KSCAA September 11 issue -...

KSCAA News Bulletin - SEPTEMBER 2011123456712345671234567

1231231231


1231231232


1231231233

KSCAA welcomes articles &views from members for

publication in thenews bulletin / website.

email: [email protected]: www.kscaa.com

CONTENTS

KSCAANews Bulletin

September 2011September 2011September 2011September 2011September 2011 VVVVVol 49 Pol 49 Pol 49 Pol 49 Pol 49 Pararararart 3t 3t 3t 3t 3No. of Pages : 24

DisclaimerThe Karnataka State Chartered AccountantsAssocation does not accept anyresponsibility for the opinions, views,statements, results published in this NewsBulletin. The opinions, views, statements,results are those of the authors/contributors and do not necessarily reflectthe views of the Assocation.

KSCAASPORTS & CULTURAL MEET

29th & 30th October 2011

KSCAA is organizingSports & Cultural Meet for CAs & their family members.

Events :

CA's

★ Shuttle Badminton

★ Chess

★ Musical Chair

★ Yoga

CA Family Members & Childrens

★ Shuttle Badminton

★ Singing Competition

★ Drawing Competition

★ Rangoli / Flower Decoration

★ Instrumental

★ Yoga

Attractive Prizes & Certificateswill be issued to Winners & Participants.

Event Fees :

For CA's : Rs. 100/- for each event.

For CA Family Members & Childrens : Rs. 50/- for each event.

Participants are requested to contact & send their details to :

KSCAA OfficeTel : 080 - 2222 2155, 2227 4679

email : [email protected]

Note : Venue will be informed shortly to all participants.

CA. Anant Mutalik CA. H.M. Basavaraj CA. Raveendra KorePresident Secretary Chairman, Public Relation &

Mob : 94487 01370 Mob : 98440 06543 Sports Committee

Mob : 99020 46884

ôhd*ð* : ðxÉd*Ó|Jð* ÀxÓÉ±*s $]*èA*l|*l. ¶|*]x, ‘|*¥]*|*Ovd*Ò’|* |Jð* AxÉeùaÉd*l ?!No doubt, donating eyes is great, But how about donating VISION?!

Think – Co-owner 4is not “Owner”

CA. S. Krishnaswamy

Indirect Taxes Update – 5– August 2011

CA V. RaghuramanCA C.R. Raghavendra

Recent Decisions 8of High Courtson Income Tax

CA. K.S. Satish

Taxability of 10Reimbursements underService Tax

CA Rajesh Kumar TR &CA Roopa Nayak M.

Relevant Judicial Cases 12Under Karnataka Vat Law

CA G. B. Srikanth Acharaya &CA Annapurna Kabra

Janlokpal 13People’s Anger andA Callous State

Ravindra Desai

SEC.50C – Income Tax Act 15Few Issues - RelevantStatutory Provisions

CA R. Muralidharan

Invoke the “Power Principles” 17CA Roopa Venkatesh

Health is Wealth and 19it is Tax FreeCA Dr. A.S. Vishnu Bharath

The Dark World 21CA. Aparna RamMohan

Bhagat Singh 22CA. Anant Mutalik


1231231234

Author can be reached one-mail: [email protected]

THINK – CO-OWNER IS NOT “OWNER”CA. S. Krishnaswamy. FCA

Any interpretation of law involves a process of thinking.In tax matters it is challenging an accepted position or

application of what is called “stratal technique. This is ageneral-purpose technique. At the beginning of the thinkingexercises you put together a stratal that refers to the wholesituation about which you are thinking .This can apply to anysituation. In the course of your thinking you can try anotherstratal (different layers) which this time refers to yourthinking about the subject; what sort of things have come upin your thinking. Useful in complex (incentive basedprovisions held not available) situations. By definition ‘A stratalis a number of unconnected statements put together solely toform a stratal. The purpose of a stratal is to sensitize themind so that new ideas can come forward.

Income Tax Act -54F exemption:-

54F talks of “Capital gain on transfer in the case ofinvestment in residential house .The proviso to the sectionsays that nothing contained in this section will apply to, inparticular.

I) “Owns more than one residential house, other than thenew asset, on the date of transfer of the originalasset;”

What is the meaning of “owns”; if the person is a co-owner of property can he be treated as an owner not entitledto benefit. There are judicial decisions to support the viewthat a fractional investment need not be a bar taking intoconsideration the following decisions i.e CIT v. T N AravindaReddy (1979) 120 ITR 46 (SC) where the acquisition of afinancial interest was held to merit deduction. In ITO v.Rasiklal N Satra (2006) 280 ITR (AT) 243 (Mumbai), partownership was held by the Tribunal not be treated as ownedby any co-owners. The decision of the Supreme Court inSeth Banarsi Dass Gupta v. CIT (1987) 166 ITR 783 (SC)where fractional ownership was not considered eligible fordepreciation before amendment to section 32 to coverownership “wholly or partial.”

In ITO v. Rasiklal N Satra (2006) 280 ITR (AT) 243(Mumbai),at p.244.

“The Legislature has used the word “a” before the words“residential house” in section 54F. It must mean a completeresidential house and would not include a shared interest in aresidential house. Where the property is owned by more thanone person, it cannot be said that any one of them is theowner of the property. No individual person of his own cansell the entire property. He can sell his share of interest in theproperty but as far as the property is concerned, it wouldcontinue to be owned by co-owners. Joint ownership isdifferent from absolute ownership. In the case of a residentialunit, none of the co-owners can claim that he is the owner ofa residential house. Ownership of a residential house meansownership to the exclusion of all others”.

The issue came up before Chennai .tribunal in CIT v. TN Gopal (2010) ITR (Tribunal) 309(Chennai) where therewas a difference of opinion. The final verdict was that a‘Co- owner’ is also a ‘Owner’. Citing Smt. Dr. P.K VasanthiRangarajan v. DCIT in I.T.A. No. 1753/ Mds/ 2004 orderdated July 25,2005 and the hon’ble Jurisdiction High Courtdecision in the case od CIT v.V. Pradeep Kumar [2007] 290ITR 90(Mad);[2006]. In (2006) 280ITR (AT) 243 (Mumbai)it was stated,

In the Karnataka High Court

Justice Aravind kumar writing the Judgment in Semi LabsLtd v. Asst CIT(2011) 156 ITR (Kar) examined the case underthe following headings after setting out the rival argumentsand case law relied upon by the parties;

1. Provisions of Law

2. Authorities of the Hon Supreme Court and othercourts.

3. Facts of the present case.

4. Discussions and findings.

I found this approach extremely useful in making writtensubmissions before appellate forums.

KSCAA WELCOMES LIFE MEMBERS ADMITTED DURING AUGUST 2011

1. Ravi Kiran R Bangalore

2. Berulal Sutmar Bangalore

3. Tejus B.S. Bangalore

4. Chandrahasa Kannadaka Bangalore

5. Esha M.M. Bangalore

6. Prasad V.K. Bangalore

7. Mayur Bhanukumar Nayak Mumbai


1231231235

INDIRECT TAXES UPDATE – AUGUST 2011By CA V. Raghuraman, B.Com, FCA, ACS, LLB, Grad.CWA, Advocate and

CA C.R. Raghavendra, B.Com, FCA, LLB, Advocate

FOR THE MONTH OF AUGUST 2011:

1. SERVICE TAX

Circular:

a) Clarification regarding Service tax on fee chargedfor issuance of Country of Origin Certificate (COOC):

It has been clarified that the service provided by the Chamberof Commerce by way of issuance of COOC on the basis

and verification of the information provided in the applicationfor COOC and the supporting documents with reference tothe goods sought to be exported would fall under ‘technicalinspection or certification service’ [Finance Act, 1994, section65(105)(zzi)]. It has also been clarified that the Service taxpaid on ‘technical inspection and certification’ of export goodsis eligible for refund under Notification 17/2009-ST dated7th July, 2009.

[Source: Circular No. 145/14/ 2011 – ST dated 19.08.2011]

Notification:

a) The filing of returns electronically has been mademandatory and consequentially, the proviso to Rule 7(2) hasbeen omitted and Rule 7(3) has been inserted to this effect.

