German unemployment has provided more signs of the effect of the eurozone debt crisis, growing for a fifth consecutive month in August with an increase of 9,000 to 2.901M vs. consensus for a rise of 8,000. The jobless rate stayed unchanged at 6.8%. "The significant labor market indicators as a whole are developing increasingly weakly. Lower German economic growth is showing here," the Labor Office said.
Thursday, August 30, 2012
TDR Premium received by Co-op Hsg Society from its members is exempt on ground of “mutuality”
CIT vs. Jai Hind CHS Ltd (Bombay High Court)
The assessee, a Co-operative Housing Society formed of plot owners, passed a resolution to the effect that if any member desired to avail of the benefit of Transferable Development Rights (TDR) for carrying out construction or additional construction on his plot, he should apply for a No Objection Certificate which would be granted on payment of a premium calculated at the rate of Rs.250 per sq.ft. The Society received a premium of Rs.18.75 lakhs from its members for this purpose and claimed that the receipt was not chargeable to tax on the grounds of mutuality. The AO rejected this plea on the ground that the TDR premium was in reality a “profit sharing arrangement of commercial nature” and was chargeable to tax. The CIT (A) & Tribunal upheld the assessee’s plea. On appeal by the department to the High Court, HELD dismissing the appeal:
The assessee, a Co-operative Housing Society formed of plot owners, passed a resolution to the effect that if any member desired to avail of the benefit of Transferable Development Rights (TDR) for carrying out construction or additional construction on his plot, he should apply for a No Objection Certificate which would be granted on payment of a premium calculated at the rate of Rs.250 per sq.ft. The Society received a premium of Rs.18.75 lakhs from its members for this purpose and claimed that the receipt was not chargeable to tax on the grounds of mutuality. The AO rejected this plea on the ground that the TDR premium was in reality a “profit sharing arrangement of commercial nature” and was chargeable to tax. The CIT (A) & Tribunal upheld the assessee’s plea. On appeal by the department to the High Court, HELD dismissing the appeal:
S. 391-394 scheme of arrangement is not a “tax avoidance scheme”
Vodafone Essar Gujarat Ltd vs. Dept of Income-tax (Gujarat High Court)
Vodafone Essar Gujarat Ltd (“transferor”) filed a Petition u/s 391 to 394 of the Companies Act, 1956 to transfer its ‘Passive Infrastructure Assets’ to Vodafone Essar Infrastructure Ltd (“transferee”) free of liabilities and encumbrances. The corresponding liabilities were not to be transferred. No consideration was payable by the transferee nor were any shares to be allotted to the members of the transferor. Post de-merger, the transferee was to be made a substantially owned company of a new company to be formed by all or some of the shareholders of the transferee. Thereafter, the transferee was to be amalgamated/ merged into Indus Towers Ltd. The application was opposed by the income-tax department on the ground that since no consideration was involved, the transaction was ultra vires. It was also claimed that the transaction did not fall within the anbit of ss. 391 to 394 but was a simple transfer between two separate entities to evade legitimate taxes which would be payable if the transaction was effected as a simplicitor transfer. It was also claimed that the Scheme was solely for purposes of avoiding tax. The Company Judge came to the conclusion that the transferee was a paper company and that the sole object of the Scheme was to avoid tax on income in excess of Rs. 3,500 crore and also stamp duty and VAT to the tune to Rs.600 crores. He accordingly refused to sanction the arrangement. On appeal by the Company, HELD reversing the Company Judge:
Vodafone Essar Gujarat Ltd (“transferor”) filed a Petition u/s 391 to 394 of the Companies Act, 1956 to transfer its ‘Passive Infrastructure Assets’ to Vodafone Essar Infrastructure Ltd (“transferee”) free of liabilities and encumbrances. The corresponding liabilities were not to be transferred. No consideration was payable by the transferee nor were any shares to be allotted to the members of the transferor. Post de-merger, the transferee was to be made a substantially owned company of a new company to be formed by all or some of the shareholders of the transferee. Thereafter, the transferee was to be amalgamated/ merged into Indus Towers Ltd. The application was opposed by the income-tax department on the ground that since no consideration was involved, the transaction was ultra vires. It was also claimed that the transaction did not fall within the anbit of ss. 391 to 394 but was a simple transfer between two separate entities to evade legitimate taxes which would be payable if the transaction was effected as a simplicitor transfer. It was also claimed that the Scheme was solely for purposes of avoiding tax. The Company Judge came to the conclusion that the transferee was a paper company and that the sole object of the Scheme was to avoid tax on income in excess of Rs. 3,500 crore and also stamp duty and VAT to the tune to Rs.600 crores. He accordingly refused to sanction the arrangement. On appeal by the Company, HELD reversing the Company Judge:
Wednesday, August 29, 2012
Japan becomes pessimistic about economy.
The Japanese government has downgraded its assessment of the economy for the first time in 10 months in its latest monthly report, saying that risks include slowing overseas economies and sharp market fluctuations. The pessimism comes as JPMorgan and BNP Paribas forecast contraction of 0.3% and 0.9% respectively for Q3 GDP vs. consensus for 1% growth.
Monday, August 27, 2012
Euro Stuck At Recent Highs, Outlook Remains Bleak
The Euro took a step down against the US Dollar during the Asian session on Monday to catch it's breath after last week's rally.
Most analysts feel the Euro may struggle to break above a recent 7-week high in the near term. The early outlook for this week sees the Euro's upside potential limited ahead of major Euro Zone events due to take place over the next few weeks.
Samsung shares plunge after $1.05B patent loss to Apple.
Samsung's (SSNLF.PK) shares tumbled 7.45% in Seoul today following its $1.05B patent defeat to Apple (AAPL) on Friday, with the latter climbing 2.35% premarket, Nokia (NOK) jumping 11.4% and Microsoft (MSFT) edging up 0.8%. Apple has until today to outline which Samsung devices it wants to ban from being sold in the U.S
Sunday, August 26, 2012
The fate of state electricity distribution companies (discoms) bailout package will work?
They are owned by almost bankrupt state governments. They are loaded with losses running into billions. They owe a staggering Rs 2 trillion to banks and financial institutions in the country. They are servicing the interest on existing loans through fresh borrowings. The bailout package that was designed exclusively for them now hangs in the air! Yes, the fate of state electricity distribution companies (discoms) in India seems to be more precarious now than ever before. Way back in 2003, the Electricity Act did manage to restructure these entities. It also laid down targets for reducing transmission and distribution losses. But huge rise in power costs and inability to raise tariffs for several years, bled the discoms back into ill health. The political compulsion to provide free power to farmers has also taken a heavy toll. So much so that they are now in dire need of bailout. Having already accumulated huge NPAs (non performing assets) by lending to them, banks are in no mood to lend more to the discoms. The only remedy was to transfer their short term loans to the state governments that own them. However, it now seems that the Fiscal Responsibility and Budget Management (FRBM) Act will stall the prospects of even that. Inability to breach the borrowing limits as per FRBM Act could prevent the state governments from being the final saviors for the discoms.
