Current Issues in Corporate Taxation Including MAT Saturday - PowerPoint Presentation

Current Issues in Corporate Taxation Including MAT Saturday , 26th May, 2018 WIRC of ICAI, Baroda 1 Pradip N. Kapasi Chartered Accountant

SynopsisDividend and dividend Distribution TaxBuy Back of SharesStart – upsIBC, 2016Corporate Expenses and IncomeAmalgamations & DemergersCapital Gains Share CapitalValuation of SharesLossesDirectors LiabilityMATPradip N. Kapasi Chartered Accountant2

DIVIDEND & DIVIDEND DISTRIBUTION TAX Pradip N. Kapasi Chartered Accountant3

Dividend - S. 2(22)(e)Registered holder and/or beneficial holderGopal & Sons(HUF), 397 ITR 1 (SC)Rameshwar Samwarmal, 122 ITR 1 (SC)National Travel Service 401 ITR 154 (SC)Applicability of Gopal’s case to other entitiesEnnore Cargo Container Terminal (P) Ltd.T.C(A) No. 105 & 106 of 2017P.M.S. Diesels, 60 ITR(T) 466 ( HC )Hoogly Mills Co. Ltd. 50 CCH 127 (Kol.)Taxation in whose handsMadhur Housing And Devp. Company, 401 ITR 152 (SC)National Travels Services 401 ITR 154 (SC)Gladder Ceramics Ltd. 401 ITR 205 (Guj.) 4 Pradip N. Kapasi Chartered Accountant

Accumulated Profits – S.2(22) Share PremiumBalaji Glass Mfg. Co. Ltd. 386 ITR 128 (Cal.)Profits of amalgamating company Gautam Sarabhai Trust 81 ITD 627(All.) Finance Act, 2018, S. 2(22)(e) Profits of Current Year Rajmal Lakhichand, 92 taxmann.com 94 (Pune)Explanation 2 to S.22Attributable to shareholdingKewal Kumar Jain, 144 ITD 672 (Pune)Adjournment for prior year ‘dividend’G. Narsimhan, 236 ITR 327 (SC)Capitalised or notApplicability to S. 22(22)(e)5 Pradip N. Kapasi Chartered Accountant

Accumulated Profits S.2(22), Expl. 2A W.e.f. AY 2018-19Accumulated Profits or Loss to be increased: by accumulated profits of Amalgamating CompanyCapitalized or notOn the date of amalgamation Applicable to all clauses of s. 2(22)Covers all CompaniesRelevance of ‘Appointed Date’‘Accumulated Profit’ of Amalgamating Co. not definedLosses of Amalgamating CompanyRelevant Decision6 Pradip N. Kapasi Chartered Accountant

Dividend - S. 2(22)(e)Receipt of share application money & S.2(22)(e)Vikas Oberoi , 396 ITR 215 (Bom.)Current Year’s Business Proifts and Accumulated ProfitsRajmal Lakhichand, 92 taxmann.com 94 (Pune)Transfer of assets by one company to another companySiddharth Gupta, 165 ITD 369 (Del.)“Provison & Payment” for S.2(22)(e)Parle Plastics Ltd, 332 ITR 63 (Bom.)7 Pradip N. Kapasi Chartered Accountant

Release of Assets of Company S.2(22)(a) & (b) Bonus shares – To equity or preference shareholdersPreference SharesPoint of Taxation AAR No. 654 of 2004Occupancy rights 22ITR(T) 246 (Mum.)Excessive Commission – S.36(1)(ii)Dalal Broacha Stock Broking, 10 ITR(T) 357(Mum.)8Pradip N. Kapasi Chartered Accountant

Dividend and S. 2(22)(c)Conversion of a Company into LLPArun Kumar Goyal, ITA No. 254/IND/2016 dt . 05/09/20169Pradip N. Kapasi Chartered Accountant

Redemption of Bonus Preference Shares Shashibala v/s CIT 54 ITR 478 (Guj.)Better view – Rights in shares 10Pradip N. Kapasi Chartered Accountant

