Volume Ins tute of Chartered Accountants of India...

Volume 10/14‐15 Ins tute of Chartered Accountants of India Navi Mumbai Branch of WIRC Newsle er, December 2014


News le er December 2014 Volume 10/2014‐15

Managing Commi ee Chairman CA. Sameer L. Gavli 9821161072 Vice‐Chairman CA. Shrikant Limaye 9819455561 Secretary CA. Ananthram Rao 9320433833 Treasurer CA. Nawanit Jaipuriyar 9920062526 Members CA. Sreekumar Nair 9892290909 CA. J.D.Tandel 9820192895 CA. Santosh Sharma 9323582884 CA. Minaxi Rachchh 9820898183 Co‐opted Members CA. Sanjay Nikam 9820446329 CA. Suresh Ameria 9821368836 CA. Manoj Pandey 9322804994

Inside this issue: Recent Judgements…….4 FEMA Updates …...7 Foreign Remittances Income Tax & FEMA Implications….....9 Photo Gallery …………………14 Forthcoming programmes…….18

Dear Professional Colleagues, To begin with, it’s me for us to get back to our schedule a er the extended due date of Tax Audit. It’s me to chalk schedule to pave way for future development of the profession. In last month, the Branch had successfully organized intensive Workshop on Interna onal Taxa on, which received good re‐sponse from members and students. On 21st November, CA Sa sh Shanbhag addressed members and students about various aspects involved in assessments under Income Tax Act. The CPE pro‐gramme was followed by Felicita on and Interac on with Team WIRC. The func on gave us an opportunity to interact with our leaders from Western Region, CA Anil Bhandari, CA Julfesh Shah and CA Shru Shah. During his address, Chairman WIRC CA Anil Bhandari emphasized on need of change in mindset of chartered accountants and advised members to get acquainted with the changes and challenges of globaliza on. He updated members about various ini a ves taken by WIRC for its members and stu‐dents and informed members that WIRC is now on social media and requested members to take advantage of this medium to be in instant touch with the ac vi es of the Ins tute, by using connect “WIRC‐ICAI”. The WICASA team of our branch had organized Cricket Tourna‐ment and Sports Day on 13th and 14th December, which received overwhelming response from members and students. Total 21 teams, including teams from Borivali and Vasai, registered for CAPL. The Sports Day was inaugurated in the auspicious hands of Regional Council member and Branch Nominee CA Sunil Patodia. Due to un mely rain, the Cricket Tournament and Sports Day had to be rescheduled and postponed on 31st January and 1st February, 2015. December, being the month of comple on of CPE Hours, the‐


Branch has organized CPE seminars on VAT and Service Tax with 18 CPE Hours. I request members to take ad‐vantage of CPE programmes organised by branch and enroll for the same. I thank members and students for their kind support in branch ac vi es and assure that the Branch Managing Commi ee is commi ed for the overall professional and educa onal development of its members and stu‐dents. With the end of the year imminent, I would like to wish all Members and Students a Merry Christmas and a Happy New Year 2015. With best regards,

Thank you Your Chairman, CA Sameer Gavli Navi Branch of WIRC of ICAI

Members are requested to make their payments of annual membership fees for the year 14-15 Rs. 2500

——-Appeal——-


CIT vs. Sambhaji Nagar Coop. Hsg. Society Ltd (Bombay High Court)

S. 45/ 48: Gains on sale of TDR received as additional FSI as per the D. C. Regulations has no cost of acquisition and is not chargeable to capital gains

Only an asset which is capable of acquisition at a cost would be included within the provisions pertaining to

the head “Capital gains” as opposed to assets in the acquisition of which no cost at all can be conceived. In

the present case as well, the situation was that the FSI/TDR was generated by the plot itself. There was no

cost of acquisition, which has been determined and on the basis of which the Assessing Officer could have

proceeded to levy and assess the gains derived as capital gains. It may be that subsection (2) of section 55

clause (a) having been amended, there is a stipulation with regard to the tenancy rights. However, even in

the case of tenancy right, the view taken by the Hon’ble Supreme Court, after the provision was substituted

w.e.f. 1st April, 1995, is as above. The further argument is that the tenancy rights now can be brought with-

in the tax net and in the present case the asset or the benefit is attached to the property. It is capable of be-

ing transferred. All this may be true but as the Hon’ble Supreme Court holds it must be capable of being

acquired at a cost or that has to be ascertainable. In the present case, additional FSI/TDR is generated by

change in the D. C. Rules. A specific insertion would therefore be necessary so as to ascertain its cost for

computing the capital gains. Therefore, the Tribunal was in no error in concluding that the TDR which was

generated by the plot/property/land and came to be transferred under a document in favour of the pur-

chaser would not result in the gains being assessed to capital gains.