“Goodwill” is an intangible asset eligible for depreciation u/s 32
CIT vs. Smifs Securities Ltd (Supreme Court)
Pursuant to an amalgamation of another company with the assessee, the difference between the consideration paid by the assessee and the net value of assets of the amalgamating company was treated by the assessee as “goodwill” and depreciation of Rs. 54 lakhs was claimed thereon u/s 32(1)(ii). The AO rejected the claim on the ground that (i) “goodwill” was not an “intangible asset” as defined in Explanation 3 to s. 32(1) and (ii) the assessee had not paid anything for the same. The Tribunal and High Court upheld the assessee’s claim. On appeal by the department to the Supreme Court, HELD dismissing the appeal
Explanation 3 to s. 32 states that the expression “asset” shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. The words “any other business or commercial rights of similar nature” in clause (b) of Explanation 3 indicates that goodwill would fall under the expression “any other business or commercial right of a similar nature“. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). Consequently, “Goodwill” is an asset under Explanation 3(b) to s. 32(1) & eligible for depreciation. Though the AO held that the assessee had not “paid” anything for the goodwill, this cannot be accepted because (a) the CIT (A) & Tribunal (correctly) held that that the difference between the cost of an asset and the amount paid in the process of amalgamation constituted “goodwill” and (b) this aspect was not challenged by the department before the High Court.
Unabsorbed depreciation of AYs 1997-98 to 2001-02 is eligible for relief granted by amended s. 32(2) in AY 2002-03
General Motors India Pvt. Ltd vs. DCIT (Gujarat High Court)
In AY 2006-07, the assessee claimed a set-off of the unabsorbed depreciation brought forward from AY 1997-98, 1999-2000, 2000-01 & 2001-02. The AO allowed the claim u/s 143(3). Subsequently, within four years from the end of the AY he reopened the assessment on the ground that pursuant to the amendment to s. 32(2) by the Finance Act No.2 of 1996 w.e.f. AY 1997-98, the unabsorbed depreciation for AY 1997-98 could be carried forward up to a maximum period of 8 years from the year in which it was first computed and this period expired in AY 2005-06 and could not be allowed in AY 2006-07. The assessee filed a Writ Petition to challenge the reopening in which it claimed (a) that the reopening was based on a “change of opinion” and (b) that as s. 32(2) was amended in AY 2002-03 to remove the time period of 8 years, the claim for unabsorbed depreciation of AY 1997-98 was allowable without any time limit. HELD by the High Court upholding the assessee’s plea:
(i) There must be “tangible material” to reopen the assessment and it cannot be done because he has drawn another inference from the documents already considered by him because it would amount to a change of opinion. The assessee had disclosed the facts and if the AO drew a wrong legal inference, he cannot take benefit of his own wrong & reopen u/s 147.
(ii) Prior to the Finance Act No.2 of 1996 unabsorbed depreciation could be carry forward indefinitely. The Finance Act No.2 of 1996 restricted the period of carry forward & set-off of unabsorbed depreciation to 8 years from AY1997-98. Circular No.762 dated 18.2.1998 clarified that the brought forward depreciation for the earlier years would be added to the depreciation for AY 1997-98 and the period of 8 years would begin from AY 1997-98 onwards. S. 32 (2) was amended by Finance Act, 2001 w.e.f. AY 2002-03 to restore the position as it was prevailing prior to the Finance Act No. 2 of 1996 and the period of 8 years was done away with. In Circular No.14 of 2001, the CBDT clarified that the removal of the 8 year time period was “with a view to enable the industry to conserve sufficient funds to replace plant and machinery“. The effect of the amendment is that the unabsorbed depreciation available to an assessee on 1.4.2002 (AY 2002-03) has to be dealt with in accordance with the s. 32(2) as amended by the Finance Act, 2001 and not by s. 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow unabsorbed depreciation allowance worked out in AY 1997-98 only for eight subsequent assessment years even after the amendment of s. 32(2) by Finance Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision and so a purposive and harmonious interpretation has to be taken. Therefore, the unabsorbed depreciation pertaining to AY 1997-98 can be carried forward for set-off indefinitely.
Japan plays out its version of the debt-ceiling drama.
Japan's government could run out of money in October if parliament doesn't pass legislation that would enable the country to sell ¥38.3T ($487B) of debt, or over 40% of this year's budget. The fate of the bill is in the hands of the opposition-controlled upper house, which may press PM Yoshihiko Noda to fix an election date before approving the debt sales.
Article 9: Income from “slot charter” is exempt as income from “operation of ships”
DIT vs. Balaji Shipping UK Ltd (Bombay High Court)
The assessee, a UK company, engaged in the international transportation of goods by sea, entered into Slot Hire Agreements with Orient Express Lines Mauritius (“OEL”), under which OEL provided container slot spaces to the assessee on its ships. Availing the slot hire facility, the assessee arranged for the transportation of the goods from ports in India to their international destinations. The assessee claimed that the income from the “slot hire charges” was exempt under Article 9 of the India-UK DTAA. The AO rejected the claim on the ground that Article 9 dealt with “income from the operation of ships” and that slot hire charges were not covered. However, the CIT(A) and the Tribunal allowed the claim. On appeal by the department to the High Court, HELD dismissing the appeal:
Wednesday, August 22, 2012
Euro Hits 7-Week High, Policymakers In The Spotlight
The Euro held its ground during the Asian session on Wednesday after rising to a new 7-week high in the previous session.
Euro trades near 7 week high to Dollar and Yen
The Euro has held onto gains to the Dollar on market expectations of a constructive outcome to Greek talks and on speculation of ECB action
Meanwhile, investors are still waiting to see if European policymakers will take action to curb the region's debilitating debt crisis.
Recently, expectations are growing that the European Central Bank (ECB) will announce, on 6th September, at its next policy meeting, its plans to assist Spain and Italy to reduce their bond yields.
The Euro earlier today traded at $1.2471, close to a seven week high of $1.2488 hit yesterday and rose 0.1% to 98.97 Yen, also near a seven week high of 99.18 Yen hit yesterday.
The Dollar remained virtually flat at 79.33 Yen.
Recent data has shown that Japan's trade deficit widened in July more than economists forecast, and this has underlined the fragility of the global economy and is expected to boost demand for the safest assets.
Focus now shifts to the release of minutes from the latest U.S. Federal Reserve meeting later today. Expect the Dollar to come under pressure should there be any hint by policymakers that they are considering another round of monetary easing to bolster growth of the U.S. economy.