Dividend TaxationS. 115BBDA Tax @ 10% on Gross Dividend over Rs. 10 lakhAmendment to cover all resident assesseesExceptions Domestic companiesTrusts, Funds, Institutions, etc. registered u/s 12AA and s.10(23C) 11 Pradip N. Kapasi Chartered Accountant

Dividend Distribution Tax- S. 115OIdentification of assessment YearDrawmet Wires (P) Ltd. 59 ITR(T) 119 (JP) (SN)Credit for DDT & DTAA Article 10 of DTAA with Switzerland,SGS India (I) Ltd , 165 ITD 583 (Mum.) Cascading effect u/s. 115O(1A) – IssuesStep down subsidiariesTiming difference – Before or afterChange in relationship during the yearImpact of subsequent merger with retrospective effectPossibility of Refund Torrent (P) Ltd, 35 Taxmann.com 300 (Guj.)Grossing up & S. 115O(1B) – Tax at 19.995%12 Pradip N. Kapasi - Chartered Accountant

Dividend Distribution Tax- S. 115OConstitutionality & Agricultural Income DistributionTata Tea Company Ltd, 398 ITR 260 (SC)Pradip N. Kapasi Chartered Accountant 13

DDT on Deemed dividendS.2(22)(e), S.115O&QW.e.f. 01.04.2018 - Absolute date DDT on s. 2(22)(e) paymentsAt 30% + SC + H & EC without gross incomeTime and manner for payment of DDTExemption vide Expl. to 115Q withdrawnWider implication of withdrawal – “ dividend”Dividend for 115O undefined Exceptions to s. 2(22)(e) to continue Existing conflicts Recipient or shareholderRegistered and/or beneficial holderLoans & Advances as dividend - a debatable charge Debatable charge on a non income receipt‘Declared, distributed or paid’ by way of dividend Possibility of set-off on dividend declaration, unlikely Exemption for shareholder / recepient u/s10(34) Case of prescription being worst than decease 14 Pradip N. Kapasi Chartered Accountant

BUY BACK OF SHARESPradip N. Kapasi Chartered Accountant 15

Introduction w.e.f. 01.06.2013Present positionNot a dividend u/s 2(22)Taxable as capital gains u/s 46A No specific provision for dealer in sharesNo tax on companyAmendmentTax on Domestic company buying back sharesTax @20% +SC+ECDeduction for amount received for shares – PremiumDetermination as per Rule 40BBProvisions for payment and recovery Shares of company not listed on recognized SE Pradip Kapasi & Co. 16 Buy back of shares-I S.10(34A) & Chapter XII DA & S.115QA to QC,

Buy back of shares-IIS.10(34A) & Chapter XII DA & S.115QA to QC, Applicable to:All unlisted companiesAll shares -Preference sharesAll shareholdersBuy back as per Companies Act,1913Tax not deductible for companyPradip Kapasi & Co.17

Buy back of shares-IIIS.10(34A) & Chapter XII DA & S.115QA to QC, Parallel provisions of s.46ACost of acquisition of shareholderTreatment of lossesExemption in hands of shareholder of receiptsWhere tax paid by company u/s 115QANo credit for taxes paid for shareholdersPradip Kapasi & Co. 18

START - UPSPradip N. Kapasi Chartered Accountant 19

Start up companies S. 80IACW.e.f. AY 2018-19Deduction @ 100% for 3 consecutive years out of 5/7 yearsat the option of the assessee, if Incorporated on or after the 1.04.2016 but before the 1.04.2019/2021;TO not to exceed Rs. 25 crore in previous years ending on 31.03. 2021; Business of innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.Amendment to improve effectiveness -Benefit extended to start ups incorporated on or after 1.04.2019 but before the 1.04.2021 TO limit of Rs 25 Crore to apply to 7 years from incorporation; Eligible businesses expanded; innovation, development or improvement of products or processes or services, or a scalable business model with a high potential of employment generation or wealth creation 20 Pradip N. Kapasi Chartered Accountant

Loss of Start Up CHC S.79 W.e.f. A.Y 2018-19Right to carry forward and set-off of lossesExisting prohibition on change in voting powerretention up to 51% between respective yearsAmendment for Relaxation for start-ups CHC u/s.80IACfor losses of first 7 yearsall shareholders with voting power to be sameon last day of such previous year 21 Pradip N. Kapasi Chartered Accountant

