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17.08.2015 - Voice of CA presents - Updates
Monday, August 17, 2015

  I. Headlines Today:    

  1. IT Notifications: Central Government has notifies the body or authority or Board for the purpose of clause (46) of section 10 of the Income Tax Act, 1961  (Click for detail)
  2. Few takers for black money window says SIT chief  (Click for detail)
  3. CBDT to set up portals to reduce tax litigation  (Click for detail)
  4. CBDT constitutes committee to fine tune transfer policy  (Click for detail)
  5. Govt push for corporate debt market on anvil  (Click for detail)
  6. Opinion: The uncertain gains from GST  (Click for detail)
  7. Sebi notifies start up listing norms makes fund raising easier  (Click for detail)
II.  Series of Synopsis on SA:

1.  In continuation of our mail of August 13, 2015 [Click for 13.08.2015 - Updates], with which in the Series of Synopsis on Standards on Auditing, Synopsis on SQC 1, among others, was sent, attached in that Series now is the Synopsis on SA 200 Overall Objectives of the Independent Auditors and the Conduct of an Audit in Accordance with Standards on Auditing.


III.  Direct Taxes Case Laws:

1.    CIT Vs. Canon India Pvt. Ltd., I.T.A. No. 137/2014, Date of Order: 03.08.2015, High Court of Delhi

Whether addition of unutilised subsidy, to the total income of the Assessee received by the Assessee from its holding company observing that subsidies received by the Assessee became its property notwithstanding that the same had not been spent for the purposes for which they were received.

Held No

It is not disputed by the Revenue that subsidies were received by the Assessee from CSPL against specific obligation to incur expenditure on specific activities and it was not open for the Assessee to divert the amount for any purpose other than for which it was remitted. It is also not disputed by the Revenue that Assessee is accountable to CSPL for the amount received. The Tribunal had examined the relevant facts and also concluded that the unspent amount is to be held in trust on behalf of CSPL and this was also confirmed by CSPL. In view of the aforesaid facts, it would, clearly, be impermissible for the Assessee to appropriate and reflect the amount of unutilised subsidy as its income. Therefore, the Assessee has not – in our view rightly so – credited the subsidies received to its Profit & Loss Account, but reflected the same as a current liability.

In view of the Assessee’s obligation to utilise the same for the specific purposes, the revenue could be recognised only on the application of the subsidy for the specified purposes. In other words, the Assessee could credit the Profit & Loss Account with the quantum of subsidy only if the corresponding expenditure was also debited to the Profit and Loss Account maintained by the Assessee. We are, therefore, unable to accept the Revenue’s contention that the unutilised subsidy is required to be recognised as income of the Assessee in the year of its receipt. This would be contrary to the matching concept, which is the substratal principle for computing income during a relevant period. It is necessary that income be recognised along with the corresponding expenditure incurred for earning the income. Thus, where an Assessee follows the Accrual/Mercantile system of Accounting – as in this case – income can be recognised only when the matching expenditure is also accounted for irrespective of the cash outflows/inflows during the year.

(Please click here for judgment)

2.  CIT Vs. Rathi Graphics Technologies Ltd., I.T.A. No. 785/2014, Date of Order: 06.08.2015, High Court of Delhi

Whether allotment of equity shares in lieu of interest liability can be construed as actually paid as required under Section 43B of the Act

Held Yes

When pursuant to a settlement the creditor agrees to convert a portion of interest into shares, it must be treated as an extinguishment of liability to pay interest to that extent. In essence there will be no further outstanding interest to that extent. Consequently, the situation where an interest payable on a loan is converted into shares in the name of the lender/creditor is different from the situation envisaged in Explanation 3C to Section 43B of the Act viz., conversion of interest into “a loan or borrowing”. In the latter instance, the liability continues, although in a different form. However, where the interest or a part thereof is converted into equity shares, the said interest amount for which the conversion is taking place is no longer a liability. The Court is of the view that the plea of the Assessee, which was accepted by the CIT (A) and the ITAT, that the said conversion of a portion of interest into shares should be taken to be “actual payment” within the meaning of Section 43B of the Act, merits acceptance.

(Please click here for judgment)

IV.  Company Law & Other Matters:

1.  Kishori Lal Agarwal Vs. Alliance Engineers Pvt. Ltd., C.P. No. 450/2011, Date of Order: 27.01.2014, Company Law Board - Kolkata


The application is considered to be devoid in case the petitioners have not been able to establish indisputable and unchallengeable title of the company in excess of 10% of the issued capital of the Company which is mandatory as per the said section.

(Please click here for judgment)



V.  Reported Cases:

Direct Taxes Segment:

1.  The words total turnover indicate the aggregate price of the commodities received by an assessee during the course of his trading or business activities. It does not differentiate between commodities sold under the head speculative business/normal business, and therefore levy of penalty valid for not getting the books audited u/s 44AB.
2.  Turnover from distributorship to be included in total turnover for the purpose to qualify for 44AB.  
(Please click here for detail)


 Golden Rules:

  "The size of candles may differ,
but they yield the same brightness.
It's not the matter of your position,
but your ability that shines"


  Thanks & Regards


Voice of CA

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