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CRITICAL ISSUES IN CORPORATE TAXATION

CRITICAL ISSUES IN CORPORATE TAXATION. Saturday , 29th June, 2013 Direct Taxes Refresher Course Vadodara Branch of WIRC of ICAI Vadodara Gujarat. Deemed Dividend- 1. Deemed dividend of earlier years –effect P. Satya Prasad, 141 ITD 403 (Visakhapatnam)

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CRITICAL ISSUES IN CORPORATE TAXATION

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  1. CRITICAL ISSUES IN CORPORATE TAXATION Saturday, 29th June, 2013 Direct Taxes Refresher Course Vadodara Branch of WIRC of ICAI Vadodara Gujarat Pradip N. Kapasi Chartered Accountant

  2. Deemed Dividend- 1 • Deemed dividend of earlier years –effect • P. Satya Prasad, 141 ITD 403 (Visakhapatnam) • Company and license - MLA in financing business • Krishna GopalMaheshwari, 28 taxmann.com 13 (Agra) • Credit by journal entries • Gurbinder Singh, 146 TTJ 60 (Chennai) • Allotment of flat with occupancy rights - S. 2(22)(a) • Shantikumar D Majithia, 140 ITR 251 (Mum) Pradip N. Kapasi Chartered Accountant

  3. DeemedDividend- 2 • Credit bal. of properiotor on conversion into company • Radhe Sham Jain, 28 taxmann.com 255 (Chd) • Loan in lieu of bank guarantee by MD • Smt. G. Sreevidya, 24 taxmann.com 75 (Chennai) • Holding co. channelling loans from/to subsidiaries • Farida holdings (P.) Ltd., 21 taxmann.com 462 (Chennai) • Advance salary to Managing Director • N. Pramodh, 52 SOT 38 (Chennai) Pradip N. Kapasi Chartered Accountant

  4. Deemed Dividend- 3 • Tax in the hands of shareholders or recipients • BhaumikColour, 120 TTJ 865 (Mum.) (SB) • Universal Medicare, 237 CTR 147 (Bom.) • Registered & Beneficial Owner • Hotel Hilltop, 217 CTR 527 (Raj.) • Ankitech (P) Ltd., 242 CTR 129 (Del.) • Where partnership is a recipient • National Travel Service, 202 Taxman 327 (Del.) • ChandmullBatia, 115 ITR 388 (Cal.) • Where beneficiary; HUF, Trust, AOP, BOI, • Two or more persons with substantial interest • None. Anyone. Proration Pradip N. Kapasi Chartered Accountant Pradip N. Kapasi Chartered Accountant

  5. Deemed Dividend- 4 • Need for Economic benefit • Swati Energy & Projects Pvt. Ltd., 11 ITR (Trib.) 705 (Mum.) • Loan to a Debenture holder • Anilkumar Agarwal, 132 ITD 314 (Mum.) Pradip N. Kapasi Chartered Accountant

  6. Minimum Alternative Tax- 1 • Clause (i) in Expl 1 inserted w.r.e. from 2001 • ‘provision’ and ‘erosion’ • Whirlpool of India Ltd., 31 taxmann.com 200 (Delhi) • S. 80IB deduction and Book Profit • Sankhala Polymers , 31 taxmann.com 166 (Karnataka) • Capital gains on sale of property reflected in bal.sheet. • Forever Diamonds (P) Ltd. 31 taxmann.com 152 (Mum) • Loan liability credited to profit and loss account • Dream Shelters (P) Ltd. 56 SOT 440 (Agra) Pradip N. Kapasi Chartered Accountant

  7. Minimum Alternative Tax- 2 • Provision for gratuity & MAT • Echjay Forgings (P) ltd., 251 ITR 15 (Bom) • Rotork Controls India (P) Ltd. 314 ITR 62 (SC) • Inox Leisure Ltd. , 351 ITR 314 (Guj) • Provision for warranty & dimi. in value of assets • Becton Dickinson India (P) Ltd., 29 taxmann.com 80 • Incremental liability for leave encashment • not debited to P & L A/c but referred in notes • K.K. Nag Ltd., 52 SOT 381 Pradip N. Kapasi Chartered Accountant

  8. Minimum Alternative Tax- 3 • Agreed Additions • Dream Shelter (P) Ltd., 56 SOT 440 • Withdrawal of MAT & DDT exemption to SEZ • promissory estoppel • Mindtree Ltd, 34 taxmann.com 250 (Karnataka) • Priority of credit u/s 115JAA over SC & EC • Classic Shares & Securities (Mum.), ITA No. 5869/Mum/2007 • Depreciation at different rates • MalayalaManorama Ltd, 300 ITR 251 (SC) • Dynamic Orthopedics, 321 ITR 300 (SC) • Loss on reduction in share capital • SumiMotherson, 2010-TIOL-756-Delhi Pradip N. Kapasi Chartered Accountant