IBC, 2016Pradip N. Kapasi Chartered Accountant 22

IBC, 2016S.115JB, S.79 & S.140 W.e.f. AY 2018-19 & 1st April,2018 Benefits for units governed by IBC, 2016 Reduction from book profit u/s. 115JB, Expl.1(iih) for:Aggregate of unabsorbed depreciation and b/f lossesOn admission of application by Adjudicating AuthorityNo provision for hearing for CITClarificatory or ProspectiveGenerous incentive Permission to c/f and set-off losses u/s. 79 for CHCExemption from requirement Continuity of beneficial ownership of shares with 51% votes On approval of Resolution plan Opportunity of hearing to CIT Difference in the amendments Verification of ROI u/s 140 by IP w.e.f . 01.04.2018 23 Pradip N. Kapasi Chartered Accountant

CORPORATE EXPENSES & INCOMEPradip N. Kapasi Chartered Accountant 24

Corporate ExpenditureScientific Research Expenditure – S.35(2AB)Need for DSIR quantification and 3CL Taxmaco Rail and Eng. Ltd. 167 ITD 118 (Kol.)Gross or Net of R & D IncomeBosch Lt. 167 ITD 650 (Bang.)Revenue And/Or Capital Eicher Motors Ltd. 397 ITR 51 (Del.)Time for allowance of ESOP expenditureNDTV 398 ITR 57 (Del.) – Exerciser of option Payment to JV of its share SOMA TRG Joint Venture, 398 ITR 425 (J&K.) Public Issue Expenditure & interest incomeShree Rama Multi Tech Ltd, 393 ITR 371 (SC) 25 Pradip N. Kapasi Chartered Accountant

Value of Perquisites – S.17(2)(iii)Sale of flat by Company to DirectorValue lower than Stamp Duty ValueKesavji Bhuralal Gala , 63 ITR(T) 67 (Mum.)(SM) Need for employer - employee relationship26Pradip N. Kapasi Chartered Accountant

Taxability of compensation –I S.28, S.56W.e.f. AY 2019-20 Tax on receipt of compensationOn termination or modification of T & CContract relating to businessContract relating to employmentRevenue or CapitalDue or receivedTaxable under respective heads u/s. 28(ii)(e) & s. 56(2)(xi)Taxable at ordinary ratesYear of Taxation Amendment in s. 2(24) for employment contractInsertion of cl. (xviib) Significance of taxation as Income from Other sourcesReceipts post termination of employment 27 Pradip N. Kapasi Chartered Accountant

Taxability of compensation- IIS.28, S.56Relevant decisions Khanna & Annadhanam, 351 ITR 110 (Del.)Kettlewell Bullen & Co. 53 ITR 261(SC)Oberoi Hotel Pvt. Ltd. 236 ITR 903 (SC)P. Arunachalan 241 ITR 827 (Mad.)G. N. Badami 240 ITR 263 (Mad.)Vishnu Mohan T Nayar 89 taxmann.com 92 (Ahd-Trib) 28 Pradip N. Kapasi Chartered Accountant

Write back of Loans & Advances – S.28(iv) & 41(1)Treatment under Income Tax ActMahindra & Mahindra Ltd, 302 CTR 203 (SC) Airline Allied Services Ltd, 62 ITR(T) 41 (Del.)29Pradip N. Kapasi Chartered Accountant

Maxopp Investments Ltd. 402 ITR 640 (SC)Applicability of S.14A to dealer in sharesRule 8D and investment held as stock-in-tradeShares held for controlling interestStrategic investments in subsidiaries & Joint VenturesProration of expenses in cases of Business Investments Relevance of Dominant Intention30Pradip N. Kapasi Chartered Accountant

AMALGAMATION & DEMERGERPradip N. Kapasi Chartered Accountant 31

Amalgamation & DemergerNotice on amalgamating company & S.292BNokia Solutions & Network India (P) Ltd , 402 ITR 21 (Del.)BDR Builders and Developers (P) ltd , 397 ITR 529 (Del.)Skylight Hospitality LLP, 254 Taxman 209 (Del.)Scheme providing for continuation of dispute Balaji Industries Ltd, 397 ITR 18 (Mad.)Assessment in the name of Amalgamating CompanyMaruti Suzuki India Ltd, 397 ITR 681 (Del.) Surplus on amalgamation & S.28(i) Sundaram Finance Ltd, 165 ITD 563 (Chh)32Pradip N. Kapasi Chartered Accountant

