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Discussion / Re: Minimum Alternate Tax
« Last post by pawansingla on July 24, 2014, 12:39:54 pm »
9. The amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account:
As per clause (iii) of Explanation-1 of Section 11 5JB of the Act, the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account has to be reduced for the purpose of computation of book profit. The controversy regarding whether loss shall include depreciation or whether provisions of clause (iii) will apply in case if any of these amounts is nil has been put to rest by insertion of explanation in clause (iii) itself. It has been clarified that the business loss shall not include depreciation loss and should be calculated after reducing deprecation amount. It has been further clarified that the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil.
However, one more debatable issue whether accumulated figures of unabsorbed depreciation/brought forward loss is to be taken into account and lesser of these two is to be reduced or whether unabsorbed deprecation/brought forward loss is to be reckoned on year to year basis has not been resolved. The view of the Department is that the quantification should be done on year to year basis. The view of the assessee is that the quantification should be done on the accumulated amount. This can be understood from the following table -
    Depreciation as per books   
Loss as per
books excluding
Total (Rs.)
A.Y. 1999-2000
A.Y. 2000-2001
A.Y. 2001-2002
A.Y. 2002-2003
In the above case, the assessee had reduced Rs. 1,51,15,393 while computing book profit as per clause (iii). However, the A.O. allowed reduction of only Rs.1,06,61,828. The A.O. took the correct plea that since there was no loss in AY 2001-02, therefore, no amount was available for set-off as per clause (iii) in this year.
Although the ITAT in the case of Amline Textiles (P) Ltd v/s ITO, 27 SOT, 152 did not accept the plea of the Department and allowed the appeal of the assessee; however with due respect to ITAT, the view taken by it in the above case is not the correct proposition of law and reasoning given in the Order is flawed. Therefore, The A.O. should allow the reduction on year to year basis in the correct spirit of law and not on the consolidated amount.
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Discussion / Re: Minimum Alternate Tax
« Last post by pawansingla on July 24, 2014, 10:55:56 am »
Discussion / Re: Minimum Alternate Tax
« Last post by bennyjs123 on July 23, 2014, 05:49:23 pm »
You may check this site about income tax if this helps a little:
Discussion / Minimum Alternate Tax
« Last post by rohitahuja on July 22, 2014, 12:42:29 pm »
How to calculate amount to be carried forward as per clause (iii) of sub-section (2) of
section 115JB regarding adjustment of brought forwarded losses or unabsorbed depreciation whichever is low as per books of accounts
Discussion / Politicians Want Retrospective Law ... To Save Themselves!!
« Last post by shobha nagrani on July 18, 2014, 09:25:39 pm »
A sigh of relief was heard around corporate India when finance minister Arun Jaitley said that he would be forming a committee to deal with cases of retrospective taxation and also indicated that he would do away with the provision, once pending cases are dealt with. This relief was, however, not shared by a plethora of politicians from Punjab, Jaitley's home state, who made a beeline for the finance minister's office in Parliament on Monday.

Their grievance was very simple and related to a case which dates back to 2007, when a society was floated by a host of Punjabi politicians cutting across party lines.

This society, which had former Union minister Preneet Kaur (wife of Amritsar MP Amarinder Singh), MP Santosh Chaudhary, deputy chief minister of Punjab Sukhbir Singh Badal and his estranged cousin Manpreet Badal, and former deputy Speaker of the Lok Sabha Charanjit Singh Atwal, as members held 21.2 acres of prized real estate in Chandigarh.

In February 2007, the society entered into a "tripartite Joint Development Agreement (JDA)" with HASH Builders private limited and Tata Housing Development Company Ltd. Under the agreement, the society signed off on transferring its land to the developers in lieu of a four bedroom flat and Rs 82.50 lakh in cash for each member.

The grand plans were, according to top sources in the finance ministry, halted by a writ petition filed in the Supreme Court, due to which the Court has asked Tata to maintain status quo and make sure that "even a brick should not laid in the area." The apex court then referred the matter to the Delhi high court. To make matters worse the Chandigarh administration has told the high court that "political and business interests influenced the Punjab government's decision to clear the project."

"The unkindest cut however, was yet to come," said the source in the finance ministry. The Income Tax (IT) department citing provisions of transfer as defined in Clause (v) of Section 2(47)2 of the Income Tax Act, 1961 and held that the land owners were liable to pay capital gains tax on their share of the gain from the agreement.

