volume 10/14-15 institute of chartered accountants of...

Volume 10/14-15 Institute of Chartered Accountants of IndiaNavi Mumbai Branch of WIRC

Newsletter, January 2015



News letter January 2015Volume 10/2014-15

Managing CommitteeChairmanCA. Sameer L. Gavli 9821161072

Vice-ChairmanCA. Shrikant Limaye 9819455561

SecretaryCA. Nawanit Jaipuriyar 9920062526

TreasurerCA. Ananthram Rao 9320433833

MembersCA. Sreekumar Nair 9892290909CA. J.D.Tandel 9820192895CA. Santosh Sharma 9323582884CAMinaxi Rachchh 9820898183

Co-opted MembersCA. Sanjay Nikam 9820446329CA. Suresh Ameria 9821368836CA. Manoj Pandey 9322804994

Inside this issue:

FEMA Update……………….….4 Transfer Pricing an analysis …...13 Recent Judgements ……….…....18 Photo Gallery ……….…………20 Forthcoming programmes…...….22

Dear Professional Colleagues and friends,

Let me begin with wishing you all a very Happy, Successful and Re-

warding New Year 2015 ! As the New Year will unfold, it will bring

new opportunities for all of us and I am sure, we will excel in times

to come.

The first month of the new year, comes with celebration of

Republic Day. The new Government had promised us reforms and

this is creating positive impact on global confidence about India.

We all are looking forward to the visit of American President Barak

Obama as Chief Guest at our Republic Day Celebrations. The GST

implementation, a welcome move, will rationlise the tax structure

of indirect taxes in India and will help the manufacturers and

professionals for their growth across the country.

The last month was packed with conferences and seminars and the

Branch had organized 18 Hrs CPE programme for the benefit of

members. I would like to thank, CA Mangesh Kinare, Past

Chairman, WIRC, for having graced the 2 days Workshop on

Service Tax.

The Branch has organized a two days Residential Refresher Course

for its members and their families at Hotel Citrus Chambers, Maha-

baleshwar. After a hectic schedule of VAT Audit, members can



relax a bit and can rejuvenate themselves for upcoming Bank Branch Audits. The future programmersof Branch includes a Full Day Bank Branch Audit Seminar on 7th of March, in addition to regular CPEseminars.

I am also glad to inform members that our Branch would be organizing “Campus Interviews” on 16th

and 17th February 2015. Students who have passed the examination in November,2013 andMay,2014 can participate in Campus Interviews, along with students who have appeared forNovember, 2014 exams and completed their GMCS Course. The students can visit thelink www.placement.icai.org/imgs/Announcement%20FM-15.htm under the head-ing Announcement Campus Placement Programme for Newly Qualified Chartered Accountants forfurther information.

I take this opportunity to congratulate CA (Dr.) Minaxi Rachchh, Managing Committee Member of our

Branch, for successfully authoring and publishing 8 academic books in Accountancy in last year.

I would like to wish all Members and Students a Happy Makar Sankranti and hope that we keep

achieving greater heights like the kites flying high in the sky.

With best regards,

CA Sameer Gavli

Chairman

Members are requested to make theirpayments of annual membership fees forthe year 14-15 Rs. 2500

——-Appeal——-

-: Congratulations :-

CA (Dr.) Minaxi Rachchh

Congratulations from all of us, for successfully authoring and publishing 8 academic

books in Accountancy in last year for Mumbai University



Import of Gold (under 20: 80 Scheme) by Nominated Banks / Agencies / Entities

A.P. (DIR Series) Circular No.42 dated November28, 2014

It has been decided by the Government of India to withdraw the 20:80 scheme and restrictions placed onimport of gold. Accordingly, all instructions issued about the scheme from time to time starting with A.P.(DIR Series) Circular No.25 dated August 14, 2013 stand withdrawn with immediate effect._________________________________________________________________________

Remittance of Assets – Submission of Auditor’s certificate

A.P. (DIR Series) Circular No.43 dated December 2, 2014 and Notification No. FEMA 324/2014-RB datedOctober 31, 2014

Presently, the Foreign Exchange Management (Remittance of Assets) Regulations, 2000 (Notification No.FEMA 13/2000-RB dated May 3, 2000) as amended from time to time, requires submission of certificates inthe formats prescribed by Central Board of Direct Taxes, Ministry of Finance, Government of India specifiedin their circular No. 10/2002 dated October 9, 2002.

The instructions by Central Board of Direct Taxes (CBDT) regarding submission of certificates have under-gone significant changes over the years. Further CBDT vide its notification dated September 2, 2013 hasrevised the instructions regarding furnishing of tax declarations and submission of Form 15CA and 15CB.

Accordingly, RBI has since amended the Principal Regulations through Notification No. FEMA 324/2014-RBdated October 31, 2014, with respect to submitting certificates on tax payments.