Law on non-taxing pre-construction interest good law despite s. 36(1)(iii) Proviso
NTPC SAIL Power Company Ltd vs. CIT (Delhi High Court)
The assessee was in the process of expansion of its business by setting up new units for generation of power. It borrowed funds for the project and incurred interest expenditure which was capitalized. A part of the funds were invested in temporary deposits and in deposits by way of margin or giving advances etc. for the purpose of expansion. Such deposits earned interest of Rs.331.58 lakhs. The assessee claimed, relying on Bokaro Steel 236 ITR 315 (SC) that the interest earned had to be reduced from the interest paid on the borrowings and was not assessable as “income”. The CIT(A) accepted the claim but the Tribunal rejected it on the ground that Bokaro Steel 236 ITR 315 (SC) and the other judgements on the point were not good law in view of the Proviso to s. 36(1)(iii) inserted w.e.f. 1.4.2004. On appeal by the assessee to the High Court, HELD reversing the Tribunal.
The assessee was in the process of expansion of its business by setting up new units for generation of power. It borrowed funds for the project and incurred interest expenditure which was capitalized. A part of the funds were invested in temporary deposits and in deposits by way of margin or giving advances etc. for the purpose of expansion. Such deposits earned interest of Rs.331.58 lakhs. The assessee claimed, relying on Bokaro Steel 236 ITR 315 (SC) that the interest earned had to be reduced from the interest paid on the borrowings and was not assessable as “income”. The CIT(A) accepted the claim but the Tribunal rejected it on the ground that Bokaro Steel 236 ITR 315 (SC) and the other judgements on the point were not good law in view of the Proviso to s. 36(1)(iii) inserted w.e.f. 1.4.2004. On appeal by the assessee to the High Court, HELD reversing the Tribunal.
Tuesday, August 21, 2012
Euro Seen As Vulnerable As Fresh ECB Doubts Surface
The Euro appeared shakey during early trading in Asia on Tuesday and most analysts are of the opinion that the single currency remains increasingly vulnerable to a reversal.
The optimistic mood changed when doubts surfaced over whether policymakers can reach an agreement for a course of action next month to ease pressure on the debt stricken Euro Zone nations.
Here comes the coal blocks allocation scam,even bigger one than 2G scam.
If you thought the 2G scam was enormous in size, here is an even bigger one. We are referring to none other than the coal blocks allocation scam. As per the Comptroller and Auditor General (CAG), private companies gained about Rs 1.86 trillion on account of non-transparent coal block allocation. CAG had earlier pegged the number at Rs 10.67 trillion. However, it must be noted that this figure included public companies as well.
The CAG report raises some important questions. Why was the introduction of the competitive bidding process for coal block allocation delayed? Had the process been operationalised, it could have contributed significantly to the national exchequer. But there is one more worrying aspect to this scam. For most of the period when the allocation of coal blocks was done, the coal ministry was headed by none other than Prime Minister Manmohan Singh. This has created a furor in the Parliament with the Opposition demanding the PM's resignation. Besides coal, the CAG report on power has accused the government of favouritism and benefitting companies such as Reliance Power and Tata Power.
The CAG report raises some important questions. Why was the introduction of the competitive bidding process for coal block allocation delayed? Had the process been operationalised, it could have contributed significantly to the national exchequer. But there is one more worrying aspect to this scam. For most of the period when the allocation of coal blocks was done, the coal ministry was headed by none other than Prime Minister Manmohan Singh. This has created a furor in the Parliament with the Opposition demanding the PM's resignation. Besides coal, the CAG report on power has accused the government of favouritism and benefitting companies such as Reliance Power and Tata Power.
Monday, August 20, 2012
Germany dampens ECB bond-buying speculation.
Germany's Bundesbank has warned that moves to share "solvency risks" in the eurozone should be decided by governments and not the ECB. The comments follow a weekend report that the ECB is considering intervention to cap the spreads between peripheral and German bond yields by buying unlimited amounts of government debt. The speculation has sent Spanish yields plummeting, but it's a plan that Germany's finance ministry says would be "very problematic."
The Yen hit a 5-week low to the Dollar, while Euro range bound pending crises talks.
A surge in U.S. bond yields this past week, saw the Yen at a five week low to the Dollar earlier today. The Euro remained sluggish to the Dollar although Euro zone optimism has continued to drive the markets.
Earlier today the Dollar had risen as high as 79.66 Yen, its highest level in over five weeks, as a result of last week's rise in U.S. Treasury yields. Selling from Japanese exporters, back from their Obon summer holidays, saw the Dollar then ease to 79.49 Yen.
The 10-year U.S. Treasury yield had risen to 1.86% and this meant that it held a yield advantage over Japanese bonds by 1 percentage point for the first time in three months.
What we are seeing, is that the Dollar/Yen tends to have strong correlation with U.S. yields and I foresee that U.S. yields are likely to rise further in the near term, possibly hitting 2.1% which could see the Dollar rise to 80.00 Yen by month end.
The Euro had touched 98.12 Yen, close to a six week high on Friday of 98.43 Yen.
The Euro remained little changed against the greenback at $1.2333, still within a range held for two weeks between $1.2240 to 2450.
Mere filing of Return of Income disbars an advance ruling application
Netapp BV vs. The AAR (Delhi High Court)
For AY 2009-10, the assessee filed a return on income u/s 139(1) on 31.3.2010. On 17.06.2010, it filed an application before the AAR seeking a ruling in respect of the transactions that had been entered into in that year. The AAR rejected the application on the ground that as the assessee had filed a ROI, the questions raised in the application were “already pending” before an income-tax authority and so the application was not maintainable under the proviso to s. 245R(2). The assessee filed a Writ petition contending that (a) the mere filing of a ROI did not mean that all possible questions were “pending” if the AO had not raised the issue and (b) as the AAR had in the past admitted applications even though ROIs were filed, it could not change its stand. HELD dismissing the Petition:
For AY 2009-10, the assessee filed a return on income u/s 139(1) on 31.3.2010. On 17.06.2010, it filed an application before the AAR seeking a ruling in respect of the transactions that had been entered into in that year. The AAR rejected the application on the ground that as the assessee had filed a ROI, the questions raised in the application were “already pending” before an income-tax authority and so the application was not maintainable under the proviso to s. 245R(2). The assessee filed a Writ petition contending that (a) the mere filing of a ROI did not mean that all possible questions were “pending” if the AO had not raised the issue and (b) as the AAR had in the past admitted applications even though ROIs were filed, it could not change its stand. HELD dismissing the Petition:
Bad loans at Spanish banks hit record high.
Underscoring the mess that Spanish banks find themselves in, non-performing loans rose to a record 9.42% of their outstanding portfolios in June from 8.95% in May, with the amount increasing €8.4B to €164.4B.
Japan forecasts the end of deflation.
