S. 40(a)(ia) TDS: Special Bench verdict in Merilyn Shipping is not good law

S. 40(a)(ia) TDS: Special Bench verdict in Merilyn Shipping is not good law

The assessee, engaged in the business of transport contractor and commission agent, incurred expenditure of Rs. 8.74 crores on payment to contractors where no TDS was deducted. The AO & CIT(A) held that the expenditure had to be disallowed u/s 40(a)(ia). On appeal, the Tribunal, relying on Merilyn Shipping & Transports 146 TTJ 1 (Viz) (SB) held that as the said amount had already been paid and was not "payable" as of 31st March, the disallowance u/s 40(a)(ia) could not be made. On appeal by the department to the High Court, HELD reversing the Tribunal:

In Merilyn Shipping 146 TTJ 1 (Viz) (SB) the majority held that as the Finance Bill proposed the words "amount credited or paid" and as the Finance Act used the words "amounts payable", s. 40(a)(ia) could only apply to amounts that are outstanding as of 31st March and not to amounts already paid during the year. This view is not correct for two reasons. Firstly, a strict reading of s. 40(a)(ia) shows that all that it requires is that there should be an amount payable of the nature described, which is such on which tax is deductible at source but such tax has not been deducted or if deducted not paid before the due date. The provision nowhere requires that the amount which is payable must remain so payable throughout during the year. If the assessee's interpretation is accepted, it would lead to a situation where the assessee who though was required to deduct the tax at source but no such deduction was made or more flagrantly deduction though made is not paid to the Government, would escape the consequence only because the amount was already paid over before the end of the year in contrast to another assessee who would otherwise be in similar situation but in whose case the amount remained payable till the end of the year. There is no logic why the legislature would have desired to bring about such irreconcilable and diverse consequences. Secondly, the principle of deliberate or conscious omission is applied mainly when an existing provision is amended and a change is brought about. The Special Bench was wrong in comparing the language used in the draft bill to that used in the final enactment to assign a particular meaning to s. 40(a)(ia). Accordingly, Merilyn Shippingdoes not lay down correct law. The correct law is that s. 40(a)(ia) covers not only to the amounts which are payable as on 31th March of a particular year but also which are payable at any time during the year.

Post Budget changes in Custom and Excise Duty rate

Post Budget changes in Custom and Excise Duty rates w.e.f. 08.05.2013[Notification Nos 16/2013-Central Excise,25/2013-Customs and 26/2013 –Customs, all dated 8th May, 2013 have been issued on 08.05.2013]

Amendment to Abatement Notification on Construction Complex Service

Note on Change in Abatement in Construction Complex Service

Abatement Notification No.02/2013 dt.01/03/2013 has been amended.

To avail the abatement of 75% in the case of Construction of Complex Service both the following conditions to be satisfied:

1.in carpet area of the unit is less than 2000 square feet; and

2.the amount charged for the unit is less than rupees one core

Security Service Service tax

Security services used for securing office premises are eligible as input service under Service Tax Act. [CESTAT Bangalore bench, C. Cubed Solutions (P) Ltd.]

e Filing of Tax Audit Report Mandatory

Audit report to be filed electronically; threshold limit for e-filing of return reduced to Rs. 5 lakhs; return can't be filed in ITR-1 if assessee earns exempt income which exceeds 5,000.

Income-tax (3rd Amendment) Rules, 2013 redefines the conditions and eligibility to choose from a variety of Income-tax return forms. In addition, certain important amendments are also being brought in, which are as follows:

1) Return in ITR 1 can't be filed if assessee incurs losses under the head 'Income from other sources'.

2) Return in ITR 1 can't be filed if assessee claims tax relief or has any income which is exempt under Chapter III. i.e. section 10, 10A, 10AA, etc.

3) Return in ITR 4S can't be filed if assessee claims tax relief or has any income which is exempt under Chapter III. i.e. section 10, 10A, 10AA, etc.

4) Mandatory e-filing of audit reports.

5) Mandatory e-filing of return if income exceeds Rs. 5,00,000 or if assessee claims tax relief.