_________________________________________________________________________

FEMA Updates(Contributed by CA Mitesh Majithia)



Foreign Direct Investment (FDI) in India – Review of FDI policy

1. Sector specific conditions

A.P. (DIR Series) Circular No.45 dated December 8, 2014 and Notification No. FEMA 312/2014-RB datedJuly 2, 2014

The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government

of India has been updating/notifying the FDI policy through issue of Consolidated FDI Policy Circular. Ac-

cordingly, Government has notified the latest FDI policy changes vide Consolidated FDI Policy Circular of

2014 dated April 17, 2014.

In order to bring uniformity in the sectoral classification/conditionalities for FDI/foreign investment as noti-

fied under the Consolidated FDI Policy Circular with the FEMA Regulations, theposition on Annex B of

Schedule 1 to Notification No. FEMA 20/2000-RB dated 3rd May 2000, as amended from time to time, has

been suitably revised by amending the notification. Accordingly, the RBI has amended the Principal Regula-

tions through Notification No. FEMA 312/2014-RB dated July 2, 2014 to bring uniformity with the Consoli-

dated FDI Policy Circular.

_________________________________________________________________________

2. Review of FDI policy in Defence Sector

(i) A.P. (DIR Series) Circular No.46 dated December 8, 2014(ii) Press Note No. 3 dated June 26, 2014, Press Note No. 6 dated July 8, 2014 and Press Note No. 7

(2014 Series) dated August 26, 2014 issued by DIPP; and(iii) Notification No. FEMA 319/2014-RB dated September 5, 2014

In terms of FDI Policy and Schedule 1 to the Foreign Exchange Management (Transfer or Issue of Security by

a Person Resident outside India) Regulations, 2000, FDI up to 26%was permitted under Government route

in Defence industry subject to license under the Industries (Development & Regulation) Act, 1951. Propos-

als for FDI above 26%were subject to approval of Cabinet Committee on Security on case to case basis,

wherever it is likely to result in access to modern and ‘state-of-art’ technology in the country.

The Department of Industrial Policy and Promotion (DIPP) has reviewed the extant FDI policy for defence



sector vide Press Note No. 3 dated June 26, 2014, Press Note No. 6 dated July 8, 214 and Press Note No. 7

(2014 Series) dated August 26, 2014.

DIPP has now provided a list of defence items as finalised by Department of Defence Production, Ministry

of Defence and has clarified that items not in the list would not require industrial license for defence pur-

poses. Dual use items, having military as well as civilian applications, other than those specially mentioned

in the list, would also not require Industrial License from Defence angle. Department of Defence Produc-

tion, Ministry of Defence, has finalised the ‘Security Manual for Licensed Defence Industry’.

Further, DIPP has, vide Press Note No. 7 (2014 Series) dated August 26, 2014, increased the limit of foreign

investment from 24% to 49% under Government route subject to the conditions specified therein. This FDI

limit is composite and includes all

kinds of foreign investments i.e. FDI, Foreign Institutional Investors (FIIs), Foreign Portfolio Investors

(FPIs), Non-Resident Indians (NRIs), Foreign Venture Capital Investors and Qualified Foreign Investors

(QFIs). Portfolio investment by FPIs/FIIs/NRIs/QFIs and investments by FVCIs together will not exceed 24%

of the total equity of the investee company. Portfolio investment will be under automatic route. The listed

investee company engaged in defence sector, in accordance with the guidance provided by the Press Note

No. 7 (2014 Series), shall immediately allocate limits for portfolio investment for FPIs (including QFIs and

FIIs), NRIs (not exceeding 10%) and FVCIs within the default portfolio investment limit of 24% being per-

mitted now and approach RBI, Central Office, Foreign Investment Division, Mumbai so that allocated limits

can be monitored by the RBI.

Consequently, the RBI has amended the Principal Regulations through the Foreign Exchange Management

(Transfer or Issue of Security by a Person Resident outside India) (Thirteenth Amendment) Regulations,

2014 notified vide Notification No. FEMA 319/2014-RB dated September 5, 2014 to give effect of the

above amendments.

_________________________________________________________________________



3. Review of FDI policy in Railway Infrastructure

(i) A.P. (DIR Series) Circular No.47 dated December8, 2014;(ii) Press Note No. 8 (2014 Series) dated August 27, 2014 issued by DIPP; and(iii) Notification No. FEMA.320/2014-RB dated September 5, 2014

In terms of FDI Policy and Annex A of Schedule 1 to the Foreign Exchange Management (Transfer or Issue of-

Security by a Person Resident outside India) Regulations, 2000 as amended from time to time, FDI was pro-

hibited inactivities / sectors not open to private sector investment e.g. Atomic Energy and RailwayTransport

(other than Mass Rapid Transport Systems).