Japan has predicted it will finally emerge from a decade and a half of deflation in FY 2013-14, forecasting that the country's GDP deflator, which is a broad measure of prices trends, will increase 0.2%. That would be the first positive reading since 1997. The government also expects nominal GDP of +1.9% to exceed real GDP (+1.7%) - as adjusted for inflation - for the first time in 16 years. However, analysts are mighty skeptical.
Forex reserves down to 7 months import cover: RBI
Ever since India's import bills have been spiraling, the government has one worry on its mind. Whether it will have enough forex reserves to service several months of import bills. After all, the prices of neither oil nor gold, India's two biggest imports, seem to be holding up. Meanwhile the memories of 1991 balance of payment crisis keep haunting us. Not that we are yet anywhere close to such a dire state as was the case in 1991. However, any more callousness on the part of the government could land us in trouble!
For one, India's foreign currency reserves are already down to seven months of import cover. The same was about eight and half months cover at the end of September 2011. The sharp decline in forex reserves can be attributed to lower foreign fund inflows. This was mainly a result of Eurozone uncertainty and slowing domestic economic growth. Moreover, the Indian rupee has touched record lows since December. This has forced the central bank to sell dollars from its reserves to protect the local currency.
India's currency and balance of payment woes are not a thing of the past. Despite above average growth rates in the past few years, the economy continues to be threatened by grave risks. Comparing the current situation to 1991 and taking solace will not help. Instead the government should rather assess the situation with more realistic estimates.
For one, India's foreign currency reserves are already down to seven months of import cover. The same was about eight and half months cover at the end of September 2011. The sharp decline in forex reserves can be attributed to lower foreign fund inflows. This was mainly a result of Eurozone uncertainty and slowing domestic economic growth. Moreover, the Indian rupee has touched record lows since December. This has forced the central bank to sell dollars from its reserves to protect the local currency.
India's currency and balance of payment woes are not a thing of the past. Despite above average growth rates in the past few years, the economy continues to be threatened by grave risks. Comparing the current situation to 1991 and taking solace will not help. Instead the government should rather assess the situation with more realistic estimates.
Can FDI in food solve India's hunger issues?
The government has been facing stiff opposition for opening up FDI in multi-brand retail (foreign direct investments). As such, foreign companies are not allowed to set up supermarkets in India and sell multi- brands directly to consumers. However, in January 2012, it allowed 100% FDI (Foreign Direct Investment) in single-brand retail. In other words, foreign firms that sell items under a single brand can now fully own retail stores in India. But this space too has certain caveats. The government has now decided to exclude food items from the items enlisted under single-brand foreign investment policy. This was after foreign companies such as UK's Marks and Spencer and Sweden's IKEA showed interest in selling food items under their own brand in India.
Why is the government unwilling to open up the food sector to FDI? There are quite a few reasons. For one, food is a highly sensitive sector. Secondly, the foreign companies that expressed interest in selling food products in India want to import food items. This is so that they can maintain the same global standards. Such large-scale imports are unlikely to help the local food processing industry and the economy at large. On the other hand, retailers are allowed to source and manufacture domestically. Nestle and Pepsi are a couple of examples. We believe that there is certainly some merit in the government's arguments. But the problem is that there is not enough clarity in the existing policy. This, we think, the government should sort out immediately.
Why is the government unwilling to open up the food sector to FDI? There are quite a few reasons. For one, food is a highly sensitive sector. Secondly, the foreign companies that expressed interest in selling food products in India want to import food items. This is so that they can maintain the same global standards. Such large-scale imports are unlikely to help the local food processing industry and the economy at large. On the other hand, retailers are allowed to source and manufacture domestically. Nestle and Pepsi are a couple of examples. We believe that there is certainly some merit in the government's arguments. But the problem is that there is not enough clarity in the existing policy. This, we think, the government should sort out immediately.
Facebook:All Hype
One of the much hyped IPOs of recent times was that of the social media leader Facebook. In fact, it was the third biggest IPO (Initial Public Offering) in US. It was touted to be the company which could do nothing wrong. It had and still has a strong brand and fan following. And this prompted investment bankers to value it at astronomical valuations. But since its listing, things have changed. Investors have been hit by the hard realization that all the hype had little basis to support it. The underlying fundamentals of Facebook just did not match the valuations that its stock had been priced at. They have now come to wonder how the company would monetize itself and generate strong earnings. Unfortunately, this is something they should have done before they invested in it not after. The rude shock for these investors is visible in the drastic fall in Facebook's share prices which have been only heading south since listing as shown in today's chart. With nearly 2 bn shares becoming eligible for trading over the next 10 months, there would be plenty of investors looking to exit from this unprofitable investment. And this would hurt share prices even further.
Fact that s. 54EC bonds were available during the 6 months & that there were alternative bonds available irrelevant if the bonds not available on the last date
CIT vs. Cello Plast (Bombay High Court)
The assessee sold factory building on 22.3.2006 and earned LTCG of Rs.49.36 lakhs. The LTCG was invested in s. 54EC bonds of Rural Electrification Corporation (“REC Bonds”) on 31.1.2007, beyond the period of 6 months (21.9.2006) specified in s. 54EC. The assessee claimed that the delay was due to the fact that for the period from 4.8.2006 to 22.1.2007, the bonds were not available and the investment was made when available. The Tribunal allowed the assessee’s claim (included in file). Before the High Court, the department argued that (a) even if the bonds were not available for a part of the period, they were available for some time in the period after the transfer (1.7.2006 to 3.8.2006) and the assessee ought to have invested then & (b) the s. 54EC bonds issued by National Highway Authority (NHAI) were available and the assessee could have invested in them. HELD by the High Court dismissing the appeal
The assessee sold factory building on 22.3.2006 and earned LTCG of Rs.49.36 lakhs. The LTCG was invested in s. 54EC bonds of Rural Electrification Corporation (“REC Bonds”) on 31.1.2007, beyond the period of 6 months (21.9.2006) specified in s. 54EC. The assessee claimed that the delay was due to the fact that for the period from 4.8.2006 to 22.1.2007, the bonds were not available and the investment was made when available. The Tribunal allowed the assessee’s claim (included in file). Before the High Court, the department argued that (a) even if the bonds were not available for a part of the period, they were available for some time in the period after the transfer (1.7.2006 to 3.8.2006) and the assessee ought to have invested then & (b) the s. 54EC bonds issued by National Highway Authority (NHAI) were available and the assessee could have invested in them. HELD by the High Court dismissing the appeal
Low Tax Effect Circular is retrospective & applies to pending appeals
CIT vs. Virendra & Co (Bombay High Court)
The department filed an appeal in June 2000, the tax effect of which was less than Rs. 10 lakhs. The assessee claimed, relying on Instruction No. 3/2011 dated 9.2.2011, that as the tax effect was less than Rs. 10 lakhs, the appeal was not maintainable. The department opposed the plea on the ground that the said Instruction was prospective and did not apply to appeals filed before 9.2.2011. HELD by the High Court dismissing the appeal:
The department filed an appeal in June 2000, the tax effect of which was less than Rs. 10 lakhs. The assessee claimed, relying on Instruction No. 3/2011 dated 9.2.2011, that as the tax effect was less than Rs. 10 lakhs, the appeal was not maintainable. The department opposed the plea on the ground that the said Instruction was prospective and did not apply to appeals filed before 9.2.2011. HELD by the High Court dismissing the appeal:
Promoter holding is one of the key things to look at while investing in a company.
