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April 2016

CORPORATE UPDATE
DIRECT TAX
IN THIS ISSUE
INTERNATIONAL TAXATION
DIRECT TAX
I. Receipt of non-compete fee, by a foreign company, towards refraining from INTERNATIONAL TAXATION
carrying on any activity in India is in the nature of business profits and in the
I. Receipt of non-compete fee, by a foreign company, towards
absence of PE in India cannot be made taxable - Trans Global PLC v. Director
of Income-tax (International Taxation)-3 (1), Kolkata [2016] 68 taxmann.com refraining from carrying on any activity in India is in the nature of

146 (Kolkata - Trib.)
The assessee was a UK based company and does not have any PE in India. It received non-
compete fee which refrained it from not carrying on the particular business activity in India.
Considering that PE does not exist for the company, such payment was not offered to tax
in India being in the nature of business profits.
II.
business profits and in the absence of PE in India cannot be
made taxable - Trans Global PLC v. Director of Income-tax
(International Taxation)-3 (1), Kolkata [2016] 68 taxmann.com
146 (Kolkata - Trib.)
Purchase of software which also involve downloading of same

This issue was not examined during the assessment proceedings. The assessment order to computer or making backup copies etc. would not amount to

was held as erroneous and prejudicial to the interests of the revenue by the Commissioner transfer of copyright or right therein, but only transfer of

under section 263 of the Act, alleging that the receipts fall under the head 'income from copyrighted product and, thus, will not be covered under

capital gains' towards the transfer of rights to carry on business in India. Accordingly, the definition of royalty under Double Taxation Avoidance

same was made subject to taxes in India.
The assessee preferred an appeal before the Income Tax Appellate Tribunal (ITAT), wherein
it was held that said non-compete fee received by assessee is a business receipt
assessable u/s. 28(va) of the Act, being a receipt towards a negative covenant and not
towards the transfer of any right by the assessee. However, in terms of Article- 7 of DTAA,
any business income arising to the enterprise of a contracting state is taxable only in the
state of residence and assessee being a non-resident company not having a permanent
establishment in India, is liable to tax in UK and not in India.
(Prepared by: Ms. Purnima Bajaj)
Agreement between India and Singapore (DTAA) - Capgemini
Business Services (India) Ltd. v ACIT 1(2), Mumbai - [2016] 68
taxmann.com 36 (Mumbai - Trib.)
III. Branch Profit Tax (BPT) is covered by the Double Taxation
Avoidance Agreement between India
and US (DTAA) and hence credit of the same is to be allowed to
the assessee in India - Capgemini Business Services (India) Ltd.
v ACIT 1(2), Mumbai - [2016] 68 taxmann.com 36 (Mumbai -
Trib.)

TRANSFER PRICING

I. Retrospective introduction of Explanation in Transfer Pricing

Provisions expanding the scope of 'international transaction' is
II. Purchase of software which also involve downloading of same to computer only effective from 1.4.2012, to the extent it deals with
or making backup copies etc. would not amount to transfer of copyright or Corporate Guarantee
right therein, but only transfer of copyrighted product and, thus, will not be
[Siro Clinpharm Private Limited v. DCIT (ITA Nos.
covered under definition of royalty under Double Taxation Avoidance
2618/Mum/2014)]
Agreement between India and Singapore (DTAA) - Capgemini Business
Services (India) Ltd. v ACIT 1(2), Mumbai - [2016] 68 taxmann.com 36
(Mumbai - Trib.) II. Alfa Laval India Ltd. v. Dy. Commissioner of Income Tax [ITA
No. 1457/PN/2010]
The assessee made a payment towards the purchase of shrink wrapped software from a
Singapore Company and contended that no taxes were liable to be deducted at source, as
DOMESTIC TAXATION
the payment was towards the purchase of copyrighted article. However, the tax officer held
that the payment is in the nature of royalty being made towards the purchase of right to use I. ITAT- Jaipur treats income from sale of shares as capital
the copyright / software. Accordingly the assessee was held liable to withhold taxes while gains, rejects Revenues stand that income would be assessed
making the payment to the Singapore Company. as business income; placing complete reliance on the latest
CBDT circular No. 6/2016.
The assessee preferred an appeal before Dispute Resolution Panel (DRP) against the order
of the tax officer, which however upheld the order of the tax officer and held the payment to [DCIT vs. Mahender Kumar Bader (ITA Nos. 605/JP/2013) for

be taxable as royalty both in terms of the Act and DTAA between India and Singapore. AY 2008-09]

On appeal before the ITAT it was held as under:

RECENT NOTIFICATIONS/CIRCULARS/PRESS RELEASE
Amendment in the definition of royalty under the Act, to include the payments towards
I. Draft rules for granting Foreign Tax Credit
computer software explicitly, cannot be read into the DTAA, and DTAA provisions being
beneficial over the provisions of the Act to be considered for determining the tax liability of II. Changes in Income Tax Return Forms for AY 2016-17 (Financial
the payee in India; Year 2015-16)
Definition of royalty provided by Article 12 of the DTAA covers a payment which is received
III. Income-tax (11th Amendment) Rules, 2016
as consideration for the 'use of' or the 'right to use' "any copyright of literary, artistic,
scientific work
including ". Hence, what is relevant is the consideration paid 'for the use of' or the right 'to INDIRECT TAX
use' any
Recent Notifications/Circulars/Instructions
'copyright'. The right to use a computer software/programme has not been specifically
mentioned in the DTAA; I. Mega Exemption Notification amended in order to exempt
Different benches of the Delhi High Court have been unanimous to hold that the license certain services provided by
granted to the licensee permitting him to download the computer programme and storing it Government or a Local Authority
in computer for its own use is only incidental to the facility extended to the licensee to make
use of the copyrighted product for his internal business purposes. The said process is
II. Clarification on issues regarding levy of Service Tax on the
necessary to make the program functional and to have access to it. Apart from such
services provided by
incidental facility, the licensee has no right to deal with the product just as the owner would
Government or a local authority
be in a position to do;
These license agreements in case of shrink wrapped software are thus the conditions of
the sale of the product and cannot be termed as a grant of license to use the product. III. Service Tax can be levied on freight even if same is included in
Accordingly payment made by the assessee cannot be termed as royalty and made liable customs value of imported goods
to tax in India.