Losses & Amalgamation – S. 72 APower of BIFR to restrict the benefit of set off of UAD Ballarpur Ind. Ltd. 398 ITR 145 ( Bom.) Power of BIFR to extend the due date of filing return Rajasthan Explosives & Chemicals Ltd 398 ITR 376 (Del.) Situation where specified Assets and Liabilities only transferred Right to carry forward losses- with Demerged Co.Nocil Ltd , 165 ITD 138 (Mum.)33 Pradip N. Kapasi Chartered Accountant

CAPITAL GAINSPradip N. Kapasi Chartered Accountant 34

Holding - Subsidiary – S. 47 (iv) Transfer by step-down subsidiary to holding company.S.4(1)(c) of the Companies ActSubsidiary of Subsidiary of Parent Co. Emami Infrastructure Ltd (Kol.)Itatonline.org35Pradip N. Kapasi Chartered Accountant

Conversion of Proprietary to Company -S.47(xiv)Consideration by issue of shares only – cl. (c) Clause for repayment of loan to proprietorK.V. Mohammed Zakir , 396 ITR 180 (Ker.) 36Pradip N. Kapasi Chartered Accountant

Conversion of Preference SharesS.2(42A), 47, 49W.e.f. A.Y 2018-19Case of conversion of preference shares into equity sharesNo specific provisions under Income tax Act A view that conversion is a “transfer” Santosh L.Chougale, 150 CTR 80 (Bom)Amendment for tax neutralityon line of conversion of bonds or debentures – s. 47(x)Amendmentss. 47(xa) for treating conversion as “no transfer”cost of acquisition of equity share to be same – 49(2AE)date of holding of equity share to be date of acquiring preference share – s. 2(42A)(hf)Case of converse conversion37 Pradip N. Kapasi Chartered Accountant

Slump SaleApplicability of S. 50B incase of Exchange for Business for sharesBharat Bijlee Ltd. 365 ITR 252 (Bom.)Implication of Negative Net worth on S. 50B Computation Summit Securities Ltd, 135 ITD 99 (Mum.) (SB)38Pradip N. Kapasi Chartered Accountant

SHARE CAPITALPradip N. Kapasi Chartered Accountant 39

Share Capital & Premium – S.56(2) & S.68Explanation for source of income & taxable entity.Prachan Fashion House (P) Ltd, 63 ITR(T) 54 (Del.)(SN)Amendment in S.68 w.e.f . 1.04.2013Prospective or RetrospectiveScope of amendmentShare application, capital, premium or any such amountImplication for shareholderExemption for VCC & VCFShare Premium by chain of companiesCornerstone Property Investments (P)Ltd , 193 TTJ 58 (Bang.)Issue of shares to director at a lower premiumCornerstone Property Investments (P)Ltd , 193 TTJ 58 (Bang.)Issue of shares at exorbitant premiumAlcon Biosciences Pvt. Ltd. (Mum.)Degree of Burden of ProofNakoda Fashion (P) Ltd ; 92 taxmann.com 46 (Ahd.) 40 Pradip N. Kapasi Chartered Accountant

VALUATION OF SHARESPradip N. Kapasi Chartered Accountant 41

Valuation of Shares – Rule 11 UA & 50 CA 56(2)(viia), (x)Relevance of bookvalue of assets in BalanceSheet, Minda S N Technocast (P) Ltd, 170 ITD 12 (Del.)Amendment in Rule 11 UA with effect from 1/4/2017Introduction of S. 50CA with effect from 1/4/201742Pradip N. Kapasi Chartered Accountant

FMV of Shares Not Quoted S. 50CAW.e.f. A.Y. 2018-19 Insertion of s. 50CATransfer of shares other than quoted sharesFVC for s.48 to be FMV, where agreed consideration < FMVValuation as per modified Rule 11UA 43Pradip N. Kapasi Chartered Accountant

