16th-30th June 2016
Here are the highlights of our newsletter from preceding month.
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GST: Entry tax concerns remain for e-commerce
The model goods and services tax (GST) legislation includes a whole chapter on e-commerce and has prescribed strict information-disclosure requirements plus a tax collection at source model for both goods and services. This is a refinement to what the Karnataka government sought to do after the Amazon fiasco. E-commerce operators have been made liable not only for paying the GST on their facilitation services, but also GST collection at source that individual suppliers would have ordinarily been liable for. The consequent compliance hazards have already been widely commented upon. Ideally, e-commerce operators should only be responsible for the GST on their facilitation services. Ecommerce is quite transparent, where revenue officials can easily verify the suppliers and customers. Casting responsibility of collection at source when tracking or taxing individual suppliers is not difficult. What is praiseworthy is that a clear distinction has been made between assessees actually supplying goods and services, whether through their own electronic platform or otherwise, and assessees merely providing the electronic platform to facilitate such suppliers –an oft-forgotten distinction under extant state value-added tax (VAT) and entry tax laws.
Expert Committee recommends changes in Specific Relief Act for ease of doing business in India
The Expert Committee set on examining the Specific Relief Act, 1963 today Submitted its Report To Union Law & Justice Minister Shri D.V.Sadananda Gowda here in New Delhi. In its report the committee has recommended modifications in the Specific Relief Act, 1963 for ensuring the ease of doing business. In the context of tremendous developments which have taken place since 1963 and the present changed scenario involving contract based infrastructure developments, public private partnerships and other public projects, involving huge investments; and changes required in the present scheme of the Act so that specific performance is granted as a general rule and grant of compensation or damages for non-­performance remains as an exception, the committee decided i. To change the approach, from damages being the rule and specific performance being the exception, to specific performance being the rule, and damages being the alternate remedy.. ii. To provide guidelines for reducing the discretion granted to Courts and tribunals while granting performance and injunctive reliefs. iii. To introduce provisions for rights of third parties (other than for Government contracts). iv. To consider addressing unconscionable contracts, unfair contracts, reciprocity in contracts etc., and implied terms.
Company Law: IASB amends IFRS 2 “Share-based Payment”
International Accounting Standards Board (IASB) has issued limited amendments to the International Financial Reporting Standards (IFRS) 2, Share-based Payment. IFRS 2 deals with the financial reporting of share-based payment transactions by an entity. Under the amendments, certain provisions have been modified and while some new provisions have been added. Key amendments include addition of provision on treatment of Vesting and non-vesting conditions in Cash-settled share-based payment transactions, and provision of net settlement feature in Share-based payment transactions.
FDI: Govt. allows 100% FDI in e-commerce, defense

In last two years, Government has brought major FDI policy reforms in a number of sectors viz. Defense, Construction Development, Insurance, Pension Sector, Broadcasting Sector, Tea, Coffee, Rubber, Cardamom, Palm Oil Tree and Olive Oil Tree Plantations, Single Brand Retail Trading, Manufacturing Sector, Limited Liability Partnerships, Civil Aviation, Credit Information Companies, Satellites- establishment/operation and Asset Reconstruction Companies. Measures undertaken by the Government have resulted in increased FDI inflows at US$ 55.46 billion in financial year 2015-16, as against US$ 36.04 billion during the financial year 2013-14. This is the highest ever FDI inflow for a particular financial year.
Accordingly the Government has decided to introduce a number of amendments in the FDI Policy. Changes introduced in the policy include increase in sectoral caps, bringing more activities under automatic route and easing of conditionalities for foreign investment.
Further, it has now been decided to permit 100% FDI under government approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India.

