be the worn out tires and tubes and slipro ads dur in g the rainy season. H ere, th e cour t held t hat the State coul d not be said to be negligent, th ro ug

constable or o th erwi se, wh en the plaint iff was ful ly aware of the facts and ci rcum stances. H ence thi s m aximheld no t to be appl icable.


13/21

P A G E 1 3

TAXBEYONDBORDER

S


In theprevious issue of Newsletter Vol.104, we had ini tiated the concept of Permanent Establishment. The

existence of a PE, only determines the right of a contracting state to tax the profits of an enterprise of the o

contracting state. We have discussed the concept of Fixed PE and Agency PE in the previous volume and w

examine the concept of Service PE in this issue.

There are two mainmodels of tax treaty, UN Model Convention (MC) and OECD Model Convention.

SERVICE PE UNDER UN MC:

Th e concept of Service PE exists in A rti cle 5 of U N M C. U N M C, which f avors sour ce based taxation , though

not specifically use th e expr ession Service PE , but i ts Ar ticl e 5(3) ( b), wh ich d eals wit h th e concept of Servic

reads as under;The furnishing of services, including consultancy services, by an enterprise through employee

other p ersonnel engaged by the enterpr ise for such pu rpose, but o nly i f activiti es of that natur e conti nue (fo

same or a connected pr oject) w ith in a Contr actin g State for a perio d or periods aggregatin g mor e than six m o

withi n any tw elve mont h period Developing and emerging economies, which are predomi nantly ca

importing nations, generally try and negotiate Service PE clause in bilateral treaties, so as bring to tax profi

foreign enterprises operating within their territories, i.e. in the country where services are received, eve

cir cum stances wh ere no Fixed or A gency PE exists.

SERVICE PE UNDER OECD APPROACH

H istor ically, OECD has always expressed its pr eference for r esid ence taxation and given justif ication forincluding Service PE, but it now recognizes the growing role of developing nations, which is reflected

comm entary on A rti cle 5. Th ough the 2008 update to the OECD M odel did not change the defin iti on of PE, bdid add in the commentary an alternative provision for states wishing to include the clause for PE based taxa

in t heir dou ble tax conventions.OEC D has also stipu lated, th at Service PE shou ld on ly exist in case of services pr ovi ded to th ir d part ies onl y, bth e In dian tr eati es, Service PE is also deemed to exist even in case of serv ices pr ovi ded by a fo reign enterpr is

an associated enterpr ise sit uated in the coun tr y of receipt of serv ices.

SERVICE PE AND INDIA TAX TREATIES

Ind ias tax treaties are a combin ation of both O ECD and U N M C. India does not fol low a uniform definit ion oin its treaties, but is understandably more inclined towards UN approach, with emphasis on source taxatiofact i n certain tr eaties, for example, the one with U nit ed Ki ngdom , the definiti on o f servi ce PE is even w iderthe one in U N M C. Th ere is also a Service PE clause incor porated in t he Ind ia-U S D ouble Taxation A void

A greem ent, even t hough n o such concept exists in t he US M C.

Service PE clause is attracted by the foreign enterprise in India, if the employees of the foreign enterprise proor perform services in India, other than the services covered under royalties or fee for technical services, specifi ed period of ti m e. Fur nishing of services , and the tim e factor, are the most i mp ortant check for attr aof th e Servi ce PEcalu se.In thi s backgroun d, it is crucial for mu ltin ational enterpr ises to carefully plan theie affair s includ ing m oveme

it s empl oyees and personn els acro ss terr it ori es, so as to avoi d givi ng r ise to Service PE, especially in jur isdicwhich have incorporated Service PE clauses in their double tax treaties. It is not necessary that deputatioemployees would always give rise to Service PE unless there is furnishing of services through those employ

W ith the labour becom ing so mo bile, it is likely that m ore nations would prefer having Service PE clause in tr eati es. It i s possibl e, that wi th the develop in g nation s, especially em erging econom ies, becom in g net expor t

services rather than n et im por ter, the service PE clause m ight not seem as attr acti ve to them in f ut ur e, as it snow.


