CRITICAL ISSUES IN - PowerPoint Presentation

CRITICAL ISSUES IN CORPORATE TAXATION 1 Saturday, 29th June, 2013Direct Taxes Refresher Course Vadodara Branch of WIRC of ICAIVadodara Gujarat Pradip N. Kapasi Chartered Accountant

Deemed Dividend- 12Deemed dividend of earlier years –effect P. Satya Prasad, 141 ITD 403 (Visakhapatnam)Company and license - MLA in financing businessKrishna Gopal Maheshwari , 28 taxmann.com 13 (Agra) Credit by journal entries Gurbinder Singh, 146 TTJ 60 (Chennai)Allotment of flat with occupancy rights - S. 2(22)(a)Shantikumar D Majithia, 140 ITR 251 (Mum) Pradip N. Kapasi Chartered Accountant

Deemed Dividend- 23Credit bal. of properiotor on conversion into companyRadhe Sham Jain, 28 taxmann.com 255 (Chd)Loan in lieu of bank guarantee by MD Smt. G. Sreevidya , 24 taxmann.com 75 (Chennai)Holding co. channelling loans from/to subsidiaries Farida holdings (P.) Ltd., 21 taxmann.com 462 (Chennai)Advance salary to Managing DirectorN. Pramodh, 52 SOT 38 (Chennai) Pradip N. Kapasi Chartered Accountant

Deemed Dividend- 34Tax in the hands of shareholders or recipientsBhaumik Colour, 120 TTJ 865 (Mum.) (SB)Universal Medicare, 237 CTR 147 (Bom.) Registered & Beneficial OwnerHotel Hilltop, 217 CTR 527 (Raj.)Ankitech (P) Ltd., 242 CTR 129 (Del.) Where partnership is a recipientNational Travel Service, 202 Taxman 327 (Del.)Chandmull Batia, 115 ITR 388 (Cal.)Where beneficiary; HUF, Trust, AOP, BOI, Two or more persons with substantial interest None. Anyone. Proration Pradip N. Kapasi Chartered Accountant Pradip N. Kapasi Chartered Accountant

Deemed Dividend- 45 Need for Economic benefitSwati Energy & Projects Pvt. Ltd., 11 ITR (Trib.) 705 (Mum.)Loan to a Debenture holder Anilkumar Agarwal, 132 ITD 314 (Mum.)Pradip N. Kapasi Chartered Accountant

Minimum Alternative Tax- 16Clause (i) in Expl 1 inserted w.r.e. from 2001‘provision’ and ‘erosion’ Whirlpool of India Ltd., 31 taxmann.com 200 (Delhi) S. 80IB deduction and Book Profit Sankhala Polymers , 31 taxmann.com 166 (Karnataka)Capital gains on sale of property reflected in bal.sheet.Forever Diamonds (P) Ltd. 31 taxmann.com 152 (Mum)Loan liability credited to profit and loss accountDream Shelters (P) Ltd. 56 SOT 440 (Agra) Pradip N. Kapasi Chartered Accountant

Minimum Alternative Tax- 27Provision for gratuity & MATEchjay Forgings (P) ltd., 251 ITR 15 (Bom)Rotork Controls India (P) Ltd. 314 ITR 62 (SC)Inox Leisure Ltd. , 351 ITR 314 (Guj ) Provision for warranty & dimi. in value of assetsBecton Dickinson India (P) Ltd., 29 taxmann.com 80Incremental liability for leave encashment not debited to P & L A/c but referred in notesK.K. Nag Ltd., 52 SOT 381 Pradip N. Kapasi Chartered Accountant

Minimum Alternative Tax- 3Pradip N. Kapasi Chartered Accountant8Agreed AdditionsDream Shelter (P) Ltd., 56 SOT 440Withdrawal of MAT & DDT exemption to SEZ promissory estoppel Mindtree Ltd, 34 taxmann.com 250 (Karnataka) Priority of credit u/s 115JAA over SC & ECClassic Shares & Securities (Mum.), ITA No. 5869/Mum/2007Depreciation at different rates Malayala Manorama Ltd, 300 ITR 251 (SC)Dynamic Orthopedics, 321 ITR 300 (SC) Loss on reduction in share capital Sumi Motherson , 2010-TIOL-756-Delhi