DIPP has reviewed the extant FDI policy for railways sector and vide Press Note No. 8 (2014 Series) dated Au-

gust 27, 2014 permitted 100%FDI in railway Infrastructure sector under automatic route subject to conditions

specified therein. Accordingly, it has been decided to permit FDI in the following activities of the Railway

Transport sector:

“Construction, operation and maintenance of the following: (i) Suburban corridor projects through PPP, (ii)

High speed train projects, (iii) Dedicated freight lines, (iv) Rolling stock including train sets, and locomotives/

coaches manufacturing and maintenance facilities, (v) Railway Electrification, (vi) Signaling systems, (vii)

Freight terminals, (viii) Passenger terminals, (ix) Infrastructure in industrial park pertaining to railway line/

sidings including electrified railway lines and connectivity's to main railway line and (x) Mass Rapid Transport

Systems.

Further, FDI beyond 49% of the equity of the investee company in sensitive areas from security point of view

will be brought before the Cabinet Committee on Security (CCS) for consideration on a case to case basis.”


(Transfer or Issue of Security by a Person Resident out side India) (Fourteenth Amendment) Regulations,

2014 notified vide Notification No.FEMA.320/2014-RB dated September 5, 2014, to give effect of the above

amendments.

_________________________________________________________________________



4. Review of FDI policy in Construction Development Sector

Press Note 10 of 2014 dated December 3, 2014 issued by DIPP

The Government of India has, on October 29, 2014, approved the amendment to the existing FDI policyrelating to Construction Development Sector. Consequently, DIPP has now issued a press note amend-ing the FDI Policy on the Construction Development Sector.

The major amendments are as under:

The condition relating to minimum area to be developed under each project is amended as under:1. In case of development of serviced plots, restriction on minimum land area of 10 hectares has

been removed and hence forth there is no condition of minimum land.2. In case of construction-development projects, condition relating to a minimum floor area has

been reduced from 50,000 sq. meters to 20,000 sq. meters.

Presently, minimum capitalization required is US $10 million for wholly owned subsidiaries and US $5 million for joint ventures with Indian partners. This condition has been amended to have one uni-form limit of US $ 5 million for any investment in Construction Development Sector. Presently thesefunds are required to be brought in within six months of commencement of business of the Com-pany which has now been required to be brought within six months of commencement of the pro-ject i.e. the date of approval of the building plan/lay out plan by the relevant statutory authority.

Subsequent tranches of FDI can be brought till the period of ten years from the commencement ofthe project or before the completion of the project, whichever expires earlier.

The investor will be permitted to exit on completion of the project or after three years from thedate of final investment, subject to development of trunk infrastructure as against present lock-inperiod of three years from completion of minimum capitalization.

The Government may, in view of facts and circumstances of a case, permit repatriation of FDI or

transfer of stake by one non-resident investor to another non-resident investor, before the com-

pletion of the project. These proposals will be considered by FIPB on case to case basis.

The condition relating to development of at least 50% of each such project within a period of five

years from the date of obtaining all statutory clearances has been done away with.

The Indian investee company will be permitted to sell only developed plots. Forthe purposes of this

policy "developed plots" will mean plots where trunkinfrastructure including roads, water supply,

street lighting, drainage and sewerage, have been made available.

It is clarified that FDI is not permitted in an entity which is engaged or proposes to engage in real



estate business, construction of farm houses and trading in Transferable Development Rights (TDRs).

"Real estate business" will have the same meaning as provided in FEMA Notification No. 1/2000-RB datedMay 03, 2000 read with RBI Master Circular that is dealing in land and immovable property with a view toearning profit or earning income therefrom and does not include development of townships, constructionof residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, cityand regional level infrastructure, townships.

The conditions relating to minimum area and minimum capitalization will not apply to the investee/joint venture companies which commit at least 30% of the total project cost for lowcost affordablehousing.

An Indian company, which is the recipient of FDI, shall procure a certificate from an architect empan-elled by any Authority authorized to sanction building plan to the effect that the minimum floor arearequirement has been fulfilled.

`Floor area` will be defined as per the local laws/regulations of the respective State governments/Union territories.

Completion of the project will be determined as per the local bye-laws/ rules and other regulations ofState Governments.

Projects using at least 60% of the FAR/FSI for dwelling units of Carpet Area not more than 60 sqm. willbe considered as Affordable Housing Projects. In addition, 35% of the total number of dwelling unitsconstructed should be of carpet area 21-27 sqm for EWS category. Such projects can have a mix ofEWS/LIG/Higher Category DUs and commercial units. Provision of servant`s quarter along with themain dwelling unit will not be counted as dwelling units for EWS/LIG under Affordable Housing (AH)project.

It is clarified that 100% FDI under the automatic route is permitted in completed projects for operationand management of townships, malls/ shopping complexes and business centres.

_____________________________________

Overseas Direct Investments

1. Overseas Investments by Alternative Investment Funds (AIF)

A.P. (DIR Series) Circular No.48 dated December 9, 2014

RBI has permitted an Indian AIF, registered with Securities and Exchange Board of India(SEBI), to invest

overseas in terms of the provisions issued under the A.P. (DIRSeries) Circulars No. 49 and 50 dated April

30, 2007 and May 04, 2007respectively.



