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Whirlpool on the MAT

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The Court commented that in cases where there is apprehension that the monies would be spirited away, prior notice need not be served on the assessee.

The Delhi High Court recently, in the case of Whirpool India Ltd, held that retrospective amendment providing addition of ‘provision for diminution in the value of any asset’ in computing book profits under section 115JB of the Income-tax Act, 1961 is constitutionally valid. The Court observed that nothing prevents the legislature from giving effect to its intention at the earliest to bring about certainty and clarity in law. The Court distinguished the present case against rulings relied upon by the assessee which dealt with retrospective amendment of incentive or relief provisions. The Court noted that MAT (minimum alternate tax) provisions seek to achieve larger public interest by removing inequalities in the tax regime, by making companies earning substantial profits pay tax and contribute to the fiscal health of the economy.

Pricing clarity on contract R&D?

The Central Board of Direct Taxes recently issued two circulars on transfer pricing pertaining to development centres. One states that in the absence of a correlation between the cost of R&D activities and return on the intangible developed, the use of Transactional Net Margin method (TNMM), which estimates the value of the intangible based on the R&D cost plus return, is discouraged. In case a transfer pricing officer (TPO) feels that the Profit Split Method (PSM) cannot be applied due to non-availability of information, he must record the reasons from the taxpayer before considering other methods. The second circular provides that for an intra-group R&D arrangement to be regarded as provision of contract services with insignificant risks, the foreign principal should perform and control economically significant functions, as well as bear and control the risks and costs related to R&D. The circular prescribes conditions under which an arrangement can be regarded as contract R&D. Taxpayers should analyse whether these principles apply to other intra-group services and assess the implications.

Delhi HC to the aid of taxpayer

The Delhi High Court in a recent ruling in a Public Interest Litigation (PIL) filed by a Chartered Accountant directed the tax authority to redress taxpayers’ grievances on non-grant of credit for tax deducted at source (TDS). The key highlights of the directions include: Tax authorities should expeditiously dispose rectification applications and maintain a register, which should be uploaded online to help track the status of applications;

No demand should be enforced where prior intimations are not served on taxpayers;

Interest should be paid to taxpayers for erroneous adjustment of refund;

In case of mismatch in TDS claimed by the taxpayer and the TDS uploaded by deductors, where taxpayers are able to establish their claim with necessary proof, tax authorities should compel the deductors to upload the correct particulars.

Recovery during pendency of a stay

The Bombay High Court in a recent decision in the Society of the Franciscan (Hospitaller) Sisters case held that recovery proceedings initiated by the income-tax department by attaching the bank account of the assessee during pendency of the stay application and without prior notice was coercive and not justified. The Court held that the whole object of serving a notice on the assessee was to enable the assessee to have some recourse. It held that the appellate authorities must set time schedules for disposal of stay applications within a reasonable period. It also commented that in exceptional cases where there is apprehension that the monies would be spirited away, prior notice need not be served on the assessee. The Court directed the department to refund to the assessee a part of the amount collected.

— Ernst & Young

(This article was published on April 7, 2013)
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