ACIT vs. Oil and Natural Gas Corporation Ltd (ITAT Mumbai)

S. 194-I: Lease premium and additional Floor Space Index (FSI) charges paid to MMRDA is not "rent" for TDS

It is the real nature of the arrangement or transaction, and not merely the words or phrases em-

ployed, even as cautioned by the apex court in Panbari Tea Co. Ltd. (supra), i.e., the substance

of the transaction, that is relevant and paramount. The amount charged by MMRDA as lease

premium is equal to the rate prevailing as per the stamp duty ready reckoner for the acquisi-

tion of commercial premises. There is no provision in the lease agreement for termination of

the lease at the instance of the lessee and, hence, for refund of lease premium under regular

Recent Judgments Source – www.itatonline.org


circumstances. Even the additional floor space index (FSI), given for additional space, is as per

the ready reckoner rate only. The whole transaction is thus for grant of leasehold rights, and only a

transfer of property; the lease premium being the consideration for the leasehold rights, which com-

prise a bundle of rights, including the right of possession, exploitation and its’ long term enjoyment.

The charges for FSI also partake the character of a capital asset in the form of Transferable Devel-

opment Rights (TDRs), so that the owner (of land) had transferred the rights of development and

exploitation of land, which are again capital in nature. The restrictive convents toward excavation

seek to retain the right of the State to any minerals from land. Excavation is permitted for the pur-

pose of construction of the foundation of the building, or for executing any work in pursuance of

the terms of lease. Similarly, restriction with regard to erection beyond building line was only in con-

formity with DC Rules, civil aviation rules, BMC and coastal regulations, etc., i.e., are regulatory, and

do not define the character of the transaction per se. The same in fact would apply, i.e., be imposed

by a local authority while granting permission for construction on freehold land. The tribunal has in

fact taken a consistent view for similar transactions with MMRD Ltd., CIDCO Ltd in ITO vs. Na-

man BKC CHS Ltd. (in ITA Nos. 708 & 709/Mum/2012 dated 12.09.2013) and TRO vs. Shelton

Infrastructure Pvt. Ltd. (in ITA No. 5678/Mum/2012 dated 19.05.2014). The decisions relied upon

by the A.O. stand also distinguished by the tribunal, as in ITO vs. Dhirendra Ramji Vora (in ITA

No.3179/Mum/2012 dated 09.04.2014) and Naman BKC CHS Ltd. (supra).

Mumbai Metropolitan Region Development Authority vs. DDIT (Bombay High Court)

S. 220(6): Parameters to be considered in deciding a stay application laid down

The parameters to be considered in deciding stay application as laid down by this Court in KEC International

Limited v/s. B. R. Balakrishnan 251 ITR 158; UTI Mutual Funds v/s. ITO 345 ITR 71 and UTI Mutual Fund

v/s. ITO in W.P.(L) No.523 of 2013 rendered on 6th March 2013 which can for the purposes of disposing an

application of stay can be summarized as under:

(a) The order on stay application must briefly set out the issue and the submission of the assessee/ applicant in

support of the stay;

(b) In cases where the assessed income under the impugned order far exceeds returned income so as to make

the demand arbitrary or the issue arising for consideration stands concluded by a decision of an higher forum

or where the order appealed against is in breach of Natural Justice or the view taken in the order being ap-

pealed against is contrary to what has been held in the preceding previous years ( even if issue pending before

higher forum) without there being a material change in facts or law, stay should normally be granted;

(c) If not, whether looking to the questions involved in appeal, keeping in view the likelihood of success in ap-


(d) The authority concerned will also examine whether the time to prefer an appeal has expired.