[Source: Notification No. 43/2011 dated 25.08.2011]

CASE LAWS:

CUSTOMS & CENTRAL EXCISE:

1. CCE , Mangalore Vs M/s Pals Microsystems Ltd 2011-TIOL-70-SC-CX

Where the facts were known to the Department in 1996and the Show Cause Notice was issued in 2000 and therewas no finding to the effect that there was a fraud or willfulmis -statement or suppression of facts, it was held by Hon’bleSupreme Court that the demand is barred by limitation on thebasis that it is not in dispute that alleged suppression of paymentof duty by the respondent-company was brought to the noticeof the authority on 25th October, 1996, when theSuperintendent of Central Excise had inspected the premisesof the respondent- assessee , whereas the show cause noticewas issued on 26th June, 2000. Further, the department couldnot establish that there was any suppression of facts or afraud on the part of the respondent- assessee since the honestmistake committed in maintenance of stock register etc. wasfrankly admitted by the Managing Director of the respondent-assessee. Further, there is no finding to the effect that therewas a fraud or willful mis -statement or suppression of facts.Thus, it is very clear that the notice was issued after expiryof the period of limitation. In the set of facts, the judgmentdelivered in the case of Nizam Sugar would squarely be

applicable. In view of the aforestated facts, the judgmentdelivered by the High Court cannot be interfered.

2. Diamond Beverages Pvt. Ltd. Vs. CCE 2011 (270)ELT 98 (Tri-Kolkata)

Facts: The appellant in the instant case had entered intoan agreement with Coca-Cola Company to use trade mark/brand name of Coca-Cola on the goods manufactured andfor the manufacture of its final product, a non-alcoholicbeverage base which is sold by Coca-Cola to the appellant atagreed prices. The beverage base was supplied by Coca-Colaand was duty-paid. The appellants were paying duty duringthe period in dispute under Section 4A of Central Excise Actat M.R.P. basis. The department contended that the re-imbursement of expenses in respect of advertisement,marketing and sale promotion received from Coca-Cola wereto be included to the assessable value of the beveragemanufactured by the Appellant. The adjudicating authorityconfirmed the demand and imposed penalties.

Decision: It was held that the incentive of reimbursementcould not be added to the MRP to increase the same as thesaid amounts were not flowing from the customers, beingover and above the printed price on the goods. Reliance wasplaced on the decision of the Apex Court in the case ofCommissioner of Central Excise, Meerut-I v. BisleriInternational Pvt. Ltd. - 2005 (186) E.L.T. 257 (S.C.).

3. Commnr of Customs & Excise, New Delhi vs M/sLiving Media (India) Ltd 2011-TIOL-81-SC-CUS:

Where a pre-recorded music cassette or a popular filmor musical score is imported into India, duty will necessarilyhave to be charged on the value of the final product and royaltyis to be included in assessable value if it is a condition of sale.As per Rule 9, in determining the transaction value there hasto be added to the price actually paid or payable for theimported goods, royalties and the license fees related to theimported goods that the buyer is required to pay, directly orindirectly, as a condition of sale of goods. Therefore, whenpre-recorded music cassette is imported as against the blankcassette, definitely, its value goes up in the market which isin addition to its value and therefore duty shall have to becharged on the value of the final product. Therefore, therecan be no dispute with regard to the fact that value of theroyalty paid is to be included in the transaction value.

4. CCE, Hyderabad Vs M/s Ravi Foods Ltd 2011-TIOL-966-CESTAT-BANG

With regard to refund claim filed under Rule 5 of CenvatCredit Rules, 2004, Tribunal held that when goods which are


1231231236

cleared from factory premises under ARE-1s are exportedand accepted by departmental authorities having jurisdictionover merchant exporter, there is no infirmity in impugnedorder of Appellate Commissioner directing lower authority togrant refund. Further, it was held that as regards refund ofCENVAT Credit on input services, Rule 5 of CCR read withNotification No. 5/2006-CE(NT) does not stipulate anycorrelation between inputs used and goods exported, hencethere is no infirmity in impugned order of AppellateCommissioner allowing refund.

5. Saraswati Sugar Mills Vs CCE, Delhi 2011-TIOL-73-SC-CX

In this case appellant manufactured and used captivelycertain iron and steel structures in the factory for installationof the Sugar factory and whether the said Iron and SteelStructures are components of the Capital Goods specified inthe Table below Rule 57Q of the Rules was the dispute.

Hon’ble Supreme Court held that anything which isrequired to make the goods a finished item can be describedas component parts. However, the issue for consideration, iswhether iron and steel structures can be termed as‘component parts’ as specified in Rule 57Q and in the light ofthe meaning of the expression ‘component parts’ that theiron and steel structures are not essential requirements in thesugar manufacturing unit. Anything required to make the goodsa finished item can be described as component parts. Ironand Steel structures would not go into the composition ofvacuum pans, crystallizers etc. If an article is an element inthe composition of another article made out of it, such anarticle may be described as a component of another article.Thus, structures in question do not satisfy description of‘components’. Therefore, the Tribunal was right in the viewit took and appeal filed by the appellant was dismissed.

Authors note: It could have been argued that the saidstructural are accessories, which the rules do allow credit.

6. Uniflex Cables Ltd Vs CCE, Surat 2011-TIOL-85-SC-CX

In the instant case, the Commissioner in his order-in-original had stated that the issue involved in the case is ofinterpretational nature and consequently, the Commissionerthought it fit not to impose harsh penalty. However, a penaltyof an amount of Rs. 5 lakhs was imposed on the appellantwhile confirming the demand of the duty. Considering thefact that Commissioner himself found that it is only a case ofinterpretational nature, Hon’ble Supreme Court in itsconsidered opinion held that no penalty could be and is liableto be imposed on the appellant herein. Therefore, in the factsand circumstances of the present case, penalty should nothave been imposed upon the appellant.

7. CCE vs. Sai Sahmita Storages (P) Ltd. 2011 (270)ELT 33 (AP)

In the instant case, it was held that cement and TMT

bars used by a provider of storage and warehousing servicesfor construction of warehouses were eligible for the availmentof cenvat credit considering the fact that the service couldnot be provided without the use of the impugned items.

SERVICE TAX:

1. Idea Mobile Communication Ltd Vs CCE & CC,Cochin 2011-TIOL-71-SC-ST

The appellant was selling SIM cards and was payingsales tax to the state. Appellant was also activating SIM cardsafter selling them to subscribers on a valuable considerationand paying service tax only on the activation charges. It washeld by Apex Court that Service Tax is leviable on the entiretransaction as SIM Card has no intrinsic sale value and it issupplied to the customers for providing mobile service tothem. This view is also supported by the fact that the salestax authorities have themselves conceded the position beforethe High Court that no assessment of sales tax would be madeon the sale value of the SIM Card supplied by the appellant totheir customers irrespective of the fact whether they havefiled returns and remitted tax or not. The position in law istherefore clear that the amount received by the cellulartelephone company from its subscribers towards SIM Cardwill form part of the taxable value for levy of service tax, forthe SIM Cards are never sold as goods independent fromservices provided. They are considered part and parcel ofthe services provided and the dominant position of thetransaction is to provide services and not to sell the materiali.e. SIM Cards which on its own but without the servicewould hardly have any value at all. Thus, it is establishedfrom the records and facts of this case that the value of SIMcards forms part of the activation charges as no activation ispossible without a valid functioning of SIM card and the valueof the taxable service is calculated on the gross total amountreceived by the operator from the subscribers.

Hence, it was held that even if Sales tax is wrongly paid,that would not absolve them from the responsibility ofpayment of service tax, if otherwise there is a liability to paythe same. If the article is not susceptible to tax under theSales Tax Act, the amount of tax paid by the assessee couldbe refunded as the case may be or, the assessee has to followthe law as may be applicable. Therefore, Supreme Court heldthat appeal did not have any merit and the same was dismissed.

2. Commr of Service Tax, Bangalore vs. Lincoln Helios(India) Ltd. 2011 (23) STR 112 (Kar)

Facts: The respondent in the instant case was a manufacturerand supplier of centralized lubrication system. They alsoundertook erection and commissioning at site as a part oftheir business activity. The respondent did not remit servicetax on the erection and commissioning service (introducedinto the tax net w.e.f. 01.07.2003) rendered by them for thequarter ending 30.09.2003 on the ground that it formed apart of the finished product and that they had paid the excise


1231231237

duty on the same. However, the authorities held that theywere liable to pay the service tax on the value of erection andcommissioning services

Decision: It was held that the contention of the respondentthat tax cannot be levied under two parliamentary legislationswas not tenable since the excise duty was levied on themanufacturing aspect whereas the service tax would be leviedon the service element. However, penalty was set aside undersection 80 of the Act.

3. Retailers Association Of India (RAI) Vs UoI 2011-TIOL-523-HC-MUM-ST

In the writ petition filed before High Court of Bombay,petitioners had challenged the imposition of a service tax onan activity involving renting of immovable property as beingsubstantively ultra vires the charging section. Further thelegislative competence of Parliament was questioned on theground that the tax is on renting of immovable property. Finallythe levy of a service tax on renting of immovable propertywith retrospective effect from 1 June 2007 had also beenquestioned.

