December 2016 newsletter

of 11 Newsletter – December 2016 © Utsav Shah & Associates
Volume 1 All rights reserved
Newsletter – December 2016
Volume 1
Utsav Shah & Associates
Chartered Accountants
Tax | Assurance | Transactions | Advisory | Outsourcing

of 11
Income Tax
International Tax
Transfer Pricing
GST updates
Allied Laws
Compliance schedule
Newsletter – December 2016 © Utsav Shah & Associates
Contents
International Tax
Transfer Pricing
Compliance schedule
av Shah & Associates

► Circular No. 38/2016 dated 22 November 2016 issued by CBDT
In the aforesaid Circular, the CBDT has accepted the position that premium paid by a
partnership firm on Keyman Insurance Policy (KIP) on life of a partner is allowable as
business expenditure in the hands of the firm.
The CBDT accepted this position in light of various High Court rulings wherein it was held
that KIP obtained to secure the life of partner with an objective to ensure smooth
functioning of business and to avoid any disruption in the firm’s business due to untimely
death of partner is wholly and exclusively for the purpose of firm’s business and hence,
premium is allowable as business expenditure in the hands of the firm.
► CBDT: PAN mandatory for cash deposits of Rs 50,000 (daily) and Rs 250,000 upto 31
December 2016
CBDT has mandated every person to quote PAN in all documents pertaining to cash
deposits with Banks / Post office:
i) exceeding Rs. 50,000 during any one day; or
ii) aggregating to more than Rs. 2,50,000 during 9 November to 30 December, 2016;
Similarly, banks/ post office are required to report transactions of cash deposits of
Rs. 2,50,000 or more in one or more accounts of a person during 9 November to 31
December 2016.
Accordingly, CBDT has amended Rule 114B (transactions in relation to which PAN is to be
quoted) and Rule 114E (furnishing statement of financial transaction) to give effect to the
Demonetisation Scheme and notified Income-tax (30th
Amendment) Rules, 2016.
► Union Budget to be presented on February 1
Government says Union Budget to be presented on February 1.
► CBDT restricts tax depreciation rate to 40% on all depreciable assets
CBDT has issued Notification No. 103/2016/F. No. 370142/29/2016 – TPL dated 7
November 2016 to amend rules relating to depreciation allowance for tax purposes.
The Notification restricts the highest rate of depreciation to 40% for all assets which were
eligible for depreciation at a rate higher than 40%. It applies to all taxpayers, including
newly set-up domestic manufacturing companies set up and registered on or after 1 March
2016, which opt for concessional rate of 25% rate of tax (instead of normal rate of 30%)
without any tax incentives (new companies).
It is stated in the Notification that the effective date of this change is 1 April 2016 for new
companies and 1 April 2017 for other taxpayers.
Income Tax

► Government introduces amendment to IT Act pursuant to demonetization
Government introduces comprehensive proposals to tax unexplained demonetization
deposits; Proposes another Income Disclosure Scheme by the name of 'Pradhan Mantri
Garib Kalyan Yojana''
Scheme proposes 30% tax on income declared under section 199C of Finance Act, 2016
(pertaining to AY prior to AY 2017-18) plus 33% surcharge on tax. Further, the scheme also
proposes penalty at 10% of undisclosed income under section 199E of Finance Act, making
the effective tax rate 49.9% under the Scheme.
The scheme can be availed by any 'declarant' who makes a declaration in respect of any
income in the form cash or deposit in bank account. Declarant is required to deposit 25% of
undisclosed income under section 199C into ‘Pradhan Mantri Garib Kalyan Deposit
Scheme’, entailing 4 years lock-in and 0% interest rate. Such income is not to be included
in total income of declarant for any AY under Income-tax Act.
Finance Minister also proposes amendments to Income tax Act to tax unexplained cash
deposits, amendments to be effective from AY 2017-18. Section 115BBE proposed to be
amended, providing for 60% tax rate for income declared under section 68, 69, 69A, 69B,
69C, 69D of Income tax Act along with surcharge at 25% tax (i.e. 15% of income). Tax rate
of 60% applicable irrespective of whether income declared by the assessee in return of
income or determined by the AO.
The Bill also inserts section 271AAC to provide that income taxed under section 115BBE as
above which is not declared by assessee in his return of income, would be subject to
penalty at 10% of the tax payable.
Further, Bill proposes amendment to section 271AAB to introduce two-tier penalty regime of
30% & 60% (subject to fulfilment of conditions) in respect of searches initiated after
Presidential assent to Finance Bill, 2016 (Union Budget 2016 proposals ) and upto passing
of this amendment Bill.
► MRF Ltd (Madras High Court)
During the tax year consideration, Taxpayer, as a result of a favourable decision of the
Hon’ble Supreme Court of India rendered in later part of the year, became entitled to
receive certain income relating to purchase tax benefits that was disputed by the Kerala
Sales Tax Department. Taxpayer’s contention that shortfall in advance tax was due to an
event which Taxpayer could not anticipate at the time of payment of first two advance tax
instalments was rejected by the tax authority. The HC also held that interest levy under
section 234C is mandatory and automatic. The reason or the cause for such delay or for
deferment of payment of advance tax is immaterial.
► MSM Satellite (Singapore) (Mumbai ITAT)
Mumbai ITAT quashed DRP's dismissal of assessee's application under section 144C(13)
on the ground that assessee filed only a scanned copy of application in Form 35A by
holding that such defect is curable under section 292B. The ITAT opined that the term
'other proceedings' appearing in section 292B (dealing with grounds on which return of
income, etc. shall not be regarded as invalid) “is residual and generic in nature and it is
Recent Judgements