No TAN for immovable property purchase

Finance Bill 2013 amendment: No need for buyer to obtain TAN to deduct tax from payment made for purchasing immovable property of more than 50 lacs.

5% TDS in Long Term Infra bonds

Finance Bill 2013 amendment of Sec 206AA: TDS normal rate of 5% on interest on long-term infrastructure bonds to NRI even if he does not have PAN.

TCS on gold

W.e.f. 01-06-2013, TCS @ 1% applicable on cash purchase of more than Rs 2 lacs of coins or other articles of upto 10 grams also which were till now exempt.

Section 12A

Six month time limit for disposal of trust registration application is directory under Section 12A of the Income Tax Act. [High Court of Madras Sheela Christian Charitable Trust].

Central govt DA

Dearness allowance (DA) enhanced for Central Government employees with effect from 01.01.2013 from 72% to 80%.[Notification No. 1(2)/2013-E-II(B) Date: 25.04.2013]

Amendments to Finance Bill 2013

The Finance Bill 2013 has been passed by the Lok Sabha today (30.04.2013) after incorporating several important amendments. Among the important amendments is the proposed insertion of sub-section (3) to s. 252 to provide that the Central Government may inter alia appoint a person who is a sitting or retired Judge of a High Court as the President of the Tribunal

NO ST on CHIT

ST : Notification No.26/2012-ST dated 20-6-2012 quashed

ST : In a chit business, the subscription is tendered in any one of the forms of 'money' as defined in section 65B(33). It would, therefore, be a transaction in money. So considered, the transaction would fall within the exclusionary part of the definition of the word 'service' as being merely a transaction in money. This would be the result if the argument that the exclusionary part of the definition in clause (a) of section 65B(44) is considered to have been enacted ex abundant cautela; if the argument based on Explanation 2 to section 65B(44) read with the exclusionary part of the definition is accepted as correct, even then the services rendered by the foreman of the chit business for which a separate consideration is charged, not being an activity of the nature explained in the said Explanation, would be out of the clutches of the definition. Either way, there can be no levy of service tax on the footing that the services of a foreman of a chit business constitute a taxable service

Coaching Institute as trust

Coaching institute cannot be treated and registered as a charitable institution under Income Tax Act. [ITAT Cochin Bench M Star Charitable Society]

Cenvat credit on Construction can be used for ST on Renting

Cenvat credit on Construction can be used for ST on Renting

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Excise paid on Inputs and ST on Input services used in construction can be utilized for discharging ST liability on renting of immovable property

 The Hon'ble Tribunal in the case of Oberoi Mall Ltd. Vs. Commissioner of Service Tax [2013-TIOL-604-CESTAT-MUM] has granted unconditional stay from recovery of Cenvat credit and penalty, the case is discussed as under:

 Issue:

 Whether excise duty paid on Inputs and Service Tax on Input services used in construction sector can be utilized for discharging Service Tax liability on renting of immovable property?

 Facts of the case:

 Oberoi Mall Ltd. ("The Appellant") is engaged in rendering the taxable service of 'renting of immovable property' and discharge service tax liability. The Appellant availed CENVAT credit of various services used for construction of the said mall and utilized the credit for payment of service tax on renting of immovable property services.

 The Central Board of Excise & Customs ("the CBEC") vide a Circular No.96/7/2007-ST dated 23/08/2007 as amended by Circular No 98/1/2007-S.T., dated 04/01/2008 ("the Circular") interalia clarified that commercial or industrial construction service or works contract service is an input service to the output 'immovable property' which is neither a service nor goods. Therefore, CENVAT credit of the service tax paid on construction service or works contract service cannot be taken.

 In view of the above Circular, the authorities issued show cause notice ("the SCN") to the Appellant proposing to deny CENVAT credit taken by the Appellant during the period April 2008 to March 2009 out of which an amount of Rs. 1,15,14,402/- was utilized for payment of service tax on the renting of immovable property service.

