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

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CRITICAL ISSUES IN CORPORATE TAXATION

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CRITICAL ISSUES IN CORPORATE TAXATION

Saturday, 29th June, 2013

Direct Taxes Refresher Course

Vadodara Branch of WIRC of ICAI

Vadodara

Gujarat

Pradip N. Kapasi Chartered Accountant


Deemed Dividend- 1

  • Deemed dividend of earlier years –effect

  • P. Satya Prasad, 141 ITD 403 (Visakhapatnam)

  • Company and license - MLA in financing business

  • Krishna GopalMaheshwari, 28 taxmann.com 13 (Agra)

  • Credit by journal entries

  • Gurbinder Singh, 146 TTJ 60 (Chennai)

  • Allotment of flat with occupancy rights - S. 2(22)(a)

  • Shantikumar D Majithia, 140 ITR 251 (Mum)

Pradip N. Kapasi Chartered Accountant


DeemedDividend- 2

  • Credit bal. of properiotor on conversion into company

  • Radhe Sham Jain, 28 taxmann.com 255 (Chd)

  • Loan in lieu of bank guarantee by MD

    • Smt. G. Sreevidya, 24 taxmann.com 75 (Chennai)

  • Holding co. channelling loans from/to subsidiaries

    • Farida holdings (P.) Ltd., 21 taxmann.com 462 (Chennai)

    • Advance salary to Managing Director

    • N. Pramodh, 52 SOT 38 (Chennai)

  • Pradip N. Kapasi Chartered Accountant


    Deemed Dividend- 3

    • Tax in the hands of shareholders or recipients

      • BhaumikColour, 120 TTJ 865 (Mum.) (SB)

      • Universal Medicare, 237 CTR 147 (Bom.)

    • Registered & Beneficial Owner

      • Hotel Hilltop, 217 CTR 527 (Raj.)

      • Ankitech (P) Ltd., 242 CTR 129 (Del.)

    • Where partnership is a recipient

      • National Travel Service, 202 Taxman 327 (Del.)

      • ChandmullBatia, 115 ITR 388 (Cal.)

    • Where beneficiary; HUF, Trust, AOP, BOI,

    • Two or more persons with substantial interest

      • None. Anyone. Proration

    Pradip N. Kapasi Chartered Accountant

    Pradip N. Kapasi Chartered Accountant


    Deemed Dividend- 4

    • Need for Economic benefit

      • Swati Energy & Projects Pvt. Ltd., 11 ITR (Trib.) 705 (Mum.)

    • Loan to a Debenture holder

      • Anilkumar Agarwal, 132 ITD 314 (Mum.)

    Pradip N. Kapasi Chartered Accountant


    Minimum Alternative Tax- 1

    • Clause (i) in Expl 1 inserted w.r.e. from 2001

    • ‘provision’ and ‘erosion’

      • Whirlpool of India Ltd., 31 taxmann.com 200 (Delhi)

    • S. 80IB deduction and Book Profit

    • Sankhala Polymers , 31 taxmann.com 166 (Karnataka)

    • Capital gains on sale of property reflected in bal.sheet.

    • Forever Diamonds (P) Ltd. 31 taxmann.com 152 (Mum)

    • Loan liability credited to profit and loss account

    • Dream Shelters (P) Ltd. 56 SOT 440 (Agra)

    Pradip N. Kapasi Chartered Accountant


    Minimum Alternative Tax- 2

    • Provision for gratuity & MAT

    • Echjay Forgings (P) ltd., 251 ITR 15 (Bom)

    • Rotork Controls India (P) Ltd. 314 ITR 62 (SC)

    • Inox Leisure Ltd. , 351 ITR 314 (Guj)

    • Provision for warranty & dimi. in value of assets

    • Becton Dickinson India (P) Ltd., 29 taxmann.com 80

    • Incremental liability for leave encashment

      • not debited to P & L A/c but referred in notes

        • K.K. Nag Ltd., 52 SOT 381

    Pradip N. Kapasi Chartered Accountant


    Minimum Alternative Tax- 3

    • Agreed Additions

    • Dream Shelter (P) Ltd., 56 SOT 440

    • Withdrawal of MAT & DDT exemption to SEZ

    • promissory estoppel

      • Mindtree Ltd, 34 taxmann.com 250 (Karnataka)