Not just, that the assessing officer has held that the transfer arose pursuant to the JDA executed in February 2007. Accordingly, the entire amount of consideration was taxed in assessment year 2007-08. Thus the politicians were told that not only was there a legal impediment to their gaining new flats but that they were now liable to pay huge sums as tax, that too from 2007 onwards.

The Commissioner of Income Tax Appeals confirmed the Assessing Officer's orders, which was followed by a 165 page ruling by the Chandigarh Bench of the I-T Appellate Tribunal in the case of Charanjit Singh Atwal on the development agreement taxability.

This brings us back to Monday and a delegation of these leaders who made a beeline to the finance minister, who is country cousin and a close political ally of some of the members. Sources said that the finance minister heard them out, but he reportedly told them that he was unable to help them as he was opposed to retrospective changes in tax laws or orders. Quite clearly, retrospective tax cuts both ways.
Discussion / Software Driven Transfer Pricing Quiz
« Last post by NikiCA on July 17, 2014, 01:04:00 am »
Software Driven Quiz on Practical Aspects of Transfer Pricing at
CHENNAI: It could go down as the worst publicity for dhoti, considered a 'national attire' in Tamil Nadu and Kerala. A sitting judge of the Madras high court was denied entry into the Tamil Nadu Cricket Association Club at Chepauk on Friday. Reason: He was wearing a dhoti.

When Justice D Hariparanthaman alighted from his red beacon-flashing official car at the club premises to participate in a book release function organized by a former high court judge, he was least prepared for the 'reception', sources told The Times of India.

When TOI contacted, Justice Hariparanthaman confirmed the incident and said: "Former acting chief justice of the Madras high court Justice T S Arunachalam authored a book — 'Legal Fraternity Embraced Me'. Former chief justice of the Gujarat high court Justice Gokula Krishnan released it and former Chief Justice of the Himachal Pradesh high court Justice R Ratnam received the first copy. I was invited. I went to the venue at 5.25pm. I wore dhoti and shirt. I was denied entry saying unless I wear pants, I could not be permitted entry."

A Judge of Madras High Court, who was denied entry into Tamil Nadu Cricket Association Club here for wearing dhoti, the traditional attire of Tamil Nadu, today said it was unfortunate that dress code prescribed by British rulers was being followed in clubs even after independence.

When Justice D Hariparanthaman alighted from his official car at the club premises to participate in a book release function organised by TS Arunachalam, a former Chief Justice of the High Court, some staff of the club told him that he could not enter the premises wearing a dhoti.

They told him that they had instructions from the office-bearers not to allow anyone in the premises who violated the club's dress code.

Protesting the way in which the club treated invitees, Justice Hariparanthaman said in a statement that "dress code was introduced by British rulers in clubs started by them. It is very unfortunate that even after independence only the same dress code continued and our traditional dress is prohibited."

"It is not the first occasion where clubs denied entry to persons for violating dress code. Even former Supreme Court Judge Justice VR Krishna Iyer was denied entry in 1980s in the Gymkhana Club here, who wrote a protest note in the guest book", Justice Hariparanthaman said in the statement.

The book release function was held at club for which Justice Hariparanthaman was an invitee. Former Chief Justice of Gujarat High Court Justice Gokula Krishnan released the book and former Chief Justice of Himachal Pradesh High Court Justice R Rathnam received the first copy.