14/21

P A G E 1 4

MON

EYMATTERS

INTEREST RATE HIKE BY RBI, BORROWERS TO FEEL PINCH

Personal and corporate loans will become more expensive, with the RBI raising the key interest rates sharplythe third time in the last three months, by 0.50 per cent, to arrest price rise.The central bank, in its quarte

review of the monetary policy, has also revised its fiscal-end inflation projection to 7 per cent from 6 per cearl ier. It has retain ed the growt h pr oject for th e cur rent f iscal at 8 per cent . H owever, the cash r eserve ratiothe amoun t all banks need to deposit wit h RBI, r emains unchanged at 6 per cent. A ll loans, includi ng auto, ho

personal and other corporate borrowings, are expected to cost more due to the RBI's decision. The stock maalso reacted sharply, plunging by over 300 points within minutes of the RBI's policy announcement. withstanding signs of moderation, inflationary pressures are clearly very strong. On the basis of this assessmit has been d ecid ed to in crease pol icy repo r ate to 8 per cent wi th i m m ediate effect.

SEBI ANNOUNCES NEW TAKEOVER NORMS

Laying out a new set of rules for takeover of companies, SEBI said an entity buying 25 per cent stake

a listed firm will have to mandatorily make an offer to buy additional 26 per cent from pub

shareholders. The new norms mark an increase in the open offer size for public shareholders from 20 cent currently. Partly accepting the recommendations of a Sebi-appointed panel on the matter, Sebi a

decided to abolish the non-compete fees that acquirers generally pay to the sellers in merger

acquisition deals. The Sebi panel had recommended an open offer for buying up to 100 per cent in

target company, while suggesting anincrease in the trigger limit to 25 per cent. While

recommendation on trigger has been accepted, the same for offer size has been kept lower due to inte

opposition from industry and other market participants. At the time of recommendation it was said all the public shareholders were required to be given an exit opportunity in case of promoters of ta

company selling out their stake to acquirers. For removal of non-compete fees, which could be as high

25 per cent of deal value, the logic was given that promoters should not get higher price than that

public shareholders.

.



15/21

P A G E 1 5

MON

EYMATTERS

BSKYB TO RETURN 1BN TO ITS SHAREHOLDERS

Satellite broadcaster BSkyB is returning 1billion to its shareholders who were angered by the recent fall in sh

prices. The share prices have fallen sharply in the past month after News Corporation abandoned its bid

BSkyB in the middle of the phone-hacking scandal. The company said that over the past year its opera

profits, excluding earnings from non-core activities such as investments, rose by 23% to 1.07billion, w

pre-tax profits fell by 15% to 1.01billion.The licencse is held by BSkyB and the company is controlled b

majority of independent directors at board level. BSkyB is raising its dividend by 20% and has announce

750m share buyback.T hi s shou ld help t o pl acate sharehold ers, as th e value of th eir shares has fallen 15% sinc

the past month. BSkyB increased its customer base by 426,000 in the year to give it a total of 10,294,

subscribers. A verage revenue per custom er grew 31 to 539.One of th e key targets for media com panie

the m om ent is persuading custom ers to subscribe to mor e of their pro ducts, combin ing fees for televis

access wit h services li ke br oadband in tern et access and landl in e telepho ne servi ces.

CRACKDOWN ON TAX EVADERS ON FAST TRACK

Takin g a step forw ard against black m oney, the Finance M ini str y has asked the In come Tax D epartm en

launch immediate prosecution action in tax evasion cases wherein tangible assets and investments are locate

foreign shores. The department has been asked to do away with the norm of taking persmission from hig

autho ri ti es to i ni ti ate legal action and b egin p roceedi ngs again st tax evasion . The Finance M in istrys Fore

Taxation di vision can n ow ask th e I-T range concern ed to begin pr om pt pr osecution action and i ssue sum m

to t he depositor based on evidence provi ded by the fin ancial enforcement wi ng of the foreign n ation concern

The step is also aimed at ensuring seamless flow of information between the investigating officer and the pa

und er p rosecution . The step has been t aken i n t he backdrop of the CBD T obtainin g for t he first tim e investm

data of a few Indians who had accounts in Germanys Leichestein bank. Empowering investigators with suc

step will also help India showcase its seriousness to the international financial enforcement community

addr essin g issues of bl ack mon ey and i lli cit fu nd s.