The SCN was adjudicated and the impugned order was passed wherein CENVAT credit of Rs. 6,00,63,212/- availed by the Appellant was disallowed in terms of Rule 14 of the CENVAT Credit Rules, 2004 ("the Credit Rules") read with Section 73(2) of the Finance Act, 1994 ("the Finance Act"). Also, credits of Rs. 32,24,111/- and Rs. 15,62,151/- taken by the Appellant were also disallowed in respect of input services such as security, telephone, commission, brokerage, advertising, repairs, installation, etc.

 Interest on the credit wrongly taken was demanded under Section 75 of the Finance Act and a penalty of Rs, 6,48,48,474/- was imposed on the Appellant under Rule 15 of the CENVAT Credit Rules read with Section 78 of the Finance Act and another penalty of Rs. 5,000/- was imposed under Section 77 thereof.

 Held:

 The Hon'ble Tribunal has held that Excise duty paid on Inputs and Service Tax paid on Input services used in the construction of immovable property can be taken and utilized for discharging ST liability on the renting of such immovable property and granted unconditional waiver from the pre-deposit of the dues adjudged against the Appellant and stay recovery thereof during the pendency of the Appeal on the basis of/ relying upon the following case laws:

1. Sai Sahmita Storages (P) Ltd. [2011 (270) ELT 33 (AP)] - The appellant was providing the service of storage and warehousing and took credit of excise duty paid on cement, iron bars, expansion bellows and pipes, etc. used in the manufacture of warehouse. The Hon'ble High Court noted that considering the definition of 'inputs' and 'input services' provided in the Credit Rules, the appellant was entitled for availment of credit on the excise duty paid on various inputs for payment of tax as the output services, namely, storage and warehousing services.

2. Navaratna S.G. Highway Property Pvt. Ltd. [2012 (28) STR 166 (Tri-Ahmd)] - The issue involved was availment of CENVAT credit of the service tax paid on 'commercial construction service, security service, advertising service, etc. The Hon'ble Tribunal held that excise duty paid on inputs and service tax paid on input services on the construction of malls can be taken as credit and utilized for payment of service tax on renting of immovable property when the mall is rented out.

Further to Note:

It is worthwhile to note that w.e.f. April 1, 2011 vide Notification No. 3/2011-C.E. (N.T.) dated March 1, 2011, definition of input and input services has been changed and any goods or specified input services used in construction contract or construction service has been excluded from the definition of input and input services respectively.

 Bimal Jain

FCA, ACS, LLB, B.Com (Hons)  

Exemption u/s. 11

Exemption u/s. 11 cannot be denied on mere non-compliance with provisions of Trust Act in earlier years under Income Tax Act. [High Court of Bombay G.K.R. Charities]

Service tax on customized software

Software developed as per customer's specifications are liable to service tax.[CESTAT, Mumbai Bench 3i Infotech Ltd]

Tolerance Limit-Arm's Length Price-TP

SECTION 92C OF THE INCOME-TAX ACT, 1961 - TRANSFER PRICING - COMPUTATION OF ARM'S LENGTH PRICE - NOTIFIED TOLERABLE LIMIT FOR DETERMINATION OF ALP

NOTIFICATION NO. 30/2013 [F.NO.500/185/2011-FTD-I], DATED 15-4-2013

In exercise of the powers conferred by the second proviso to sub-section (2) of section 92C of the Income Tax Act, 1961 (43 of 1961), the Central Government hereby notifies that where the variation between the arm's length price determined under section 92C and the price at which the international transaction or specified domestic transaction has actually been undertaken does not exceed one per cent of the latter for wholesale traders and three per cent of the latter in all other cases, the price at which the international transaction or specified domestic transaction has actually been undertaken shall be deemed to be the arm's length price for assessment year 2013-14.

Same Income can't be taxed twice

Same Income cannot be taxed both in the hand of Individual and HUF based on AIR information under Income Tax Act. [ITAT Mumbai Jyotindra Natwarlal Naik]

EPF

Download PF Member data in excel from www.epfindia.gov.in. Fill missing details, convert in text file and upload same on PF website by 26-04-2013.

Download Part A of Form 16

From FY 2012-13 download Part A of Form 16 (TDS and Deposit) from www.traces.gov.inand prepare Part B (Salary and Deductions) himself. [Circular 4/2013 of 17-04-2013]