Consequently, the RBI has amended the Principal Regulations through Foreign Exchange Management

(Transfer or Issue of any Foreign Security) (Fifth Amendment) Regulations, 2014 notified vide Notification

No.FEMA.326/2014-RB dated November12, 2014, to give effect the said amendment.

2.Overseas Direct Investments by Indian Party – Rationalization / Liberalization

A.P. (DIR Series) Circular No.54 dated December 29, 2014 and Notification No. FEMA.322/2014-RBdated October 14, 2014

In order to grant more flexibility to the Indian party, RBI has been further liberalize certain regulations of

the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004, as

amended from time to time as detailed under:

(i) Creation of charge on shares of JV / WOS / step down subsidiary (SDS) in favour of do-

mestic / Overseas lender

In terms of the extant FEMA provisions, creation of charge (pledge) on the shares of an JV / WOS of an

Indian party in favour of domestic / overseas lender for the purpose of availing facilities (funded or non-

funded) by the Indian party and / or the concerned JV / WOS is allowed under the automatic route.

RBI has now allowed the designated AD bank to permit creation of charge / pledge on the shares of the

JV / WOS / SDS (irrespective of the level) of an Indian party in favour of a domestic or overseas lender

for securing the funded and / or non-funded facility to be availed of by the Indian party or by its group

companies /sister concerns / associate concerns or by any of its JV / WOS / SDS (irrespective of the

level) under the automatic route subject to specified conditions mentioned in aforesaid circular.

(ii) Creation of charge on the domestic assets in favour of overseas lenders to the JV /WOS / SDS

As per the extant FEMA provisions, creation of charge on the domestic assets (movable / immovable /

financial / other) of an Indian party (or its group / sister / associate concern including the individual pro-

moter / director) in favour of an overseas lender to the JV / WOS / SDS requires prior approval of the

RBI.

RBI has now allowed the designated AD bank to permit creation of charge (by way of pledge, hypothe-

cation, mortgage, or otherwise) on the domestic assets of an Indian party (or its group companies /

sister concerns / associate concerns including the individual promoters / directors) in favour of an



overseas lender for securing the funded and / or non-funded facility to be availed of by the JV / WOS /

SDS (irrespective of the level) of the Indian party under the automatic route subject to specified condi-

tions mentioned in aforesaid circular.

(iii) Creation of charge on overseas assets in favour of domestic lender

Presently, creation of charge on the overseas assets of JV / WOS / SDS of an Indian party in favour of a

domestic lender to the Indian party or to its group / sister / associate concern or to any of its overseas JV /

WOS / SDS requires prior approval of the Reserve Bank.

RBI has now allowed the designated AD bank to permit creation of charge (by way of hypothecation, mort-

gage, or otherwise) on the overseas assets (excluding the shares) of the JV / WOS / SDS (irrespective of the

level) of an Indian party in favour of a domestic lender for securing the funded and / or non-funded facility

to be availed of by the Indian party or by its group companies / sister concerns / associate concerns or by

any of its overseas JV / WOS / SDS (irrespective of the level) under the automatic route subject to specified

conditions mentioned in aforesaid circular.


(Transfer or Issue of any Foreign Security) (Third Amendment) Regulations, 2014 notified Notification No.

FEMA.322/2014-RB dated October 14, 2014, to give effect of the above amendments.

_________________________________________________________________________

Money Transfer Service Scheme (MTSS)– Delegation of work to Regional Offices - Submission ofStatements / Returns


In terms of A.P. (DIR Series) Circular No. 8 dated July 18, 2014, RBI has clarified that subsequent to delega-

tion of MTSS work, all Authorised Persons, who are Indian agents under MTSS are required to make all their

correspondence with RBI including submission of prescribed statements to the Regional Office of the For-

eign Exchange Department of the RBI, under whose jurisdiction their registered offices function. It has been

observed by RBI that several Indian agents continue to submit the correspondence /statements to the Cen-

tral Office, causing avoidable delays in scrutiny / processing. Thus, the Indian agents are advised to note



Money Transfer Service Scheme (MTSS)– Delegation of work to Regional Offices - Submission ofStatements / Returns


In terms of A.P. (DIR Series) Circular No. 8 dated July 18, 2014, RBI has clarified that subsequent to delega-tion of MTSS work, all Authorised Persons, who are Indian agents under MTSS are required to make all theircorrespondence with RBI including submission of prescribed statements to the Regional Office of the For-eign Exchange Department of the RBI, under whose jurisdiction their registered offices function. It has beenobserved by RBI that several Indian agents continue to submit the correspondence /statements to the Cen-tral Office, causing avoidable delays in scrutiny / processing. Thus, the Indian agents are advised to note theinstructions regarding correspondence and submission of statements to the concerned Regional Office, asmentioned above.