Generally, coercive measures may not be adopted during the period provided by the statute to

go in appeal. However, if the authority concerned comes to the conclusion that the assessee is

likely to defeat the demand, it may take recourse to coercive action for which brief reasons may

be indicated in the order.

(e) In exercising the powers of stay, the Authority should always bear in mind that as a quasi ju-

dicial authority it is vested with the public duty of protecting the interest of the Revenue while at

the same time balancing the need to mitigate hardship to the assessee. Though the assessing of-

ficer has made an assessment, he must objectively decide the application for stay considering

that an appeal lies against his order; the application for stay must be considered from all its fac-

ets and the order should be passed, balancing the interest of the assessee with the protection of

the Revenue.

The above guidelines are only illustrative and the authority concerned would have to have exer-

cise his discretion in matters of stay on the facts of the case before him Similar judgement has also been pronounced by Bombay High Court in case of Slum Rehabilitation Authority vs. DDIT


Export of Goods / Software / Services – Period of Reali-sation and Repatriation of Export Proceeds for export-ers including Units in SEZs, Status Holder Exporters, EOUs, Units in EHTPs, STPs and BTPs A.P. (DIR Series) Circular No.37 dated November 20,

2014

RBI had brought down the period for realization and repatri-

ation to India, of the amount representing the full value of

exports, from twelve months to nine months from the date

of export, which was valid till September 30, 2013. Further

the period for realization and repatriation to India of full val-

ue of goods/software/services for Units located in SEZs,

Status Holder Exporters, EOUs, Units in EHTPs, STPs &

BTPs is twelve months from the date of export.

RBI has, in consultation with the Government of India, de-

cided that henceforth the period of realization and repatria-

tion of export proceeds shall be nine months from the date

of export for all exporters including Units in SEZs, Status

Holder Exporters, EOUs, Units in EHTPs, STPs & BTPs

until further notice.

The provisions in regard to period of realization and repatri-

ation to India of the full exports made to warehouses estab-

lished outside India remain unchanged.

Acquisition/Transfer of Immovable property – Payment of taxes A.P. (DIR Series) Circular No.38 dated November 20, 2014 RBI has clarified that transactions involving acquisition of

immovable property in terms of Foreign Exchange Manage-

ment (Acquisition and Transfer of Immovable Property in

India) Regulations, 2000 (Notification No. FEMA 21/2000-

RB dated 3rd May 2000) shall be subject to the applicable

tax laws in India.

Consequently, RBI has amended aforesaid regulations vide

Notification No. FEMA 321/2014-RB dated September 26,

2014 effective from October 17, 2014.

External Commercial Borrowings (ECB) Policy – Park-ing of ECB proceeds A.P. (DIR Series) Circular No.39 dated November 21, 2014

Presently, eligible ECB borrowers are required to bring ECB

proceeds, meant for Rupee expenditure in India for permit-

ted end uses, such as, local sourcing of capital goods, on-

lending to Self-Help Groups or for micro credit, payment for

spectrum allocation, etc., immediately for credit to their Ru-

pee accounts with AD Category - I banks in India.

- By CA Mitesh Majithia

F E M A Updates


With a view to providing greater flexibility to the ECB bor-

rowers in structuring draw down of ECB proceeds and utili-

sation of the same for permitted end uses, RBI has permit-

ted AD Category - I banks to allow eligible ECB borrowers

to park ECB proceeds (both under the automatic and ap-

proval routes) in term deposits with AD Category- I banks

in India for a maximum period of six months pending utili-

sation for permitted end uses subject to following condi-

tions:

The applicable guidelines on eligible borrower, recog-

nised lender, average maturity period, all-in-cost, per-

mitted end uses, etc. should be complied with.

No charge in any form should be created on such term

deposits i.e. to say that the term deposits should be

kept unencumbered during their currency.

Such term deposits should be exclusively in the name

of the borrower.

Such term deposits can be liquidated as and when

required.

The above amended ECB policy comes into force with im-

mediate effect and is subject to review.

Release of Foreign Exchange for Haj/ Umrah pilgrim-age A.P. (DIR Series) Circular No.40 dated November 21, 2014 RBI has permitted Authorised Dealers and Full Fledged

Money Changers to release the full amount of BTQ entitle-

ment in cash or up to the cash limit specified by the Haj

Committee of India, to the Haj/ Umrah pilgrims also.