Firm to Company9Appreciation on revaluation of Assets and capital gains taxAlta Inter-chem Industries 32 taxmann.com138 (Ahd)Receipt of higher number of shares on revaluation Nayan L. Mepani , 49 SOT 641Slump sale by a proprietor to a company & eligibility Madan Mohan Chandak, 47 SOT 207 (Chennai)An income otherwise not taxable & violation of S. 47A(3)Umicore Finance Luxembourg, 189 Taxman 250Delay in allotment of shares on conversion and S. 47 (xiv)Sanjay Singh, 50 SOT 67 (Delhi) Prakash Electric Co., 118 TTJ 539 (Bang.) Pradip N. Kapasi Chartered Accountant

Amalgamation & Demerger-110Benefit of S. 47(v) only to wholly owned subsidiarySunaero Ltd., 345 ITR 163 (Delhi)Reserves representing gains on amalgamationSpencer & Co., 148 TTJ 421 (Chennai)Holding and subsidiary company - sole shareholderCredit Suisse (Int), 349 ITR161 (AAR)Gift of shares of Indian Co. By foreign company to its Indian subsidiary Orient Green Power Pte. Ltd., 346 ITR 557 (AAR)Pradip N. Kapasi Chartered Accountant

Amalgamation & Demerger-211‘Appointed day’ approved by the court & AOIndus Fila Ltd., 142 ITD 296 (Bom)Marshal & Sons, 223 ITR 809 (SC)Torrent P. Ltd, 354 ITR 34 (Guj.)BIFR’s power to grant benefit of S. 72A without consulting CBDT after 1.4.2000Orient Vegetax Pro Ltd., 210 Taxmann 1(Delhi)Indian Shaving Products Ltd., 218 ITR 140 (SC) Directions of BIFR are binding on AOKirloskar Oil Engines Ltd., 54 SOT 201(Pune) Pradip N. Kapasi Chartered Accountant

Amalgamation & Demerger-312Demerger and tax savingsVodafone Essar Ltd. 24 taxmann.com 323 (Guj)S. 72A & c/f and set off of S. 35 expenditureMahyco Vegetable Seeds Ltd., 123 ITD 40 (Mum)Deduction for bad debts of predecessor company Times Business Solutions, 33 taxmann.com 173 (Delhi) Set-off of losses of amalgamated company- Reverse mergerWrigley India (P) Ltd., 142 TTJ 23 (Del.)Pradip N. Kapasi Chartered Accountant

Amalgamation & Demerger – 413S.47(vii) and s.2(19AA)W.e.f. 01.04.2013, A.Y. 2013-14Saving from allotment of shares in considerationWhere concerned company a shareholderProspective application, only Pradip N. Kapasi Chartered Accountant

Introduction w.e.f. 01.06.2013Present positionNot a dividend u/s 2(22)Taxable as capital gains u/s 46ANo specific provision for dealer in sharesNo tax on companyAmendmentTax on Domestic company buying back sharesTax @20% +SC+ECDeduction for amount received for shares - PremiumProvisions for payment and recoveryShares of company not listed on recognized SE Pradip Kapasi & Co. 14Buy back of shares-Is.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 s.77A of Companies Act,1956Tax not deductible for company Pradip Kapasi & Co. 15

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 shareholders Pradip Kapasi & Co. 16

DDT- s.115-O (IA)17W.e.f. 01.07.2012One cascading effect of DDT on Dividend relaxedDistribution by recipient domestic company eligible for reliefNeed not be an ultimate holding companyMay be subsidiary of another upstream companyConcession only for group companiesAmendment w.e.f. 01.06.2013 Further relief from cascading effectReceipt of dividend by Indian company From foreign subsidiary coTax payable u/s. 115BBDOne time reductionPradip N. Kapasi Chartered Accountant

Dividend from Foreign Co - s.115BBD Amendment w.e.f. AY 2014-15Receipt of dividend by a Indian CoFrom foreign subsidiary co( 26 per cent)Tax @ 15%Benefit extended once more to FY 2013-14Pradip Kapasi & Co.18