16/21

P A G E 1 6

AROUN

DTHEWORLD

AFGHANISTANS TOP BANKER FLEES COUNTRY

It is not only in A fri ca, that top bur eaucrats and bankers run away with i ll-gott en wealth of the Count ry. The name on th e list is that of A fghanistan. The Centr al Bank C hairm an of A fghanistan A bdul Q adir Fitr at, has the country. Fitrat was named in a report sent to the Afghan attorney general's office as someone possrespon sibl e for the failur e of K abul Bank. H owever accordi ng to sources Fit rat left th e count ry because hi s

had been threatened and that the Karzai government was refusing to prosecute those allegedly involvedfraudul ent loans.

THREAT OF NUCLEAR DISASTER ACROSS US

N ebraska's flooded Fort Calhoun nuclear power p lant i s raising f ears that other po wer pl ants in th e Un ited St

are vuln erable to extrem e weather event s.Th e N ebraska plant, located along the swoll en M issour i River, is currentl y surr ound ed by about two f eet of w a

The facility, designed to withstand at least eight more feet of water, is reportedly dry inside, shut down and

thou ght to be in any im m ediate danger.But th e situ ation hi ghlights the precari ous places m any U .S. nuclear plants occupy. N early all of the natinuclear pow er plants are located next to som e body of water -- m any in tor nado, earthquake or hurr icane-prparts of the count ry.For example, New York's Indian Point plant has been called out as particularly risky, because it sits on an ac

fault lin e.

PAKISTAN - CHINA DEFENCE TIES SET TO GROW

Chinas deepening strategic penetration of Pakistan and the joint plans to set up new oil pipelines, railroads,

even a n aval base on th e Ar abian Sea th at wil l serve as th e fir st o verseas location off erin g supp or t t o t he Chi nnavy for out- of-area m ission s, are spur ri ng greater U .S. and In dian concerns. For I ndi a, the im plications of

growing strategic nexus are particularly stark because both China and Pakistan refuse to accept the territostatus quo and lay claim to l arge tracts of I ndi an land.

BANGLADESH DECLARES AMNESTY FOR BLACK MONEY

Bangladesh will allow billions of dollars of untaxed money to be invested in shares under a new tax amnedesigned to gi ve imp etus to t he volatile D haka Stock Exchange.

As per the new legislation, an amnesty will be granted on so-called black money" if it is invested in local stoand shares. Tax evasion is widespread in Bangladesh, with a new study by the finance ministry finding tund eclared incom e or "black mo ney" could account as high as 80 percent of Gro ss D om estic Product -- so

$110 bill ion . The new amn esty i s designed to attr act some of th at cash i nt o th e Dhaka Stock Exchange, wherebenchm ark D GEN ind ex has lost some 45 percent of i ts value since hitt ing r ecord h ighs few m onth s ago.



17/21

P A G E 1 7

FUN

NYBONE

D ifferent Girl fr iends f ighting with their boyfriendsPilots Gir l fr iend: ZyadaUdM at !!

T eachers Gir lfr iend: M ujhe mat sikh ao !!!D enti sts Gir lfr iend: DaantT odkehaath m e de dun gi

Doctors Girlfriend: TabiyatdurustkardungiA nd fin ally, CA students gir lfri end: A bbe pehle pass toh ho, phir baatkarna !!

Defining a wom anOn e who can see a str and of a girls hair o n h er husbands coat fr om a distance of 20 m eters but cant see a b

pill ar whi le parki ng a car

.

A bi g city Lon don lawyer went du ck hunt ing in r ur al Scotland. H e shot and drop ped a bird , but it fell in to

farm er's fi eld on t he other side of a fence.

A s th e lawyer clim bed over t he fence, an elderl y farm er dro ve up on hi s tr actor and asked the lawyer what he w

doing.

Th e lawyer respond ed, "I shot a duck and it fell into thi s field, and n ow I 'm goin g to retri eve it."

Th e old farmer replied. "Th is is m y pro perty, and your not com ing over here."

Th e indignant l awyer replied. "I'm one of the best tr ial lawyers in th e UK , and i f you d on't let m e get t hat ducksue you and t ake everythin g that you own .