  9. Firm to Company • Appreciation on revaluation of Assets and capital gains tax • Alta Inter-chem Industries 32 taxmann.com138 (Ahd) • Receipt of higher number of shares on revaluation • Nayan L. Mepani, 49 SOT 641 • Slump sale by a proprietor to a company & eligibility • Madan Mohan Chandak, 47 SOT 207 (Chennai) • An income otherwise not taxable & violation of S. 47A(3) • Umicore Finance Luxembourg, 189 Taxman 250 • Delay in allotment of shares on conversion and S. 47 (xiv) • Sanjay Singh, 50 SOT 67 (Delhi) • Prakash Electric Co., 118 TTJ 539 (Bang.) Pradip N. Kapasi Chartered Accountant

  10. Amalgamation & Demerger-1 • Benefit of S. 47(v) only to wholly owned subsidiary • Sunaero Ltd., 345 ITR 163 (Delhi) • Reserves representing gains on amalgamation • Spencer & Co., 148 TTJ 421 (Chennai) • Holding and subsidiary company - sole shareholder • Credit Suisse (Int), 349 ITR161 (AAR) • Gift of shares of Indian Co. • By foreign company to its Indian subsidiary • Orient Green Power Pte. Ltd., 346 ITR 557 (AAR) Pradip N. Kapasi Chartered Accountant

  11. Amalgamation & Demerger-2 • ‘Appointed day’ approved by the court & AO • Indus Fila Ltd., 142 ITD 296 (Bom) • Marshal & Sons, 223 ITR 809 (SC) • Torrent P. Ltd, 354 ITR 34 (Guj.) • BIFR’s power to grant benefit of S. 72A • without consulting CBDT after 1.4.2000 • Orient Vegetax Pro Ltd., 210 Taxmann 1(Delhi) • Indian Shaving Products Ltd., 218 ITR 140 (SC) • Directions of BIFR are binding on AO • Kirloskar Oil Engines Ltd., 54 SOT 201(Pune) Pradip N. Kapasi Chartered Accountant

  12. Amalgamation & Demerger-3 • Demerger and tax savings • Vodafone Essar Ltd. 24 taxmann.com 323 (Guj) • S. 72A & c/f and set off of S. 35 expenditure • Mahyco Vegetable Seeds Ltd., 123 ITD 40 (Mum) • Deduction for bad debts of predecessor company • Times Business Solutions, 33 taxmann.com 173 (Delhi) • Set-off of losses of amalgamated company- • Reverse merger • Wrigley India (P) Ltd., 142 TTJ 23 (Del.) Pradip N. Kapasi Chartered Accountant

  13. Amalgamation & Demerger – 4 • S.47(vii) and s.2(19AA) • W.e.f. 01.04.2013, A.Y. 2013-14 • Saving from allotment of shares in consideration • Where concerned company a shareholder • Prospective application, only Pradip N. Kapasi Chartered Accountant

  14. Buy back of shares-I s.10(34A) & Chapter XII DA & s.115QA to QC, • Introduction w.e.f. 01.06.2013 • Present position • Not a dividend u/s 2(22) • Taxable as capital gains u/s 46A • No specific provision for dealer in shares • No tax on company • Amendment • Tax on Domestic company buying back shares • Tax @20% +SC+EC • Deduction for amount received for shares - Premium • Provisions for payment and recovery • Shares of company not listed on recognized SE Pradip Kapasi & Co.

  15. Buy back of shares-IIs.10(34A) & Chapter XII DA & s.115QA to QC, • Applicable to: • All unlisted companies • All shares -Preference shares • All shareholders • Buy back as per s.77A of Companies Act,1956 • Tax not deductible for company Pradip Kapasi & Co.

  16. Buy back of shares-IIIs.10(34A) & Chapter XII DA & s.115QA to QC, • Parallel provisions of s.46A • Cost of acquisition of shareholder • Treatment of losses • Exemption in hands of shareholder of receipts • Where tax paid by company u/s 115QA • No credit for taxes paid for shareholders Pradip Kapasi & Co.