Public Offer & Exemption u/s 10(38)19Amendment of Finance Act, 2012 for STTOffer for sale of unlisted equity shares to public in an IPOSTT @ 0.2% by lead Merchant Banker form Seller Subsequent Listing on recognized Stock ExchangePradip N. Kapasi Chartered Accountant

Securitization Trusts -Is.10(23DA), 10(35A) & Chapter XII EA s.115TA to 115TCAmendment w.e.f. 01.06.2013New provision for exemption for Secu. TrustIncome from activity of securitization Trust regulated by RBI or SEBI Additional tax on distribution of income on TrustTax@25% plus SC+ECTax@30% plus SC+ECNil where investor is exempted from taxTax on distributionProvisions for payment return and recovery Exemption for Beneficiaries(Investor) DDT for Investor Pradip Kapasi & Co. 20

Securitization Trusts -IIs.10(23DA), 10(35A) & Chapter XII EA s.115TA to 115TCMaterial difference from s.10(23FB)Tax on income after deductionsTreatment of losses of investorSecuritization company Pradip Kapasi & Co. 21

Insurance Policies s.10(10D)&s.80C(3A) Amendment w.e.f. A.Y. 2014-15 Exemption u/s 10(10D) for receipt under a LIP Premium <= 10% of sum assured Deduction u/s 80C for premium under LIP Relaxation for Disabled or Diseased RecipientPremium <= 15% of sum assuredNo exemption for sum received under a KIPKIP assigned before maturity Rajan Nanda, 349 ITR 8(Del.)Amendment for continued treatment as a KIPPradip Kapasi & Co. 22

Investment Allowance -I s .32AC Introduction For A.Y. 2014-15 & A.Y. 2015-16New Allowance only for companiesEngaged in business of manufacture or production Article or thingNew P&M acquired and installed After 31.03.2013 but before 01.04.2015Actual cost of new assets to exceed Rs. 100 crore During 1.4.2013 to 31.3.2015Usual exclusionsPradip Kapasi & Co. 23

Investment Allowance -II s .32AC Not to reduce WDV and quantum of depreciationNo provisions for Reserve and UtilizationNo provision for carry forward of allowanceBook Profit unaffected- MAT leviableNo transfer within 5 years of installationDeemed income of year of transferException for amalgamation and/or demergerPradip Kapasi & Co.24

Investment Allowance -III s .32AC Investment=cost of purchase + installation expensesAdvance/WIP before 1.04.2013Allowance @ 15% of Actual costA.Y. 2014-15 only if cost exceeds Rs.100 croreA.Y. 2015-16 on entire cost Reduced by cost for which ded. allowed in A.Y. 2014-15 Pradip Kapasi & Co.25

Commodity Derivatives & CTT S.36(1)(xvi)& 43(5)Introduction w.e.f. 2014-15Commodity derivativeNon speculative u/s 43(5)Eligible transaction & Compliance Commodity Transaction TaxEligible for deduction Where income included in business incomePertains to taxable commodities transactions Pradip Kapasi & Co. 26

Employment of New workmens.80JJAA,cl.18Amendment w.e.f. AY 2014-15Deduction to cos for wages to new workmenNew stipulationsDeduction for profits and gains derived from‘Factory’ in place of ‘Industrial Undertaking’‘Manufacture’ in place of ‘Manufacture or production’ ‘Gods’ in place of ‘Article or thing’‘Hive off or transfer or acquired on amalgamation of IU’ in place of ‘formed by splitting up or reconstruction or amalgamation of a company’ Panacea Biotec Ltd, 121 TTJ 959(Del.)Texas Instruments (India)P. Ltd, 115 TTJ 976 (Bang)Pradip Kapasi & Co.27

Receipt of shares by CHC & Firm -I s.56(2)(viia)28Receipt of shares of a non s. 2(18) company By ‘firm’ and ‘company’ recipients s. 2(18) company excluded LLP included With/out consideration > Rs. 50,000, wholeFMV as per Rules 11U & 11UABy or From –Resident or not COA in hands of recipient – s.49(4)Substantive not clarificatoryShares Preference shares included – CD not included Rights not included - Shares of subsidiaries Pradip N. Kapasi Chartered Accountant

