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15.07.2016 - Voice of CA presents - Updates
Friday, July 15, 2016

I. Headlines Today    

  1. CBDT Fourth Clarifications on the Income Declaration Scheme, 2016  (Click for detail)
  2. Govt extends payment date under black money scheme  (Click for detail)
  3. SIT for Ban on Cash Deals Above Rs. 3 lakh  (Click for detail)
  4. Government accepts the recommendations of Sub-Committee of the High Level Committee to interact with Trade & Industry on Tax Laws on issues relating to compliance procedure for the excise duty, records to be maintained and other relevant administrative issues  (Click for detail)
  5. E-filing: ATM-based validation facility enhanced  (Click for detail)
  6. CBDT directs IT depatment to fast track refunds  (Click for detail)
  7. Corporate tax rate likely to come down  (Click for detail)
II.  Direct Taxes Case Laws: 

1.  Commissioner of Income Tax Vs. Trans Asian Shipping Services (P) Ltd., Civil Appeal No. 5869 of 2016, Date of Judgment: 05.07.2016, Supreme Court of India

Whether slot charter arrangements entered by the assessee in ships not owned by it during the Assessment Years can be treated as 'operating ships' within the meaning of Section 115VB of the Income Tax Act, 1961 where only some slots are chartered and not the full ships are chartered?

Held: Yes

Brief Facts
The assessee was a qualifying company in terms of Section 115VC and it owned one 'qualifying ship' while also having 'slot charter arrangements' in other ships. The assessee filed returns computing its shipping income under Chapter XIIG of the Act containing special provisions for assessments relating to income of shipping companies. The Assessing Officer was of the view that the income earned under slot charter arrangement did not qualify for coverage to be given special treatment in Chapter XIIG as this income was not generated by the assessee from its own ship, i.e., it is neither from the ship owned by the assessee nor from the entire ship chartered by the assessee. The order of AO was upheld by the CIT(A). Also, the hon’ble ITAT accepted the view taken by the AO holding that in order to avail the benefit of the provisions of Chapter XIIG in relation to 'slot charter' arrangements, it was necessary to show that the ships under 'slot charter' were also 'qualifying ships' and a valid certificate for determination of tonnage in terms of Sec. 115VX(1)(b) was to be provided, in relation to each such ship.

However, the Hon’ble Kerala High Court [IT Appeal Nos. 128 & 129 of 2012] reported in 371 ITR 194 allowed the appeal of the assessee holding that the income earned by the assessee under slot charter arrangement comes under the definition of 'deemed tonnage tax' as per explanation to Section 115VG(4) of the Act and, therefore, exclusion of this income while assessing the same under the said special provisions was not appropriate. The revenue filed an appeal against the decision of The Hon’ble High court of Kerala.

The Hon’ble Supreme Court upheld the decision of Hon’ble High Court observing that for the purpose of Chapter XIIG, a company would be regarded as operating a ship 'if it operates any ship whether owned or chartered by it and includes a case where even a part of the ship has been chartered by it in an arrangement such as slot charter, space charter or joint charter'. It is clear from the above that slot charter is specifically included as an instance of a ship chartered by the company. It was further observed that the requirement of producing a certificate would not apply when entire ship is not chartered and the arrangement pertains only to purchase of slots, slot charter and an arrangement of sharing of break-bulk vessel.

Thus, the income derived from slot charter arrangements of a tonnage tax company is to be included while determining the tonnage income of a tonnage tax company even if such operations are carried on in ships which are not qualifying ships.

(Please click here for judgment)


2.  Batlivala & Karani Securities (India) (P.) Ltd.  Vs. Dy. CIT, I.T.A. No. 1234 & 1235/Kol./2013, Date of Judgment: 08.07.2016, ITAT - Kolkata

Where assessee, carrying on business of stock brokerage on behalf of institutional clients, made payments to its foreign subsidiary companies as reimbursement of expenses incurred by the subsidiaries to promote the business of assessee is liable to deduct tax for such payments as 'fee for technical services'?

Held: No

Brief Facts:
The assessee was a stockbroker company & carried on business of brokerage on behalf of institutional clients. During the years under consideration, the assessee had made payments to two of its wholly owned subsidiaries, B&K (UK) & B&K (Singapore), for providing marketing support services. The Assessing Officer took a view that all the payments made to subsidiary companies amounted to fees for technical services liable to be taxed in India and, thus, assessee was required to deduct tax at source while making said payments. The Commissioner (Appeals) upheld the order of Assessing Officer.

The Hon’ble ITAT observed that consideration paid for rendering of managerial, technical or consultancy services would be covered under the term 'fees for technical services' as per Article 12 of Singapore Treaty and Article 13 of UK Treaty, only if such services make available any technical knowledge, experience, know how, or processes. The nature of services rendered by the subsidiaries to the assessee were in respect of simple marketing services of introducing foreign institutional investors to invest in capital markets in India so that the assessee would improve its business in India. It was held that no technical service is being made available to the assessee by its subsidiaries and as a result, the payments made to subsidiaries would not fall within the definition of fees for technical services as admittedly no technical knowledge was made available to the assessee by the subsidiaries.

It was further observed that since the payment made by the assessee to its subsidiaries is not fees for technical services, then the same would be construed as only business income in the hands of the subsidiaries which would get taxed in India only in the event of existence of permanent establishment (PE) in India. The Assessing Officer had categorically stated in more than one place in his order that the Singapore and UK subsidiaries do not have any PE in India and thus the AO was directed to delete the disallowance made u/s 40(a)(i) of the Income Tax Act, 1961 in respect of payments made to foreign subsidiaries.

(Please click here for judgment)   

 Golden Rules:

  "Time decides whom we meet in life,
our heart decides whom we want in life
but our behaviour decides who will stay in our life"


  Thanks & Regards


Voice of CA 

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