# 5. May, 2013

Key points



Direct Taxes Page 2-4 Recent Decisions Disallowance of expenditure paid during the year without withholding tax Recent Notifications Finance Bill receives assent of President FAQs on APA scheme



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Indirect Tax Page 4-5 Service Tax Voluntary Compliance Encouragement Scheme – Amnesty Scheme notified Entry Tax is leviable on goods imported into the State of Orissa

Contact Mr. C.S. Mathur Telephone: +91 11 47 10 22 00 Email: [email protected] Mr. Kunjan Gandhi Telephone: +91 22 61455600 Email: [email protected] Mr. Harish Motwani Telephone: +91 22 61 45 56 00 Email: [email protected] WTS India Private Limited 1-H, Vandhna 11, Tolstoy Marg New Delhi - 110 001. India www.wts.co.in

Foreign Exchange Management Act Page 5 Time limit for realisation and repatriation of export proceeds Corporate Law Page 5-6 ROCs to obtain declaration from first subscribers/directors

Important dates to remember Page 6

# 5. May, 2013

Direct Tax Recent Decisions I. Disallowance of expenditure paid during the year without withholding tax Under the provisions of section 40(a)(ia) of the Income-tax Act, 1961 (“the Act”), specified amounts payable to a resident, on which tax is deductible but is not deducted or after deduction is not deposited before the due date of filing of return of income, no deduction of such expenditure is allowed. In the case of Merilyn Shipping & Transports Vs. ACIT, Range 1 Visakhapatnam (ITA No. 477/Viz/2008), the Visakhapatnam Tribunal (Special Bench), had held that section 40(a)(ia) is applicable only to the expenditure ‘payable’ on 31st March of every year and cannot be invoked to disallow the amounts which have already been paid during the previous year without deducting tax at source. Recently the High Court of Gujarat in its decision in the case of Commissioner of Income Tax Vs. Sikandarkhan N Tunvar (ITA No. 905 of 2012 dated 2nd May, 2013) and the High Court of Calcutta in the case of CIT vs Crescent Export Syndicates (ITAT No. 20 of 2013 dated 3rd April, 2013) and CIT vs MD Jakir Hossain Mondal (ITAT No. 31 of 2013 dated 4th April, 2013) has held that the decision of the Special Bench of the Tribunal in the case of M/s Merilyn Shipping & Transports vs ACIT does not lay down correct law. Both High Courts were of the view that provisions of Section 40(a) (ia) of the Act nowhere require that the amount which is payable must continue to remain payable till the end of the accounting year. The High Courts thus held that Section 40(a) (ia) would cover not only amounts which are payable as on the date of the balance sheet but also which were payable at any time during the relevant year and were actually paid within that year. The Gujarat High Court though observed that the word ‘payable’ has not been defined in the Act and in the context of section 40(a)(ia), the word ‘paid’ and ‘payable’ are not used interchangeably, but held that this provision nowhere requires that the amount which is payable must remain so payable throughout during the year. The Calcutta High Court in the case of CIT vs Crescent Export Syndicates held that as per Section 40(a)(ia) those expenses on which tax is deductible at source as per the provisions of the Income Tax Act, 1961 are sought to be disallowed and nothing turns on the basis of the fact that the legislature used the word ‘payable’ and not ‘paid or credited’. Unless any amount is payable, it can neither be paid nor credited. The High Court further held that for the purpose of interpreting a legal provision, comparison between the draft and the enacted law is not permissible, as was done by the Special Bench. Thus, in view of the above judgments, the specified amounts on which tax is deductible but is not deducted or after deduction has not been deposited before the due date of filing of return of income, irrespective of the fact that such amount has been paid during the Page 2 of 6

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year and is not outstanding/payable as on the last day of the year, no deduction for such expenditure would be allowed. The deduction in such a case can be claimed in the previous year in which such tax has been paid. Recent Notifications I. Finance Bill receives assent of President The Finance Bill, 2013 received the assent of the President of India on 10th May, 2013 and has been enacted as Finance Act, 2013. II. FAQs on APA scheme The CBDT has issued a publication titled "Advance Pricing Agreement Guidance with FAQs". The publication seeks to increase the awareness of the taxpayers about the “Advance Pricing Agreement Scheme” which was notified on 30.08.2012 and its implementation. The publication explains the procedure to be followed by a taxpayer and the tax authorities before a taxpayer can enter into an Advance Pricing Agreement (‘APA’). It also provides guidance on types of APAs, advantages of APAs, APA teams etc. 40 Frequently Asked Questions on APA Scheme are mentioned in the publication answering various questions on constitution of APA team, Pre-filing consultation, APA application and amendments thereto, Filing fee, clarification on Critical Assumptions, Bilateral/ Multilateral APAs, Conversion of Unilateral into Bilateral/ Multilateral APA and vice-versa, Transactions with Permanent Establishment, Firewalls against confidential information, Documentation requirements, Remedy against cancellation of APA, and other miscellaneous issues. The following are some of the important clarifications: 







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Bilateral APA cannot be filed with a country where the tax treaty does not contain model Article 9(2) of the OECD Model Convention i.e. specific provision for corresponding adjustments by other State for TP disputes. However, such cases would be eligible for unilateral APA. In the case of Multilateral APA, if negotiations with one or all the countries fail, there would always be an option for the taxpayer to either opt for unilateral APA or even a multilateral APA not involving country with which agreement could not be reached. A unilateral APA can be converted into bilateral APA before finalization of the terms of the agreement. Therefore, a concluded unilateral APA cannot be converted into a bilateral APA. A taxpayer can file single application seeking unilateral APA for certain transactions and bilateral APA for rest of the international transactions. However, such application would be required to be filed with the Competent Authority of India in respect of all international transactions proposed to be covered in the APA.