Hon’ble High Court upheld the validity of levy of Servicetax on renting holding that the legislative basis that has beenadopted by Parliament in subjecting taxable services involvedin the renting of property to the charge of service tax cannotbe questioned. The assumption by a legislative body that anelement of service is involved in the renting of immovableproperty is certainly not an assumption which can be regardedby the Court as being so manifestly absurd or perverse as tolead to an inference that Parliament had treated as a service,an item which in no rational sense could be regarded asinvolving service. But more significantly, even if the Courtwere to proceed on the basis, suggested by the Petitionersthat no element of service is involved, that would not makethe legislation beyond the legislative competence of Parliament.So long as the legislation does not trench upon a field whichhas been reserved to the State legislatures, the only conclusionthat can be drawn is that the law must be treated as valid andwithin the purview of the field set apart for Parliament.

As regards the ‘retrospectivity’ of the levy, High Courtupheld the same stating that the Parliament has the plenarypower to enact legislation on the fields which are set out inList I and List III of the Seventh Schedule. The plenary powerof Parliament to legislate can extend to enacting legislationboth with prospective and with retrospective effect. Theobject of the amendment, brought about with retrospectiveeffect, is to expressly bring the legislative provision inconformity with the original parliamentary intent. The purposeand object of validating legislation is to ensure a fundamentalchange of circumstances upon which the earlier judgmentwas founded. This may be done by re-enacting retrospectivelya valid and legal taxing provision and then by a fiction makingthe tax already collected stand under the re-enacted law. Onthe basis of the above, High Court dismissed the Writ Petitions.

4. Desert Inn Ltd. Vs. CCE 2011 (23) STR 254 (Tri-Del)

Facts: The appellants in the instant case were providingservices of Mandap Keeper and paying Service Tax for thesaid activity. They were also charging a separate fee forutilising the parking space from their clients. The departmentcontended that these amounts were also includible in theassessable value.

Decision: It was held that the parking charges collected wereincludible in the assessable value since these charges werenot collected from persons who parked cars but from clientswho hired the Mandap and therefore, the services were inrelation to use of the Mandap and a necessary facility for useof Mandap.

5. Commr of ST vs. Indian Institute of Management2011 (23) STR 132 (Tri-Bang)

In the instant case, it was held that an educationalinstitution which is solely engaged in imparting education andat times facilitated recruitment on their campus throughinterviews which is incidental or ancillary to their mainobjective could not be called as a commercial concern, asthey were not engaged in trade or commerce.

Authors can be reached one-mail: [email protected]

Adv

t.


1231231238

RECENT DECISIONS OF HIGH COURTS

ON INCOME TAX

Compilation by CA. K.S. Satish, Mysore

RESIDENTIAL STATUS

In CIT v. O. Abdul Razak (2011) 241 CTR (Ker) 485 wherethe assessee left India on 24.9.1988 for doing business

abroad and was in India for 177 days during the previousyear ending on 31.3.1989, the Kerala High Court observedthat going abroad for the purpose of employment meansgoing abroad to take up employment or any avocationwhich takes in self-employment like business or professionand held that taking up own business by the assessee abroadsatisfied the condition of going abroad for the purpose ofemployment under Explanation (a) to section 6(1)(c) and thatthe assessee was a non-resident for the assessment year 1989-90.

EXEMPTION

The activities of the assessee, a public sectorundertaking of the Government of Bihar, of printing andselling text books at low rates to the students of the deprivedsections of the society are covered by the expression‘education’ occurring in section 2(15) and section10(23C)(iiiab) and, therefore, subsidy receivable by it on thesale of text books is not taxable ruled the Patna High Court inBihar State Text Book Publishing Corporation v. CIT & Anr.(2011) 241 CTR (Pat) 403.

INCOME FROM HOUSE PROPERTY

In Sheetal Khurana Foods (P) Ltd. v. ITAT & Ors.(2011) 335 ITR 1 (P & H) where the assessee-companyformed with the object of manufacturing and selling foodarticles took a plot of land on lease, constructed a buildingthereon and let out the building, the Punjab & Haryana HighCourt observed that if the business of the assessee has nothingto do with the renting of property and renting is an isolatedtransaction to earn property income, the mere fact that suchincome will result in reduction of business loss is not enoughto hold that it will fall under the head of business income andheld that the rent received by the assessee was assessable asincome from house property.

CAPITAL RECEIPT

The Calcutta High Court has in CIT v. Rasoi Ltd.(2011) 335 ITR 438 (Cal) expressed the view that the subsidyreceived by the assessee from the Government of West Bengalfor expansion of its capacity, modernisation and improvementof its marketing capabilities was for assistance on capitalaccount and, therefore, constituted a capital receipt and thatmerely because the amount of subsidy was equivalent to 90%

of the sales tax paid by the assessee, it did not imply that thesame was in the form of refund of sales tax paid.

BUSINESS EXPENDITURE

Where the assessee carrying on the business offinancing hire purchase of vehicles and homes incurredexpenditure on stamping fees and commission, the entireexpenditure was required to be allowed as businessexpenditure in the year in which it was incurred though theincome was spread over during the number of years that thefinancing is spread over as the expenditure incurred onceand for all had nothing to do with the period of length of timeand had no linkage to any period held the Delhi High Court inCIT v. Citi Financial Consumer Fin. Ltd. (2011) 335 ITR 29(Del).

CAPITAL GAINS

In CIT v. Hindustan Hotels Ltd. & Anr. (2011) 335ITR 60 (Bom) where the assessee whose main object was toestablish and run hotels took on perpetual lease a plot of landon 17.3.1988, undertook construction of a hotel buildingthereon between 1990 & 1995 and sold the propertyconsisting of land and partly constructed building during June1995, the capital gains arising from sale of the leasehold rightsin land and the incomplete building have to be bifurcated andthe gains attributable to the sale of leasehold rights constitutedlong-term capital gain held the Bombay High Court.

INCOME FROM OTHER SOURCES

The Delhi High Court in CIT v. Taj InternationalJewellers (2011) 335 ITR 144 (Del) where the assessee, anexporter of jewellery, taking advantage of the Import & ExportPolicy of the Government of India and the lower interest rateoutside India payable at the London Interbank Offered Rate,borrowed money from bank and converted it into fixeddeposits and offered for taxation the interest from fixeddeposits as reduced by the interest paid to the bank onborrowings under the head ‘Income from other sources’,took the view that the interest paid by the assessee to thebank on loans borrowed was deductible under section 57(iii)as there was a clear nexus and intimate connection betweenthe receipt and payment of interest.

DEDUCTION UNDER SECTION 57(iii)

Where the bank on the request of the assesseetransferred amounts from the cash credit/packing creditaccount to fixed deposit account and the certificate issuedby the bank stated that it had extended credit facility to procure


1231231239

raw materials and not granted any advances to the assesseefor the specific purpose of making fixed deposits, thetransaction could not be taken as loan borrowed by theassessee from the bank to make fixed deposits as the transferby the bank were not from borrowed funds but from exportproceeds credited in the packing credit account and, therefore,interest paid on loan borrowed for making fixed depositsclaimed as a deduction under section 57(iii) by the assesseewas not allowable held the Kerala High Court in CIT v.Dhanalakshmi Weaving Works (2011) 241 CTR (Ker) 285.

REASSESSMENT

In CIT v. S.M. Overseas P. Ltd. (2011) 335 ITR 281(P & H) where the Assessing Officer issued an Intimationunder section 143(1)(a) for the assessment year 1995-96 on18.9.1996, initiated proceedings to rectify the said Intimationby issue of a notice under section 154 on 23.1.2002 thoughthe time limit to pass an order under section 154 expired on31.3.2001 and issued a notice under section 148 on 22.3.2002,there was no bar for the Assessing Officer to initiatereassessment proceedings under section 147 since the noticeissued under section 154 was barred by limitation opined thePunjab & Haryana High Court.

APPEAL

The Punjab & Haryana High Court has in CIT v. JindCo-operative Sugar Mills Ltd. (2011) 335 ITR 43 (P & H)expressed the view that when additional evidence is furnishedbefore the Commissioner (Appeals), the matter need not beremanded to the Assessing Officer and that in an appropriatecase, without any prejudice to either of the parties, theCommissioner (Appeals) can himself look into such evidence.