Routing of funds raised abroad to India A.P. (DIR Series) Circular No.41 dated November 25, 2014

RBI has noticed that some Indian companies are access-

ing overseas market for debt funds through overseas hold-

ing / associate / subsidiary / group companies. It has also

been reported that such borrowings are raised at rates ex-

ceeding the ceiling applicable in terms of extant FEMA reg-

ulations and that the funds so raised are routed to the Indi-

an companies which accounts for sole/major operations of

the group. Different modalities / structures are resorted to

for channeling such funds for Indian operations including

investment in rupee bonds floated by the Indian company.

On a review of the matter in light of the existing regulatory

framework, RBI has clarified as under:

Indian companies or their AD Category – I banks are

not allowed to issue any direct or indirect guarantee or

create any contingent liability or offer any security in

any form for such borrowings by their overseas hold-

ing / associate / subsidiary / group companies except

for the purposes explicitly permitted in the relevant

Regulations.

Further, funds raised abroad by overseas holding /

associate / subsidiary / group companies of Indian

companies with support of the Indian companies or

their AD Category – I banks as mentioned at (i) above

cannot be used in India unless it conforms to the gen-

eral or specific permission granted under the relevant

Regulations.

Indian companies or their AD Category – I banks using

or establishing structures which contravene the above

shall render themselves liable for penal action as pre-

scribed under FEMA, 1999.


Foreign Remittances FEMA & Income Tax Implications

- By CA Vandana Shah

Background All foreign remittances from India are currently regulated under Foreign Exchange Management Act (FEMA). While FEMA plays an important role in deciding the permissibility of payments abroad, an equal role is played by Indian Income Tax Act (ITA) especially in transactions involving remittance of income. FEMA allows permissible remittances by authorized dealer banks on production of relevant under-taking from the remitter and a certificate from a Chartered Accountant in the formats prescribed under ITA. Correspondingly, ITAprovides that any person responsible for making any payment to Non Resi-dent in respect of any income chargeable to tax under the provisions of ITA is required to deduct tax at source from the concerned payment. The tax is required to be deducted irrespective of the mode of the payment and on accrual or payment basis, whichever is earlier.Further, one needs to examine the provisions of Double Tax Avoidance Agreement (DTAA) between India and specified country to confirm on taxes to be deducted under section 195 of ITA. Also, one needs to check re-garding the availability of Tax Residency Certificate (TRC) of Non Resident / Form 10F and Perma-nent Account Number (PAN) of Non Resident to conclusively decide on the applicable rate of withholding tax in respect of foreign remittance.

Further, a person making an outward remittance is required to furnish following documents, de-pending upon type and quantum of payment involved.

Particulars Concerned Forms

Income chargeable to tax is lower than Rs. 50,000 and the aggregate of such payments does not exceed Rs. 2,50,000

Other Remittances not falling in prescribed

exclusion list and above category

Part A of Form 15CA only

Part B of Form 15CA and Form 15CB (Certificate in prescribed format) from Chartered Accountant


There are certain payments such as investment abroad in equity capital, investment in debt securi-ties, investment in branch or wholly owned subsidiaries, loans to non-residents, remittance for medi-cal treatment, maintenance of close relatives, etc. that have been specifically excluded from the re-quirements of Form 15CA/ Form 15CB certification.2 In these cases, one needs to take care of only FEMA compliances. Also, it is pertinent to note that the new notification for Form 15CA / Form 15CB no longer re-quire submission of form as long as the payments are not chargeable to tax in India. Having said that, the Indian tax authorities may or may not agree with the stand of assessee that the payment is not taxable in India. Accordingly, on conservative basis, one may avoid procuring Form 15CA / Form 15CB only in cases where the income is clearly not taxable. In cases of doubt, it may be advis-able to obtain Form 15CA / Form 15CB. Meaning of Resident

Having discussed the above, it would be relevant to note here that the term “Resident” has different connotations as per ITA and FEMA. FEMA takes in account the purpose of stay to determine resi-dential status of the concerned person. The below mentioned table briefly summarizes distinguishing factors:


ITA FEMA Resident in India

i. Individual

Physical presence of 182 days or more in previ-

ous year in India or

Physical presence of 60 days or more in previous year concerned and 365 days or more during 4 preceding tax years.