wide enough to cover the present defect or omission of replacing the scanned copy with the
original”.
► Madhya Gujarat Viz. Co. Ltd. (Ahmedabad ITAT)
The ITAT upheld disallowance under section 43B on unpaid service tax for AY 2006-07.
The ITAT observed that the assessee had charged service tax from its customers on the
services rendered and tax so charged was not paid to the credit of government. It opined
that section 43B(a) has been enacted for taxes remaining payable at the year-end and are
still not paid before return filing due-date. It clarified that “section 43B(a) does not have a
direct link of the amount of tax to be passed through P&L account, rather it is in the nature
of “check” by the statute to ensure that the assessee makes payment of the tax collected to
the concerned department and if he is unable to do so the amount is added to its income.
► International Ships Stores Suppliers (Mumbai ITAT)
ITAT upheld disallowance under section 40A(3) in case of assessee (engaged in shipping
business) for making cash payments exceeding the prescribed limit of Rs 20,000 during AY
2009-10; It held that mere finding of the purchase transactions as genuine would not take
the same beyond the scope and ken of section 40A(3) disallowance and that but for the
cases covered by Rule 6DD exceptions, section 40A(3) disallowance is mandatory in
nature.

► CBDT signs 4 more unilateral APAs increasing the total to 115 agreements
CBDT signs 4 more unilateral APAs with Indian taxpayers which takes the total tally to 115.
Some of the APAs signed also have a “Rollback” provision in them. These 4 APAs pertain
to various sectors of the economy like pharmaceuticals, Information Technology and
construction; International transactions covered in these agreements include software
development Services, IT enabled Services (BPOs), Engineering Design Services, Contract
R&D Services and Marketing Support Services
► India seals automatic information exchange agreement with Switzerland – Info flow from 2019
India & Switzerland signed 'Joint Declaration' for implementation of automatic exchange of
information (AEOI). Accordingly, from September 2019 onwards, India can receive financial
information of accounts held by Indian residents in Switzerland for 2018 and subsequent
years, on an automatic basis. The CBDT press release states that signing of Joint
Declaration between India and Switzerland would further the goal of the Government to
fight the menace of Black Money stashed in offshore accounts which has been the
Government's key priority area.
► Revised tax treaty between India and Cyprus
The Government issued a Press Release on 18 November 2016 announcing the signing of
the revised DTAA between India and Cyprus, along with its Protocol. As per the Press
Release, the revised DTAA will replace the 1994 DTAA and it provides for the following:
► Source-based taxation of capital gains arising on alienation of shares;
► Investments made prior to 1 April 2017 are grandfathered and will continue to be taxed
exclusively in the resident country;
► New provision on “Assistance in Collection of Taxes”;
► Provision on “Exchange of Information” (EOI) has been updated to bring it in line with
international standards, to allow exchange of banking information and use of such
information for purposes other than taxation;
► Scope of “Permanent Establishment” has been expanded;
► Rates of taxation on “royalty” has been reduced to 10% (from current 15%) to align with
the Indian Tax Laws;
► Other provisions have been updated in accordance with international standards and
consistent with India’s policy in respect of DTAAs.
The revised DTAA will enter into force after completion of the necessary internal
procedures in India as well as Cyprus, and is expected to come into effect in India in
respect of income derived in fiscal year beginning on or after 1 April 2017.
► Mauritius joins BEPS inclusive framework
Mauritius joins BEPS 'inclusive framework' becoming the 90th
member. As part of inclusive
framework, Mauritius to participate with OECD and G20 countries in BEPS implementation
on an 'equal footing'.
International tax