  • Priority of credit u/s 115JAA over SC & EC

    • Classic Shares & Securities (Mum.), ITA No. 5869/Mum/2007

  • Depreciation at different rates

    • MalayalaManorama Ltd, 300 ITR 251 (SC)

    • Dynamic Orthopedics, 321 ITR 300 (SC)

  • Loss on reduction in share capital

    • SumiMotherson, 2010-TIOL-756-Delhi

  • Pradip N. Kapasi Chartered Accountant


    Firm to Company

    • Appreciation on revaluation of Assets and capital gains tax

      • Alta Inter-chem Industries 32 taxmann.com138 (Ahd)

    • Receipt of higher number of shares on revaluation

      • Nayan L. Mepani, 49 SOT 641

    • Slump sale by a proprietor to a company & eligibility

      • Madan Mohan Chandak, 47 SOT 207 (Chennai)

    • An income otherwise not taxable & violation of S. 47A(3)

      • Umicore Finance Luxembourg, 189 Taxman 250

    • Delay in allotment of shares on conversion and S. 47 (xiv)

      • Sanjay Singh, 50 SOT 67 (Delhi)

      • Prakash Electric Co., 118 TTJ 539 (Bang.)

    Pradip N. Kapasi Chartered Accountant


    Amalgamation & Demerger-1

    • Benefit of S. 47(v) only to wholly owned subsidiary

      • Sunaero Ltd., 345 ITR 163 (Delhi)

    • Reserves representing gains on amalgamation

      • Spencer & Co., 148 TTJ 421 (Chennai)

    • Holding and subsidiary company - sole shareholder

      • Credit Suisse (Int), 349 ITR161 (AAR)

    • Gift of shares of Indian Co.

      • By foreign company to its Indian subsidiary

        • Orient Green Power Pte. Ltd., 346 ITR 557 (AAR)

    Pradip N. Kapasi Chartered Accountant


    Amalgamation & Demerger-2

    • ‘Appointed day’ approved by the court & AO

      • Indus Fila Ltd., 142 ITD 296 (Bom)

      • Marshal & Sons, 223 ITR 809 (SC)

      • Torrent P. Ltd, 354 ITR 34 (Guj.)

    • BIFR’s power to grant benefit of S. 72A

      • without consulting CBDT after 1.4.2000

        • Orient Vegetax Pro Ltd., 210 Taxmann 1(Delhi)

        • Indian Shaving Products Ltd., 218 ITR 140 (SC)

    • Directions of BIFR are binding on AO

      • Kirloskar Oil Engines Ltd., 54 SOT 201(Pune)

    Pradip N. Kapasi Chartered Accountant


    Amalgamation & Demerger-3

    • Demerger and tax savings

      • Vodafone Essar Ltd. 24 taxmann.com 323 (Guj)

    • S. 72A & c/f and set off of S. 35 expenditure

      • Mahyco Vegetable Seeds Ltd., 123 ITD 40 (Mum)

    • Deduction for bad debts of predecessor company

      • Times Business Solutions, 33 taxmann.com 173 (Delhi)

    • Set-off of losses of amalgamated company-

      • Reverse merger

        • Wrigley India (P) Ltd., 142 TTJ 23 (Del.)

    Pradip N. Kapasi Chartered Accountant


    Amalgamation & Demerger – 4

    • S.47(vii) and s.2(19AA)

      • W.e.f. 01.04.2013, A.Y. 2013-14

      • Saving from allotment of shares in consideration

      • Where concerned company a shareholder

      • Prospective application, only

    Pradip N. Kapasi Chartered Accountant


    Buy back of shares-I

    s.10(34A) & Chapter XII DA & s.115QA to QC,

    • Introduction w.e.f. 01.06.2013

    • Present position

      • Not a dividend u/s 2(22)

      • Taxable as capital gains u/s 46A

      • No specific provision for dealer in shares

      • No tax on company

      • Amendment

      • Tax on Domestic company buying back shares

        • Tax @20% +SC+EC

        • Deduction for amount received for shares - Premium

        • Provisions for payment and recovery

        • Shares of company not listed on recognized SE

    Pradip Kapasi & Co.