Receipt of shares by CHC & Firm -II s.56(2)(viia) 29 Exclusion for transfers s. 47(via),(vic ),(vicb),(vid),(vii)Amalgamation, demerger, co-op. bank successionNo exclusions Similar to s. 56(2)(vii) – Relative, etc.For stock-in-tradeFor shares of foreign companies For other exempted transfers For deemed transfers Adjustment in purchase cost W.e.f . 01.06.2010 Pradip N. Kapasi Chartered Accountant

Receipt of ‘premium’ by CHC s.56(2)(viib)30Issue of shares by closely held company, A.Y. 2013-14Receipt’ by a ‘CHC’ from a ‘resident’Consideration for ‘issue’ of ‘shares’Where exceeds face value Tax on excess over FMV of shares -Rs.50,000 Exemption for issue by VCC, VCF and VCUFMV as per prescribed method or satisfaction of A.O.Non resident, R&NORPreference sharesIncome of the companyPradip N. Kapasi Chartered Accountant

Share Capital and s.68- Amendments -I31Three Amendments of FA, 2012- w.e.f. A.Y. 2013-14 Law of cash creditors up to A.Y. 2012-13Provisions. Essentials. Case Laws. RateS. Hastimal, 49 ITR 273 (Mad.) –Source of source Lovely Exports (P) Ltd., 216 CTR 195 (SC)Shareholders name & address Steller Investment Ltd., 115 Taxman 99 (SC)Non- genuine (Owners of Funds)Divine Leasing, 158 Taxman 440 (Del.)Non- genuine (Owners of Funds)Onus shifted to AO to examine capacity Pradip N. Kapasi Chartered Accountant

Share Capital and s.68- Amendments-II32Expanding and extending onus for certain receiptsShare capital. Share premium. Like receipts From resident- VCC & VCF excludedClosely held companyOnus to explain sources of source of receiptPayer to offer explanation- nature & sourceSatisfaction of AO On notice by AO to PayerRelevance of satisfaction of Payer’s AO ConsequenceIncome of CHCTax at 30% u/s 115BBEAbsence of discretionPradip N. Kapasi Chartered Accountant

Liquidation s. 46 33COA of asset in the hands of shareholderFMV on the date of distributionNot to be reduced by Deemed dividendS. 49 (1)(iii)(c) and s. 55(2)(b)(iii) - applicabilityT.R.Srinivasan, 133 TTJ 49(Chennai) Piecemeal taxation and deduction of COA Cable and Wireless Ltd., 90 ITR 84 (Bom)Inland Agencies (P) Ltd., 143 ITR 186 (Mad)Benefit of reinvestmentRuby Trading Co. P. Ltd., 259 ITR 54 (Raj)Brahmi Investment P. Ltd., 48 TTJ 326(Ahd.) Exemption – distribution of qualifying asset ‘Purchase’ or not for s. 54F Distribution of stock - ‘other asset’ Taxability of capital gains Applicability of s. 50C Pradip N. Kapasi Chartered Accountant

Deemed Speculation 1 34Application to a BrokerPriyasha Mever Finance P.Ltd., 5 ITR 441 (Mum)(Trib.)Excl. of speculation loss for deciding applicabilityParamount Info. Systems P.Ltd., 42-A BCAJ 169(Mum) ,Set-off of Expl. loss and amendment of 2006Virendrakumar Jain, 42-A BCAJ 169(Mum.)Expl. to s.73 inapplicable to profitAppollo Vikas Steels (P.) Ltd., 214 Taxmann 642 ( Guj .) Order of set off against current years spec. profit Ashok Mittal , 213 Taxmann 197 (Delhi) Pradip N. Kapasi Chartered Accountant

Deemed Speculation 2Pradip N. Kapasi Chartered Accountant35F& O Losses not covered by Expl. to s.73Madanlal Ltd, 51 SOT 188 (Kol.)Exception to apply after set off within the business head Darshan Securities Ltd., 341 ITR 556 (Bom.)