FOREIGN EXCHANGE MANAGEMENT ACT

(Prepared by: Ms. Purnima Bajaj)
Foreign Exchange Management (Deposit) Regulations, 2016

I. Foreign Exchange Management (Deposit) Regulations, 2016

II. Foreign Exchange Management (Remittance of Assets)

III. Branch Profit Tax (BPT) is covered by the Double Taxation Avoidance Regulations, 2016

Agreement between India and US (DTAA) and hence credit of the same is to III. Overseas Direct Investment (ODI) Submission of Annual
be allowed to the assessee in India - Capgemini Business Services (India) Ltd. Performance Report (APR)
v ACIT 1(2), Mumbai - [2016] 68 taxmann.com 36 (Mumbai - Trib.)
IV. ODI Rationalization and reporting of ODI Forms
The assessee rendered Business Process Management Services to its group company in
US and credit of the branch profit tax paid by the assesseewas claimed by the assessee in
CORPORATE LAW
India. The credit claimed by the assessee was questioned by the tax officer and it was
rejected on the ground that Article 2 of the DTAA excludes 'accumulated earning tax' (AET) Judicial interpretation of the word continue as used in Section
from the definition of taxes and BPT being in the nature of AET, credit of the same cannot 196(3) of the Companies Act
be claimed in India in terms of DTAA.
I. Judicial interpretation of the word continue as used in Section
196(3) of the Companies Act, 2013.
The assessee, while filing objections against the aforesaid order before DRP, claimed that
BPT and AET being covered by different section of the US 'Internal Revenue Code' cannot
be seen and treated in the same way. However objections were rejected by the DRP and
credit of BPT was rejected.

Against this order the assessee preferred an appeal before the ITAT. It was held by the ITAT that Article II of the 'DTAA', read with the 'technical explanation to the convention' reveals
that the taxes which have been excluded from the purview of the DTAA have been specifically mentioned therein. Further, AET, which has been provided under section 531 of the
Internal Revenue Code of the US, is different from BPT which is dealt with under separate section 884. The 'section 884' dealing with BPT has not been specifically excluded from the
DTAA and, thus, being a part of the Internal Revenue Code is covered by the US treaty. This issue was accordingly decided in favour of the assessee.

(Prepared by: Ms. Purnima Bajaj)

TRANSFER PRICING

I. Retrospective introduction of Explanation in Transfer Pricing Provisions expanding the scope of 'international transaction' is only effective from 1.4.2012,
to the extent it deals with Corporate Guarantee [Siro Clinpharm Private Limited v. DCIT (ITA Nos. 2618/Mum/2014)]

Siro Clinpharm Private Limited (assessee) is a clinical research organisation and has provided corporate guarantee to Bank(s) on behalf of its Associated Enterprises (AEs), namely
Siro Clinpharm Germany GmbH, Germany and Siro Clinpharm Singapore Private Limited, Singapore without any fee or commission. However, the bank charges by Bank(s) were duly
reimbursed by the AEs during the AY 2009-10.

The TPO observed that corporate guarantee issued by the assessee is specifically covered by the definition of international transaction' under section 92B read with Explanation to
Section 92B(1) and had to be accordingly benchmarked. Also, that the guarantee provided by assessee on behalf of AEs was 'service' and that the assessee should have charged fees
at arm's length, since the assessee would not have taken such risk in case of a third party without consideration. Based on such observations, the TPO adopted 3% as arm's length
price for issuance of guarantee and made addition to the income of the assessee.

On an appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the order of TPO. The CIT(A) further mentioned that providing guarantee to the AE is not a shareholder
activity as argued by the assessee. In the view of CIT(A), shareholder activity is coordinating in nature and not specific activity of providing benefit to the AE incurring certain risk by
itself. Further, that such transaction has effect on income, profits or assets of the assessee and its AE. Accordingly, the CIT(A) held that providing guarantee is an international
transaction and income from such transaction has to be determined having regard to arm's length principle. Aggrieved, the assessee preferred an appeal before ITAT.

The ITAT, relying on the decision in the case of Micro Ink vs ACIT [(2016) 176 TTJ 8 (Ahd)], held that the issuance of corporate guarantee may have an 'influence' on the profits,
incomes, losses and assets of an entity, in whose favour the guarantee is issued, but it has no 'impact' on the profits, incomes, losses and assets of an entity issuing the guarantee as
long as it is issued without a consideration.