LOSSESPradip N. Kapasi Chartered Accountant 44

Explanation to S. 73Derivative Transactions and Explanation to S. 73 Sri Vasvi Gold & Bullion(P) Ltd, 92 taxmann.com 290(Mad.) DLF Commercial Developers Ltd. 218 Taxman 45 (Del.)Treatment of losses of dealer in shares – Valuations Siddhesh Capital Market Services P. Ltd. 61 ITR(T) 400 (Mum.)Derivative Profits and Loss in dealing in sharesDeva Projects Pvt. Ltd 92 taxmann.com 235Set off of c/f Business loss against speculation Business Income Ramshree Steels Pvt. Ltd. 400 ITR 61 (AH.) 45 Pradip N. Kapasi Chartered Accountant

Losses of Closely Held Company – S.79 Need for Continuous holding throughout the year by S. 2(18) CompanyCredila Financial Service (P) Ltd 192 TTJ 511 (Mum.)Issue of fresh shares leading to reallignment of shareholdingAmco Power Systems Ltd. 379 ITR 375 (Karn.)Credila Financial Service (P) Ltd 192 TTJ 511 (Mum.)Change in ownership of shares without change in voting rightsWadhwa & Associates Realtors (P) Ltd. 92 taxmann.com 37 (Mum.)Merger of shareholding Company with loss making CompanySelect Holiday Resorts (P) Ltd. 138 TTJ 304 (Del.)Change of shareholding of Overseas Holding CompanyYum Restaurants (India) (P) Ltd. 66 taxmann.com 47 (Del.)46 Pradip N. Kapasi Chartered Accountant

DIRECTORS LIABILITYPradip N. Kapasi Chartered Accountant 47

Directors Tax Liability – S. 179Liability of a Past Former DirectorProfessional , Paid or Shareholders DirectorsRight to notice and InformationCondition precedent – Failure of Company Mehul Jadavji Shah 403 ITR 201 (Bom.)Attachment of Bank Account of Director Opportunity to deny negligence Notice to director Susan Chacko Perumal, 399 ITR 74 (Guj.)48Pradip N. Kapasi Chartered Accountant

MATPradip N. Kapasi Chartered Accountant 49

MAT - Developments in law Penalty for concealment of regular incomeMultiplex Capital Ltd, 396 ITR 64 (Del.)Nalwasons Investments Ltd, 327 ITR 543 (Del.)Satisfaction of AO reached - Relevance thereof Disallowance u/s. 14A in computing Book ProfitImplication of clause(f) of Explanation I to S.115JB(2)Vireet Investments (P) Ltd, 165 ITD 27 (Del.) (SB)MAT Credit u/s. 115JAA & Interest u/s. 234BCredit for Surcharge & Education CessBhagwati Oxygen Ltd, 167 ITD 645 (Kol.)Provision by deduction from loans & advancesClause (i) of Explanation I to S. 115JB(2)Vodafone SR Gujrat ltd, 397 ITR 55 (Guj.) (FB)50 Pradip N. Kapasi Chartered Accountant

MAT - Developments in law Deduction of Chapter VI-A Profits from Book ProfitNeha Home Builders (P) Ltd, 92 taxmann.com 102(Mum.)Lease equalization charges & Provision for NPAMGF India Ltd , 254 Taxman 362 (Del.) Pradip N. Kapasi Chartered Accountant51

Amendments in MATStatement of P&L for P&L AccountSch. III, Co. Act, 2013 for Part II of Sch. VI. Co. Act, 1956S.129 of Co. Act, 2013 for S.210 of Co. Act, 1956Profit for Net Profit Exemption from MAT for Foreign CompaniesCompanies with Profits & Gains of Business onlyGoverned by s. 44B, 44BB, 44BBA & 44BBBWhere income offered at specified ratesWith retrospective effect 52 Pradip N. Kapasi Chartered Accountant

Amendments in MAT Increase profit by;Expenditure relating to exempt share of AOP/BOIExpenditure of a foreign company relating to; Securities Capital GainsRoyalty & fees for technical services taxed at specified rates Notional loss on transfer to Business TrustShare of Special purpose vehicle in exchange of units in TrustExpenditure relating to Interest Royalty Income u/s. 115BBFPradip N. Kapasi Chartered Accountant53