ESOP & DOA36Admissibility as business expenditure S.S.I. Industries , 85 TTJ 1049 (Chennai) Ranbaxy Laboratories Ltd, 124 TTJ 771 (Del.)PVP Ventures Ltd, 211 Taxman 554 (Mad.)Date of offer or grant or allotmentDr. Dhurjati Gupta, 127 TTJ 356 (Hyd.)Pramod H. Lele, 143 TTJ 721 (Mum.) Amrish Kumar Jhamb, 32 taxmann.com 210 (Del.)Pradip N. Kapasi Chartered Accountant

Method of Accounting, AS & Company37S.209 of Companies ActCash system of accountingStup Consultants Pvt. Ltd., 13 ITR (Trib) 468 (Mum.)Pradip N. Kapasi Chartered Accountant

Income during Construction Period38Tuticorin Alkali, 227 ITR 172 (SC)-InterestBokaro Steel, 236 ITR 315 (SC)-RentNeha Proteins Ltd, 306 ITR 102 (Raj.)- Set-offWinsome Dyeing, 10 DTR 207 (HP) -TaxableL.G. Electronics, 309 ITR 265 (Del.)-Set-offPradip N. Kapasi Chartered Accountant

Corporate expenses -I 39S.35 (2AB)(1), SRE – outsourced Cadila Healthcare Ltd., 31 taxmann.com 300 (Guj) Fereebies by Pharmaceutical companiesCircular 5 of 2012S. 35DDA - VRS Scheme in accordance with R. 2BA Implication of non-complianceWarner Lambert, 143 TTJ 571 (Mum.) Sony India Ltd., 141 TTJ 432 (Del.)Pradip N. Kapasi Chartered Accountant

Corporate expenses -II 40Brand Building expenesFine Jewellery , 56 SOT 226(Mum.) Non-compete fees Payer’s perspectiveRevenue or capital Depreciation- tangible or intangiblePayee’s perspective Capital receipts- capital gains, s. 55(2)Business income s.28(va) Pradip N. Kapasi Chartered Accountant

Loan to Subsidiary- s.36(1)(iii)41Interest free and investment in shares commercial expediencyS.A. Builders, 288 ITR 1 (SC)Tulip star Hotels Ltd. (SC)Effect of s.14A on investment in shares Pradip N. Kapasi Chartered Accountant

Fluctuation in Rate of Exchange 42Currency translations – year end Maruti Udyog Ltd., 320 ITR 729 (SC)Woodward Governor , 312 ITR 254 (SC)Forex forward contractsOpen ended Nature of lossAccountingTaxationPanchmahal Steel Ltd., 33 taxmann 10 (Guj)S.Vinodkumar Diamonds Pvt.Ltd . ,ITA No. 506/M/2013(Mum.) Circular No.3 of 2010 dt . 23.03.2010 Pradip N. Kapasi Chartered Accountant

Disallowance u/s 40(a)(ia) & TDS-143‘Paid’ and ‘Payment’Sikander N. Tumken --- taxmann.com --- (Guj) Crescent Exports (Cal), 33 taxmann.com 250 ( Kol)Md. Jakir Hossain Mondal 33 taxmann.com 123 (Cal)Merilyn Shipping,146 TTJ 1 (Vizag) (SB) S. 40 (a)( ia ), tax not deducted but paid Rana Builders, 31 taxmann.com, 372(Rajkot) Short withholding, rate or section Chandabhoy & Jassobhoy , 49 SOT 448 (Mum.) Beekaylon Synthetics, 6506/M/2008 (Mum.) Not credited, not paid, Pranik Shipping & Services Ltd. 135 ITD 233 (Mum.) Pradip N. Kapasi Chartered Accountant

Disallowance u/s 40(a)(ia) & TDS-244Second proviso and retrospectivityBharati Shipyard, 132 ITD 53 (Mum.) (SB)Virgin Creations, ITA No. 302 of 2011 (Cal.)Rajamahendi Shipping, 51 SOT 242 (Vizag )Marginal relief for initial assessment years Kotak Securities Ltd., 340 ITR333 (Bom.)DICGC Ltd., 14 ITR (Trib) 194 (Mum.)Dynamic Vertical Software, 332 ITR 222 (Del.)FA, 2012 Amendment Relief & Retrospectivity Pradip N. Kapasi Chartered Accountant

THANK YOUPradip Kapasi & Co.45