A larger share of promoter holding indicates the confidence of the people who run it and vice versa. But an unnaturally large shareholding means that there is very little of the company to offer to the public. This could increase an investor's risk. This is in the form of lower liquidity levels as well as lower decision making power for minority shareholders. Naturally the regulator, Securities and Exchange Board of India (SEBI) feels the same way as well. Therefore it is irked that many listed companies have not disclosed their shareholding details. As reported by Business Standard, 1,259 (25.3%) of the 4,977 listed companies have not given their shareholding details as of March 2012.
One reason for this has been the fact that many of these companies are not compliant with the minimum public shareholding norms. But the problem this year has been the limitation of avenues through which promoters could reduce their stake. With the topsy turvy way the share markets have been behaving, the equity market route has not been too conducive. Therefore, SEBI is looking to increase the avenues for disinvestment. The Board plans to meet soon and consider changes to the existing norms on disinvestment, etc. Hopefully they would be able to come out with norms that are conducive to both the shareholders as well as the promoters of the companies.Wednesday, August 15, 2012
Dollar upbeat on U.S. retail sales surprise
U.S. retail sales surprise on upside while focus now on U.S. industrial output and CPI coming up later today.
The US Dollar took off against the Japanese Yen yesterday on the back of stronger-than-expected US retail sales data.
The Euro also jumped higher against the Japanese Yen, but only managed to accumulate a small gain against the Dollar after better-than-expected German and French data was countered by growing concerns about a slowdown in the Euro Zone region.
“Gift” by company to subsidiary appears to be “Dubious tax avoidance scheme”
In Re Orient Green Power Pte. Ltd (AAR)
The Applicant, a Singapore company, “gifted” the shares of Bharath Wind Farm Ltd, an Indian company, to its 99.61% subsidiary Orient Green Power Ltd, another Indian company. As the gift was made prior to the enactment of s. 56(2)(viia) and there was no consideration received, it was claimed that there was no taxable income and that the transfer pricing provisions did not apply. The department opposed the applicant on the ground that it did not appear to be genuine. HELD by the AAR:
U/s 82 of the Companies Act, shares in a company is moveable property transferable in the manner provided by its Articles of Association. The applicant has not shown the gift was authorized by its Articles. It is difficult to imagine the Articles of Association of a company providing for gifting away of the assets in the form of shares in another company by what is attempted to be described as oral gift. A “gift” by one company to another company of shares in a public company appears to be strange, unless it be one which has been set up for some purpose. The revenue’s contention that the purpose of the gift is to avoid tax and s. 56(2)(viia) is not far-fetched. Also, s. 47(i) & (iii) appear to apply to gifts by individuals and HUFs and not by companies. The Authority has the right & the duty to consider the reality of the transaction and genuineness of the transaction, in addition to its validity. When such transactions are entered into involving substantial assets the applicant has to prove to the hilt the factum, genuineness and validity of the transaction, the right to enter into the transaction and the bona fides of the transaction. To postulate that a corporation can give away its assets free to another even orally can only be aiding dubious attempts at avoidance of tax payable under the Act. The AO is in a better position to make a proper enquiry into the question of the genuineness and validity of the transaction. Hence, a ruling is declined.
RBI: India should sacrifice growth to lower inflation.
India is in a bind: growth is slowing, inflation is high and the government's large deficit gives it little room for stimulus. "Some sacrifice in growth is inevitable and an unavoidable cost in bringing inflation down," Reserve Bank of India Governor Duvvuri Subbarao said late yesterday. "There is just no space for a fiscal or monetary response."
Eurozone economy contracts as German growth slows.
Eurozone GDP fell a quarterly 0.2% in Q2, which was in line with forecasts but was down from unchanged in Q1. Germany's GDP growth slowed to 0.3% from 0.5%, with the meager growth helped by exports and private and public consumption. However, the Bundesbank said there are signs of a "certain decrease in growth" for H2. Meanwhile, France continued to stagnate as GDP stayed unchanged in Q2 for the third quarter in a row.
Monday, August 13, 2012
Euro Sedate After Markets Get Off To A Slow Start
The market got off to a slow start on Monday, as investors deal with growing concerns about the state of the global economy, following disappointing data out of China last week.
The Euro remained largely unchanged from its closing price last week after pulling back from a recent 1- month high hit last week. The Euro has benefited from optimism over news that the ECB will implement new measures to lower crippling borrowing costs for Spain and Italy within the next month.
Japan's economic expansion slows sharply.
Japan's GDP growth unexpectedly slumped to 1.4% in Q2 from 5.5% in Q1, coming in well below forecasts of 2.3% and hurt by weak consumer spending. The strong yen - cruising near an all-time high vs. the greenback for much of the last year, and hitting record highs vs. the euro - also gets plenty of ink, but demographic math is surely working against speedy growth as well.
Sunday, August 12, 2012
S. 10A(9) applied prospectively but its omission has retrospective effect
WNS Global Services Pvt. Ltd vs. ITO (ITAT Mumbai)
Till AY 2003-04, the assessee’s shares were held by British Airways and Warburg Pincus. In AY 2003-04, there was a change in the beneficial interest in the shareholding. For AY 2004-05, the assessee claimed s. 10A deduction of Rs. 19 crores in respect of its STPs which were set up pre-2000. The CIT took the view that the s. 10A deduction was not allowable for AY 2003-04 & 2004-05 in view of s. 10A(9) which was introduced in AY 2001-02 to provide that if the “beneficial interest” in the undertaking was transferred, s. 10A deduction would not be allowed. For AY 2003-04, the CIT’s stand was upheld by the Tribunal. However, for AY 2004-04, HELD by the Tribunal, reversing the CIT:
Till AY 2003-04, the assessee’s shares were held by British Airways and Warburg Pincus. In AY 2003-04, there was a change in the beneficial interest in the shareholding. For AY 2004-05, the assessee claimed s. 10A deduction of Rs. 19 crores in respect of its STPs which were set up pre-2000. The CIT took the view that the s. 10A deduction was not allowable for AY 2003-04 & 2004-05 in view of s. 10A(9) which was introduced in AY 2001-02 to provide that if the “beneficial interest” in the undertaking was transferred, s. 10A deduction would not be allowed. For AY 2003-04, the CIT’s stand was upheld by the Tribunal. However, for AY 2004-04, HELD by the Tribunal, reversing the CIT:
Friday, August 10, 2012
Euro faces Dollar hammering
Today the Euro fell again. Some investors sold the currency as concerns mount about whether the European Central Bank (ECB) will be able to stem the debt crisis.As I predicted yesterday, although initial expectations that the ECB will step in to ease borrowing costs for Spain and Italy may have assisted the Euro in climbing to a one month high against the Dollar and rally against the Yen earlier in the week, this optimism is starting to fade. The result is that some investors are starting to book gains.