► Technimont ICB Pvt Ltd (Bombay High Court)
HC admitted Revenue’s appeal against ITAT decision for AY 2008-09 deleting TP
adjustment by considering segmental results for ALP determination. Revenue questioned
correctness of ITAT decision in accepting the corrected audited segmental results provided
by assessee without appreciating TPO’s objection that complete details with evidence of
the bidding activity was not furnished. TPO had rejected assessee’s submission that loss of
30.66% was mainly incurred at pre-bidding stage of 11 projects and held that segmental
accounts furnished by assessee were not reliable in absence of evidence. TPO had
proposed adjustment on the basis of entity level PLI. ITAT had held that segmental results
were to be considered and not profitability at entity level, as assessee was maintaining a
system to track man hours utilized for each project, on the basis of which segmental
accounts were prepared.
► TNT India Pvt Ltd (Bangalore ITAT)
ITAT allows assessee’s appeal for selection of foreign AE as tested party for AYs 2003-04
and 2004-05 and directed TPO to verify financial data of the foreign comparables as
provided by assesse. Assessee provided Express services within India for its Group
companies, and contended that in the case of outbound consignments (which generated
approximately 97% of overall revenue), assessee was acting as an entrepreneur whereas
in respect of inbound consignments, it was acting as a mere service provider for delivery of
the consignments to destinations within India. Assessee thus considered the Group
companies as tested party for outbound consignments and assessee as tested party for
inbound consignments and selected independent service providers from European and US
region i.e. foreign comparables. Considering the lack of Indian comparable companies,
ITAT held that it was more appropriate to select foreign AE as the tested party.
► Ucal Fuel Systems Ltd (Chennai ITAT)
ITAT deleted TP addition on interest free advances given by assessee to its wholly owned
subsidiary in USA whose capital stood completely eroded and which was suffering
continuous losses. ITAT held that finding a comparable uncontrolled transaction, where a
loan was given to an entity which was subsidiary to the tested party, and whose capital
stood completely eroded due to loss was not practical or feasible. It further held that
fastening of an interest rate on the assessee when there was no comparable uncontrolled
rate that could have been identifiable was incorrect.
Transfer Pricing

► GST Council may reduce tax slabs in future: CBEC chief Najib Shah
The GST Council may in future decide to reduce the tax slabs under the Goods and
Services Tax regime after analysing the revenue garnered and the compensation payouts
to states, a top official said today.
With industry demanding lowering of proposed GST rates of 5 per cent, 12 per cent, 18 per
cent and 28 per cent post the demonetisation, CBEC Chairman Najib Shah said the Centre
and the states at present collect Rs 8 lakh crore from indirect taxes, minus customs duty,
and the same level of revenue has to be collected in the GST regime.
Any change in tax slab is possible after assessing the revenues and the effect of
exemptions and deductions given in the new tax regime and analysing it with the
expenditure.
Source: Business Standard New Delhi,09th December 2016
GST Updates

► Change in provisions relating to Provident Fund Inoperative Account
On 11 November 2016, the Ministry of Labour and Employment has issued a notification
amending the provisions relating to Provident Fund Inoperative Account.
Under the amended provisions:
(a)When would a Provident Fund account not become “Inoperative Account”:
On termination of employment (provided the employee does not take up another
employment in a covered establishment within 2 months) – If the employee does not make
an application for withdrawal of accumulated balance in the Provident Fund account
(b)When would a Provident Fund account become “Inoperative Account”:
On retirement from services after attaining the age of 55 years or migration abroad
permanently or death – If the employee does not make an application for withdrawal of
accumulated balance in the Provident Fund account within 36 months
Thus, interest at specified rate will be credited to a Provident Fund account which was
earlier classified as “Inoperative Account” where the employee does not withdraw or
transfer past balance on termination of employment
Allied Laws

Laws
Monthly Compliance for the month of December 2016
Sr. No Particulars Date
1. Service Tax Payment 05−Dec−2016 / 06−Dec−2016
2. Central Excise Payment 05−Dec−2016 / 06−Dec−2016
3. TDS / TCS Payment/Remittance 07−Dec−2016
4. Central Excise Monthly Return 10−Dec−2016
5. STPI Monthly Returns 10−Dec−2016
6. CST Payment 20−Dec−2016
7. VAT Monthly Payment (Form 100) 20−Dec−2016
8. PT Payment – Employees 20−Dec−2016
9. ESIC Payment 21−Dec−2016
10. PF Payment 25−Dec−2016
Quarterly Compliance for the month of December 2016
1. Advance Tax Payment 15−Dec−16
Annual Compliance for the month of December 2016
1. VAT Audit Return 31−Dec−16
Compliance Schedule

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The information contained herein is in summary form and is therefore intended for general guidance only. This publication is not intended to address the
circumstances of any particular individual or entity. No one should act on such information without appropriate professional advice after a thorough
examination of the particular situation. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Before acting on
any matters contained herein, reference should be made to subject matter experts and professional judgment needs to be exercised. Utsav Shah &
Associates cannot accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication.

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