  17. DDT- s.115-O (IA) • W.e.f. 01.07.2012 • One cascading effect of DDT on Dividend relaxed • Distribution by recipient domestic company eligible for relief • Need not be an ultimate holding company • May be subsidiary of another upstream company • Concession only for group companies • Amendment w.e.f. 01.06.2013 • Further relief from cascading effect • Receipt of dividend by Indian company • From foreign subsidiary co • Tax payable u/s. 115BBD • One time reduction Pradip N. Kapasi Chartered Accountant

  18. Dividend from Foreign Co - s.115BBD • Amendment w.e.f. AY 2014-15 • Receipt of dividend by a Indian Co • From foreign subsidiary co( 26 per cent) • Tax @ 15% • Benefit extended once more to FY 2013-14 Pradip Kapasi & Co.

  19. Public Offer & Exemption u/s 10(38) • Amendment of Finance Act, 2012 for STT • Offer for sale of unlisted equity shares to public in an IPO • STT @ 0.2% by lead Merchant Banker form Seller • Subsequent Listing on recognized Stock Exchange Pradip N. Kapasi Chartered Accountant

  20. Securitization Trusts -Is.10(23DA), 10(35A) & Chapter XII EA s.115TA to 115TC • Amendment w.e.f. 01.06.2013 • New provision for exemption for Secu. Trust • Income from activity of securitization • Trust regulated by RBI or SEBI • Additional tax on distribution of income on Trust • Tax@25% plus SC+EC • Tax@30% plus SC+EC • Nil where investor is exempted from tax • Tax on distribution • Provisions for payment return and recovery • Exemption for Beneficiaries(Investor) • DDT for Investor Pradip Kapasi & Co.

  21. Securitization Trusts -IIs.10(23DA), 10(35A) & Chapter XII EA s.115TA to 115TC • Material difference from s.10(23FB) • Tax on income after deductions • Treatment of losses of investor • Securitization company Pradip Kapasi & Co.

  22. Insurance Policies s.10(10D)&s.80C(3A) • Amendment w.e.f. A.Y. 2014-15 • Exemption u/s 10(10D) for receipt under a LIP • Premium <= 10% of sum assured • Deduction u/s 80C for premium under LIP • Relaxation for Disabled or Diseased Recipient • Premium <= 15% of sum assured • No exemption for sum received under a KIP • KIP assigned before maturity • Rajan Nanda, 349 ITR 8(Del.) • Amendment for continued treatment as a KIP Pradip Kapasi & Co.

  23. Investment Allowance -I s .32AC • Introduction For A.Y. 2014-15 & A.Y. 2015-16 • New Allowance only for companies • Engaged in business of manufacture or production • Article or thing • New P&M acquired and installed • After 31.03.2013 but before 01.04.2015 • Actual cost of new assets to exceed Rs. 100 crore • During 1.4.2013 to 31.3.2015 • Usual exclusions Pradip Kapasi & Co.

  24. Investment Allowance -II s .32AC • Not to reduce WDV and quantum of depreciation • No provisions for Reserve and Utilization • No provision for carry forward of allowance • Book Profit unaffected- MAT leviable • No transfer within 5 years of installation • Deemed income of year of transfer • Exception for amalgamation and/or demerger Pradip Kapasi & Co.

  25. Investment Allowance -III s .32AC • Investment=cost of purchase + installation expenses • Advance/WIP before 1.04.2013 • Allowance @ 15% of Actual cost • A.Y. 2014-15 only if cost exceeds Rs.100 crore • A.Y. 2015-16 on entire cost • Reduced by cost for which ded. allowed in A.Y. 2014-15 Pradip Kapasi & Co.

  26. Commodity Derivatives & CTT S.36(1)(xvi)& 43(5) • Introduction w.e.f. 2014-15 • Commodity derivative • Non speculative u/s 43(5) • Eligible transaction & Compliance • Commodity Transaction Tax • Eligible for deduction • Where income included in business income • Pertains to taxable commodities transactions Pradip Kapasi & Co.

  27. Employment of New workmens.80JJAA,cl.18 • Amendment w.e.f. AY 2014-15 • Deduction to cos for wages to new workmen • New stipulations • Deduction for profits and gains derived from • ‘Factory’ in place of ‘Industrial Undertaking’ • ‘Manufacture’ in place of ‘Manufacture or production’ • ‘Gods’ in place of ‘Article or thing’ • ‘Hive off or transfer or acquired on amalgamation of IU’ in place of ‘formed by splitting up or reconstruction or amalgamation of a company’ • Panacea Biotec Ltd, 121 TTJ 959(Del.) • Texas Instruments (India)P. Ltd, 115 TTJ 976 (Bang) Pradip Kapasi & Co.