The Euro is further weakened by recent poor Euro zone economic data. Today the German economy ministry has also said that Germany is expected to face "significant risk" linked to the Euro zone crisis.
What is evident to me is that reserve managers are selling the Euro and will continue pulling funds out of the region.
I foresee that in the coming week, when the Euro zone second quarter gross domestic product data is due for release, further pressure will be put on the Euro as expectations are that the regions economy has contracted. This will pressure the ECB to cut interest rates.
What we are seeing right now is the Euro moving through a corrective phase. In the long term though, I expect a large decline.
The Euro was down earlier today by 0.3% to $1.2270, on track for its first weekly loss in three weeks.
Earlier, Chinese data was release which has hurt appetite for riskier assets and currencies. The results of the data were below forecasts and showed that Exports grew just 1.0% in July for a year, below market expectations of an 8.6% rise. Imports grew at 4.7%, compared to expectations of a 7.2% rise.
Growth linked currencies such as the Aussie fell on the news. The Aussie was also pressured earlier after the Reserve Bank of Australia (RBA) released its quarterly statement on monetary policy. The RBA upgraded its 2012 outlook for economic growth, however warned that "a strong currency could constrain expansion more than in the past".
The Australian Dollar was down 0.7% at $1.0503.
What I think we'll see now is that demand for risky assets will lessen, as investors chose the safety of the Dollar and the Yen.
The Dollar was earlier down 0.15% on the day, remaining range bound in the narrow 77.90 to 78.80 Yen range, at 78.54 Yen.
I expect that the Dollar could gain against the Yen as a result of rising U.S. Treasury yields. This could result in expectations of another round of bond buying by the Federal Reserve being lowered somewhat.
The Euro is further weakened by recent poor Euro zone economic data. Today the German economy ministry has also said that Germany is expected to face "significant risk" linked to the Euro zone crisis.
What is evident to me is that reserve managers are selling the Euro and will continue pulling funds out of the region.
I foresee that in the coming week, when the Euro zone second quarter gross domestic product data is due for release, further pressure will be put on the Euro as expectations are that the regions economy has contracted. This will pressure the ECB to cut interest rates.
What we are seeing right now is the Euro moving through a corrective phase. In the long term though, I expect a large decline.
The Euro was down earlier today by 0.3% to $1.2270, on track for its first weekly loss in three weeks.
Earlier, Chinese data was release which has hurt appetite for riskier assets and currencies. The results of the data were below forecasts and showed that Exports grew just 1.0% in July for a year, below market expectations of an 8.6% rise. Imports grew at 4.7%, compared to expectations of a 7.2% rise.
Growth linked currencies such as the Aussie fell on the news. The Aussie was also pressured earlier after the Reserve Bank of Australia (RBA) released its quarterly statement on monetary policy. The RBA upgraded its 2012 outlook for economic growth, however warned that "a strong currency could constrain expansion more than in the past".
The Australian Dollar was down 0.7% at $1.0503.
What I think we'll see now is that demand for risky assets will lessen, as investors chose the safety of the Dollar and the Yen.
The Dollar was earlier down 0.15% on the day, remaining range bound in the narrow 77.90 to 78.80 Yen range, at 78.54 Yen.
I expect that the Dollar could gain against the Yen as a result of rising U.S. Treasury yields. This could result in expectations of another round of bond buying by the Federal Reserve being lowered somewhat.
Will Goldman Sachs' MIST replace the BRIC?
When Goldman Sachs coined the term BRICs (Brazil, Russia, India, China) almost a decade back, the entire world sat up and took notice. The idea was that these 4 emerging nations would grow at a stupendous rate in the coming years and by 2050 probably match the GDP of some countries in the developed world. The BRIC countries have certainly displayed impressive growth over the last many years. Even when the crisis struck, these countries were able to bounce back at a rapid rate. But now many problems are beginning to crawl out of the woodwork. Slowing growth, high inflation, formation of asset bubbles are some of the concerns that have emerged from those regions. Thus, even though the US and Europe continue to languish in the dumps, these 4 emerging markets are not offering strong returns to investors either. And so Goldman has come out with another fund called N-11 and has coined the term MIST for the four biggest markets of these. These so called MIST nations comprise of Mexico, Indonesia, South Korea and Turkey. The fund has generated 12% in the year so far. The BRIC fund in contrast has gained only 1.5%. That said, whether these MIST nations are just another fad or really have the potential to generate healthy returns in the years ahead remains to be seen.
Wednesday, August 8, 2012
Risky assets favoured while Dollar down
ECB action expected for Spain and Italy, Yen holds firmer against the Dollar.
Earlier today the Euro held steady against the Dollar and its clear to me that it will still remain supported by continued hopes for further action by the European Central Bank (ECB). What I and many other traders are looking out for, is the ECB to lower the borrowing costs of Italy and Spain.
The Euro held steady at $1.2394, close to a one month high of $1.2444.
It's also clear to me that the Yen has risen following support from investors, who now favour riskier assets on hopes of some ECB action, so expect this to be the current trend in the near term.
The Dollar was earlier down 0.1% to 78.52 Yen and hovered near the top of a range between 78.80 and 77.90 Yen. It has been mostly within this range for the past two weeks.
A rise in U.S. Treasury yields has been a reason for the Dollar support as both the two year and ten year U.S. yields touched one month highs while investor appetite for risk has been improving.
Near term U.S. economic data releases are expected to be relatively light, so for the short term I think that we won't see much more by way of further rises in Treasury yields.
Another factor I see weighing on the Dollar in the near term, is the potential for fund repatriation by Japanese institutional investors.
This is so as the month of August typically sees a large amount of bond redemptions in U.S. Treasuries as well as coupon payments. Japanese investors holding on to Treasuries may well sell the Dollar to bring home some of the proceeds, so be prepared for that to bring the Dollar down further in the coming days.
S&P lowers its outlook on Greece to negative.
S&P has revised its outlook on Greece's long-term rating to negative, reflecting the potential for a downgrade if the country fails to secure the next disbursement from the EU/IMF financing program. S&P also affirmed its CCC foreign and C local currency credit ratings for the country, and projected that its GDP will contract by a cumulative 10%-11% during 2012-13.
Japan current-account surplus doubles.