    Buy back of shares-IIs.10(34A) & Chapter XII DA & s.115QA to QC,

    • Applicable to:

      • All unlisted companies

      • All shares -Preference shares

      • All shareholders

      • Buy back as per s.77A of Companies Act,1956

      • Tax not deductible for company

    Pradip Kapasi & Co.


    Buy back of shares-IIIs.10(34A) & Chapter XII DA & s.115QA to QC,

    • Parallel provisions of s.46A

    • Cost of acquisition of shareholder

    • Treatment of losses

  • Exemption in hands of shareholder of receipts

    • Where tax paid by company u/s 115QA

    • No credit for taxes paid for shareholders

  • Pradip Kapasi & Co.


    DDT- s.115-O (IA)

    • W.e.f. 01.07.2012

    • One cascading effect of DDT on Dividend relaxed

    • Distribution by recipient domestic company eligible for relief

      • Need not be an ultimate holding company

      • May be subsidiary of another upstream company

    • Concession only for group companies

    • Amendment w.e.f. 01.06.2013

    • Further relief from cascading effect

    • Receipt of dividend by Indian company

      • From foreign subsidiary co

      • Tax payable u/s. 115BBD

      • One time reduction

    Pradip N. Kapasi Chartered Accountant


    Dividend from Foreign Co - s.115BBD

    • Amendment w.e.f. AY 2014-15

    • Receipt of dividend by a Indian Co

    • From foreign subsidiary co( 26 per cent)

    • Tax @ 15%

    • Benefit extended once more to FY 2013-14

    Pradip Kapasi & Co.


    Public Offer & Exemption u/s 10(38)

    • Amendment of Finance Act, 2012 for STT

      • Offer for sale of unlisted equity shares to public in an IPO

      • STT @ 0.2% by lead Merchant Banker form Seller

      • Subsequent Listing on recognized Stock Exchange

    Pradip N. Kapasi Chartered Accountant


    Securitization Trusts -Is.10(23DA), 10(35A) & Chapter XII EA s.115TA to 115TC

    • Amendment w.e.f. 01.06.2013

    • New provision for exemption for Secu. Trust

      • Income from activity of securitization

      • Trust regulated by RBI or SEBI

      • Additional tax on distribution of income on Trust

      • Tax@25% plus SC+EC

      • Tax@30% plus SC+EC

      • Nil where investor is exempted from tax

      • Tax on distribution

      • Provisions for payment return and recovery

      • Exemption for Beneficiaries(Investor)

      • DDT for Investor

    Pradip Kapasi & Co.


    Securitization Trusts -IIs.10(23DA), 10(35A) & Chapter XII EA s.115TA to 115TC

    • Material difference from s.10(23FB)

    • Tax on income after deductions

    • Treatment of losses of investor

    • Securitization company

    Pradip Kapasi & Co.


    Insurance Policies s.10(10D)&s.80C(3A)

    • Amendment w.e.f. A.Y. 2014-15

    • Exemption u/s 10(10D) for receipt under a LIP

      • Premium <= 10% of sum assured

      • Deduction u/s 80C for premium under LIP

      • Relaxation for Disabled or Diseased Recipient

      • Premium <= 15% of sum assured

    • No exemption for sum received under a KIP

    • KIP assigned before maturity

      • Rajan Nanda, 349 ITR 8(Del.)

      • Amendment for continued treatment as a KIP

    Pradip Kapasi & Co.


    Investment Allowance -I s .32AC

    • Introduction For A.Y. 2014-15 & A.Y. 2015-16

    • New Allowance only for companies

    • Engaged in business of manufacture or production

      • Article or thing

    • New P&M acquired and installed

      • After 31.03.2013 but before 01.04.2015

    • Actual cost of new assets to exceed Rs. 100 crore

      • During 1.4.2013 to 31.3.2015

    • Usual exclusions

    Pradip Kapasi & Co.


