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07.04.2017 - Voice of CA presents - Updates
Friday, April 7, 2017

I. Headlines Today    

  1.  CBEC releases training material on GST
  2. DT Notification: Income tax (Seventh Amendment) Rules, 2017  (Click for detail)
  3. DT Notification: Central Government notifies provision of section 269ST shall not apply to receipt by any person from an entity referred to in sub-clause (b) of clause (i) of the proviso to section 269ST  (Click for detail)
  4. Lok Sabha Passes Bill to Make Excise, Customs Acts Compliant With GST  (Click for detail)
  5. 1.37 crore who don’t file returns are now on Income Tax radar  (Click for detail)
  6. RBI to soon issue final guidelines on MDR charges on debit cards  (Click for detail)
  7. New Financial Year Begins: Start early and plan for your taxes for FY18  (Click for detail)
II.  Direct Taxes Case Laws: 

1.  M/s. Berger Paints India Ltd. Vs. CIT, Civil Appeal No. 2162 & 2163 of 2007, Date of Order: 28.03.2017, Supreme Court of India

Whether the share premium received by the company on is subscribed share capital would constitute part of the capital employed in the business of the company within the meaning of Section 35D of the Income Tax Act, 1961 for calculating eligible amount of deduction therein?


Brief Facts:
The assessee is a Limited Company engaged in the business of manufacture and sale of various kinds of paints. The return of Income of the assessee was processed by the AO u/s 143(1B) of the Income Tax Act, 1961 at an increased Income. A notice was issued to the assessee u/s 143(2) of the Act to seek explanation from the assessee about the claim of a deduction under the head preliminary expenses u/s 35D of the Act, being 2.5% of the capital employed in the business of the company. The assessee contended that it had issued the shares on premium which according to him was part of the capital employed, on that basis, it claimed the said deduction and was therefore, entitled to claim the deduction u/s 35D of the Act whereas the AO contended that share premium account is not included in the capital employed in the business of the company and therefore, not allowed deduction u/s 35D of the Act. The assessee filed an appeal before the CIT(A). CIT(A) allowed the appeals of the assessee stating that share premium a/c under head reserves was in the nature of the capital base of the company. However, the order of CIT(A) was reversed by the Tribunal. Admitting to the views of the Tribunal, the appeal of the assessee was also dismissed by the Delhi High Court. Aggrieved by which, the assessee had appealed before the Hon’ble Supreme Court.

It was held that the share premium was indeed taken as a part of the shareholders’ funds but it was not the part of the issued, subscribed and paid up share capital of the Company. Also, the Explanation to Section 35D of the Act does not include reserves and surplus of the company as a part of the capital employed in the business of the company. The capital employed is restricted only to the issued share capital, debentures and long term borrowings. Therefore, the assessee company was not entitled to claim any deduction in regard to the share premium received from its shareholders. Also, the Form of Annual Return provided by the Companies Act for furnishing the share capital of the company every year does not include the share premium received by the company in the column dealing with the details of the capital structure of the company which clearly indicates that share premium does not form part of capital structure unless specifically mentioned by the relevant section. Also, Section 78 of the Companies Act does not mention that the share premium be included in the capital employed by the company. Therefore, the share premium should not be included in capital employed of the business while computing eligible deduction u/s 35D of the Act.
The appeal of the assessee was dismissed.

(Please click here for judgment)


2.  Kumudam Publications Pvt. Ltd. Vs. Central Board of Direct Taxes and Ors., Writ Petition (Civil) No. 11216/2016, Date of Pronouncement: 30.03.2017, High Court of Delhi

Whether the credit for Advance Tax paid should be granted to the assessee on the income so declared under the Income Declaration Scheme, 2016 relative to the assessment years or periods for which it seeks benefits under the scheme?  


Brief Facts:
The assessee company was incorporated under Companies Act,1956 and has its registered office at Chennai. It had been filing its Income Tax Return till AY 2009-10. Due some serious disputes between its shareholders and directors in FY 2008-09, it was not able to appoint any statutory auditor resulting in unaudited accounts and hence, Return was not filed from AY 2010-11 till present. However, the assessee had paid advance tax during that period. The assessee had applied u/s 119(2)(b) of the income Tax Act, 1961 for permission to file Return of Income based on unaudited accounts or in any other manner. But the application of the assessee remained undecided. Later, the assessee made the declaration of income for all the relevant assessment years under Income Declaration Scheme, 2016 (IDS) in Form 1. The assessee duly disclosed its income including tax and penalty on it and TDS deducted and advance tax paid thereon. Regarding this, the assessee received an order from PCIT demanding the total tax without giving benefit of the advance tax already paid by the assessee.

The assessee contended that the Circular No. 25 of 2016 clarified that the credit for the TDS shall be given while calculating tax liability under IDS and as such both TDS and Advance Tax are in the nature of the Tax paid in Advance and therefore, credit should be allowed for both TDS as well Advance Tax otherwise the income declared by the assessee would account to double taxation. On the other hand, the Revenue contended the provision of the Finance Act, 2016 (containing Sections regarding IDS) override the provisions of the Income Tax Act, 1961 and other Finance Acts and therefore, should operate independently. As per the circulars and clarifications issued by Revenue, credit is to be allowed only for TDS that also in special cases as specified. Also, there is no special provisions in the Scheme to provide benefit for Advance Tax.

It was held that such schemes are indeed interpreted in a Stand-Alone basis. The phrase “shall be paid on or before a date to be notified” in respect of the tax and surcharge to be paid in regard to the income declared under the scheme refer to all the payments irrespective of either paid immediately before or in the proximity of the declaration filed. The provisions of the scheme also state that the undefined words would hold same meaning as per the Income Tax Act, 1961. Therefore, as per the opinion of the court, there is no bar for an assessee or declarant to claim credit of advance tax amounts paid previously relative to the assessment years or periods for which it seeks benefits under the scheme. Further, clarification regarding benefit of TDS to be granted for calculation of tax liability cannot be concluded as that the advance tax payments relative for the assessment years covered by the declaration cannot be taken into consideration as payments under and for purposes of availing the benefits of the scheme. Hence, the assessee should be granted credit for the amounts paid as Advance Tax or TDS while calculating tax liability on the income declared under the scheme.
Therefore, the appeal of the assessee is allowed.

(Please click here for judgment)

III. A Useful Article:

1.  CBEC unveils 8 GST Rules and revised FAQs on GST

(Please click here)

( Contribution by CA. Bimal Jain and contributor is available at eMail-id: )


 Golden Rules:

  "Be slow in choosing a good person
and much slower while loosing them
because relationship is not an opportunity,
it is a sweet responsibility"


  Thanks & Regards


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