Senior advocate of Madras High Court R Gandhi and GR Swaminathan, an advocate of Madurai High Court, were also denied entry to the function for wearing dhoti.
1. Introduction
1.1   The Finance Bill, 2014 has brought a very radical and far reaching amendment, as far as CSR expenditures are concerned.
1.2   There was a lot of expectation that as a corollary to the CSR related amendment in the Companies Act there will be a corresponding amendment in the Income Tax Act, allowing CSR expenditures as deductions under section 37.
1.3   On the contrary the Finance Bill as proposed that CSR expenditure shall not be allowed as expenditure under section 37. However, any CSR expenditure which is allowed as deduction under other sections such as section 35 is permissible.
2. CSR Related Amendments
2.1   The Finance Bill, 2014 has proposed to insert a new Explanation in sub-section (1) of section 37 so as to clarify that for the purposes of sub-section (1) of the said section, any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years. The proposed amendments are as under:
13. In section 37 of the Income-tax Act, in sub-section (1), the Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted with effect from the 1st day of April, 2015, namely:—
"Explanation 2.—For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.".
2.2   This proposed amendment is a great setback and may defeat the real purpose of bringing CSR related amendments in the Companies Act, 2013. For example a corporate now will be motivated to contribute to those statutory funds were 100% deduction is available. For instance a corporate can implement a CSR programme by contributing to the various development programme. It can also comply with CSR provision by contributing to funds like National Defence Funds or other funds where 100% tax exemptions are available. After the proposed amendments the companies would be motivated to spent CSR money only on those areas where tax exemptions are available. In other words all other areas will virtually become redundant. There is a strong need to revisit this provision and the companies should be allowed to deduct CSR expenses under Section 37.
3. Overview of the Tax Implications
3.1   The Companies Act requires at least 2% of average Net Profit to be spent on CSR. In other words the requirement of Companies Act essentially indicates appropriation of surplus net income for charitable purposes. It does not indicate any statutory charge against the gross income. It may be noted that all expenditures are legal charge against the gross income. On the contrary, CSR expenditure is an appropriation of net income. Therefore, the provisions of the Companies Act create confusion by making CSR a post 'net profit' issue. Ideally, CSR expenditure being a legal requirement should be permitted to be deducted as expenditure under section 37(1) of the Income Tax Act, though there is no statutory clarity in this regard.
3.2   CSR being a statutory requirement should be treated as a valid charitable expenditure, otherwise it would be big disincentive to the Companies. If CSR is not treated as a valid expenditure, then the Companies would be motivated to give funds to only those organisations where they get maximum tax benefit. For instance, Prime Minister Relief Fund, National Defence Fund or organisations notified under Section 35 or 35AC or 80G. Such organisations provide 100% tax benefit. It may be noted that only few organisations such as Prime Minister Relief Fund, National Defence Fund provide 100% benefit, under Section 80G only 50% benefit is available to the donor.
3.3   CSR laws permit expenditure on capacity building of employees and on local area development. Such expenditures, could earlier be directly claimed as CSR expenditures under section 37(1) of the Income Tax Act. In other words, there are certain categories of CSR expenditures which can be charged against income within the existing provisions of the Income Tax Act. However, with the proposed amendments any expenditure under CSR will not be allowed as deduction under section 37.
3.4   There were many case laws where it was held that such expenditures should be treated as admissible expenditure. Now all such judicial precedence will be nullified from a CSR prospective. For instance a company can claim expenditure towards local area development as CSR expenditure. Now with the proposed amendments the company will be motivated to claim such expenditure as normal business expenditures and not CSR expenditures, in the light of the case laws discussed under.
3.5   Afforestation expenses: In the case Orissa Forest Development Corp. Ltd. v. Jt. CIT [2002] 80 ITD 300 (Cuttack), it was held that expenses incurred by the corporation in plantation of new trees was a revenue expenditure, even though there was no statutory obligation on the part of the assessee to incur such an expenditure.
3.6   Drinking water facilities to local residents: In the case CIT v. Madras Refineries Ltd. [2004], 266 ITR 170/138 Taxman 261 (Mad.) it was held that development of local and establishing drinking water facility for local area people was a valid expenditure. It was observed that the concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and for the people of the locality, in which the business is located in particular. Being known as a good corporate citizen brings goodwill of the local community, as also with the regulatory agencies and the society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill. Monies spent for bringing drinking water, as also for establishing or improving the schools meant for the residents of the locality in which the business is situated cannot be regarded as actually outside the ambit of the business concerns of the assessee, especially when the undertaking owned by the assessee is one which is to some extent a polluting industry. Hence, expenditure incurred by the assessee for establishing drinking water facilities for the residents in the vicinity of its refinery and for providing aid to the schools run for the benefit of the children of those residents was allowable as deduction.