    Investment Allowance -II s .32AC

    • Not to reduce WDV and quantum of depreciation

    • No provisions for Reserve and Utilization

    • No provision for carry forward of allowance

    • Book Profit unaffected- MAT leviable

    • No transfer within 5 years of installation

    • Deemed income of year of transfer

      • Exception for amalgamation and/or demerger

    Pradip Kapasi & Co.


    Investment Allowance -III s .32AC

    • Investment=cost of purchase + installation expenses

    • Advance/WIP before 1.04.2013

    • Allowance @ 15% of Actual cost

    • A.Y. 2014-15 only if cost exceeds Rs.100 crore

    • A.Y. 2015-16 on entire cost

    • Reduced by cost for which ded. allowed in A.Y. 2014-15

    Pradip Kapasi & Co.


    Commodity Derivatives & CTT S.36(1)(xvi)& 43(5)

    • Introduction w.e.f. 2014-15

    • Commodity derivative

      • Non speculative u/s 43(5)

      • Eligible transaction & Compliance

    • Commodity Transaction Tax

      • Eligible for deduction

        • Where income included in business income

        • Pertains to taxable commodities transactions

    Pradip Kapasi & Co.


    Employment of New workmens.80JJAA,cl.18

    • Amendment w.e.f. AY 2014-15

    • Deduction to cos for wages to new workmen

    • New stipulations

      • Deduction for profits and gains derived from

        • ‘Factory’ in place of ‘Industrial Undertaking’

        • ‘Manufacture’ in place of ‘Manufacture or production’

        • ‘Gods’ in place of ‘Article or thing’

        • ‘Hive off or transfer or acquired on amalgamation of IU’ in place of ‘formed by splitting up or reconstruction or amalgamation of a company’

      • Panacea Biotec Ltd, 121 TTJ 959(Del.)

      • Texas Instruments (India)P. Ltd, 115 TTJ 976 (Bang)

    Pradip Kapasi & Co.


    Receipt of shares by CHC & Firm -I s.56(2)(viia)

    • Receipt of shares of a non s. 2(18) company

    • By ‘firm’ and ‘company’ recipients

      • s. 2(18) company excluded

      • LLP included

    • With/out consideration > Rs. 50,000, whole

    • FMV as per Rules 11U & 11UA

    • By or From –Resident or not

      • COA in hands of recipient – s.49(4)

    • Substantive not clarificatory

    • Shares

      • Preference shares included – CD not included

      • Rights not included - Shares of subsidiaries

    Pradip N. Kapasi Chartered Accountant


    Receipt of shares by CHC & Firm -IIs.56(2)(viia)

    • Exclusion for transfers s. 47(via),(vic),(vicb),(vid),(vii)

      • Amalgamation, demerger, co-op. bank succession

    • No exclusions

      • Similar to s. 56(2)(vii) – Relative, etc.

      • For stock-in-trade

      • For shares of foreign companies

      • For other exempted transfers

      • For deemed transfers

    • Adjustment in purchase cost

    • W.e.f. 01.06.2010

    Pradip N. Kapasi Chartered Accountant


    Receipt of ‘premium’ by CHC s.56(2)(viib)

    • Issue of shares by closely held company, A.Y. 2013-14

      • Receipt’ by a ‘CHC’ from a ‘resident’

      • Consideration for ‘issue’ of ‘shares’

        • Where exceeds face value

          • Tax on excess over FMV of shares -Rs.50,000

    • Exemption for issue by VCC, VCF and VCU

      • FMV as per prescribed method or satisfaction of A.O.