FDI: Airlines can have full foreign ownership
Foreign investors, barring overseas airlines, can now have up to 100 per cent stake in local carriers, the government said on Monday. The government also eased the process for 100 per cent FDI in brownfield airport projects (or expansion of existing projects). FDI in brownfield projects will now be through the automatic route and this can boost development of government and privately owned-airports. The limit of foreign direct investment (FDI) in domestic carriers was raised from 49 per cent to 100 per cent to attract investments. The announcement, coming a week after the national civil aviation policy was unveiled, aims to make flying affordable by attracting more players. But the note came with a rider — the cap on investment by a foreign airline in an Indian carrier remained at 49 percent. “Foreign airlines would continue to be allowed to invest in capital of Indian companies operating scheduled and non-scheduled air transport services up to the limit of 49 of their paid-up capital,” said a statement from the government.
Income Tax: Reimbursement of travelling expenses of expatriates received from its clients and also “living allowance” paid by the clients to expatriates (employees deputed by the assessee) - whether such receipt do not constitute income in the hands of the assessee? - Held No - Tri
It is an admitted fact that the DRP has held in AY 2006-07 and 2007-08 that these receipts, viz., reimbursement of travelling expenses and living allowance paid to expatriates, are not to be considered as forming part of fees received by the assessee. The co-ordinate bench of Tribunal has held in AY 2003-04 and 2004-05 that these items are not taxable in the hands of the assessee. However, we notice that the Tribunal has held so in AY 2003-04 and 2004-05 on the understanding that the assessee herein and Indian companies are not related parties. The Ld D.R has pointed out that they are related parties, which fact was not disputed by the assessee.
We have noticed that the addition made by the assessing officer has been deleted by DRP in AY 2006-07 and 2007-08. Identical additions made in AY 2003-04 and 2004-05 have also been deleted by the Tribunal, even though there was misunderstanding about the facts.Sum paid to UK Co. for seconded employees wasn't taxable as it already subjected to TDS as salary income In the case of Reckitt Benckiser (India) Ltd. where assessee an Indian Company made payment to a non-resident company towards reimbursement of salaries paid to two of its employees deputed in India and claim of assessee of having paid and deducted tax at source from amount in question as salary income was duly supported by TDS certificates, disallowance made by Assessing Officer under section 40(a)(i) for alleged failure of assessee to deduct tax at source was not sustainable
Where assessee had not been able to explain basis on which segmental financials showing OP/TC of export of assessee-company to its AE were taken, OP/TC of relevant transactions had to be reworked by taking OP/TC at entity level by taking into consideration entire transactions of assessee.
Income Tax: Threshold Limit of tax audit under section 44AB and section 44AD - clarification- circular dated 20-06-2016
CBDT has clarified that Section 44AB of the Income-tax Act ('the Act') makes it obligatory for every person carrying on business to get his accounts of any previous year audited if his total sales, turnover or gross receipts exceed one crore rupees. However, if an eligible person opts for presumptive taxation scheme as per section 44AD(1) of the Act, he shall not be required to get his accounts audited if the total turnover or gross receipts of the relevant previous year does not exceed two crore rupees. The higher threshold for non-audit of accounts has been given only to assessees opting for presumptive taxation scheme under section 44AD.
Service Tax: Commission paid in INR by Indian buyers on behalf of foreign companies amounts to payment in forex for export benefits
Payment in Indian rupees out of deduction from sums payable in convertible foreign exchange would amount to payment in convertible foreign exchange only; hence, it would be 'export of service'.
Neeraj Bhagat & Company is a team of distinguished chartered accountant, corporate financial advisors and tax consultants in India. Our firm of chartered accountants represents a coalition of specialized skills that is geared to offer sound financial solutions and advices. The organization is a congregation of professionally qualified and experienced persons who are committed to add value and optimize the benefits accruing to clients.

Neeraj Bhagat & Co.
New Delhi, Gurgaon, Mumbai  

Neeraj Bhagat & Co., S-13, St. Soldier Tower, Vikas Puri, New Delhi, 110018 India

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Neeraj Bhagat & Co · S-13, St. Soldier Tower · G-Block Commercial Centre, Vikas Puri · New Delhi 110018 · India