Japan's current-account surplus surged to ¥433.3B ($5.5B) in June from ¥215.1B in May and topped consensus of ¥415.4B, helped by falling oil prices. The trade portion swung to a surplus of ¥112B from a deficit of ¥848.2B. The figures could ease worries that Japan will need foreign financing to service its massive debt.
Eurozone gets ever tougher with Greece.
The eurozone has rejected a request for a bridge loan to pay back a €3.2B bond to the ECB, which then turned down a proposal to delay the repayment by a month. Greece will therefore auction €6B of short-term paper to local banks this week. Those banks of course rely on emergency liquidity assistance from the Greek Central Bank.
Italian recession continues.
Italian Q2 GDP fell to -0.7% on quarter from -0.8% in Q1 for the fourth decline in a row. The contracting economy will increase concerns about Italy's ability to cut public debt, which stands at 123% of GDP.
Tuesday, August 7, 2012
ECB expectations spark global rally in risky assets
The Euro has pulled back from a 1 month high, while Aussie hits 4 month high. Yen stays stronger ahead of BOJ Meeting.
Earlier today the Euro slid slightly versus the Dollar and pulled back off of a one month high. It remained supported by expectations that the European Central Bank (ECB) will soon take action to lower borrowing costs for both Spain and Italy. These expectations have sparked a global rally in risky assets since Friday and have given a boost to the Euro and the Aussie.
It seems likely that the Euro will make further gains in the near term on hopes for such action, although exact details of how the ECB will stabilise the Euro zone's bond markets have yet to be determined.
The Euro was slightly down by 0.2% to $1.2380, having hit a one month high of $1.2444 yesterday.
Traders will now be anxiously watching to see if Spain or Italy will decide to ask for assistance from the Euro zone's bailout funds. Any such assistance could then result in the ECB purchasing bonds through a new scheme under consideration.
The Reserve bank of Australia (RBA) has kept interest rates unchanged at 3.5% and dropped few hints that it was in a hurry to ease them again. The Aussie hit its highest level in more than four months at $1.0603.
The RBA has said that the Australian Dollar's exchange rate still remains high despite a drop in the terms of trade. It seems to me though, that there probably isn't much that the RBA can do to oppose the strength in the Aussie Dollar.
The U.S. Dollar moved up 0.1% to 78.29 Yen, remaining above a two month low of 77.90 Yen hit last week, while the Japanese currency was at 96.99 per Euro from 97.03 Yen.
The Yen's strength follows a rally in equities worldwide which has ignited speculation that the Bank of Japan (BOJ) will refrain from additional monetary easing at a policy meeting that starts on Wednesday.
Earlier today the Euro slid slightly versus the Dollar and pulled back off of a one month high. It remained supported by expectations that the European Central Bank (ECB) will soon take action to lower borrowing costs for both Spain and Italy. These expectations have sparked a global rally in risky assets since Friday and have given a boost to the Euro and the Aussie.
It seems likely that the Euro will make further gains in the near term on hopes for such action, although exact details of how the ECB will stabilise the Euro zone's bond markets have yet to be determined.
The Euro was slightly down by 0.2% to $1.2380, having hit a one month high of $1.2444 yesterday.
Traders will now be anxiously watching to see if Spain or Italy will decide to ask for assistance from the Euro zone's bailout funds. Any such assistance could then result in the ECB purchasing bonds through a new scheme under consideration.
The Reserve bank of Australia (RBA) has kept interest rates unchanged at 3.5% and dropped few hints that it was in a hurry to ease them again. The Aussie hit its highest level in more than four months at $1.0603.
The RBA has said that the Australian Dollar's exchange rate still remains high despite a drop in the terms of trade. It seems to me though, that there probably isn't much that the RBA can do to oppose the strength in the Aussie Dollar.
The U.S. Dollar moved up 0.1% to 78.29 Yen, remaining above a two month low of 77.90 Yen hit last week, while the Japanese currency was at 96.99 per Euro from 97.03 Yen.
The Yen's strength follows a rally in equities worldwide which has ignited speculation that the Bank of Japan (BOJ) will refrain from additional monetary easing at a policy meeting that starts on Wednesday.
S&P downgrade, one year on.
Yesterday marked one year since S&P cut the U.S.'s AAA rating to AA. Since then, Treasury prices have soared as U.S. debt has anyway become a safe haven from the dysfunction that is the eurozone, with 10-year bonds yielding 1.575% late Friday vs. 2.4% prior to the downgrade. The S&P 500 closed at 1,390.99, up from 1345.02 on July 22, 2011.
India's trade deficit with China a big worry
Today's chart of the day shows India's trade imbalance with China. While India's imports from China have been growing steadily, our exports to the dragon nation are not growing at the same rate. This has been the biggest contributor to our economy's overall gap between exports and imports, leading to a high current account deficit. It is worth noting that India's current account deficit was at an all-time high of 4.5% of GDP (gross domestic product) during the quarter ended March 2012. The steep depreciation in the rupee has been one of the adverse impacts of the wide trade deficit. This has become a major concern for the Indian government. If some solid steps are not initiated to correct the trade imbalance, it will pose a serious threat to the long term well-being of the Indian economy.
Conflict on deductibility of Shares PMS fee has to be decided in favour of assessee
KRA Holding & Trading Pvt. Ltd vs. DCIT (ITAT Pune)
The assessee entered into an investment management (Portfolio Management Scheme) agreement with ENAM AMC pursuant to which it paid Rs. 2.11 crores as “performance fees/ maintenance fee”. This was treated as a cost of purchase of the shares. The AO disallowed the claim & the CIT (A) confirmed it on the basis that the as the PMS gains were assessable as “capital gains”, the expenditure was neither cost of investment or improvement nor an expenditure incidental to sale. Before the Tribunal, the assessee relied on its own case (KRA Holding & Trading Pvt Ltd vs. DCIT) where it had been held (dissenting from Davendra Kothari 136 TTJ 188 (Mum)) that as there was a nexus between the expenditure and the acquisition of shares, the same was allowable u/s 48. The department relied on Homi K. Bhabha vs. ITO which had (dissenting from KRA Holdings) held that PMS fees is not deductible against capital gains. HELD by the Tribunal:
The assessee entered into an investment management (Portfolio Management Scheme) agreement with ENAM AMC pursuant to which it paid Rs. 2.11 crores as “performance fees/ maintenance fee”. This was treated as a cost of purchase of the shares. The AO disallowed the claim & the CIT (A) confirmed it on the basis that the as the PMS gains were assessable as “capital gains”, the expenditure was neither cost of investment or improvement nor an expenditure incidental to sale. Before the Tribunal, the assessee relied on its own case (KRA Holding & Trading Pvt Ltd vs. DCIT) where it had been held (dissenting from Davendra Kothari 136 TTJ 188 (Mum)) that as there was a nexus between the expenditure and the acquisition of shares, the same was allowable u/s 48. The department relied on Homi K. Bhabha vs. ITO which had (dissenting from KRA Holdings) held that PMS fees is not deductible against capital gains. HELD by the Tribunal:
Tests laid down to distinguish shares gains as LTCG/STCG vs. business profits
CIT vs. Vaibhav J. Shah (HUF) (Gujarat High Court)
In Rewashanker A. Kothari 283 ITR 338 (Guj) six objective tests have been laid down to distinguish between capital gains and business profits on sale of shares. From this, it is clear that where number of transactions of sale and purchase of shares takes place, the most important test is the volume, frequency, continuity and regularity of transactions of purchase and sale of the shares. However, where there is repetition and continuity, coupled with magnitude of the transaction, bearing reasonable proportion to the strength of holding, then an inference can be drawn that activity is in the nature of business. Learned counsel for the revenue from the records could not demonstrate that there were large number of transactions which had frequency, volume, continuity and regularity and fell within the tests laid down by the Division Bench of this Court. Consequently, the income earned by the assessee from trading in shares under the head long term capital gain / short term capital gain was correctly shown.