  • Non resident, R&NOR

  • Preference shares

  • Income of the company

  • Pradip N. Kapasi Chartered Accountant


    Share Capital and s.68- Amendments -I

    • Three Amendments of FA, 2012- w.e.f. A.Y. 2013-14

    • Law of cash creditors up to A.Y. 2012-13

    • Provisions. Essentials. Case Laws. Rate

      • S. Hastimal, 49 ITR 273 (Mad.) –Source of source

      • Lovely Exports (P) Ltd., 216 CTR 195 (SC)

        • Shareholders name & address

      • Steller Investment Ltd., 115 Taxman 99 (SC)

        • Non- genuine (Owners of Funds)

      • Divine Leasing, 158 Taxman 440 (Del.)

        • Non- genuine (Owners of Funds)

      • Onus shifted to AO to examine capacity

    Pradip N. Kapasi Chartered Accountant


    Share Capital and s.68- Amendments-II

    • Expanding and extending onus for certain receipts

      • Share capital. Share premium. Likereceipts

      • From resident- VCC & VCF excluded

      • Closely held company

    • Onus to explain sources of source of receipt

      • Payer to offer explanation- nature & source

      • Satisfaction of AO

      • On notice by AO to Payer

      • Relevance of satisfaction of Payer’s AO

    • Consequence

      • Income of CHC

      • Tax at 30% u/s 115BBE

      • Absence of discretion

    Pradip N. Kapasi Chartered Accountant


    Liquidation s. 46

    • COA of asset in the hands of shareholder

      • FMV on the date of distribution

      • Not to be reduced by Deemed dividend

      • S. 49 (1)(iii)(c) and s. 55(2)(b)(iii) - applicability

        • T.R.Srinivasan, 133 TTJ 49(Chennai)

    • Piecemeal taxation and deduction of COA

      • Cable and Wireless Ltd., 90 ITR 84 (Bom)

      • Inland Agencies (P) Ltd., 143 ITR 186 (Mad)

    • Benefit of reinvestment

      • Ruby Trading Co. P. Ltd., 259 ITR 54 (Raj)

      • Brahmi Investment P. Ltd., 48 TTJ 326(Ahd.)

    • Exemption – distribution of qualifying asset

      • ‘Purchase’ or not for s. 54F

    • Distribution of stock - ‘other asset’

      • Taxability of capital gains

    • Applicability of s. 50C

    Pradip N. Kapasi Chartered Accountant


    Deemed Speculation 1

    • Application to a Broker

      • PriyashaMever Finance P.Ltd., 5 ITR 441 (Mum)(Trib.)

    • Excl. of speculation loss for deciding applicability

      • Paramount Info. Systems P.Ltd., 42-A BCAJ 169(Mum),

    • Set-off of Expl. loss and amendment of 2006

      • Virendrakumar Jain, 42-A BCAJ 169(Mum.)

      • Expl. to s.73 inapplicable to profit

      • AppolloVikas Steels (P.) Ltd., 214 Taxmann 642 (Guj.)

      • Order of set off against current years spec. profit

      • Ashok Mittal, 213 Taxmann 197 (Delhi)

    Pradip N. Kapasi Chartered Accountant


    Deemed Speculation 2

    • F& O Losses not covered by Expl. to s.73

      • Madanlal Ltd, 51 SOT 188 (Kol.)

      • Exception to apply after set off within the business head

      • Darshan Securities Ltd., 341 ITR 556 (Bom.)

    Pradip N. Kapasi Chartered Accountant


    ESOP & DOA

    • Admissibility as business expenditure

      • S.S.I. Industries , 85 TTJ 1049 (Chennai)

      • Ranbaxy Laboratories Ltd, 124 TTJ 771 (Del.)

      • PVP Ventures Ltd, 211 Taxman 554 (Mad.)

    • Date of offer or grant or allotment

      • Dr. Dhurjati Gupta, 127 TTJ 356 (Hyd.)

      • Pramod H. Lele, 143 TTJ 721 (Mum.)

      • Amrish Kumar Jhamb, 32 taxmann.com 210 (Del.)

    Pradip N. Kapasi Chartered Accountant


    Method of Accounting, AS & Company

    • S.209 of Companies Act

    • Cash system of accounting

      • Stup Consultants Pvt. Ltd., 13 ITR (Trib) 468 (Mum.)