Amendments in MAT Reduce profit by;Share of exempt income of AOP/BOI Income of a foreign companySecurities Capital GainsInterest, Royalty & fees for technical services taxed at specified ratesNotional Gains on transfer to Business TrustShare in Special purpose vehicle in exchange of units of Trust Notional Gains on change in carrying cost of unitsGains on transfer of units – s. 47(xvii)Loss on transfer of units in specified circumstanceIncome on Patent RoyaltyUnabsorbed depreciation, Brought forward losses of IBC,2016 Company Pradip N. Kapasi Chartered Accountant 54

Amendments in MAT W.e.f. A.Y 2018-19Existing provision for Tax credit Carry forward up to 10 assessment yearsAmendment to extend to 15 assessment years carry forwardConsequential amendment to restrict credit by FTC adjustments55Pradip N. Kapasi Chartered Accountant

Book Profit on Ind AS -I Applicable to companies adopting IND AS specified in Annexure to Companies ( Ind AS) Rules, 2015Book profit computed u/s 115JB to be adjusted under specific guidelines Provision for increase / decrease in book profit Relevance of year of convergence Recomputed book profit to be liable to MAT56Pradip N. Kapasi Chartered Accountant

Book Profit on Ind AS -IISteps for MAT computation on Y O Y basisStep 1 : Determine net profit as per Ind-AS P&L before OCI Step 2 : Upward and downward adjustment to net profit as per P&L (before OCI) as per existing MAT provision Step 3 : Adjust increase/decrease for OCI item/DemergerStep 4 : Adjust increase/decrease for items of FTA adjustments including recurring impact (say, when assets fair valued on transition are sold)Step 5 : Compare with normal tax – MAT applies if normal tax is lower than tax @ 18.5% on ‘book profit’Pradip N. Kapasi Chartered Accountant57

Book Profit on Ind AS -IIIIncrease/Decrease by amounts credited/debited to OCIIn Statement of P&L under ;Items that will not be reclassified to profit or loss No adjustment for revaluation surplus as per Ind AS 16 & 38No adjustment for Fair valuation of securities as per Ind AS 109Adjustment in the year of realisation, etc.Increase/Decrease by amounts debited/credited to P&L On distribution of non-cash assets on demerger As per Appendix A of Ind AS 10Resulting Company to ignore change in values as compared to book value of Demerged Company.1/5th of increase/decrease towards ‘transition amount’ for 5 years Pradip N. Kapasi Chartered Accountant 58

Book Profit on Ind AS -IVYear of convergence; year in which convergence date fallsConvergence date; 1st day of 1st reporting period as per Ind AS 101Transition amount; aggregate of amounts adjusted in Other Equity (excluding Capital & Securities Premium Reserve) on the convergence date excluding;Amount adjusted in OCI to be reclassified to P&L subsequently Adjusted revaluation surplus of assets as per Ind As 16 & 38Gains/Losses on fair valuation of investments as per Ind AS 109Adjustment in value of specified assets to be deemed cost as per Ind AS 101Adjustment in value of specified investments to be deemed cost as per Ind AS 101 Adjustment relating to translation differences of a foreign operation as per Ind AS 101 Pradip N. Kapasi Chartered Accountant 59

Rate of Tax - Certain Domestic CompaniesW.r.e.f. AY 2017-18 – S. 115BBADomestic Manufacturing Companies registered on or after 01.03.2016 Eligible for Tax rate of 25% for A.Y.2017-18 & onwardsAt the option of the CompanyAmendment to restrict the benefit to business income onlyScope of exclusion extended from Capital Gains to all other incomesW.e.f. AY 2018-19- FA 2017Tax rate of 25% for all Domestic CompaniesWith turnover or gross receipts up to Rs. 50 crores.Previous year 2015-16W.e.f. AY 2019-20- FA 2018Tax rate of 25% for all Domestic CompaniesWith turnover or gross receipts up to Rs . 250 crores.Previous year 2016-17 60 Pradip N. Kapasi Chartered Accountant

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