  28. Receipt of shares by CHC & Firm -I s.56(2)(viia) • Receipt of shares of a non s. 2(18) company • By ‘firm’ and ‘company’ recipients • s. 2(18) company excluded • LLP included • With/out consideration > Rs. 50,000, whole • FMV as per Rules 11U & 11UA • By or From –Resident or not • COA in hands of recipient – s.49(4) • Substantive not clarificatory • Shares • Preference shares included – CD not included • Rights not included - Shares of subsidiaries Pradip N. Kapasi Chartered Accountant

  29. Receipt of shares by CHC & Firm -IIs.56(2)(viia) • Exclusion for transfers s. 47(via),(vic),(vicb),(vid),(vii) • Amalgamation, demerger, co-op. bank succession • No exclusions • Similar to s. 56(2)(vii) – Relative, etc. • For stock-in-trade • For shares of foreign companies • For other exempted transfers • For deemed transfers • Adjustment in purchase cost • W.e.f. 01.06.2010 Pradip N. Kapasi Chartered Accountant

  30. Receipt of ‘premium’ by CHC s.56(2)(viib) • Issue of shares by closely held company, A.Y. 2013-14 • Receipt’ by a ‘CHC’ from a ‘resident’ • Consideration for ‘issue’ of ‘shares’ • Where exceeds face value • Tax on excess over FMV of shares -Rs.50,000 • Exemption for issue by VCC, VCF and VCU • FMV as per prescribed method or satisfaction of A.O. • Non resident, R&NOR • Preference shares • Income of the company Pradip N. Kapasi Chartered Accountant

  31. Share Capital and s.68- Amendments -I • Three Amendments of FA, 2012- w.e.f. A.Y. 2013-14 • Law of cash creditors up to A.Y. 2012-13 • Provisions. Essentials. Case Laws. Rate • S. Hastimal, 49 ITR 273 (Mad.) –Source of source • Lovely Exports (P) Ltd., 216 CTR 195 (SC) • Shareholders name & address • Steller Investment Ltd., 115 Taxman 99 (SC) • Non- genuine (Owners of Funds) • Divine Leasing, 158 Taxman 440 (Del.) • Non- genuine (Owners of Funds) • Onus shifted to AO to examine capacity Pradip N. Kapasi Chartered Accountant

  32. Share Capital and s.68- Amendments-II • Expanding and extending onus for certain receipts • Share capital. Share premium. Likereceipts • From resident- VCC & VCF excluded • Closely held company • Onus to explain sources of source of receipt • Payer to offer explanation- nature & source • Satisfaction of AO • On notice by AO to Payer • Relevance of satisfaction of Payer’s AO • Consequence • Income of CHC • Tax at 30% u/s 115BBE • Absence of discretion Pradip N. Kapasi Chartered Accountant

  33. Liquidation s. 46 • COA of asset in the hands of shareholder • FMV on the date of distribution • Not to be reduced by Deemed dividend • S. 49 (1)(iii)(c) and s. 55(2)(b)(iii) - applicability • T.R.Srinivasan, 133 TTJ 49(Chennai) • Piecemeal taxation and deduction of COA • Cable and Wireless Ltd., 90 ITR 84 (Bom) • Inland Agencies (P) Ltd., 143 ITR 186 (Mad) • Benefit of reinvestment • Ruby Trading Co. P. Ltd., 259 ITR 54 (Raj) • Brahmi Investment P. Ltd., 48 TTJ 326(Ahd.) • Exemption – distribution of qualifying asset • ‘Purchase’ or not for s. 54F • Distribution of stock - ‘other asset’ • Taxability of capital gains • Applicability of s. 50C Pradip N. Kapasi Chartered Accountant

  34. Deemed Speculation 1 • Application to a Broker • PriyashaMever Finance P.Ltd., 5 ITR 441 (Mum)(Trib.) • Excl. of speculation loss for deciding applicability • Paramount Info. Systems P.Ltd., 42-A BCAJ 169(Mum), • Set-off of Expl. loss and amendment of 2006 • Virendrakumar Jain, 42-A BCAJ 169(Mum.) • Expl. to s.73 inapplicable to profit • AppolloVikas Steels (P.) Ltd., 214 Taxmann 642 (Guj.) • Order of set off against current years spec. profit • Ashok Mittal, 213 Taxmann 197 (Delhi) Pradip N. Kapasi Chartered Accountant

  35. Deemed Speculation 2 • F& O Losses not covered by Expl. to s.73 • Madanlal Ltd, 51 SOT 188 (Kol.) • Exception to apply after set off within the business head • Darshan Securities Ltd., 341 ITR 556 (Bom.) Pradip N. Kapasi Chartered Accountant