PENALTY

In CIT v. H.P. State Forest Corporation Ltd. (2011)241 CTR (HP) 413 where the facts were that the assessee, aGovernment company, engaged in the business of extraction

of timber & resin from forests had deducted Rs. 2,12,18,295from the value of closing stock on account of deteriorationof old timber on estimate basis pursuant to the reports sentby its divisional managers, showed the reduced value ofclosing stock in its balance sheet as at 31.3.1987, the Boardof Directors of the assessee-company on 22.8.1990 passed aresolution to reduce the value of closing stock as on 31.3.1987,the Assessing Officer did not accept the value of closing stockadopted by the assessee and made addition of Rs. 2,12,18,295which was upheld by the Commissioner (Appeals) and theTribunal, the Himachal Pradesh High Court took note of thefact that the accounts of the assessee were duly audited andthe Comptroller & Auditor General of India had approved theaccounts of the assessee and held that penalty under section271(1)(c) could not be levied on the assessee merely becausethe Revenue had not accepted the claim of the assessee withregard to estimation of the value of depreciated stocks sincethe claim of the assessee that timber had rotted anddeteriorated was not found to be false and it was not the caseof anybody that the assessee had fudged the books ofaccounts or tried to create false evidence.

TAX DEDUCTION AT SOURCE

In CIT v. Cargill Global Trading P. Ltd. (2011) 335ITR 94 (Del) where the assessee, an exporter of goods,discounted bills of exchange drawn on buyers located outsideIndia and received discounted amounts, the Delhi High Courtopined that the assessee had merely discounted the saleconsideration, that the discount charges paid were not inrespect of any debt incurred or money borrowed, that thediscount charges did not constitute interest and that theassessee was not liable to deduct tax at source on discountingcharges.



12312312310

TAXABILITY OF REIMBURSEMENTS UNDER

SERVICE TAX

CA Rajesh Kumar TR and CA Roopa Nayak M.

Introduction:

Valuation of the service is one of the important aspects asto computation/assessment of service tax for any service

tax assessee. Within the valuation of taxable services, conceptof re-imbursement is one which is a matter of dispute sincebeginning of service tax law. In this article some of conceptsas to taxing of reimbursements and issues relating thereto arediscussed.

What is meant by reimbursement of expenses?

The Term reimbursement is not defined in the FinanceAct, 1994 or Central Excise Act, 1944. That being a case itwould be relevant to consider the definition as per commonunderstanding. As per Black’s Law Dictionary, 7th Edition,the term ‘reimbursement’ means “1. Repayment. 2.Indemnification.” Further the term ‘Indemnification’ means“1. The action of compensating for loss or damage sustainaed.2. Compensation so made.” Further as per Random HouseWebsters Unabridged Dictionary it means “To make repaymentto for expense or loss incurred; to payback; refund; repay”.

If we adopt the said meanings to the present context ofservice tax, the term re-imbursements means, firstly there isan obligation upon the service recipient to provide certaingoods or services or facilitate the service provider in agreedmanner to enable the service provider provide the agreedservices. Instead of service recipient providing or facilitatingasks the service provider to arrange for such goods or servicesor facilities on behalf of service recipient for which the servicerecipient would indemnify or repay or compensate such lossto the service provider.

In other words it is obligation of the service receivermet by service provider which is compensated/repaid/indemnified can be called as reimbursement.

Scope of Section 67 prior to amendment and afteramendment made to section 67 on 18.04.2006.

Though there are some important changes made in thevaluation provision i.e. Section 67 on 18.04.2006, the essenceof the provision remains the same i.e. “gross amount chargedby the service provider for such service”

One important changes which brought out from the saiddate is that by virtue of Section 67 (4), subject to the

In this article we look at some of the issues in service tax as to includability of reimbursement charges received by aprovider of taxable service in the calculation of gross amount for discharging Service Tax. The article aims at discussingissues on the basis of paper writers’ experience.

provisions of Section 67(1), 67(2) and 67(3), the value fortaxable services shall be determined in such manner as isprescribed in Service Tax (Determination of Value) Rules,2006.

Now the question arises whether the provisions set outin Service Tax (Determination of Value) Rules, 2006 can gobeyond the provisions of Sub-Sections (1),(2) & (3) ofSection 67 which all speak only about gross amount chargedfor such i.e. taxable service. There is no deeming fictioncreated in Section 67 to say all the cost and expenditureincurred by the service provider in the course of providingservices should be included in the term consideration.Therefore in view of the paper writers, the Rule cannotoverride the Act. Therefore without there being a provisionto include all such costs and expenditure in the meaning ofthe term ‘consideration’ the Rule cannot so set out.

However this has to be questioned in the court of lawand not before the statutory authority where statutory authorityhas to follow the provisions and cannot question the validityof the law disregard unless there is court’s direction to thateffect.

In this paper we proceed with the proposition that therules are valid as it is not challenged and no decision is renderedas on date setting aside the said provisions of Rules.

Whether re-imbursements are includable within thevalue of taxable services prior to 18.04.2006

As explained above the essence of the provisions ofSection 67 remains the same, though some additional aspectswere added w.e.f. 18.04.2006. Prior to amendment, therewere number of circulars issued in the context some of theextracts are as follows:

a. Circular No.43/1/97 dt 6.6.1997: The value ofCustoms House Agent Service and Steamer agentService did not include several expenses incurred onaccount of exporter/importer.

b. Circular No. B11/1/1998 TRU dt 7.10.1998: In thecontext of value of market research agency service,and security agency services, the expenses incurredon traveling, boarding and lodging which arereimbursed are not to be included in the value oftaxable service.


12312312311

c. Circular No. 343/5/97 dt 2.7.1997: Value ofconsulting engineering service and manpowerrecruitment service did not include amount incurredon behalf of client and reimbursed on actual basis.

d. Trade notice No 5/98 dated 13.10.1998 issued bythe Commissioner (Appeals) Mumbai: It wasclarified that out of pocket expense was not subjectedto service tax.

e. Letter issued by Directorate of Service tax in F.NoV/DGST/Misc-7/98/Mumbai dated 11th Feb 1999:This clarified that out of pocket expense are deductablefor the purpose of payment of service tax.

f. Extract from F.No B.11/3/98-TRU dated 07.10.1998:As regards charges billed to the client on account ofout of pocket expense is concerned, the same are notsubjected to service tax.

But it is relevant to note what is clarified is a position oflaw. But what is reimbursement is a question of fact supportedby sufficient documentary evidence. As discussed above thereshould be an obligation upon the service recipient to incur theexpenditure or costs, which is paid by the service providerand claimed back as reimbursement. Further there shouldnot be any profit element in claiming the same. In such casesthe same could have been kept out from the taxable value.

To illustrate, a chartered accountant is appointed asauditor of a company where the company in the letter ofengagement clearly says that they would provide the travelling,boarding and lodging and if any incurred by the CharteredAccountant, the same would be reimbursed by the Company.In such cases if Chartered Accountant pays such amountsand claims it back from the company, it is clear that thisamount is reimbursement. On the other hand if the fees agreedis consolidated including travelling, boarding and lodging, thenit cannot be said that the traveling, boarding or lodging wasreimbursement and claim exclusion.

Whether re-imbursements are includable within thevalue of taxable services after to 18.04.2006

After 18.04.2006, the centre of dispute lies withintroduction of Rule 5 of the Service Tax (Determination ofValue) Rules, 2006, wherein it says “any expenditure or costsare incurred by the service provider in the course of providingtaxable service, all such expenditure or costs shall be treatedas consideration for the taxable service provided or to beprovided and shall be included in the value for the purpose ofcharging service tax on the said service.”

The primary aspect to be examined is when serviceprovider is paying any amount on behalf of servicereceiver, can it be said that service provider has incurred“Expenditure” or “Cost”. In view of paper writers, thereis a possibility to argue that such amounts paid on behalfof service receiver cannot be considered as either costor expenditure. The same would be a capital expenditure

as it is current asset recoverable from the service receiverand not a revenue item.

Also it is relevant to note that if the same payments aremade by the service recipients, it is expenditure or costs bythem but not cost or expenditure for the service provider.But if the said amount is paid by the service recipient, thesame would not become part of taxable value (as there is nospecific provision for the same). Therefore for the sameservice there cannot be different value merely by the factthat the person paying for the same is different. However theabove arguments are subject to judicial scrutiny and are yetto conclude in judicial forum.

Without getting into legal entangles, if the assessee wantsto comply with the provisions, then as per the presentinterpretation being placed by the revenue authorities, allamounts collected by the service provider from the servicereceiver is subject matter of service tax except in case wherethe amounts are received as pure agent and fulfill the specifiedconditions. Accordingly the service tax has to be chargedincluding the amounts collected as reimbursements unless itcan be established that such amounts are received as pureagent and also fulfill the specified conditions.