_________________________________________________________________________

Rupee Drawing Arrangement (RDA) – Delegation of work to Regional Offices - Submission ofStatements / Returns


In terms of A.P. (DIR Series) Circular No. 7 dated July 18, 2014, RBI has clarified that subsequent to delega-tion of RDA work, Authorised Dealer Category I banks are required to make all their correspondence withRBI including submission of prescribed statements to the Regional Office of the Foreign Exchange Depart-ment of the RBI, under whose jurisdiction their registered offices function. It has been observed by RBI thatseveral Authorised Dealer Category I banks continue to submit the correspondence /statements to the Cen-tral Office, causing avoidable delays in scrutiny / processing. Thus, Authorised Dealer Category I banks areadvised to note the instructions regarding correspondence and submission of statements to the concernedRegional Office, as mentioned above.

_________________________________________________________________________

Exemption under Foreign Exchange Management (Deposit) Regulations, 2000

A.P. (DIR Series) Circular No.51 dated December 17, 2014 and Notification No. FEMA. 327/2014-RB datedNovember 24, 2014

In terms of the Foreign Exchange Management (Deposit) Regulations, 2000nothing contained in the regula-tions applies to the deposits held in accounts maintained with an authorised dealer by the United NationsOrganisation and its subsidiary/affiliate bodies in India, and its or their officials in India.

With the objective of bringing all the multilateral organisations at par, for opening of accounts in India, theextant instructions have been reviewed and it has been decided to include in the exemptions, laid down inForeign Exchange Management (Deposit) Regulation, 2000, issued vide Notification No. FEMA 5/2000-RBdated May 3, 2000 (as amended from time to time), deposits held in accounts maintained with an author-ised dealer by any multilateral organization of which India is a member nation, and its subsidiary/affiliatebodies in India, and its or their officials in India.

Accordingly, RBI has since amended the Principal Regulations through the Foreign Exchange Management(Deposit)(Amendment) Regulations, 2014 notified vide Notification No. FEMA. 327/2014-RB dated Novem-ber 24, 2014.



Transfer Pricing Applicability sans Income element

An Analysis

- By CA Vandana Shah :- [email protected]

This Article attempts to bring out possible views on the requirement of transfer pricing compliance in case ofexempt income transactions and attempts to highlight the controversy in the matter through a discussion onsome key decisions.The current income tax provisions provide for a report to be obtained from an independent accountant in allcases involving international transactions between associated enterprises and/or specified domestic transac-tions. Further, the law provides for mandatory transfer pricing documentation report containing specifiedinformation to be maintained in all cases where the value of international transactions is more than Rs. 1crores and the value of specified domestic transactions is more than Rs. 5 crores. In any case, the taxpayer isrequired to maintain the basic documents and data justifying the arm's length nature of transaction.With the above background, question arises as to whether or not a taxpayer is required to undertake transferpricing compliance in cases where the income is not chargeable to tax in India?In this regard, it is pertinent to consider key judicial precedents available on the matter.

Vanenburg Group B.V.

This case involved transfer of shares of Indian company by a Netherlands company (applicant company) toanother Netherlands company (group company). The question before Authority for Advance Ruling (AAR)arose as to whether the capital gain earned by applicant company was chargeable to tax in India andwhether or not the applicant company was required to file tax return in India and comply with transferpricing provisions in India?

The AAR held that the capital gain earned by the Netherlands company was taxable only in Netherlands due

to the provision of Double Tax Avoidance Agreement between India and Netherlands. Further, in the absence

of any taxable income, no taxes were required to be deducted in the concerned transaction. Filing of tax re-

turn, etc. are machinery provisions to determine the amount of tax and the applicant company is not re-

quired to file tax return in India. Coming to transfer pricing, the AAR held that section 92 to 92F are special

provisions relating to avoidance of tax. These provisions are aimed at preventing avoidance of tax by certain

well known devices, determination of arm's length price, computation of income in certain cases, etc.,

———————298 ITR 464



in relation to international transactions. These are again machinery provisions which would not apply inthe absence of liability to pay tax.Thus, the AAR in the above case held that taxpayer will not be required to comply with transfer pricingprovisions in respect of an income which is not chargeable to tax in India.

Dana Corporation3

The concerned case involved restructuring / reorganisation of the Group. The taxpayer contended thatunder the overall restructuring, the shares of Indian company were transferred to group company withoutany consideration. The lower tax authorities contended that even if the consideration for transfer ofshares is not identifiable or indeterminable, the arm’s length price can be arrived at by taking resort to thetransfer pricing provisions under Section 92 of the Income Tax Act (Act) as it is admittedly an internationaltransaction between two or more related entities.

The AAR held that Section 92 is not an independent charging provision. As the Section heading itselfshows, it is a provision dealing with “Computation of income from international transactions”. The open-ing part of Section 92 says that “any income arising from an international transaction shall be computedhaving regard to the arm’s length price”. The expression ‘income arising’ postulates that the income hasarisen under the substantive charging provisions of the Act. In other words, the income referred to in Sec-tion 92 is nothing but the income captured by one or the other charging provisions of the Act. In such acase, the computation aspect is taken care of by Section 92 and other related provisions in Chapter X. Sec-tion 92 obviously is not intended to bring in a new head of income or to charge the tax on income which isnot otherwise chargeable under the Act. The AAR also referred to the case of Vanenbury Group B.V.(discussed above)Thus, in the above decision, it was held that transfer pricing regulations do not have an application whenthere is no income chargeable to tax in India.

