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10.02.2017 - Voice of CA presents - Updates
Friday, February 10, 2017

I. Headlines Today    

  1. Press Release: Pradhan Mantri Garib Kalyan Deposit Scheme (PMGKDS), 2016 - Govt. decides to allow declarants to make deposits on one or more occasions in said scheme  (Click for detail)
  2. Government Hopeful of passing GST Bills In Second Leg of Budget Session  (Click for detail)
  3. GSTN rejects CAG’s request to name auditor, do an extra audit  (Click for detail)
  4. Govt. keeps interest rates unchanged for small savings schemes in fourth quarter  (Click for detail)
  5. Modi's gift to property buyers! First house on 20-year loan to cost Rs 2.4 lakh less  (Click for detail)
  6. ICAI plans representation before govt over penalty proposal  (Click for detail)
  7. Your ATM card can provide you insurance up to Rs 10 lakh: 5 things to know  (Click for detail)
II.  Direct Taxes Case Laws: 

1.  Pr. CIT Vs. M/s Quark Media House India Pvt. Ltd., I.T.A. No. 110/2016, Date of Order: 24.01.2017, High Court of Punjab & Haryana

Whether AO can invoke provisions of section 55A of the Income Tac Act,1961 to determine FMV of the capital asset sold, for computing “Full Value of Consideration” as mentioned u/s 48 of the Act?

Held: No

Brief Facts:
The assessee transferred a piece of land and the building constructed thereon, for a consideration of Rs.25.10 crores by a sale deed dated 29.04.2005 to M/s Quark City India Pvt. Ltd., which is a part of the same group of companies i.e. Quark group. The AO ascertain the fair market value of the land and building at Rs.70.08 crore by appointing a DVO u/s 55A of the act. The AO observed that the price mentioned in the sale deed was not as per the market value and this was in view of the relationship between the parties. Accordingly, the AO for calculating capital gains, valued the property at Rs.70,08,70,000/- after considering in detail the nature of the property and other expenses of sale.

The Hon’ble High court held that Section 55A begins with expression that “with a view to ascertaining the fair market value of a capital asset”. In Other Words, the reference to the valuation officer u/s 55A is for the object of ascertaining the FMV of the capital asset. It is only when the AO is required to ascertain the FMV of the capital asset that the provision of section 55A can be invoked. There may be certain situations where AO is required to determine FMV. One of the situation is indicated in section 45(4) of the Act. In such a situation, the provision itself makes it clear that for section 48, the FMV of the asset on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of the transfer.

Also, relying upon the judgement of the Hon’ble Supreme court in the case of Ms. McDowell & Co. Ltd. v. Commercial Tax Officer, (1985) 154 ITR 148 in which it was held that “For the purpose of Section 48, the full value of the consideration received by or accruing to the assessee must be taken into consideration for the purpose of computing the capital gain and that the market price of the property is not relevant for this purpose”.

Hence, it was held that AO had failed to establish that the assessee had received any consideration other than that stated in the sale deed and he has no authority to substitute the fair market value of consideration actually paid unless it is demonstrated that the assessee had received more than what was declared by him. Therefore, there was no necessity for computing the fair market value and the AO accordingly could not have referred the matter to the D.V.O.
Therefore, the appeal of revenue is denied.

(Please click here for judgment)


2.   DIT Vs. KLM Royal Dutch Airlines, I.T.A. No. 627/2016, Date of Order: 25.01.2017, High Court of Delhi

Whether the profits of the assesses arise due to participation in a pool, a joint business, is liable to tax in India under the Article 8(1) & 8(4) of DTAA between India and Germany & Article 8(1) & 8(3) of DTAA between India and Netherlands?

Held: No

Brief of Facts:
Both the Assessees (“Lufthansa” and “KLM”) filed their returns of income and claimed that the amounts received from various International Airlines Technical Pool (“IATP” or the “Pool”) member airlines for the above services rendered in India were not taxable in India. However, the Assessing Officer believed such amounts received by them in India were taxable and computed as business income in terms of provisions of the DTAA, holding that these activities were not covered under the term “Air Transport Services”, i.e., the services were given to other airlines by the Assessees, the receipt from which was not recovered from their passengers and was not part of the face value of the ticket. The AO concluded that the Assessees rendered such services to other airlines by exploiting their manpower when idle at the time when there were no flights, and could not, therefore, be termed as “air transport operation”. The AO's orders were challenged before the CIT (A) who ruled that the profit derived from exploitation of excess capacity by rendering services to other airlines was taxable in India and that deduction of expenditure which the AO allowed was quite reasonable and did not interfere with it.

The assesse has preferred an appeal before the ITAT, which reversed those findings. The Revenue argued that the ITAT's previous decision in the case of British Airways Plc. vs. Dy. CIT (2001) 73 TTJ (Del) 519 Ed in a similar factual background, was a relevant pattern, and that, since the language of the Indo-UK, the Indo-German and Indo-Dutch DTAA was similar, that pattern had to be followed. The ITAT disagreed and hold that the appellant's profit due to participation in a pool was covered under Article 8(4) of the DTAA between India & Germany and 8(3) of the DTAA between India & Netherlands and such profit cannot be brought to tax in India. ITAT, allow the ground of appeal and delete the addition sustained by the CIT(A)." Both the Revenue and Tribunal argued for the above disagreement.  Counsel for the Revenue stated that it was Article 5(1) of DTAA, which was applicable in the assessees case and emphasized that the term "pool" is undefined in the DTAA. Therefore, the IATP cannot be said to be the concerned pool referred to in the two DTAAs. The Revenue’s counsel stressed that, exemption under the DTAA is based on exchange between two members of the pool for obtaining the facilities. Such exchange should be direct. But the Tribunal stands in his arguments and therefore, the revenue is in appeal before the Hon’ble High Court.

Having regard to these above facts, Court believes the extension of the term ―operation of aircraft had the effect of limiting the nature of activities that could be comprehended in the pool proposed in Article 8 (2). The expanded meaning of operation of aircraft included those activities in Article 8(3) through the extended definition and no more. There is no such limitation in the DTAAs in these cases. This constituted the most significant difference between the two sets of cases on the one hand, and British Airways (supra) on the other. For these reasons, this Court rejects the Revenue’s contentions. Court answers the questions of law, framed in both sets of appeals, against the Revenue and in favour of the assesses.
Therefore, the appeals of revenue are dismissed.

(Please click here for judgment)

 Golden Rules:

  "To smile without condition,
to talk without intention,
to give without reason and
to care without expectation is the beauty of a true relation"


  Thanks & Regards


Voice of CA 

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