What is the concept of Pure Agent

As per Explanation (1) to Rule 5(2) of Service Tax(Determination of Value) Rules 2006, pure agent means aperson who-

i. Enters into a contractual agreement with the recipientof service to act as his pure agent to incur expenditureor costs in the course of providing taxable service

ii. Neither intends to hold nor holds any title to the goodsor services so procured or provided as pure agent ofthe recipient of service

iii. Does not use such goods or services so procured and

iv. Receives only the actual amount incurred to procuresuch goods or services

From the above provision it can be seen practically therewill be difficulty in fulfilling the above conditions. As ansample it is explained as follows:

a. There may not be written agreement in most of thecases. Even if there is one, it will not be so specificto mention this aspect.

b. Title to goods can be understood. But title to servicesis very difficult. For example, if a charteredAccountant is travelling for auditing by train, whetherhe holds the title to such service or the client holdsthe title to such service.

c. Further if the invoice for the goods are services arein the name of service provider, then the title can besaid to have been held by the service provider and thecondition is violated. (Contd. on Page 14)


12312312312

RELEVANT JUDICIAL CASES UNDER

KARNATAKA VAT LAW

CA G. B. Srikanth Acharaya and CA Annapurna Kabra

I) ESSAR TELECOM INFRASTRUCTURE PRIVATELIMITED BANGALORE VS UNION OF INDIA ANDOTHERS 2011(71) KAR.L.J.109 (HC)

Whether a transaction of letting out cellular telephonytowers on rent is deemed to be sale liable to tax?

The Appellant contended that the letting out towers toproviders of cellular telephone service is not involving

any sale of goods and therefore they had registered themselvesas service provider under service tax law and are payingservice tax on the above transaction.

The Respondent held that transaction of letting out cellulartelephony towers on rent to various service providers oftelephone service is held to be deemed sale. There is transferof right to use goods. Therefore the rental receipts receivedis exigible to levy of tax u/s 4(1) (b) under the KVAT Act. Thecellular telephony towers are goods and not immovableproperty. The telephony tower is fabricated steel structuresheltering DG sets, Air conditioners, Rectifiers, Voltagestabilizers, D.C.Converters, Fire extinguishers etc. which canbe dismantled and relocated. Even with regard to theagreements entered into the nature of transactions, theeffective control is with the appellant and the component ofdelivery, maintenance and overall control is also with theappellant. Therefore it would be specifically said that thatright to use the goods has been transferred by the appellantto the telecom companies and will fall within Article 366(29-A) (d) of the Constitution. Also the appellant was registeredunder the service tax law, it was held that imposition of interestand penalty is not justifiable in the interest of equity and justice.Hence letting out such towers on rental basis can beconsidered as transfer of right to use goods and liable to levyof tax as deemed sale under the Karnataka Value Added TaxLaw. The above order was passed by single bench. As ondate the matter is pending before the division bench and thepronouncement of order is awaited.

II) BHARTHI AIRTEL LIMITED FORMELY KNOWNAS BHARTHI TELENET LIMITED BANGALORE V/SSTATE OF KARNATAKA AND OTHERS2011(71).KAR.L.J.241(HC)(DB)

Whether artificially created light energy used as a carrierare goods or not and liable to VAT or not?

The Appellant contended that the artificially created lightenergy is obtained by converting electrical energy by usinglight emitting Diodes (LED) or Laser Device (LD). This lightenergy so created is mixed, modulated with date/informationand transmitted through optical fiber cables (OFC) for

delivering of data/information at the desired destination.Further, the light energy gets disported completely. The lightenergy is used only as a carrier. It is one form ofelectromagnetic waves. The electromagnetic waves are heldto be not goods as defined in the sales tax law of States.There are certain essential tests to be satisfied before anymaterial commodity or article can be considered as “goods”.It should be capable of being abstracted, possessed, andtransferred delivered and stored. It should have distinct nameidentity and use and must be marketable. The artificiallycreated light energy used as a carrier does not satisfy thetests and hence cannot be considered as goods. For examplethis energy cannot be abstracted. It is observed that“Abstraction” means taking or appropriating smaller quantityfrom bigger quantity or bulk.

For any transaction to be a “sale or purchase” thereshould be agreement express or implied to transfer goods forprice and the property should pass in pursuance of theagreement. The persons engaged in providing internet serviceto his customers in terms of agreement entered into underthe license obtained under telegraph Act from Government ofTaxes cannot be said to be engaged in selling of any goods tohis customers. This contract is a contract of service simplicitorand it is indivisible contract involving no element of sale.

The State Government erred in imposing tax on thereceipts relating to service provided to the customers, as salesimpliciter is sale of “artificially created light energy”.Therefore, it is held that tax demanded, interest levied andpenalty imposed is without authority of law and that the serviceprovided under contract is covered by section 65(109-a) ofFinance Act and that no part of it constitute a sale.

Further, the Hon’ble High Court also maintained that thewrit petition under Article 226 and 227 can be admitted inspiteof availability of alternative remedy, where tax is demandedis wholly without authority of law and in deliberate defianceof law declared by Supreme Court. It is wholly unjustified torelegate the aggrieved party to remedy of statutory appeal,more so where all materials required to take a decision arealready on record. As a recommendation, the Hon’ble HighCourt suggested for constitution of authority at national levelto decide such disputes regarding tax that a particulartransaction attracts as to whether service tax or sales tax.Therefore in the above case the artificially created light energyused as a carrier are not goods and not liable to VAT.

Authors can be reached one-mail: [email protected]


12312312313

The people of India wait for Jan Lokpal to curb thecancerous growth of corruption. The pillaging of public

money by a section of politicians in collusion with the willingaccomplices in bureaucracy is widening the inequalities andimpeding the economic growth. It has ruined the moral fabricof our society unscrupulously over the decades. It is a humbleold man from a village at last rose in defiance of the empire ofthe corrupt! He along with his team presented the Jan Lokpalwith a huge support from people all over the country. It wasnone other than Anna Hazare from an nondescript villageRalegaon Siddi of Maharashtra who made a moribund andcallous state to come to terms accepting the three majordemands of the Jan lokpal that of Citizens Charter,Appointment of Lokyuktas in states and bringing Lowerbureaucracy under Lokpal. But people still suspect thesincerity of the present government and waits for its actionon this issue for obvious reasons. It is quite interesting tonote the contrast between the Lokpal bill sponsored by thegovernment and that of Jan Lokpal bill presented to theparliament by Civil Society members led by Sri Anna Hazare.It is a battle between the people’s aspirations and a statesteeped in squandering the public money mired withinnumerable scams.

Jan Lokpal Bill

It is drafted keeping people’s aspirations as prime concernby sri. Santosh Hegde former supreme court judge and formerLokayukta of Karnataka, Sri. Prashanth Bhushan eminentlawyer well known for public interest litigations andSri.Aravind Kejariwal a relentless social activist and formerIRS officer. The draft bill envisages a system where a corruptperson found guilty would go to jail within 2 years of thecomplaint being made and his ill gotten wealth beingconfiscated. It also seeks power to the Jan Lokpal to prosecutepoliticians and bureaucrats without Government permission.

The main features of the bill can be summed up as :

♦ An institution called Lokpal at the centre and Lokayuktain each state will be setup.

♦ Like Supreme Court and election commission they willbe completely independent of the governments. Noministers or Bureaucrats will be able to influence theinvestigation.

♦ Cases against corrupt people will not linger on foryears any more. Investigating in any case will have tobe completed in one year. Trial should be completedin next one year so that the corrupt politician, officeror judge is sent to jail within 2 years

JANLOKPALPEOPLE’S ANGER AND A CALLOUS STATE

Ravindra Desai, B.Sc., LLB, Advocate

♦ The loss that corrupt person caused to the governmentwill be recovered at the time of the conviction

If any work of any citizen is not done in prescribed timein any government office , Lokpal will impose financial penaltyon guilty officers, which will be given as compensation tothe complainant.

So, you could approach Lokpal, if your ration card orpassport or voter card is not being made or police is notregistering your case or any other work is not being done inprescribed time. You could also report any case of corruptionto Lokpal like ration being siphoned off, poor quality road beingconstructed or Panchayat funds being siphoned off. Lokpalwill have to complete its investigations in a year, trial will beover in next one year and guilty will go to jail within two years

But what if the government appoints corrupt and weakpeople as Lokpal members? That won’t be possible becauseits members will be selected by judges, citizens andconstitutional authorities not by politicians, through a completetransparent and participatory process.