  36. ESOP & DOA • Admissibility as business expenditure • S.S.I. Industries , 85 TTJ 1049 (Chennai) • Ranbaxy Laboratories Ltd, 124 TTJ 771 (Del.) • PVP Ventures Ltd, 211 Taxman 554 (Mad.) • Date of offer or grant or allotment • Dr. Dhurjati Gupta, 127 TTJ 356 (Hyd.) • Pramod H. Lele, 143 TTJ 721 (Mum.) • Amrish Kumar Jhamb, 32 taxmann.com 210 (Del.) Pradip N. Kapasi Chartered Accountant

  37. Method of Accounting, AS & Company • S.209 of Companies Act • Cash system of accounting • Stup Consultants Pvt. Ltd., 13 ITR (Trib) 468 (Mum.) Pradip N. Kapasi Chartered Accountant

  38. Income during Construction Period • Tuticorin Alkali, 227 ITR 172 (SC)-Interest • Bokaro Steel, 236 ITR 315 (SC)-Rent • Neha Proteins Ltd, 306 ITR 102 (Raj.)- Set-off • Winsome Dyeing, 10 DTR 207 (HP) -Taxable • L.G. Electronics, 309 ITR 265 (Del.)-Set-off Pradip N. Kapasi Chartered Accountant

  39. Corporate expenses -I • S.35 (2AB)(1), SRE – outsourced • Cadila Healthcare Ltd., 31 taxmann.com 300 (Guj) • Fereebies by Pharmaceutical companies • Circular 5 of 2012 • S. 35DDA - VRS Scheme in accordance with R. 2BA • Implication of non-compliance • Warner Lambert, 143 TTJ 571 (Mum.) • Sony India Ltd., 141 TTJ 432 (Del.) Pradip N. Kapasi Chartered Accountant

  40. Corporate expenses -II • Brand Building expenes • Fine Jewellery , 56 SOT 226(Mum.) • Non-compete fees • Payer’s perspective • Revenue or capital • Depreciation- tangible or intangible • Payee’s perspective • Capital receipts- capital gains, s. 55(2) • Business income s.28(va) Pradip N. Kapasi Chartered Accountant

  41. Loan to Subsidiary- s.36(1)(iii) • Interest free and investment in shares • commercial expediency • S.A. Builders, 288 ITR 1 (SC) • Tulip star Hotels Ltd. (SC) • Effect of s.14A on investment in shares Pradip N. Kapasi Chartered Accountant

  42. Fluctuation in Rate of Exchange • Currency translations – year end • MarutiUdyog Ltd., 320 ITR 729 (SC) • Woodward Governor , 312 ITR 254 (SC) • Forex forward contracts • Open ended • Nature of loss • Accounting • Taxation • Panchmahal Steel Ltd., 33 taxmann 10 (Guj) • S.Vinodkumar Diamonds Pvt.Ltd. ,ITA No. 506/M/2013(Mum.) • Circular No.3 of 2010 dt. 23.03.2010 Pradip N. Kapasi Chartered Accountant

  43. Disallowance u/s 40(a)(ia) & TDS-1 • ‘Paid’ and ‘Payment’ • Sikander N. Tumken --- taxmann.com --- (Guj) • Crescent Exports (Cal), 33 taxmann.com 250 (Kol) • Md. JakirHossainMondal 33 taxmann.com 123 (Cal) • Merilyn Shipping,146 TTJ 1 (Vizag) (SB) • S. 40 (a)(ia), tax not deducted but paid • Rana Builders, 31 taxmann.com, 372(Rajkot) • Short withholding, rate or section • Chandabhoy & Jassobhoy, 49 SOT 448 (Mum.) • Beekaylon Synthetics, 6506/M/2008 (Mum.) • Not credited, not paid, • Pranik Shipping & Services Ltd. 135 ITD 233 (Mum.) Pradip N. Kapasi Chartered Accountant

  44. Disallowance u/s 40(a)(ia) & TDS-2 • Second proviso and retrospectivity • Bharati Shipyard, 132 ITD 53 (Mum.) (SB) • Virgin Creations, ITA No. 302 of 2011 (Cal.) • Rajamahendi Shipping, 51 SOT 242 (Vizag) • Marginal relief for initial assessment years • Kotak Securities Ltd., 340 ITR333 (Bom.) • DICGC Ltd., 14 ITR (Trib) 194 (Mum.) • Dynamic Vertical Software, 332 ITR 222 (Del.) • FA, 2012 Amendment • Relief & Retrospectivity Pradip N. Kapasi Chartered Accountant

  45. THANK YOU Pradip Kapasi & Co.

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