The ITAT, further, discussed the validity of insertion of explanation to section 92B by Finance Act 2012, dealing with corporate guarantee, with retrospective effect from April 1, 2002. It
held that the explanation to section 92B, at least to the extent of dealing with guarantee can only be effective prospectively, i.e. from 1st April, 2012 and since the case of the assessee
pertains to AY 2009-10 such amended provisions are not applicable. In this regard, the ITAT, relied on the decision of Hon'ble High Court of Delhi in the case of DIT vs New Skies
Satellite BV [TS-64- HC -DEL (2016)], wherein it was held that if a clarificatory amendment in its true nature expands the scope of section it seeks to clarify, it cannot be given
retrospective effect. The ITAT further placed reliance on the decision of ITAT, Delhi in the case of Bharti Airtel Limited Vs ACIT [(2014}63 SOT 113 (Del)], wherein it was held that though
the scope of a charging provision can be enlarged with retrospective effect, but not an anti-avoidance measure like transfer pricing legislation, which mainly seeks compliant behaviour
from the assessee vis--vis certain norms, and such norms cannot be given effect from a date earlier than the date norms are being introduced.
Based upon the aforesaid views, the ITAT deleted the addition made on account of guarantee fee and held that amendment in section 92B to the extent it deals with corporate
guarantee, is effective from April 1, 2012.

(Prepared by: Ms. Shweta Kapoor)

II. Alfa Laval India Ltd. v. Dy. Commissioner of Income Tax [ITA No. 1457/PN/2010]

In the present case, the Income Tax Appellate Tribunal, Pune ('ITAT') held that the transfer pricing addition cannot be made merely because no agreement exists between the AEs in
relation to intra-group services.

Alfa Laval India Ltd. (assessee) is a manufacturer of machinery for dairy products and entered into various international transactions with its Associated Enterprises (AE) including
payment of Purchase Fee to its AE, namely Alfa Laval Tumba, Sweden, which acted as the Central Purchasing Organisation (CPO). As a CPO, the AE of the assessee was incharge for
identifying and developing vendors who were capable of supplying various critical materials used for production by various Alfa Laval companies globally and also to negotiate with the
suppliers at the group level on prices. The share of costs of each group company was calculated on the basis of rate of estimated purchase by each company to the total estimated
purchase of the group.

The assessee applied Transactional Net Margin Method to benchmark the purchase fee paid to CPO. The TPO, however, selected Comparable Uncontrolled Price method as the most
appropriate method and held the arms length price of the said transaction to be nil, holding that the assessee had failed to substantiate the benefits derived by it from the services of
CPO and had not entered into written agreement for receipt of such services. The addition was confirmed by the Dispute Resolution Panel. Aggrieved by the order the assessee filed
appeal before the ITAT.

The ITAT based on the documents placed on record observed that the email correspondences between the assessee and the AE substantiate that the services were availed by the
assessee from CPO. The ITAT further observed that the assessee had benefitted from the collective bargaining power of group and such collective purchases made by CPO helped in
maintaining the quality of products supplied by each of the entities of Alfa Laval Group.

The ITAT further observed that for each and every expenditure to be incurred by a concern there is no necessity of an agreement between the AEs and merely because no such
agreement has been entered into, does not merit the disallowance of the expenditure per se.

The ITAT relied on the decision of Dresser-Rand India (P.) Ltd. [2011] 13 Taxmann.com 82 (Mum), and held that it is the prerogative of the assessee to enter into a transaction or not
and as per law, the quantum of expenditure can no doubt be examined by the TPO, but he has no authority to disallow the entire expenditure in a summary manner.

Based on the above and on the fact that such payment was accepted to be at arms length in earlier years, the order of TPO was reversed.

(Prepared by: Ms. Shweta Kapoor)

DOMESTIC TAXATION

I. ITAT- Jaipur treats income from sale of shares as capital gains, rejects Revenues stand that income would be assessed as business income; placing
complete reliance on the latest CBDT circular No. 6/2016. [DCIT vs. Mahender Kumar Bader (ITA Nos. 605/JP/2013) for AY 2008-09]

Assessee, Mahender Kumar Bader, filed his return of income for AY 2008-09 declaring income from business, income from other sources and income from capital gains from sale of
shares. In respect of the income from capital gains, assessing officer after analyzing entire portfolio and purchase and sale transactions observed that the transactions entered into by
the assessee were voluminous, periodic, repetitive with great amount of regularity and therefore, treated the same as business income.

On appeal, CIT(A), allowed the appeal in favour of assessee and also took note of the fact that return for AY 2007-08 has been filed by the assessee on similar basis which was
accepted and not disturbed by the department.

On appeal by revenue, Honble ITAT held that assessee has treated the securities as investment and not as stock in trade in all the previous years, therefore, in view of the CBDT Circular
No. 6/2016 dated 29.02.2016, the revenue is not permitted to take a contrary view in the present year. Thus, the income from sale of shares, to the assessee should be treated as
Capital gain.

The circular No. 6/2016 dated 29.02.2016, gives the guidelines in respect of the tax liabilities of surplus from sale of listed shares for which reference may be made to our corporate
update for the month of March, 2016.

(Prepared by: Ms. Ritu Gyamlani/Ms. Sakshi Lahotia)

RECENT NOTIFICATIONS/CIRCULARS/PRESS RELEASE

I. Draft rules for granting Foreign Tax Credit

The Central Board of Direct Taxes (CBDT) has recently issued draft Foreign Tax Credit (FTC) Rules seeking comments of stakeholders and general public, for granting relief or
deduction of Income-tax under section 90, 90A and 91 in respect of FTC.