Th e old farm er smil ed and said, "A pparently, you don 't know how we do thi ngs in Scotland. W e settle sm all d

agreements like thi s, with th e Scotti sh T hr ee Ki ck Rule."

T he lawyer asked, "W hat i s the Scotti sh T hr ee K ick Ru le?"

Th e farm er replied, "W ell, fir st I kick you thr ee times and then you k ick m e three tim es, and so on, back andfor th u nti l someone gives up."

Th e attor ney quickly t hought about the prop osed contest and d ecided that he could easily t ake the old codger.agreed to abide by th e local custom .

Th e old farm er slowly gets down fr om the tractor and walked up to th e city fella. Hi s fir st ki ck planted the toe

his heavy work boot i nto the lawyer's groi n, whi ch drop ped him to h is knees.

H is second ki ck nearly r ipp ed the nose off hi s face.

T he lawyer was flat on his belly, when the farm er's thi rd kick t o a kidn ey nearly causing him to give up, but dn't.

T he lawyer sum m on ed every bit o f hi s wi ll and m anaged to get to hi s feet and said , "O kay, you old to sser, now

my turn ."

Th e old farm er sm iled and said,

"N aw, I give up, You can k eep th e duck !"



18/21

P A G E 1 8

SCHEDULE OF EVENTS

AUGUST 2011

SUN MON TUE WED THU FRI SAT

1 2 3 4 5 6

7 8 9 10 11 12 13

14 15 16 17 18 19 20

21 22 23 24 25 26 27

28 29 30 31

5th Services T ax Payment by C om panies for Jul y

7th T D S paym ent for July

15thP.F. Paym ent f or July

21st E.S.I.C. Payment for Jul y M V A T M onthly return for July (TA X>1000000/-)

31st A nnual Inform ation Return


DO

NTFORGET


19/21

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one roof. So its easy to browse your pictures, upload them to various networks, and generally make the best o

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WEBLINKS

P A G E 1 9


20/21

H O M EA N E W S L E T T E R B Y P R A D I P K A P A S I & C O .

FLASH

Cost Infl ation In dex (CI I) for F.Y.2011-12 to be 785.

CACE

XCLUSIVE

P A G E 2 0

SUGGESTION OF THE MONTH

M any of us have received emails from so-called I ncome tax departm ent to subm it Bank details, credit car

details and PIN numbers or passwords or similar access information for release of Income tax refund. Pleas

note that In come Tax D epartm ent N EVER asks for such infor m ation for disposal of your refund . You

subm ission of pr oper Bank account alongwith M IC R code in your i ncom e tax return i s suffi cient f or th em t

release the refund as per your direction, be it through cheque or through ECS. Releasing of such vita

inf orm ation thr ough em ail will result in to sipho nin g of your fund s by som e unscrupulou s person.


21/21

A PSALM OF LIFE

Tell me not, in m ournful num bers,

"Life is but an em pty dr eam!"

For t he soul is dead that slum bers,

A nd thi ngs are not what th ey seem .

Li fe is real! Li fe is earnest!

A nd t he grave is not it s goal;

"Du st t hou art, to dust return est,"

W as not spoken of the soul.

N ot enjoyment, and not sorrow ,

Is our d estin ed end or way;

But to act, that each to- m orr ow

Find u s farther than to- day.

A rt is long, and T im e is fleetin g,A nd our heart s, though stout and br ave,

Stil l, l ike m uffled dr um s, are beatin g

Fun eral m arches to t he grave.

In the world 's broad field of battle,

In the bivouac of Li fe,

Be not lik e dumb, dr iven cattle!

Be a hero i n th e str ife!

Trust no Future, howe'er pleasant!

Let th e dead Past b ur y it s dead!Act, - act in the l iving Present!

H eart w ith in, and God o'erh ead!

Lives of great m en all r emi nd us

W e can m ake our lives subli me,

A nd, departing, leave behin d us

Footpr int s on th e sands of tim e; -

Footpr int s, that perhaps anoth er,

Saili ng o'er li fe's solem n m ain,

A forlorn and shipwrecked brother,Seein g, shall take heart again .

Let us, then, be up and d oin g,

W ith a heart for any fate;

Still achieving, still pur suin g,

Learn t o labour and to wait.

CACE

XCLUSIVE

P A G E 2 1

newsletter vol. 105

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