It is important to note here that in case of Indian citizen who leaves India as a member of crew of ship or for the purpose of employment outside India, the criteria of 60 days is substituted by 182 days.

HUF/ AOP / Firm

Resident except when control and management situated wholly outside India.

Company

Indian company or

Control and management of its affairs is situated wholly in India.

a. Resident in India

(i) Residing in India for more than 182 days during

the course of preceding financial yearbut does not include-

a person who has gone out of India or who stays

outside India, in either case- (a) for or on taking up employment outside In-dia, or (b) for carrying on outside India a business or vocation outside India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

a person who has come to or stays in India, in

either case, otherwise than- (a) for or on taking up employment in India, or (b) for carrying on in India a business or voca-tion in India, Or (c) for any other purpose, in such circumstanc-es as would indicate his intention to stay in In-dia for an uncertain period;

(ii) any person or body corporate registered or in-corporated in India,

(iii) an office, branch or agency in India owned or

controlled by a person resident outside India,

(iv) an office, branch or agency outside India owned or controlled by a person resident in India;

Non Resident

An individual who is not a Resident as per the above residency definition is considered as a Non Resident for income tax purpose.

Non Resident

A person resident outside India means a person who is not resident in India.

Not Ordinarily Resident

A person is considered to be Not Ordinarily Resident if he is: Non Resident in India in 9 out of preceding 10 years Physical presence is less than 730 days during 7 preceding years.

Not Ordinarily Resident

There is no concept of Not Ordinarily Resident in FEMA.

1 Refer Sec on 195 of Income Tax Act for details and excep ons to sec on 195.

2 Refer No fica on No. 67/2013 dated 2nd September 2013

3 Refer Sec on 6 of Income Tax Act

4 Refer Sec on 2 of FEMA Act, 1999


Thus, while one may be Resident as per ITA, he may or may not be Resident as per FEMA. Accord-ingly, one needs to determine the permissibility of transactions as per residency definition under FE-MA and consider the tax implications as per residency rules under ITA. Some of the permissible outward remittances and compliances thereof: Royalties / Fees for Technical Services:

Position under FEMA– FEMA currently does not prescribe any limit for the remittance of royal-ty / service payments. Consequently, the same can be freely remitted.

Position under ITA - Section 195 of ITA will be applicable and one needs to determine taxes to be deducted at source, depending upon DTAA provisions and availability of prescribed documents. Accordingly, one needs to obtain Form 15CB and furnish undertaking in Form 15A, depending up-on quantum involved.

Payments for Import of Goods:

Position under FEMA– Import of goods in India is normally allowed in accordance with FEMA regulations. There are certain procedural formalities to be complied with in accordance with FEMA regulations.

Position under ITA– The notification dealing with section 195 remittances does not specifically exclude import payments. However, practically,in most cases (primarily those other than cases where the non-resident has a PE in India);pure import transactions may not trigger any taxation in India. Therefore, considering the revised language used in the Forms, many taxpayers are practically not obtaining Form 15CB / Form 15CA in respect of payments for import of goods. However, there is no blanket exemption provided to import transactions and adequate caution must be exercised to ensure that the payment for imports is unambiguously not taxable in India considering the provi-sions of the ITA and the relevant Double Taxation Avoidance Agreement.

Remuneration to Expatriates:

Position under FEMA - A citizen of foreign state, being an employee of foreign company or an Indian citizen employed by foreign company outside India and on deputation to office / branch / subsidiary / joint venture of such foreign company in India can receive the salary in foreign currency account maintained with bank outside India, provided the applicable income tax has been paid in India.

Position under ITA– The relevant taxes will have to be deducted and paid by the employer compa-ny under section 192 of ITA and applicable DTAA provisions.

Investment Abroad in Equity Capital / Debt / Wholly Owned Subsidiaries, etc.:

Position under FEMA– The investment will have to be in accordance with FEMA regulations. The remittance would fall under automatic route if the specified conditions are met. Relevant forms under FEMA will have to be filed with the authorized dealer bankers. Position under ITA- There is no compliance requirement under ITA as the same would fall under the exclusion list (as discussed above).