Castleton Investment Limited4

This case also involved transfer of shares to group company. The taxpayer, a Mauritian company proposedto transfer the shares of Indian company to a Singapore group company and question arose as to whetherthe capital gain was chargeable to tax in India and whether or not there was a need for filing tax returnand undertaking transfer pricing compliance in India?

The AAR held that the capital gains will not be chargeable to tax in India in view of provisions of DoubleTax Avoidance Agreement between India and Mauritius.

However, unlike earlier decisions, AAR in this case held that the transfer pricing provisions will be applicablein the concerned case. The AAR held that even if section 92 to section 92F are machinery provisions, withoutresort to them, the capital gains from an international transaction cannot be determined. Only on determin-ing whether capital gains have arisen, would the

*It is pertinent to note that the ruling by AAR is binding only on the applicant that has sought the ruling and the concerned income tax authorities. However, AARrulings do have persuasive value.3AAR No. 788 of 2008 dated 30th November 20094AAR No. 999 of 2010 dated 14th August 2012



question arise whether the gain is chargeable to tax or not under the Act. Further, whether or not ultimatelythe gain or income is taxable in the country or not, Sections 92 to 92F would apply if the transaction is onecoming within those provisions. The AAR held that in cases where there is no liability what would be thepurpose of undertaking a transfer pricing exercise is not a question that would affect the operation or rigourof a statutory provision on its plain words. The applicability of section 92 does not depend on the charge-ability under the Act.Based on the above, the AAR in this case upheld the chargeability of transfer pricing provisions even in acase where the income is not chargeable to tax in India.

Vodafone India Services Private Limited

The case involved issuance of shares at a premium by an Indian company to its parent company. The tax-payer had reported the transaction as an international transaction in Form 3CEB. The Transfer Pricing officerapplied transfer pricing provisions and determined the value of shares at a much higher value than theamount received by the taxpayer and made a transfer pricing adjustment. The taxpayer in turn argued thatsince issuance of shares was a capital transaction, it cannot be brought to tax in the absence of any specificprovision in this regard. Further, the purpose of transfer pricing is not to tax income which is otherwise notchargeable to tax in India.

The Honourable Bombay High Court held that issuance of shares is a capital transaction and not income. Ar-riving at a transactional value on the basis of arm's length price cannot convert non income to income. Theentire exercise of determining ALP is only to arrive at the real income which a taxpayer would have earnedin an uncontrolled transaction. Transfer pricing provisions are not charging provisions but are merely ma-chinery provisions to determine arm's length price between two associated enterprises.The fact that the taxpayer had reported the transaction in Form 3CEB cannot be considered against the tax-payer. The transaction was reported out of abundant caution while maintaining that no income arose fromthe transaction.

Accordingly, the Honourable High Court held that since the issuance of shares at premium did not give riseto any income, transfer pricing provisions will not apply.

Way Forward

Based on some of the judicial precedents above, especially the recent landmark ruling by Bombay High Court,taxpayers have been taking a stand that where the income is clearly not taxable in India, the taxpayer is notrequired to comply with the provisions of transfer pricing. However, it is advisable for taxpayers to aptly evalu-ate whether there is any potential of income arising to them in the concerned international transaction orspecified domestic transaction. In cases where there is a grey area as regards arising of income, and therefore,applicability of transfer pricing provisions, taxpayers may consider complying with the certification and docu-mentation requirements at least our of abundant caution, with a view to mitigate penal exposure on this ac-count.—————————————————————————————————————————————————TS-308-HC-2014(BOM)Here, it is pertinent to note that section 56(2)(viib) of Income Tax Act considers excess of consideration received by the company over fair market value of shares, onissuance of shares to a resident, as income in India. However, currently, there is no provision dealing with consideration received in lower of the book value.



If we keep doing our best then success shall no longer be far away. Getting complimented or re-warded by our seniors and boss makes a lot of difference and boosts our motivational level.

Here are some simple tips to impress your BOSS.

1. Be Punctual

2. Seek new opportunities and ask relevant questions.

3. Always take initiative.

4. Be organized and groom well.

5. Be willing to learn.

6. No backbiting.

7. Always give credit to boss at the end of completion of every assignment either by email or aletter for his support.

8. Carry a note pad for every meet.

9. Smile Please.

Impressing Your Boss !!!



Special points for CA Articles/Juniors

1. Set reminders for quarterly board/committee meetings or departmental hearings etc.

2. Keep track on compliance/filings of all laws applicable to the company or your clients.

3. Ensure that all your workings are correctly filed and saved for future reference and asynopsis is maintained.

4. Try to interpret on case laws, circulars, sections and exhibit curiosity.

5. Ensure that you show keen interest in updating the library and keep the references ingood condition.

6. Make an impression about your specific working style and concern for cost effectivemeasures like minimizing the use of paper.