Section 90 and 90A allow granting of relief in respect of a) income on which income tax has been paid in India as well as in the other country/specified territory/specified association;
and b) income-tax chargeable under Indian Income-tax Act and under the corresponding law in force in the other country/specified territory/specified association. Section 91 also
permits deduction of income-tax paid in the other country with which no DTAA exists. This deduction is, however, limited to a sum calculated on such doubly taxed income at the
Indian rate of tax or the rate of tax of the other country, whichever is lower.
The procedure and guidelines in respect of manner of granting such relief/credit for taxes paid in foreign country were, however, not available. The relief from double taxation has been
hitherto allowed by the tax authorities based on their interpretation of the relevant DTAA provision, which sometimes is disputed by the assessee.
The CBDT has now issued draft rules for granting credit in respect of taxes paid in foreign countries. The important highlights of the same are as below:

FTC shall be allowed in the year in which the income corresponding to such foreign tax has been offered to tax or assessed to tax in India;
FTC shall be computed separately for each source of income arising from a particular country or specified territory;
FTC shall be available only against the amount of tax, surcharge and cess payable under the Act but not in respect of interest, fee or penalty;
FTC shall be lower of tax payable under the Act and the foreign tax paid;
Where the tax is payable under the provisions of Section 115JB or 115JC i.e. MAT, the FTC shall be allowed against such tax also. However, the credit exceeding the amount of
tax payable under the normal provisions shall be ignored;
Credit shall not be available in respect of the foreign tax which is disputed in any manner by the assessee.
FTC shall be allowed on furnishing of the following documents:

a) Certificate from the foreign tax authorities specifying the nature of income and the amount of tax deducted there from or paid by the assessee. In case, the foreign tax is
deducted at source, certificate of such tax deduction from the person responsible for deduction of such tax needs to be furnished;
b) Evidence of tax payment; and
c) Declaration that the foreign tax in respect of which credit is being claimed is not under any dispute;

The draft rules is a welcome step by the government to reduce litigation and provide consistency in the manner of providing FTC. However, the draft rules appear to miss certain
aspects such as mechanism to claim disputed FTC in cases where the dispute is finally settled in favour of the assessee, clarification regarding availability of FTC in cases where
income is exempted in foreign country or in India.

Further, where the provision contained in the relevant DTAA does not restrict FTC, the dispute may arise if the tax authorize restricts FTC upto tax payable in India, based on the rule as
presently stood.

It is expected that the final rules will bring in more clarity and provide certainty on the various other aspects not addressed in the draft rules.

(Prepared by: Mr. Jatinder Singh)

II. Changes in Income Tax Return Forms for AY 2016-17 (Financial Year 2015-16)

The Central Board of Direct Taxes has issued Notification No. 24/2016 dated March 30, 2016 under which ITR forms for Assessment Year 2016-17 have been notified. Presently,
income tax return is filed by tax payers in ITR Forms, applicable based on the nature of the income and other criteria. The same are as under:

ITR 1 For Individuals having Income from Salary, One House

(SAHAJ) Property& Interest

ITR 2 For Individuals & HUFs not having Income from Business or
Profession

ITR 2A For Individuals & HUFs not having Income from Business or
Profession and Capital Gains and who do not hold foreign
assets

ITR 3 For Individuals/HUFs being partners in firms and not carrying

out business or profession under any proprietorship

ITR 4 For Individuals & HUFs having income from a proprietory

business or profession

ITR For Individuals/HUF/Partnership Firm having income from

4S(SUGAM) presumptive business

ITR 5 For partnership firms

ITR 6 For Companies

ITR 7 For persons including companies required to furnish return

under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) or
139(4E) or 139(4F)

Few changes have been made to the return forms as prescribed, vis--vis last year. The major changes introduced in ITR forms for AY 2016-17 are as under:

1. A new schedule ICDS has been inserted in ITR forms (ITR 4, 5, 6) which requires disclosure of 'effect on profits' due to application of Income Computation and Disclosure Standards.
2. A new schedule PTI requiring details of 'Pass through income from business trust/ Investment fund' has been inserted in ITR Forms 2, 2A, 3, 4, 5, 6, 7. The details required to be
disclosed include name of business trust/ investment fund, PAN of business fund, head of income, amount of income, and TDS on such amount, if any, as per section 115UA/ 115UB.
3. MAT Schedule in ITR 6 & 7 regarding computation of Minimum Alternate Tax payable under section 115JB has been aligned with the amendments made by Finance Act, 2015 to
section 115JB to exclude the following items for computation of MAT liability:

i. Income/ expenditure from share of a member in the income of AOP/BOI on which no income tax is payable
ii. Passive income (alongwith expenditure in relation thereto) accruing or arising to foreign company if income tax payable thereon was less than 18.5%.
iii. Notional gain/ loss on transfer of a capital asset, being share of a SPV to a business trust in exchange of units allotted by that trust, Notional gain/ loss resulting from change in
carrying amounts of said units, Gain/ loss on transfer of units referred to in section 47(xvii).

4. The monetary limit for applicability of Schedule AL which requires disclosure of Specified Assets and Liabilities other than disclosed in the Balance Sheet (i.e. personal assets and
liabilities) has been raised from Rs. 25 Lakh to Rs. 50 Lakh in ITR 3 & 4.Therefore, Schedule AL will be required to be filled in by tax payers having total income exceeding Rs. 50 Lakh.
The aforesaid disclosure has also been introduced in ITR-1, 2, 2A, and 4S. Therefore, the taxpayers filing returns in the aforesaid ITRs would also be required to disclose specified
assets such as immovable assets (land & building), financial assets and movable assets (viz. cash in hand, jewellery, bullion, vehicles, yachts, boats and aircraft).
However, In the case of non-resident and resident but not ordinarily resident, the details of assets located in India only are to be mentioned.
5. ITR 7 has been amended to make disclosure by the trust whether it has filed Form 9A (in case application of Income of trust fall short of 85%) and the date of filing of such form.
6. In ITR-5 (applicable in case of firms), it would now be required to state whether it is liable to audit under any other Act (other than Income Tax Act) and date of audit report shall then
be required to be furnished.
7. The details of share in the income of firm/ AOP/ BOI was furnished under Schedule 1F in ITR- 3 & 5. Further, the amount of such income was disclosed under Schedule EI (Exempt
Income).
In the amended ITR- 3 & 5, the additional disclosure requirement under Schedule EI has been dispensed with. Also, such disclosure being not applicable in ITR-5 & 6, the disclosure
reference under Schedule EI has been omitted in such ITRs.
8. ITR 4, 5 & 6 have been amended to disclose deduction under section 32AD, in line with the amendment brought in by Finance Act, 2015 introducing deduction on investments in new
plant or machinery in notified backward areas.
9. ITR- 1, 2 and 2A have been amended to disclose credit claimed for Tax Collected at source (TCS).