What if some officer in Lokpal becomes corrupt? Theentire functioning of Lokpal or Lokayukta will be completelytransparent, any complaint against any offices in Lokayuktashall be investigated and the officer will be dismissed withintwo months, if found guilty.

What will happen to the existing anti-corruption agencies?Central Vigilance Commission, Departmental Vigilance and anti-corruption branch of CBI will be merged in to Lokpal. Lokpalwill have complete powers and machinery to independentlyinvestigate and prosecute any officer, judge or politician.

It will be the duty of the Lokpal to provide protection tothose who are being victimized for raising their voice againstcorruption. According to civil society the Lokpal shouldessentially be a fact-finding body that receives complaints,enquires, investigates and forward cases to special courtwhere prima facie there is a case of corruption for prosecutionand punishment in time bound manner. It should have powersto recommend an enquiry and investigation suo moto. Itshould oversee the entire machinery related to corruption casesat the central level. Finally it should have the powers torecommend executive action and to approach court whenthese are not accepted.

The Lokpal should have quasi-judicial powers andautonomy to fulfill these functions in an independent,accountable, transparent and time bound manner. Theseparation of powers between legislature, executive andjudiciary is the part of the basic structure of the constitution.


12312312314

The institution of Lokpal should conform to this basicstructure.

The Lokapl will also perform the function of grievanceredressal in the form of framing citizens’ charter etc.

The Lokpal Act should lay down an objective andtransparent criteria such as competency, experience,qualification etc, for the selection of the candidates for theappointment of Lokpal.The selection committee should bebroad-based consisting of members of the executive, leadersof the parliament, members of the higher judiciary ,juristsand academicians. The search committee constituted by theselection committee should also be the broad- based. Apartfrom the chairperson there should be 10 members in theLokapal. Out off these four shall be judicial members, threecan be persons with administrative and civil servicebackgrounds and other three should be drawn from fieldssuch as law, academics and social service. There should beno member drawn from commerce and industries just as therecan be no politician.

The prime Minister should be brought under thepurview of the Lokapal with adequate safeguards. The office

of the prime-minister along with all public servants broughtunder the purview of Lokapal by the V.P.Singh Governmentin1989 and in all subsequent draft legislations.

The Judiciary too needs to be brought under scrutinyand made more accountable, and the stringent requirementof prior permission and sanction from the Chief Justice tofile FIRs and investigate corruption charges has resulted in ade facto immunity to them.

The Lok Ayukthas set up on the line of Lokapal shouldbring all state government employees , local body’s and satecorporations under their purview.

If you compare these basic features of the Jan Lokpalbill with that of the Government version of the Lokpal, itturns out to be a toothless caricature which doesn’t bite thecorrupt and makes a farce of an Ombudsman. In fact theugly episode of arrest of Sri Anna Hazare and the behaviorof the entire political class during those twelve memorabledays of indefinite fast, had made them suspect of their realintentions in the eyes of people. Time alone will reveal thetrue colour of the stakeholders of politics in our country inthe days to come.

d. The usage condition is again would create lot ofdifficulty. In the same example above the travellingservices is being used by the Chartered Accountant.Similarly when a stay in hotel the services are beingused by the Chartered Accountant. Therefore thecondition is violated.

What are the additional conditions which are to befulfilled by the pure agent.

As per Rule 5(2) of Service Tax Determination of ValueRules, 2006 following are the additional conditions which arerequired to be fulfilled to claim exclusion from the taxablevalue.-

i. Service provider to act as a pure agent of the recipientof service while making payment to third party for thegoods or services procured

ii. Service receiver to receive and use the goods orservices procured by the service provider on hisbehalf

iii. Service receiver to be liable to make payment to thethird party

iv. Service receiver to authorise the service provider tomake payment on his behalf

v. Service receiver to know that the goods and services,for which payment has been made by the serviceprovider, shall be provided by the third party

vi. The payment made by the service provider on behalfof the recipient of service is to be separately indicatedin the invoice issued by the service provider to therecipient of service

vii. The service provider recovers from the recipient ofservice only such amount as has been paid by him tothe third party

viii. The goods or services procured by the serviceprovider from the third party as a pure agent of therecipient of service are in addition to the services heprovides on his own account

Again as can be seen from the above conditions,practically it is difficult to fulfill all the above conditionssimultaneously. If one of the conditions is not fulfilled, thenthe benefit of exclusion is not available.

Any person who is willing to claim the benefit of theabove exclusion as a pure agent, then it is advisable to haveappropriate documentation to establish all the factorsmentioned above.

In this article the paper writers has tried to delve intosome of the basic concepts in the relation to valuation ofreimbursements. In case readers happen to have any specificqueries, they may contact the paper writer on

[email protected]@hiregange.com

(Contd. from Page 11)

TAXABILITY OF REIMBURSEMENTS

UNDER SERVICE TAX


12312312315

I. Section 50C:

1. Where the consideration received or accruing as aresult of the transfer by an assessee of a capital asset,being land or building or both, is less than the valueadopted or assessed [or assessable] by any authorityof a State Government (hereafter in this sectionreferred to as the “stamp valuation authority”) for thepurpose of payment of stamp duty in respect of suchtransfer, the value so adopted or assessed [orassessable] shall, for the purposes of section 48, bedeemed to be the full value of the considerationreceived or accruing as a result of such transfer.

2. Without prejudice to the provisions of sub-section (1),where

a. the assessee claims before any Assessing Officer thatthe value adopted or assessed ‘[or assessable] by thestamp valuation authority under sub-section (1)exceeds the fair market value of the property as onthe date of transfer;

b. the value so adopted or assessed ‘[or assessable] bythe stamp valuation authority under sub-section (1)has not been disputed in any appeal or revision or noreference has been made before any other authority,court or the High Court,

the Assessing Officer may refer the valuation of thecapital asset to a Valuation Officer and where any suchreference is made, the provisions of sub-sections (2),(3), (4), (5) and (6) of section 16A, clause (i) ofsubsection (1) and Sub-sections (6) and (7) of section23A, Sub-section (5) of section 24, section 34AA,section 35 and section 37 of the Wealth-tax Act, 1957,shall, with necessary modifications, apply in suchreference as they apply in relation to a reference madeby the Assessing Officer under sub-section (1) ofsection 16A of that Act.

Explanation 1:

For the purposes of this section, “Valuation Officer”shall have the same meaning as in clause (r) of section2 of the Wealth-tax Act, 1957.

Explanation 2:

For the purposes of this section, the expression“assessable” means the price which the stampvaluation authority would have, notwithstandinganything to the contrary contained in any other lawfor the time being in force, adopted or assessed, if it

SEC.50C – INCOME TAX ACT FEW ISSUES

RELEVANT STATUTORY PROVISIONS

CA R. Muralidharan, B.Com., F.C.A., Erode

were referred to such authority for the purpose of thepayment of stamp duty.

3. Subject to the provisions contained in sub section (2),where the value ascertained under sub-section (2)exceeds the value adopted or assessed [or assessable)by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed [orassessable] by such authority shall be taken as the fullvalue of the consideration received or accruing as aresult of the transfer.

Judicial decisions:

1. Section 50C is not applicable where the asset is heldas stock-in-trade. [Inderlok Hotels Pvt. Ltd. V ITO(2009) 318 ITR (AT) 234 (Mum)].

2. Section 50C providing for deeming the value forstamp duty purposes as full value of consideration isapplicable only for capital assets and not for businessassets. [CIT v Thiruvengadam Investments pvt. Ltd.(2010) 320 ITR 345 (Mad)].

3. Section 50C comes into play only when there isvaluation at a higher value for stamp valuationpurposes by the State Authority than declared byassessee in sale deed.

In a case when the stamp valuation authority hasaccepted the consideration declared by the assesseein the sale deed, there is no question of once againreferring the matter to Departmental Valuation Officer(DVO) under section 50C. [Punjab Poly Jute Corpn.v ACIT (2009) 120 ITD 233 (ASR).

4. It is mandatory on the part of the Assessing officerto make reference to valuation officer as per provisionsof section 50C where the assessee contended thatvaluation is not acceptable. [Kalpataru Industries vITO ITAT No. 5540/Mum/2007 decided on 24-8-2009].

(5) If the assessee is of the opinion that the valuation fixedby the registering authority is higher, the assessee canrequest the Assessing Officer to refer the matter tothe Departmental valuation officer. The Tribunal heldthat the Assessing Officer is bound to refer the matterto the valuation officer. The matter was set aside toAssessing Officer to refer the matter to Departmentalvaluation officer. [B. N. Properties Holdings P. Ltd.v ACIT (2010) 6 ITR I (Chennai) (Trib)]

6. Assessment order passed by Assessing Officer


12312312316

accepting stamp duty value without waiting for reportof DVO is liable to be set aside. [N. Meenakshi vACIT (2009) 30 DTR I (Mad).