7. Ensure that your drafts are error free especially in terms of grammatical, spelling, for-matting errors.

8. Ensure that you take leaves on account of important factors only.

9. Always be eager to assist your boss even if your contribution may be limited.

10. Interact with the corporate guests in total professional manner such that an impres-sion of a predecessor to your Boss is created.

11. Ensure that whatever data is provided/submitted to your Boss is read/counterchecked before submission.

12. Ensure that things at your office are kept back properly at the right place after youruse.

CA Vaidhei [email protected]+91 9870365312



ITO vs. Modipon Ltd (ITAT Delhi)S. 50C: The consideration has to be determined on the basis of the circle-rate prevailing on the date of exe-cution of sale deed and not on the basis of the circle-rate prevailing on the date of registration of the saledeedIt is manifest that u/s 50C, the value adopted by the stamp-valuation authority is deemed as the considera-tion for computation of capital gain. However, such valuation adopted by the stamp-valuation authorityshould be in respect of the transfer by the assessee, of the capital assets. This enhancement was beyond thecontrol of the assessee (seller). It is also not the case of the revenue, that the buyer has given more than theconsideration that has been accepted by the parties where they executed the agreement to sale.

Manpreet Singh vs. ITO (ITAT Delhi)S. 22: Rent received from mobile phone company for use of terrace to install antenna is taxable as "Incomefrom house property" and not as "Other sources"The true test is whether the space rented out is part of the building or land appurtenant thereto. The rent isnot for the antenna but for the space for installation of antenna. It is not the case of the Assessing Officerthat the rent is for the antenna, and, therefore, it is wholly irrelevant whether antenna is part of the buildingor land appurtenant thereto. What is relevant is the space which has been rented out and, therefore, as longas the space, which has been rented out, is part of the building, the rent is required to be treated as “incomefrom house property”

ACIT vs. M/s G V Sons (ITAT Mumbai)Bogus purchases: Merely because a party has admitted to indulging in sham/ accommodation transactionsdoes not mean that all his transactions with the assessee should be treated as shamWe cannot accept a bald statement made by the AO that any transaction/business done with a party wouldbe sham, simply because the opposite party besides doing regular business was also indulging in providingaccommodation entries. Simply on the basis of statement given by the third party, that they were also pro-viding accommodation entries as well, the conduct of the assessee cannot be doubted and held to be sham

ACIT vs. Sunland Metal Recycling (ITAT Mumbai)S. 50C/ 271(1)(c): Even if s. 50C is applicable, computing capital gain de hors it does not amount to furnish-ing inaccurate particulars of income or concealment of income for levy of penalty u/s 271(1)(c)The Assessing Officer has not given any finding that the sale consideration disclosed by the assessee is notactual amount received as per the agreement of sale. The addition was made by invoking the deeming provi-sions of section 50C whereby the full value of consideration was adopted as per the valuation of the stampduty authority for levy of stamp duty. The assessee has disclosed all relevant details as well as documents insupport of its computation of Short term Capital Gain by taking into consideration the actual sale considera-



CIT vs. Darbhanga Mansion CHS Ltd (Bombay High Court)The assessee, a Co-operative Housing Society, received a sum of Rs.39,68,000 on account of transfer of flatand garage and credited it to ‘general amenities fund’ as well as ‘repair fund’. The assessee claimed that thesaid receipt is exempted from tax on the ground of mutuality. However, the AO held that the principles ofmutuality will not apply. However, the CIT(A) and Tribunal allowed the assessee’s claim by relying on Sind Co-operative Housing Society vs. ITO 317 ITR 47. On appeal by the department to the High Court HELD dismiss-ing the appeal that Transfer Fees recd by Co-op Hsg Soc from incoming & outgoing members (even in ex-cess of limits) is exempt on the ground of mutuality.

CIT vs. Sambhaji Nagar Coop. Hsg. Society Ltd (Bombay High Court)Only an asset which is capable of acquisition at a cost would be included within the provisions pertaining tothe head “Capital gains” as opposed to assets in the acquisition of which no cost at all can be conceived. Inthe present case as well, the situation was that the FSI/TDR was generated by the plot itself. There was nocost of acquisition, which has been determined and on the basis of which the Assessing Officer could haveproceeded to levy and assess the gains derived as capital gains. It may be that subsection (2) of section 55clause (a) having been amended, there is a stipulation with regard to the tenancy rights. However, even inthe case of tenancy right, the view taken by the Hon’ble Supreme Court, after the provision was substitutedw.e.f. 1st April, 1995, is as above. The further argument is that the tenancy rights now can be brought withinthe tax net and in the present case the asset or the benefit is attached to the property. It is capable of beingtransferred. All this may be true but as the Hon’ble Supreme Court holds it must be capable of being acquiredat a cost or that has to be ascertainable. In the present case, additional FSI/TDR is generated by change in theD. C. Rules. A specific insertion would therefore be necessary so as to ascertain its cost for computing thecapital gains. Therefore, the Tribunal was in no error in concluding that the TDR which was generated by theplot/property/land and came to be transferred under a document in favour of the purchaser would not resultin the gains being assessed to capital gains.