(Prepared by: Ms. Ankita Mehra)

III. Income-tax (11th Amendment) Rules, 2016

The following major changes have been made in the Income-tax rules, 2016: Prescription of form for submitting claims by employees
The Central Board of Direct Taxes (CBDT) has vide notification no. 30/2016 dated 29-04-2016 inserted a new Rule 26C in Income-tax Rules, 1962, which provides that evidences shall
be required to be submitted to employer by employees in Form 12BB, for furnishing claims with regard to deduction of tax under section 192 of Income-tax Act 1961.
The employee is required to furnish the evidence or the particulars for following claims:

Sl. Nature of Claims Evidence or particulars

No.

1 House Rent Name, address and permanent account number

Allowance of the landlord/landlords where the aggregate
rent paid during the previous year exceeds
rupees one lakh.

2 Leave travel Evidence of expenditure.

concession or
assistance

3 Deduction of Name, address and permanent account number

interest under the of the lender.
head "Income from
house property"

4 Deduction under Evidence of investment or expenditure

Chapter VI-A

Extension / Revision of due date of deposit of TDS on sale of immovable property CBDT has also extended due date for payment of TDS on transfer of immovable property u/s 194IA
to 30 days from existing 7 days. Extension / Revision of due date of filing TDS return. CBDT has also extended the due dates for filing TDS Return as below:

Quarter Existing Due Date for filing Revised Due Date for filing
Ending TDS Return TDS Return

30 June 15 July 31 July

30 15 October 31 October
September

31 15 January 31 January
December

31 March 15 May 31 May

These amendments shall come into force with effect from 1st day of June 2016.

(Prepared by: Mr. Nikhil Agarwal)

INDIRECT TAX
Recent Notifications/Circulars/Instructions

I. Mega Exemption Notification amended in order to exempt certain services provided by Government or a Local Authority

The Central Government has amended the Mega Exemption Notification No. 25/2012-S.T. dated
20th June, 2012 in order to provide exemption to certain services provided by Government or a Local Authority. These exemptions take effect from 13th April, 2016. The major
amendments as have been accorded are given in the table herein below:

Entry No. Particulars of Exemption

of the
Mega
Exemption
Notification

Entry No.54 Services (other than services specified in sub-clauses (i),(ii) and
inserted (iii) of clause (a) of section 66D
of the Finance Act, 1994) provided by
Government or a local authority to another Government or
local authority.

Entry No.55 Services provided by Government or a local authority by way of

inserted issuance of passport, visa,
driving licence, birth certificate or death
certificate.

Entry No. Services provided by Government or a local authority where the

56 inserted gross amount charged for such services does not exceed Rs.
5000/- :
Provided that nothing contained in this entry shall apply to
services specified in sub-clauses (i), (ii) and (iii) of clause (a) of
section 66D of the Finance Act, 1994:
Provided further that in case where continuous supply of
service, as defined in clause (c) of rule
2 of the Point of Taxation Rules, 2011, is
provided by the Government or a local
authority, the exemption shall apply only
where the gross amount charged for such service does not
exceed Rs. 5000/- in a financial year;

Entry No. Services provided by Government or a local

57 inserted authority by way of tolerating non-
performance of a contract for which
consideration in the form of fines or liquidated damages is
payable to the Government or the local authority under such
contract;

Entry No. Services provided by Government or a local authority by way

58 inserted of-
a) registration required under any law for the time being in
force;
b) testing, calibration, safety check or
certification relating to protection or safety of workers,
consumers or public at large, required under any law for the
time being in force;

Entry No. Services provided by Government or a local authority by way of

59 inserted assignment of right to use natural resources to an individual
farmer for the purposes of agriculture;

Entry No. Services by Government, a local authority or a governmental

60 inserted authority by way of any activity
in relation to any function entrusted to a
Panchayat under article 243G of the
Constitution;

Entry No. Services provided by Government or a local authority by way of

61 inserted assignment of right to use any natural resource where such
right to use was assigned by the Government or the local
authority before the 1st April, 2016:
Provided that the exemption shall apply only to
service tax payable on one time charge
payable, in full upfront or in installments, for
assignment of right to use such natural
resource;

Entry No. Services provided by Government or a local authority by way of

62 inserted allowing a business entity to operate as a telecom service
provider or use radiofrequency spectrum during the financial
year 2015-16 on payment of licence fee or spectrum user
charges, as the case may be;

Entry No. Services provided by Government by way of

63 inserted deputing officers after office hours or on
holidays for inspection or container stuffing or such other
duties in relation to import export
 cargo on payment of Merchant Overtime
charges (MOT)

[Source: Notification No. 22/2016-S.T. dated 13th April, 2016 attached as Annexure I] (Prepared by: Mr. N.V. Raman/ Mr. Sarthak Garg)

II. Clarification on issues regarding levy of Service Tax on the services provided by Government or a local authority

Any service provided by Government or a local authority to a business entity has been made taxable w.e.f 1st April, 2016. Further, exemption to certain services provided by
Government or a Local Authority has been prescribed by Notification No. 22/2016-S.T. dated 13th April, 2016.
The Central Board of Excise and Customs has issued a clarificatory circular on issues regarding levy of Service tax on the issues discussed in the above paragraph.
Some of the important clarifications are provided in the table herein below:

Sl. Issue Clarification

No.