7. Clauses (a) and clause (b) of the sub-section (2) ofsection 50C are in continuation to each other and,therefore, condition laid down in both the clauses arerequired to be satisfied together – AO has to refer thevaluation to the DVO for determining the fair marketvalue if the property under transfer is less SVA beforeappellate authorities under-stamp Duty Act. [Mohd.Shoib v Dy. CIT (2009) 29 DTR 306 (Lucknow “B”)]

Where valuation can be referred to the Valuation Officer[Section 50C(2)]

If the following conditions are satisfied, the AssessingOfficer may refer the valuation of the relevant asset to aValuation Officer in accordance with section 55A of theIncome-tax Act:

i. Where the assessee claims before the AssessingOfficer that the value adopted or assessed by thestamp valuation authority exceeds the fair marketvalue of the property as on the date of transfer; and

ii. the value so adopted or assessed by stamp valuationauthority has not been disputed, in any appeal orrevision or reference before any authority or Court.

Consequences where the value is determined by theValuation Officer:

If the fair market value determined by the ValuationOfficer is less than the value adopted for stamp duty purpose,the Assessing Officer may take such fair market value to bethe full value of consideration. However, as per section50C(3), if the fair market value determined by the ValuationOfficer is more than the value adopted or assessed for stampduty purposes, the Assessing Officer shall not adopt suchfair market value and will take the full value of considerationto be the value adopted or assessed for stamp duty purposes.

As per section 50C(3) where the valuation made by theDepartmental Officer is higher, then the valuation by the stampvaluation authority will be adopted for the sale considerationdeclared but where the valuation made by the DepartmentValuation Officer is less than the valuation made by the stampvaluation authority, then he may adopt such fair market valueto be full value of consideration. [Jitendra Mohan Saxena v

ITO (2008) 305 ITR (AT) 62 (Lucknow)].

Re-computation of capital gain in case the considerationis revised in any appeal, revision, etc. [Section 155(15)]:

If the value adopted or assessed for stamp duty purposesis subsequently revised in any appeal, revision or reference,the assessment made shall be amended to recompute the capitalgains by taking the revised value as the full value ofconsideration and the provision of section 154 (relating torectification of mistake) shall apply thereto. Further for thispurpose, the period of 4 years shall be reckoned from theend of the previous year in which such order revising thevalue was passed in the appeal/revision/reference.

Will Section 50C be applicable if there is compulsorysale:

In fact, in matters of compulsory sale like court sale, thequestion of applicability of section 50C may itself not bepossible even.

Will section 50C be applicable in case of developmentagreement:

A development agreement is not an agreement for sale,because it is an executory contract with the developer, whois not the intended purchaser, so that a suit for specificperformance should not ordinarily lie on the basis of adevelopment agreement, which is essentially a businesscontract.

Slump sale vis-a-vis section 50C:

The above provisions should override section 50C. Atany rate, it stands to reason that notwithstanding section 50C,guidelines value will have to be ignored as it will have norelevance in computation of capital gains on transfer ofbusiness as a whole.

Will section 50C be applicable in case of transfer as persection 53A of Transfer of Property Act:

Section 50C is applicable only when the transaction ofsale is registered with stamp duty valuation authority. It isnot applicable when possession of movable property is givenalongwith with certain documents like agreement to sell,power of attorney, etc. and the payment is made or promisedto be made.


When a person with experience meets a person with money,

the person with experience gets the money

and the person with money gets the experience.


12312312317

There isn’t a soul in the world who does not want tosucceed. And most of us believe,and rightly so, that to

succeed in life, we need power. Most often people relate thispower to money, wealth, possessions, control.

However, if one really digs deep enough, we realise thatwhat we need to have is power over people. This articlediscusses how each of us can be a source of power for yourselfand others. This power enables you to network moreeffectively, efficiently and yes, become more successful.These power principles, are discussed over two series.

These power principles are enumerated as below:

1. The Power of the Boomerang

2. The Power of the Web

3. The Power of Pat’s Push

4. The Power of Quality Connections,

5. The Power of Listening

6. The Power of Thinking Big

1. The Power of the BoomerangA boomerang always comes back because that is the

design of the instrument. In the same way, what you givealways comes back in some form because that is the designof the law of giving.

However, the only way the boomerang can return is ifsomeone first takes action and throws the boomerang. Givingis a powerful way to activate your network, because humannature inherently provides the desire to respond in kind.

Get your “giving power” into action. Pass along supportand information to others. Then all you have to do is watchout for that boomerang and catch it on its return.

Ask yourself, do you give enough? Obviously, we arenot talking only of money. We are talking of your giving oftime, attention, care, concern, enthusiasm, support. Each actof giving will bring it back ten fold, yet, you have to start theprocess.

Of course, you might be thinking, I don’t know what Ican give. Let people ask me, then I can think about it and if Ican, then I can give. Yet, that is not the way it works in life.You have to figure out, what you can give. And the personsyou can give it to. And then only the magic begins.

So, sit down and ask yourself, honestly, hand on yourheart.

In what ways could I be more giving and supportive?

In what personal relationships could I be more giving?

In which professional relationships could I be moregiving?

Inspiration will always sing. Inspiration will never explain.

INVOKE THE “POWER PRINCIPLES”CA Roopa Venkatesh

Who can I call and ask “What do you need” or “howcan I help you?”

And I am sure you can come with answers like “I shouldhave given more attention to my staff member, who wastalking about some problem”. Or I should have given moretime to the project, and it would have worked, Or I shouldhave given more care to my family, without being distracted.Often you would realise that it might mean only a couple ofminutes. But tell, me what is the worth of life, if you cannotspare a few minutes in conversation with another human being!!

Maybe you realise you need to “give” more time to yourson/daughter. Set up time for yourself. Will yourself to comehome early at least 3 days a week, so you can spend timewith your child. Indulge in activities, which bring pleasure toboth. They say the best sound in the world is of a child laughing– the happy, throaty, nothing-held-back laugh only childrencan laugh. Enjoy it, life comes but once. And more importantly,your happiness gets translated into better efficacy at work aswell. The happier you are the luckier you get.

A reporter once asked a farmer to divulge the secretbehind his corn, which won the state fair contest yearafter year.

The farmer confessed it was all because he shared hisseed with his neighbors. “Why do you share your bestseed corn with your neighbors when you’re enteringthe same contest each year as well?” asked the reporter.

“Why sir,” said the farmer, “didn’t you know? Thewind picks up pollen from the ripening corn and swirlsit from field to field. If my neighbors grew inferiorcorn, cross-pollination would steadily degrade thequality of my corn. If I am to grow good corn, I musthelp my neighbor do the same.”

And so it is with other situations in our lives. Those whowant to be successful must help their neighbors, friends, andrelatives to be successful. Those who choose to live wellmust help others live well, for the value of a life is measuredby the lives it touches. And those who choose to be happymust help others find happiness, for the welfare of each isbound up with the welfare of all.

2. The Power of the Web

We live in a world of extra-ordinary relationships – aweb of human interfaces. Today’s activities, expectations andprofessions are so complex, that it is not often that just oneperson can do a decent size activity from start to finish. Evenif you can, you will find that it might be efficient and morefun to do it with others.


12312312318

Man often tends to take the path of least resistance. Asyou think you have control over yourself and your time, youtake on everything and say “I can do it” or “I will do it”.Great. But doing it with others is greater. Why? Many reasons.

a. Because two heads are better than one.

b. Because when you share, you often do a better job.

c. Because your problems are also shared, so there issomeone to talk to/brainstorm, help and yes sometimesblame!

d. Because, man is a social animal, who is more efficientwithin a team, as opposed to working alone.(remember, primitive man learnt long ago that huntingin groups meant that there was a better chance ofcatching the game!)

Make a powerful and mature shift from the mental stateof

“I can do this on my own”

to

“I honor the power and results that are accomplishedfrom working effectively with others.”

Expand your thinking beyond yourself—the “I can do iton my own” mentality limits your outreach and effectivenessas a net worker.

Many of us need to retrain ourselves to think positivelyabout interdependence. Think of yourself as a multi-dimensional entity of resources and contacts. Who you areconsists of all of your life experiences and the people whoinfluence who you are as a person. You are larger than whatyou see in your mirror. You are a culmination of connectionsthat provide an unlimited source of knowledge andopportunities.

Once God called both the angels and devils for dinnerand offered to serve them with divine nectar, drinkingof which would make them immortal. Both the angelsand devils were confused as to why God had inviteddevils for such a treat.