3.7   Donation can also be claimed under section 37(1): If the contribution made by an assessee is in the form of donations of the category specified under section 80G, but it could also be termed as an expenditure of the category falling under section 37(1), then the right of the assessee to claim the whole of it as allowance under section 37(1) cannot be denied - Mysore Kirloskar Ltd. v. CIT [1987] 166 ITR 836/30 taxman 467 (Kar.).
3.8   Admissibility of donation if proved as relatable to carrying on of business : In the case CIT v. Industrial Development Corp of Orissa Ltd. [2001] 249 ITR 401/115 Taxman 626 (Orissa) the Hon'ble Odisha High Court held that even donation can be treated as business expenditures, provided such donation can be related with the business of the assessee. In this case the donation was disallowed as there was nothing on record to establish that the donation made by the assessee to the Chief Minister's Relief Fund was directly connected with and related to the carrying on of the assessee's business. However, this case provides a landmark ratio of allowing donation as business expenditure. In the case of mining Companies as the funds are specifically for the local area development under CSR, there is no reason why such expenditures should not be allowed under section 37(1).
4. Concluding remarks
4.1   Overall the proposed Finance Bill, 2014 has created a fix with regard to the admissibility of the CSR expenditures. It is the job of the government to align various legislations. The Companies Act mandates various types of CSR expenditures. As discussed above, giving grant to Prime Minister Relief Fund, National Defence Fund is a CSR expenditure at the same time there is a list of priority activities, which the companies should do under CSR. The Hon'ble Finance Minister in his budget speech declared that slum development will also be included as CSR expenditure.
4.2   However, differential tax treatment of the legally permissible CSR expenditure will defeat the very purpose of enacting CSR. Why should a company incur CSR expenditure on priority areas without having any tax benefit, when it can incur the same expenditure with 100% tax deductions. The Government should provide a level playing ground for all kind of CSR expenditure.
Discussion / Re: 54EC
« Last post by pawansingla on July 11, 2014, 02:07:07 pm »
. Amendment Proposed
Section 54EC is proposed to be amended by the Finance Bill 2014 by insertion of another proviso in sub-section (1), after the first proviso (now existing) with effect from the 1st day of April, 2015, namely:
"Provided further that the investment made by an assessee in the long-term specified asset, from capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees."
2. Why was this amendment thought of?
This amendment is proposed to be brought in because in the following cases the ITAT benches have held that the assessee can invest up to Rs. 1 Crore in capital gain bonds under section 54EC which is spread over a period of two financial years at Rs. 50 lakhs in each financial year. However, such investment should be made within a period of 6 months from the date of transfer:
  i) Aspi Ginwala, Shree Ram Engg. & Mfg. Industries v. Asst. CIT [2012] 20 75/52 SOT 16 (Ahd.)
  ii) Vivek Jairazbhoy v. Dy. CIT [ITA No.236/Bang/2012 vide their order dated 14.12.2012]
 iii) Smt. Sriram Indubal v. ITO [2013] 32 118 (Chennai)
 iv) ITO v. Ms. Rania Faleiro [2013] 33 611 (Panaji - Trib.)
CBDT vide its Circular No. 3/2008, dated 12-3-2008 explains the (existing) proviso introduced by the Finance Act, 2007 as under:
"28.2 The quantum of investible bonds issued by NHAI and REC being limited, it was felt necessary to ensure that the benefit was available to all the investors. For this purpose, it was necessary to ensure that the limited number of bonds available for subscription is also available for small investors. Therefore, with a view to ensure equitable distribution of benefits amongst prospective investors, the Government decided to impose a ceiling on the quantum of investment that could be made in such bonds. Accordingly, the said section has been amended so as to provide for a ceiling on investment by an assessee in such long-term specified assets. Investments in such specified assets to avail of exemption under section 54EC, on or after April 1, 2007 will not exceed fifty lakh rupees in a financial year."
It was sought to be argued from the language used in the aforementioned circular that the cap of Rs. 50 Lakhs in the proviso to section 54EC(1) was only an investment cap and not a deduction cap. In order to get over such argument which appears to be reasonable and the above stated decisions the proposed amendment restricting the claim to Rs. 50 lakhs is brought through necessary amendment to sub-section (1) of section 54EC by adding one more proviso by restricting the total deduction to just Rs. 50 lakhs. The proposed amendment has been carefully worded in such way to cover even cases of transfer of capital asset in the second half of the financial year whereby the assessee gets time till the beginning of the next financial year to make investment under section 54EC of the Act.
3. One Redeeming Feature
However one redeeming feature is that the assessees who resorted to this kind of tax planning by disposing of capital asset in the second half of financial year 2013-14 are still not affected by this proposed amendment as they can invest additional sum in the current financial year (2014-15) provided such investment is made within 6 months from the date of transfer as the proposed amendment would take effect only from the Assessment Year 2015-16 corresponding to the financial year 2014-15. The assessees who would have resorted to tax planning as stated above are liable for capital gains, subject to available exemptions, for the assessment year 2014-15 and as a matter of policy/principle none of the proposed amendments has been given retrospective effect.
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