External Commercial Borrowings / Loans from abroad:

Position under FEMA– The external commercial borrowings will have to be obtained by Indian entity in accordance with FEMA regulations. The remittance would fall under automatic route if the specified conditions are met. Relevant forms under FEMA are required to be filed with the author-ized dealer on timely basis.

Position under ITA–There is no compliance requirement under ITA with respect to repayment of principal of loan as there is no income element in repayment of capital. However, with respect to payment of interest on loan, section 195 will be applicable and withholding tax will have to be deter-mined in light of DTAA provisions and availability of relevant documents. Accordingly, the relevant Form 15CA / Form 15CB will have to be procured.

Others There could be several other types of remittances. One will have to examine the permissibility of

same under FEMA as well as determine applicable taxes and compliance requirements on concerned

income, prior to such outward remittances.

CA Vandana Shah is a member of the institute. She can be reached at [email protected]


PHOTO GALLERY


Forthcoming Programmes of Navi Mumbai Branch

Day -1 – 26th December,2014 Time - 2.00 pm to 8.00 pm

2 days Workshop on Service Tax

Timings Technical Sessions Resource Person

1.30 pm Registrations

2.00 pm to 5.00 pm Concepts & Opportunities in Service Tax ,

Definition of Service

Declared Service

Negative list of services

'Exempted Service' (Other than related to Construc-tion)

CA. Jayesh Gogri

5.00 pm to 5.10 Tea Break

5.10 pm to 8.10 pm Abatements

Tax liability under ' Reverse charge Mechanism' & Joint

Charge Mechanism

Basic Understanding of Point of taxation Rules and Place of Provision of Service Rules

CA. Vinod Awtani



Day -2 – 27th December,2014 Time - 2.00 pm to 8.00 pm.

CPE CREDIT: 12 HOURS Venue - Navi Mumbai Sports Association, Sector-1A, Vashi, Navi Mumbai. Registration Fees – Rs.1,000 for members who have paid Annual Fees of Branch and Rs.1,500 for others and Students - Rs.400

Timings Technical Sessions Resource Person

2.00 p.m. – 5.00 p.m. Valuation of Taxable Service

Issues in service tax on composite contracts in-cluding construction activities & Works Contract

CA. Bharat Shemlani

5.00 pm to 5.10 Tea Break

5.10 pm to 8.10 pm Statutory compliance like registration, issue of invoice, payment of Tax, Adjustment of Ex-cess Payment of Tax: filing of Periodical Re-turns, Summons, SCN, Adjudicationetc

Cenvat Credit – Basic Understanding

CA Keval Shah



Residential Refresher Course at Mahabaleshwar

16th , 17th and 18th January,2015 CPE Hrs – 12 Hrs Coordinator – CA Sreekumar Nair 9892290909 CA Shrikant Limaye 9819455561

WICASA Youth Festival

Day Date Time Venue

Saturday 31st January,2015 9 am to 6 pm CAPL 2014 and Track & Field Events at Play Ground, Navi Mumbai Sports Association, Sector-1A, Vashi, Navi Mum-bai.

Sunday 1st February,2015 9 am to 6 pm

Registration Fees – CAPL Rs.1000 per team Coordinators – CA Shrikant Limaye 9819455561 CA Sanjay Nikam 9820446329


MembershipForm

Name of the member ..........................................................................................................

Membership Number ..........................................................................................................

Professional Address ...........................................................................................................

……………………………………………………………………………………………………..

Mobile Number ...........................................................................................................

Office Telephone No. ...........................................................................................................

Mail ID (1) ...........................................................................................................

Mail ID (2) ...........................................................................................................

Residen al Address ...........................................................................................................

..........................................................................................................

Topic of Interest ...........................................................................................................

..........................................................................................................

Annual Fees Rs.2,500 for CPE Study Circle Mee ngs

To,

Navi Mumbai Branch of WIRC of ICAI Address: Rainbow apartments, F‐2/C‐3, Near Vijaya Bank, Sector 10, Vashi, Navi Mumbai‐400703

Phone: Mr. Bhagwat 9323671721, Mr. Manoj 9773153877

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