On the assigned day, both the groups went to meetGod. God said, “all of you can take and drink of thedivine nectar, but on one condition - you should notbend the elbow while drinking.

The devils tried their best but did not succeed. CursingGod, they left.

The angels on the other hand had no problem. One ofthem took the nectar and gave it to the other. Thusthey mutually fed each other, without bending theirelbow and hence became immortal.

So, often it is only about readjusting our thinking toinclude others so that we may succeed.

Independent To Interdependent

They probably don’t I call on people in such ahave the time way that respects their time

I can do this myself I work efficiently andeffectively with people.

Only I know what needs I run my ideas by other toto be done….. confirm my thinking

I don’t like to bother I acknowledge others bypeople asking and including them

I don’t know them well I will expand my networkenough to call/ ask by calling people

They probably don’t I’ll never know if I don’t askknow anyone

3. The Power of Pat’s Push

Praise is a strange thing. It is a great motivator of humankind. Fear of punishment is a great pusher too, but praise isfar more effective.

Obviously we are not talking of idle praise. But remember,praise is as much for actions completed as it is forforthcoming activity. A kind word, a sincere word of thanksmean much more than financial help will ever do.

So use this tool, but caution. Sincerity is the key. Emptywords of praise are very easy to pick up. But sincerity has adefinitive ring to it.

Not convinced? Convince yourself with this exercise.

Pat’s push exercise:

You may do this exercise to prove to your team and toyour self that positive feedback is always more effective thannegative feedback………..though both are supposed toaccomplish the same.

Select a team of about 30 people. Send two personsfrom the group outside. Then decide that there is oneitem, call it “IT” which they need to locate (a certainitem in the room – an artefact, a vase, a painting, acertain chair, anything) Invite one female volunteer tobe the guide. Get one of the men standing outside tocome in, blindfold him and then he has to find the “IT”.

Each step he takes in the right direction, is rewarded bythe guide with “ good”, “ you are getting closer” orsuch other positive feedback. When the person is movingaway from the “IT”, then there is nothing mentioned.

After the first person, invite the second man inside.Repeat the same exercise. He has to reach the “IT” aswell. But the only difference is that this time, wheneverhe takes a wrong step the guide, slaps him with a rolledup sheet of paper, and scolds him “you are being afool”, “ you are positively dumb”, “ you are hopeless”

In nine out of ten instances, the person who receivedthe positive feedback would have reached the goalfaster, than the one who received negative feedback.

(Contd. on Next Page)


12312312319

This exercise is demonstration that whenever dealingwith others, positive feedback, encouragement etcalways is a better mechanism to use, to get good results.

Let’s take a live example. Let’s say you attended apresentation made by your friend. Let’s assume that it wasgenerally not a great presentation. He repeated himself, keptcoming in the way of the screen, his voice cracked andcroaked, people kept interrupting him, making him repeat whathe said, etc etc.

After the presentation he comes and asks you “ Hey,what did you think of my presentation?”. Will you launchinto a tirade on all that he did wrong? Will you point outinstances, where he looked like a bumbling fool?

Or will you praise him, falsely?

Either way you are doomed — Is that what you arethinking?

Actually not. You can be honest, without being hurtful.

Thank him for asking for your opinion. Say you reallyappreciated his efforts to make the presentation. (That is

honesty and diplomacy for you!!). Even the Gita says “Satyam Bruyaat. Priyam Bruyaat”. (Tell the truth, tell pleasantthings) But never choose one over the other.

Your friend will appreciate your honesty as well as tact.Later, at an appropriate time, he will ask you for feedbackand you can give your inputs. Preserving his self- esteem isimportant for him, and being honest is for you.

Praise calls attention to the good, the helpful, and thepositive. By praising yourself and others you bring people toa higher level of energy and awareness. Humans thrive onpositive reinforcement.

Make sure you are giving and receiving positive feedbackin your life on a daily basis. Sprinkle the word “thanks”throughout your day. Tell people specifically how theyinfluence your life in a positive way.

Handwritten notes convey the personal touch we oftenyearn for in our society—you’ll brighten someone’s day andmaintain your own attitude of gratitude.

Remember, “thanks” is the oil, which lubricates the wheelof life!!

(Of the six “Power Principles, the other three principles

will be explained in the following newsletter)

HEALTH IS WEALTH AND IT IS TAX FREE

STRESS AND MEDITATIONCA Dr. A.S. Vishnu Bharath

One can not avoid stress. Doing regular exercise andsufficient sleep will help body’s resistance to stress. By

relaxing, resting, taking a walk, meditating and many otherthings to suit the moods, the stress could be reduced. Stressis nothing but mental and physical illness. If stress is nothandled properly, it can lead to many complications.Prolonged stress will contribute to serious health problemslike Blood Pressure, Diabetics, Stomach Ulcers etc. Oneshould try to eliminate or diminish the stress by sharing theproblems with a friend, relative or well wisher, which wouldhelp release stress.

Yoga helps you cope with this stress so that you do notneed to depend on smoking or eating unhealthy food. It alsohelps you find contentment from within. Smoking should becompletely stopped as it consists the arteries. Please try todo the following:

1) Keep yourself relaxed and free from anxiety,nervousoness, tension and restlessness.

2) Medication has been scientifically proven to bebeneficial for hypertensive people.

3) Ujjavi pranayama can be done while lying for about3-4 minutes, if the blood pressure rises very high.

4) Nadi shodak Pranayama can be done for about 10times.

MEDITATION: Meditation is a journey which will changeyour life. It is a journey which will enrich your life and youwill be totally relaxed, happy and can handle any situation.One needs good health, peace, prosperity, happiness andharmony to enjoy the precious life. Cosmic energy which isavailable in plenty in cosmos, is the life source and the oneneeds in plenty for Well being. Cosmic energy could d bederived, only in deep sleep and silence. What ever is derivedis not sufficient and that is the reason one gets exast and getstired out. The cosmic Energy could be derived in plenty inmeditation. Sleep is unconscious meditation and the

Meditation is conscious sleep. Meditation will open upthe sixth sense and the third eye. It travels body to mind,mind to intellect, intellect to soul and so on, all the 72000nadies get, rejunivated and activated and all illness vanishes.No medication is required for any disease once the abundantcosmic energy is obtained and it cures all illness as it is mostpowerful and therefore the meditation is required, normallythe time one should do is equivalent ant to his age i.e if he is30 years old, 30 minutes of meditation is recommended.Meditation is ultimate to lead a precious life.


(Contd. from previous Page)

INVOKE THE “POWER PRINCIPLES”


12312312321

Staring at the black roof,

Studded with shining amber like dew.

Eyes with a look empty and blank,

Lying down, with a leg swinging off the plank.

Cluttered thoughts and stressed brows,

Flooded with the question on the need to grow.

Fast and furious race around,

With not a second for a breath to be found.

The heart beats, the clock ticks,

Breathing rhymes and the eyes blink.

Nothing stops, not a chance,

On goes the endless dance.

Gravity Law, what goes up should come down,

Exception being expectations, grows a minute apound.

Growing needs mushrooms emotion,

Crowded hopes create confusion.

Millions of sperm are beat and conned,

For a human being to be born.

Entry to the world with a loud cry,

Welcome! Now there is one more pry.

Life is beautiful at every step,

Just that, there are innumerable hurdles to be met.

There are phases, there are stages.

Changes are permanent with growing ages.

Silence is the need of the hour,

Complete silence is the end of our hour.

THE DARK WORLD

Dark sky seems soothing & pretty,

Day light exposes the dark and dirty.

Primary thought is ‘suspicion of deceit’,

Next taught is ‘Fear of defeat’.

Choices of isolation is a sin,

The choice debarred by kith & kin.

Others define the style of life,

Free advices to survive are so rife.

Born Single, will die alone,

Between the two, life is that of clown.

Surroundings sound, sight of the world,

Social words are deceptive & cold.

Die to live or get perished,

Survival of the fittest is cherished.

Cup of tea is full & so is mind,

With flooding sorrows, eyes are blind.

The solace is the stare at dark might,

Getting ready to face the day, like a knight.

Not our choice, to take birth,

Beyond control is death.

Under control is the way to live,

Either with a smile or a tiff.

Colour your work blue or black,

In your hands is bed or sack.

Simple is the rule of life,

Cry when you enter and exit with a smile.

Written By: CA. Aparna RamMohan,a Chartered Accountant and a professional Investment Banker

The man who has 'realised' is very different

from the man who is simply knowledgeable.


12312312323


12312312324

KSCAA September 11 issue -...

Documents

Transcript of KSCAA September 11 issue -...