Thursday, August 2, 2012
Fed Outcome Spurs The Greenback On To A New High
The US Dollar got off to a great start in early trading on Thursday going on to hit a 1-week high after the Fed opted not to offer any new stimulus packages.
This move leaves the European Central Bank (ECB) to bear the burden of stabilizing the Euro Zone economy.
The Dollar gained across the board but the Fed did not write off further bond-buying just yet, and this that might help spur on further economic recovery. Time will tell.
This move leaves the European Central Bank (ECB) to bear the burden of stabilizing the Euro Zone economy.
The Dollar gained across the board but the Fed did not write off further bond-buying just yet, and this that might help spur on further economic recovery. Time will tell.
S&P maintains Germany's outlook at stable.
S&P has affirmed Germany's AAA rating and stable outlook, citing the country's "strong economic fundamentals" and saying it expects the nation to "continue to withstand potential financial and economic shocks." S&P's confirmation comes after Moody's last month cut its outlook on Germany to negative
Fees for “routine technical repairs” not assessable as “fees for technical services”
ADIT vs. BHEL-GE-Gas Turbine Servicing (ITAT Hyderabad)
The assessee paid sums to foreign parties for repairing and refurbishment of equipment. The AO held that the payments constituted “fees for technical services” u/s 9(1)(vii) and that the assessee ought to have deducted TDS u/s 195 r.w.s. 201 though the assessee argued that as there was no intellectual aspect involved in the repairs and refurbishment activity, it was no assessable as “fees for technical services”. The CIT (A) allowed the claim. On appeal by the department to the Tribunal, HELD dismissing the appeal:
The assessee paid sums to foreign parties for repairing and refurbishment of equipment. The AO held that the payments constituted “fees for technical services” u/s 9(1)(vii) and that the assessee ought to have deducted TDS u/s 195 r.w.s. 201 though the assessee argued that as there was no intellectual aspect involved in the repairs and refurbishment activity, it was no assessable as “fees for technical services”. The CIT (A) allowed the claim. On appeal by the department to the Tribunal, HELD dismissing the appeal:
Ignorance of law caused by complicated provisions amounts to “bona fide belief”
CIT vs. Hans Christian Gass (Bombay High Court)
The assessee, a foreign national, was an employee of Sandvik AB, Sweden. He was deputed to India and appointed Managing Director of Sandvik Asia Ltd. In addition to the salary from Sandvik Asia, he received an amount from Sandvik AB, Sweden, being the difference between the tax rates in India and Sweden. In the ROI, the assessee did not offer the amount received from Sandvik AB to tax even though it was taxable in India. On being asked by the AO, the assessee offered the same to tax and paid tax thereon for all years including the earlier and subsequent AYs. The AO levied penalty on the ground that the assessee was assisted by tax experts and so ignorance of the law was no excuse. However, the Tribunal deleted the penalty on the ground that (i) there were multiple amendments to the statutory provisions (s. 10(b)(vii)) and the concept of grossing-up embedded therein is of a technical nature and out of the scope of common knowledge of the tax payers, (ii) the possibility of mistake by even tax experts cannot be ruled out; (iii) the assessee relied on the tax experts and signed the ROI, (iv) the conduct of the assessee in paying up the taxes for all the years including those that were beyond reassessment showed his bona fides, (v) the claim of bona fide belief need not be substantiated with documentary evidence but can also be substantiated by circumstantial evidence; (vi) penalty is not an automatic consequence of addition to income; (vii) concealment implies that the person is hiding, covering up or camouflaging an income; penalty is not leviable in case where assessee is able to provide a ‘bona fide’ explanation; penalty is not leviable in cases where assessee made errors ,under bona fide beliefs. On appeal by the department to the High Court, HELD dismissing the appeal:
The assessee, a foreign national, was an employee of Sandvik AB, Sweden. He was deputed to India and appointed Managing Director of Sandvik Asia Ltd. In addition to the salary from Sandvik Asia, he received an amount from Sandvik AB, Sweden, being the difference between the tax rates in India and Sweden. In the ROI, the assessee did not offer the amount received from Sandvik AB to tax even though it was taxable in India. On being asked by the AO, the assessee offered the same to tax and paid tax thereon for all years including the earlier and subsequent AYs. The AO levied penalty on the ground that the assessee was assisted by tax experts and so ignorance of the law was no excuse. However, the Tribunal deleted the penalty on the ground that (i) there were multiple amendments to the statutory provisions (s. 10(b)(vii)) and the concept of grossing-up embedded therein is of a technical nature and out of the scope of common knowledge of the tax payers, (ii) the possibility of mistake by even tax experts cannot be ruled out; (iii) the assessee relied on the tax experts and signed the ROI, (iv) the conduct of the assessee in paying up the taxes for all the years including those that were beyond reassessment showed his bona fides, (v) the claim of bona fide belief need not be substantiated with documentary evidence but can also be substantiated by circumstantial evidence; (vi) penalty is not an automatic consequence of addition to income; (vii) concealment implies that the person is hiding, covering up or camouflaging an income; penalty is not leviable in case where assessee is able to provide a ‘bona fide’ explanation; penalty is not leviable in cases where assessee made errors ,under bona fide beliefs. On appeal by the department to the High Court, HELD dismissing the appeal:
Wednesday, August 1, 2012
Currency Markets Subdued Ahead Of Fed & ECB Meetings
The US Dollar dipped to a 2-month low against the Yen during the Asian session on Wednesday, after Chinese manufacturing results dashed any hopes that increased policy support has stemmed a slowdown in the world's second largest economy.
The Euro also eased against the US Dollar spreading more doubt that the US Federal Reserve and the European Central Bank (ECB) cannot do enough to rescue their troubled economies.
The Euro also eased against the US Dollar spreading more doubt that the US Federal Reserve and the European Central Bank (ECB) cannot do enough to rescue their troubled economies.
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