1. Service Tax on taxes, Taxes, cesses or duties levied are not

cesses or duties. consideration for any particular service as
such and hence not leviable to Service Tax.
These taxes, cesses or duties include
excise duty, customs duty, Service Tax,
State VAT, CST, income tax, wealth tax,
stamp duty, taxes on professions, trades,
callings or employment, octroi,
entertainment tax, luxury tax and property
tax.

2. Service Tax on fines and Fines and penalty chargeable by

penalties. Government or a local authority imposed
for violation of a statute, bye-laws, rules or
regulations are not leviable to Service Tax.

3. Services provided in
consideration of fee Any activity undertaken by Government or a
charged by Government local authority against a consideration
or a local authority. constitutes a service and the amount
charged for performing such activities is
liable to Service Tax. It is immaterial
whether such activities are undertaken as a
statutory or mandatory requirement under
the law and irrespective of whether the
amount charged for such service is laid
down in a statute or not.
As long as the payment is made (or fee
charged) for getting a service in return (i.e.,
as a quid pro quo for the service received),
it has to be regarded as a consideration for
that service and taxable irrespective of by
what name such payment is called. It is
also clarified that Service Tax is leviable on
any payment, in lieu of any permission or
license granted by the Government or a
local authority.
However, services provided by the
Government or a local authority by way of:
(i) registration required under the law;
(ii) testing, calibration, safety check or
certification relating to protection or safety
of workers, consumers or public at large,
required under the law, have been
exempted vide Notification No. 22/2016 -
S.T. dated 13th April, 2016.

Further, services provided by Government

or a local authority where the gross amount
charged for such service does not exceed
Rs 5000/- have been exempted vide
Notification No. 22/2016 - S.T. dated 13th
April, 2016.

Note:
I. The above list of exemptions cover only some of the exemptions included in the above circular. For other services for which exemption are included in the above circular, the text of
the above circular may be referred.
II. The above clarification is an important one in respect of taxability or otherwise of specified services rendered by a Government or a Local Authority. The gist of the exemptions as are
available in respect of services (other than services for which specific/ separate exemptions are available, eg. services covered by Entry No.55 to the Mega Exemption Notification No.
25/2012-S.T. dated 20th June, 2012.) rendered by Government or a Local Authority is as under:
a) services rendered by way of registration under any law;
b) services of testing, calibration, safety check or certification relating to protection or safety of workers, consumers or public at large, required under any law.
c) any service on which tax is leviable, the gross amount charged does not exceed Rs.5000.
It will therefore, be relevant to ensure and verify whether any service received from Government or a Local Authority is covered by the above exemptions. If not (a) such services
rendered to business entity, shall suffer service tax in the hands of the service receiver under reverse charge mechanism and in such cases, the service receiver has to pay service tax.
(b) such services rendered to individuals will have to be borne by the Government or a Local Authority, the service provider.
III. Services rendered by ROC have to be correctly assessed in terms of the above exemptions. Even though most of the services rendered to business entity (i.e. companies, LLPs) for
registrations are totally exempt, irrespective of fees payable. But there may be some services such as services relating to name availability, which will be liable to service tax. If such
services are provided to companies, service tax will be borne by the service receiver under reverse charge mechanism, provided fees chargeable is Rs.5000 or more. If such services are
provided to individual, service tax will have to be borne by service provider is fees chargeable is Rs.5000 or more.
[Source: Circular No. 192/02/2016-S.T. dated 13th April, 2016 attached as Annexure II] (Prepared by: Mr. N.V. Raman/Mr. Sarthak Garg)

III. Service Tax can be levied on freight even if same is included in customs value of imported goods

In Berco Undercarriages (India) Pvt. Ltd., the Advance Ruling Authority held that when a foreign C & F agent raised a composite invoice, including freight and insurance etc., the Indian
service recipient was liable to pay service tax on the value of invoice excluding expenditure or costs incurred by C & F agent as a pure agent, if the conditions enumerated in Rule 5 of
the Service Tax Valuation Rules were complied with.

[Source: Ruling No. AAR/ST/10/2016 dated 1st April, 2016]

(Prepared by: Mr. N.V. Raman/Mr. Sarthak Garg)

FOREIGN EXCHANGE MANAGEMENT ACT

Foreign Exchange Management (Deposit) Regulations, 2016

I. Foreign Exchange Management (Deposit) Regulations, 2016

In supersession of Notification No. FEMA 5/2000-RB dated May 3, 2000, RBI has introduced Foreign Exchange Management (Deposit) Regulations, 2016 (Revised Regulation), which
is deemed to have come into force with effect from 21st January, 2016.
The important changes are highlighted as hereunder:

1. Regulation 2 Definitions:

The following clauses have been added/modified in the Definitions section of the Revised Regulation:

i) As per Regulation 2 (vi) of the Revised Regulation, Non-Resident Indian (NRI) means a person resident outside India who is a citizen of India. The words is a person of Indian origin
have now been removed under the new definition.
ii) Permissible currency means a foreign currency which is freely convertible [Regulation 2 (ix)]
iii) Person of Indian Origin (PIO) means a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such other country as may be specified by
the Central Government, satisfying the following conditions:
a) Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or
b) Who belonged to a territory that became part of India after the 15th day of August, 1947; or
c) Who is a child or a grandchild or a great grandchild of a citizen of India or of a person referred to in clause (a) or (b); or
d) Who is a spouse of foreign origin of a citizen of India or spouse of foreign origin of a person referred to in clause (a) or (b) or (c)

Explanation: for the purpose of this sub-regulation, the expression Person of Indian Origin includes an Overseas Citizen of India cardholder within the meaning of Section 7

(A) of the Citizenship Act, 1955. [Regulation 2 (x)]

iv) SNRR account means a Special Non-Resident Rupee account referred to in sub-regulation (4) of Regulation 5 [Regulation 5 (xii)].
v) The definitions for NRNR account, NRSR account, Overseas Corporate Body (OCB) and Qualified Foreign Investor (QFI) have now been removed under the Revised Regulations.