M/s. ANS Law Associates vs. ACIT (ITAT Mumbai)Additions made solely on the basis of AIR information are not sustainable in law. The AO has to prove thatassessee has received income from a particular source. The assessee cannot be expected to prove thenegativeIt has been held time and again by this Tribunal that the additions made solely on the basis of AIR informa-tion are not sustainable in the eyes of the law. If the assessee denies that he is in receipt of income from aparticular source, it is for the AO to prove that the assessee has received income as the assessee cannotprove the negative. Reliance can be placed in this respect on the decision of the Tribunal in the case of “DCITvs. Shree G. Selva Kumar” in ITA No.868/Bang/2009 decided on 22.10.10 and another case in the case of“Aarti Raman vs. DCIT” in ITA No.245/Bang/2012 decided on 05.10.12.



CA Sunil Patodia, Regional Council Member and Branch Nominee, inaugurating the Sports Day on 13th December,2014

at Navi Mumbai Sports Association’s ground

Members enjoying the Table Tennis match during Indoor Sports on 21st December,2014

PHOTO GALLERY



Members and students’ gathering during Indoor Sports on 21st December,2014

DISCLAIMER :

The views and opinion expressed or implied in the Newsletter are those of the authors / contributors and donot necessarily reflect those of Navi Mumbai Branch. Unsolicited matters are sent at the owner's risk and thepublisher accepts no liability for loss or damage. Material in this publication may not be reproduced, whetherin part or in whole, without the consent of Navi Mumbai Branch. Members are requested to kindly send mate-rial of professional interest so that the same may be published in the newsletter subject to availability of space& editorial editing.

PHOTO GALLERY



RRC at Hotel Citrus Chambers, Mahabaleshwaron 16th, 17th and 18th January,2015



Short itinerary

Day 1 Date: 16.01.2015. Depature to Mahabaleshwar at 6.00 am from Vashi by 2 x 2 Non AC Bus. Pick up points – Vashi (Navratna Hotel), Nerul LP, CBD, Kharghar and Kalamboli MacDonald’s, Vijay

Sales near Panvel and New Panvel Over Bridge. Enroute Breakfast Reach and Check-in the hotel and Lunch. Half day conference from 3.30 to 6.30 pm Night halt at Mahabaleshwar.

Day 2 Date: 17.01.2015. After breakfast, Full day conference between 9.30 am to 5.30 pm Evening free for relaxation with DJ Masti Night halt at Mahabaleshwar.

Day 3 Date: 18.01.2015. After breakfast, Mahabaleshwar / Panchgani local sightseeing. Thereafter proceed for Mumbai, Lunch on the way

Sightseeing: Mahabaleshwar: Venna Lake, Old Mahabaleshwar Temple, Mapro Garden. Panchgani: Table Land Point and proceed to Mumbai

Package Cost Includes:Accommodation as per mentioned sharing basis,Meals: 3 breakfast, 3 Lunch, 2 DinnerTo and Fro Transportation by Non A/C 2 X 2 bus including local sightseeing

Cost

Rs.8,250/- per person on triple sharingRs.10,000/- per person on twin sharing

Rs.4,550/- per child (3 yrs to 11 Yrs)



Package Cost doesn't include: Any rides/boating charges. Entrance fees, camera fees & guide charges. Personal expenses like phone calls, laundry, alcoholic and non alcoholic beverages Any other expenses or services not mentioned in inclusions.

CPE Hrs – 10 CPE Hrs

Topics Covered –

Case Studies under Service TaxCompliance Requirements under new Companies Act with audit perspective

For Registration : Contact Bhagwat (9323671721) or Manoj (9773153877)



Membership Form

Name of the member ..........................................................................................................

Membership Number ..........................................................................................................

Professional Address ...........................................................................................................

……………………………………………………………………………………………………..

Mobile Number ...........................................................................................................

Office Telephone No. ...........................................................................................................

Mail ID (1) ...........................................................................................................

Mail ID (2) ...........................................................................................................

Residential Address ...........................................................................................................

..........................................................................................................

Topic of Interest ...........................................................................................................

..........................................................................................................

Annual Fees Rs.2,500 for CPE Study Circle Meetings

To,

Navi Mumbai Branch of WIRC of ICAIAddress: Rainbow apartments, F-2/C-3, Near Vijaya Bank, Sector 10, Vashi, Navi Mumbai-400703

Phone: Mr. Bhagwat 9323671721, Mr. Manoj 9773153877

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volume 10/14-15 institute of chartered accountants of...

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