    Pradip N. Kapasi Chartered Accountant


    Income during Construction Period

    • Tuticorin Alkali, 227 ITR 172 (SC)-Interest

    • Bokaro Steel, 236 ITR 315 (SC)-Rent

    • Neha Proteins Ltd, 306 ITR 102 (Raj.)- Set-off

    • Winsome Dyeing, 10 DTR 207 (HP) -Taxable

    • L.G. Electronics, 309 ITR 265 (Del.)-Set-off

    Pradip N. Kapasi Chartered Accountant


    Corporate expenses -I

    • S.35 (2AB)(1), SRE – outsourced

      • Cadila Healthcare Ltd., 31 taxmann.com 300 (Guj)

    • Fereebies by Pharmaceutical companies

      • Circular 5 of 2012

    • S. 35DDA - VRS Scheme in accordance with R. 2BA

      • Implication of non-compliance

        • Warner Lambert, 143 TTJ 571 (Mum.)

        • Sony India Ltd., 141 TTJ 432 (Del.)

    Pradip N. Kapasi Chartered Accountant


    Corporate expenses -II

    • Brand Building expenes

      • Fine Jewellery , 56 SOT 226(Mum.)

    • Non-compete fees

      • Payer’s perspective

        • Revenue or capital

        • Depreciation- tangible or intangible

      • Payee’s perspective

        • Capital receipts- capital gains, s. 55(2)

        • Business income s.28(va)

    Pradip N. Kapasi Chartered Accountant


    Loan to Subsidiary- s.36(1)(iii)

    • Interest free and investment in shares

      • commercial expediency

        • S.A. Builders, 288 ITR 1 (SC)

        • Tulip star Hotels Ltd. (SC)

    • Effect of s.14A on investment in shares

    Pradip N. Kapasi Chartered Accountant


    Fluctuation in Rate of Exchange

    • Currency translations – year end

      • MarutiUdyog Ltd., 320 ITR 729 (SC)

      • Woodward Governor , 312 ITR 254 (SC)

    • Forex forward contracts

      • Open ended

      • Nature of loss

      • Accounting

      • Taxation

        • Panchmahal Steel Ltd., 33 taxmann 10 (Guj)

        • S.Vinodkumar Diamonds Pvt.Ltd. ,ITA No. 506/M/2013(Mum.)

        • Circular No.3 of 2010 dt. 23.03.2010

    Pradip N. Kapasi Chartered Accountant


    Disallowance u/s 40(a)(ia) & TDS-1

    • ‘Paid’ and ‘Payment’

      • Sikander N. Tumken --- taxmann.com --- (Guj)

      • Crescent Exports (Cal), 33 taxmann.com 250 (Kol)

      • Md. JakirHossainMondal 33 taxmann.com 123 (Cal)

      • Merilyn Shipping,146 TTJ 1 (Vizag) (SB)

      • S. 40 (a)(ia), tax not deducted but paid

        • Rana Builders, 31 taxmann.com, 372(Rajkot)

    • Short withholding, rate or section

      • Chandabhoy & Jassobhoy, 49 SOT 448 (Mum.)

      • Beekaylon Synthetics, 6506/M/2008 (Mum.)

    • Not credited, not paid,

      • Pranik Shipping & Services Ltd. 135 ITD 233 (Mum.)

    Pradip N. Kapasi Chartered Accountant


    Disallowance u/s 40(a)(ia) & TDS-2

    • Second proviso and retrospectivity

      • Bharati Shipyard, 132 ITD 53 (Mum.) (SB)

      • Virgin Creations, ITA No. 302 of 2011 (Cal.)

      • Rajamahendi Shipping, 51 SOT 242 (Vizag)

    • Marginal relief for initial assessment years

      • Kotak Securities Ltd., 340 ITR333 (Bom.)

      • DICGC Ltd., 14 ITR (Trib) 194 (Mum.)

      • Dynamic Vertical Software, 332 ITR 222 (Del.)

      • FA, 2012 Amendment

      • Relief & Retrospectivity

    Pradip N. Kapasi Chartered Accountant


    THANK YOU

    Pradip Kapasi & Co.


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