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APA application for profit attribution to Permanent Establishment can also be filed. If an APA is desired for only one of the transactions, the APA authority cannot ask for entering into APA in respect of all international transactions. However, if one international transaction is intrinsically linked with another international transaction in a manner that one cannot be benchmarked independently, the tax administration can inform the applicant that both the international transactions need to be covered in the application. The confidential information as filed during the APA process could be shared with the on-field audit officers. The benefit of variation up to 3% would not be allowed to the arm’s length price determined under the APA.

Indirect Tax Service tax Recent Notification I. Service Tax Voluntary Compliance Encouragement Scheme - Amnesty Scheme notified The Finance Act 2013 introduced Service Tax Voluntary Compliance Encouragement Scheme, 2013 by which one-time amnesty scheme was offered in order to encourage voluntary compliance by non-filers of service tax return or non-registrants or service providers who have not disclosed true liability in the returns filed by them. Under the said scheme, a person who so declares and pays tax due under the scheme shall get immunity from penalty, interest and any other proceedings as may be applicable. The Central Government has vide Notification No. 10/2013 dated May 13, 2013 provided the rules for carrying out the provisions of the Scheme. The Rules as notified provide for form and manner of declaration, manner of payment of tax due and manner of issuing acknowledgement of declaration and discharge of tax dues under the Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES). It has been further clarified that it would be mandatory for a person, who is not registered, to take registration under the Service Tax regulation to avail the Scheme. For the purpose of payment of taxes, CENVAT credit shall not be utilized.

Value Added Tax Recent Decision I. Entry Tax is leviable on goods imported into the State of Orissa

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# 5. May, 2013

In the case of Tata Steel Ltd vs State of Odisha & Ors [2013 (57) VST 484 (Orissa)], the Petitioner in the Writ Petition filed before the Orissa High Court has challenged the imposition of Entry Tax by the Revenue Authorities under the Orissa Entry Tax Act, 1999 upon the goods imported into the State of Orissa from outside India for use or consumption within the state as being in contravention of Article 286 of the Constitution of India which places restriction on the imposition of taxes on the sale or purchase of goods that take place in the course of import or export of goods into India. The Hon’ble High Court while rejecting the contention of the Petitioner held that the restriction under Article 286 of the Constitution of India is applicable on imposition of tax on sale or purchase of goods by the State Legislature under a power derived from Entry 54 of List II of the 7th Schedule of the Constitution. However, the power to legislate and levy on entry tax is derived from Entry 52 of the said list, which is not restricted by Article 286. The High Court held that the two fields of legislation are distinct and separate and hence the restriction in Article 286 cannot be applied herein. The Court further held that the provisions of Orissa Entry Tax Act itself do not reveal the intention of the legislature not to tax goods which has been purchased from outside the country and hence upheld the levy of Entry Tax on goods imported from outside India into the State of Orissa.

Foreign Exchange Management Act I. Time limit for realisation and repatriation of export proceeds The Reserve Bank of India (‘RBI’), in consultation with the Government of India, has decided to bring down the period for realization and repatriation to India of export proceeds of goods & software from twelve months to nine months. The said change is applicable till September 30, 2013. Further, it has been clarified that provisions in regard to period of realization and repatriation to India of the full value export value of goods or software exported by a unit situated in a Special Economic Zone as well as exports made to warehouses established outside India shall remain unchanged. [Source: A.P. (DIR Series) Circular No. 105 dated May 20, 2013]

Corporate Law I. ROCs to obtain declaration from first subscribers/directors In order to protect the interest of investors and to ensure that companies raise monies in accordance with the Companies Act/Deposit Rules, the Ministry of Corporate Affairs has issued a new circular no. 11/2013 dated May 29, 2013, wherein it has been specified that at the time of incorporation of the company, the Registrar may obtain declaration / affidavit from the subscribers/first directors to the effect that company /directors shall not accept deposits unless compliance with the applicable provisions of Companies Act, Page 5 of 6

# 5. May, 2013

1956, RBI Act, 1934 and SEBI Act, 1992 and rules / directions / regulations made there under are duly complied and filed with the concerned authorities. Similar declaration may also be obtained from the directors of the company whenever the company changes in objects.

Important dates to remember Topics Deposit of TDS for the month June, 2013 Deposit of Service Tax for Companies for the month of June, 2013

Due by July 7, 2013 July 5, 2013 (by e-payment – July 6, 2013)

Publisher WTS India Private Limited www.wts.co.in Author WTS India Private Limited 1-H, Vandhna 11, Tolstoy Marg New Delhi - 110 001. India Disclaimer: This Newsletter is for client circulation only. The contents of this document are for informational purposes only and do not constitute ‘professional advice’. The contents are intended but not guaranteed to be correct and WTS India P Ltd. disclaims all liability to any person for any loss or damage caused by errors/omissions whether arising from negligence, accident or any other cause.

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Key points - WTS

May 29, 2013 - Foreign Exchange Management Act ... the accounting year. .... to India of the full value export value of goods or software exported by a unit.

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