2. Regulation 5 Acceptance of deposits by an authorised dealer/authorised bank from persons resident outside India:
Under Regulation 5, the following are the relevant additions/modifications:

i) Deposits under FCNR(B) Account Schemes, may also be accepted by a Regional Rural Bank, in accordance with the provisions contained in the Schedule, subject to the conditions
prescribed by Reserve Bank in this regard [Regulation 5(iii)].
ii) Any person resident outside India having a business interest in India may open, hold and maintain with an authorised dealer in India, a Special Non-Resident Rupee Account (SNRR
account), specified in Schedule 4 [Regulation 5(iv)].
3. Regulation 6 Acceptance of deposits by persons other than authorised dealer/authorised bank: Under Regulation 6, the following are the relevant changes/modifications:

i) A company registered under Companies Act, 2013 or a body corporate created under an Act of Parliament or State Legislature shall not accept deposits on repatriation basis from a
nonresident Indian or a person of Indian origin. The company may, however, renew the deposits which had been accepted on repatriation basis from an NRI or a PIO subject to terms
and conditions mentioned in Schedule 6. [Regulation 6(1)]

4. Regulation 7 Other deposits made or held by authorised dealer: Under Regulation 7, the following are the relevant additions/modifications:

i) A shipping or airline company incorporated outside India, may open, hold and maintain a Foreign Currency Account with an authorized dealer for meeting the local expenses in India
of such airline or shipping company:
Provided that the credits to such accounts are only by way of freight or passage fare collections in India or by inward remittances through banking channels from its office outside
India. [Regulation 7(2)]
ii) An authorised dealer in India, may subject to the directions issued by the Reserve Bank, allow unincorporated joint ventures (UJV) of foreign companies/ entities, with Indian entities,
executing a contract in India, to open and maintain non-interest bearing foreign currency account and a SNRR account as specified in schedule 4 for the purpose of undertaking
transactions in the ordinary course of its business. The debits and credits in these accounts shall be incidental to the business requirement of the UJV.
Provided that the tenure of the account is concurrent to the tenure of the contract/ period of operation of the UJV.

Provided further that all operations in the account shall be in accordance with the provisions of the Act or the rules or regulations made or the directions issued thereunder.
Note: Opening of accounts by companies/ entities of Pakistan/ Bangladesh ownership/ nationality would require the prior approval of the Reserve Bank [Regulation 7(3)]
iii) An authorised dealer in India, with the prior approval of Reserve Bank, may open an account expressed in foreign currency in the name of a person resident outside India for the
purpose of adjustment of value of goods imported into India against the value of goods exported from India in terms of an arrangement voluntarily entered into by such person with a
person resident in India. [Regulation 7(4)]
Requisite Schedules of the Revised Regulations are enclosed as Annexure III, for ready reference.

[Source: Notification No. FEMA 5 (R)/2016-RB dated April 1, 2016]

(Prepared by: Ms. Ruchi Sanghi/Mr. Shamik Saha)

II. Foreign Exchange Management (Remittance of Assets) Regulations, 2016

In supersession of Notification No. FEMA 13/2000-RB dated May 3, 2000, RBI has introduced Foreign Exchange Management (Remittance of Assets) Regulations, 2016 (Revised
Regulation), which shall come into force from the date of their publication in the official Gazette.
The important changes are highlighted as hereunder:

1. Regulation 2 Definitions:

The following clauses have been added/modified in the Definitions section of the Revised Regulation:

i) Non-Resident Indian (NRI) shall have the same meaning assigned under the Foreign Exchange Management (Deposit) Regulations, 2016 [Regulation 2(iii)]
ii) Person of Indian Origin (PIO) shall have the same meaning assigned under the Foreign Exchange Management (Deposit) Regulations, 2016 [Regulation 2(iv)]

2. Regulation 4 Permission for remittance of assets in certain cases:

Under Regulation 4, the following are the relevant additions/modifications:

i) In case of remittances by a Non-Resident Indian (NRI) or a Person of Indian Origin (PIO), through
an authorised dealer, an amount not exceeding USD 1,000,000 (US Dollar One million only) per financial year is permitted to be remitted, provided where the remittance is to be made
from the balances held in the NRO account, the account holder shall furnish an undertaking to the Authorised Dealer that the said remittance is sought to be made out of the remitters
balances held in the account arising from his/ her legitimate receivables in India and not by borrowing from any other person or a transfer from any other NRO account and if such is
found to be the case, the account holder will render himself/ herself liable for penal action under FEMA [Regulation 4(2)].

ii) In case of remittance of assets of Indian Companies under liquidation under the provisions of Companies Act, 2013, the requirement for no objection/tax clearance certificate from
Income-Tax Authority for remittance has now been removed in the Revised Regulations [Regulation 4(3)(ii)].

[Source: Notification No. 13 (R)/2016 RB dated April 1, 2016]

(Prepared by: Ms. Ruchi Sanghi/Mr. Shamik Saha)

III. Overseas Direct Investment (ODI) Submission of Annual Performance Report (APR)

In order to provide AD banks greater capability to track submission of APRs and also improve compliance level in the matter of submission of APRs by the Indian Party (IPs) /
Resident Individual (RIs), it is now advised as under:

a) The online OID application has been suitably modified to enable the nodal office of the AD bank to view the outstanding position of all the APRs pertaining to an applicant including
for those Joint Venture (JV) / Wholly Owned Subsidiary (WOS) for which it is not the designated AD bank. Accordingly, the AD bank, before undertaking / facilitating any ODI related
transaction on behalf of the eligible applicant, should necessarily check with its nodal office to confirm that all APRs in respect of all the JV / WOS of the applicant have been submitted;

b) Certification of APRs by the Statutory Auditor or Chartered Accountant need not be insisted upon in the case of Resident Individuals. Self-certification may be accepted;

c) In case multiple IPs / RIs have invested in the same overseas JV / WOS, the obligation to submit APR shall lie with the IP / RI having maximum stake in the JV / WOS. Alternatively,
the IPs / RIs holding stake in the overseas JV / WOS may mutually agree to assign the responsibility for APR submission to a designated entity which may acknowledge its obligation
to submit the APR in terms of Regulation 15 (iii) of Notification No. FEMA 120/RB-2004 dated July 7, 2004, by furnishing an appropriate undertaking to the AD bank;
d) An IP / RI, which has set up / acquired a JV / WOS overseas in terms of the Regulations of the Notification, ibid, shall submit, to the AD bank every year, an APR in Form ODI Part II in
respect of each JV / WOS outside India and other reports or documents by 31st of December each year or as may be specified by the Reserve Bank from time to time. The APR, so
required to be submitted, shall be based on the latest audited annual accounts of the JV / WOS unless specifically exempted by the Reserve Bank.

[Source: A.P. (DIR Series) Circular No. 61 dated April 13, 2016]

(Prepared by: Ms. Ruchi Sanghi/Mr. Shamik Saha)

IV. ODI Rationalization and reporting of ODI Forms

Rationalized and revised Form ODI has now been introduced vide A.P. (DIR Series) Circular No.62 dated April 13, 2016.

In order to capture all data pertaining to the IP undertaking ODI as well as the related transaction, it has been decided to subsume Form ODI Part II within Form ODI Part I. Thus the
Form ODI will have five sections instead of six. Further, a new reporting format has also been introduced for Venture Capital Fund (VCF) / Alternate Investment Fund (AIF), Portfolio
Investment and overseas investment by Mutual Funds.

The revised ODI forms and instructions for filling up the forms will come into effect immediately.

Online OID application has been revamped and modules in online OID application have been added to provide the AD banks fast and easy accessibility to data for reference purpose.

The revised ODI format, with all Annexures thereto is attached as Annexure IV, for ready reference.

[Source: A.P. (DIR Series) Circular No. 62 dated April 13, 2016]

(Prepared by: Ms. Ruchi Sanghi/Mr. Shamik Saha)

CORPORATE LAW
Judicial interpretation of the word continue as used in Section 196(3) of the Companies Act

I. Judicial interpretation of the word continue as used in Section 196(3) of the Companies Act, 2013.

In the issue of Corporate Update of October, November, December, 2015, we had reported the decision given by a Single judge in the case of Bombay High Court [Sridhar Sundararajan
V. Ultramarines Pigments Ltd [2015] 131 SCL 787], wherein the Single Judge decided that Section 196(3) did not operate to interrupt the appointment of Managing Director (MD)
made prior to 1.4.2014, even in cases where such person crosses the age of 70 years during the term of his appointment after 1.4.2014. It was held that there was no mid-tenure
cessation of appointments in such cases, and, therefore, special resolution as envisaged under proviso to clause (a) of Section 196 (3) was not required in such cases.

The said decision has now been over-ruled in appeal by a Division Bench of the Bombay High Court [Sridhar Sundararajan V. Ultramarines Pigments Ltd [2016] 134 SCL 465] dated 8th
February, 2016.

The Division Bench has now ruled that the language of Section 196 (3) is plain and simple and unambiguous and it applies to all the Managing Directors who have attained the age of
70 years and the Section does not make distinction between the Managing Directors who have been appointed before 1.04.2014 and those after 1.04.2014. The Court has held that
the moment a MD attains the age of 70 years, the disqualification mentioned in Section 196 (3) (a) would operate immediately. There is no question of retrospective application of the
provision. Since Section 196 (3) (a) would apply prospectively, whoever attains the age of 70 after the Amendment Act came into force would cease to function as MD by operation of
statute, except when his appointment is appropriately approved by a special resolution in general meeting.
The above judgment seems to be in line with the object and spirit of law and it is accordingly brought to notice of all for guidance.

(Prepared by: Mr. N.V. Raman & Ms. Rakhi Chanana)

IMPORTANT Particulars
Deposit of TDS for the month of
April, 2016
Date
May 07, 2016

DATES TO REMEMBER
For further information, please contact: Main Office MPC & CO LLP Associates

Mr. C.S. Mathur, Partner New Delhi 1 A-D, Ahmedabad Bangalore

Tel: 91-11-47102200 Fax: 91-11-23313908 Email: csm@mpco.in Vandhna 11, Tolstoy Mumbai Chennai
Marg New Delhi-110 Pune Hyderabad
Mr. Vikas Vig, Partner 001 Vadodara
Tel: 91-11-47103300 Fax: 91-11-23731220 Email: vvig@mpco.in

Ms. Surbhi Vig Anand, Partner

Tel: 91-11-47102250 Fax: 91-11-23731220 Email: surbhivig@mpco.in
 DISCLAIMER
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