TITLE: S. 234E: High Court grants ad-interim stay against operation of notices levying fee for failure to file TDS statement CASE: Rashmikant Kundalia vs. UOI (Bombay High Court)

TITLE: S. 234E: High Court grants ad-interim stay against operation of notices levying fee for failure to file TDS statement

CASE: Rashmikant Kundalia vs. UOI (Bombay High Court)

S. 234E of the Income-tax Act, 1961 inserted by the Finance Act, 2012 provides for levy of a fee of Rs. 200/- for each day’s delay in filing the statement of Tax Deducted at Source (TDS) or Tax Collected at Source (TCS). A Writ Petition to challenge the validity of s. 234E has been filed in the Bombay High Court.

The Petition claims that assessees who are deducting tax at source are discharging an administrative function of the department and that they are a “honorary agent” of the department. It is stated that this obligation is onerous in nature and that there are already numerous penalties prescribed for a default. It is stated that the fee now levied by s. 234E is “exponentially harsh and burdensome” and also “deceitful, atrocious and obnoxious“. It is also claimed that Parliament does not have the jurisdiction or competence to impose such a levy on tax-payers.

The Bombay High Court has, vide order dated 28.04.2014, granted ad-interim stay in terms of prayer clause (d) i.e. stayed the operation of the impugned notices levying the fee.

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Telecom tribunal overturns ban on 3G roaming pacts

Mobile operators, including Airtel, Vodafone and Idea Cellular, will be able to offer 3G services across the country, with the telecom tribunal holding their roaming pacts to be valid.

The three operators had inked an intra-circle roaming agreement to offer 3G services across the country, using each other’s spectrum. This was because none of these players had won pan-India spectrum individually in the auctions held in 2010.

The Department of Telecom had objected to the deal, saying that though roaming is permitted, such an intra-circle arrangement cannot be used to sell 3G connections in areas where operators do not have spectrum. DoT had asked the operators to stop such services and had also imposed penalties.

The Telecom Dispute Settlement Appellate Tribunal (TDSAT) has, however, quashed the penalties and ruled in favour of the operators.

“Allowing intra-circle 3G roaming would result in a much fuller and better utilisation of 3G spectrum. This would increase the gross revenue of both the provider and the seeker of the 3G network, and the Government, having a percentage share in the adjusted gross revenue of the licence holders, would thus be able to get a larger sum as licence fee. The arrangement is thus beneficial to the consumer, the operators and the State,” the tribunal said.

Deal revival possible

The impact of the ruling will be felt most by Airtel, Vodafone and Idea Cellular as they can revive their deal to offer 3G services in each other’s circles, and thus get a pan-India footprint.

For example, Idea, which does not have 3G airwaves in Delhi, will be able to offer data services to customers by taking capacity from Airtel and Vodafone.

Other companies, such as Reliance Communication, Aircel and Tata Teleservices, are also expected to form such an alliance.

In particular, the ruling will put Idea, Airtel and Vodafone in a better position to compete with the financially strong Reliance Jio, which is expected to launch its data services, based on 4G technology, this year.

Consumers also benefit as they will have more options to choose from. At present there are only three operators in each circle offering 3G services. “We expect 3G uptake to increase substantially with this order. Overall industry revenue may go up by at least 2 per cent,” said Rajan Mathews, Director General, Cellular Operators Association of India.

Spectrum sharing

The other impact will be on the proposed spectrum-sharing policy, which could become redundant after the TDSAT order.

A roaming pact is a form of spectrum sharing without any of the curbs proposed in the draft guidelines, which restrict sharing to operators who own airwaves in the same frequency in a circle.

AN ORDER OF IMPORT

Incumbents will be able to vie with Reliance Jio on data services

Consumers will be able to choose from more operators

Operators get access to spectrum other than through auction

Government’s policy on spectrum sharing may become redundant

Source: The Hindu - Business Line

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Nokia gets a breather, other MNCs hold their breath

In a fairly big reprieve for Nokia, the Madras High Court on Tuesday quashed a sales tax demand for Rs 2,400 crore...!!!

In a fairly big reprieve for Nokia, the Madras High Court on Tuesday quashed a sales tax demand for R2,400 crore by the Tamil Nadu government, saying the matter should be heard afresh on its merits, reports fe Bureau in Chennai. The

HC also asked the deputy commissioner (commercial tax) to give the Indian arm of the Finnish mobile phone maker an opportunity for a hearing. However, the HC asked Nokia to deposit within eight weeks 10% of the tax demanded, or R240 crore, as a precondition for reconsidering the case.

“Nokia is weighing its options for legal recourse post today’s Madras High Court ruling. It would like to reiterate that it continues to see the Tamil Nadu claim as without merit and will defend itself vigorously,” a company spokesperson said.

The firm is also fighting a Rs 21,000-crore income tax demand in relation to royalties paid to its Finnish parent (the tax, the revenue department says, was supposed to be deducted by the local firm at source).

Of course, the HC clarified that Tuesday’s order would not totally take away the state VAT department’s right to proceed further in the matter. It also called “feeble”the company’s attempt to state that the relevant VAT dues (for three assessment years up to FY12) could not be anything higher than relating to Rs 14 crore, the “variation” (between claimed exempt foreign sales and VAT-able domestic sales). Analysts, however, said the court’s order stopping the VAT department from pressing the current assessment orders and review the entire matter afresh is a victory for the handset maker.

The Madras High Court also directed Nokia to submit all documentary evidence to prove its case before the deputy commissioner.

The Tamil Nadu VAT department made the tax claims on the grounds that the company was selling handsets produced at its Chennai manufacturing plant in the domestic market, instead of shipping them overseas. The court’s direction came after the company claimed that it did not have any cash in hand to pay the amount.

Nokia’s senior counsel Arvind Datar argued that the company lacked the requisite liquidity as it had paid over Rs 780 crore in 2013-14 to the income tax department towards the ongoing Rs 21,000-crore tax dispute at the Delhi High Court. He also sought that the company be given an opportunity for a personal hearing.

Tuesday’s high court order comes at a time some of the largest foreign investors in India are busy fighting whopping tax demands from various arms of the country’s revenue dispensation (see chart). These pertain to a range of issues: Not withholding taxes on royalties paid to foreign entities, failure to pay taxes on capital gains on indirect transfer of Indian assets and transfer pricing adjustments.

Investor enthusiasm in India is at a low ebb — the investment-GDP ratio fell from 38% in FY08 to just over 34% in FY14. While steps to unclog investments are being taken, tax authorities, in their anxiety to boost revenue collections, are going after high-profile foreign investors in India, precipitating a plethora of litigation. A part of the tax claims could be legitimate, but many have antagonised investors, especially the ones pertaining to retrospective taxation.

Source: http://www.financialexpress.com/news/nokia-gets-a-breather-other-mncs-hold-their-breath/1245592/0

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PwC audit finds MCX-FTIL ties too close for comfort

Operations of the Jignesh Shah-promoted Multi Commodity Exchange (MCX), including technology solutions...!!!

Operations of the Jignesh Shah-promoted Multi Commodity Exchange (MCX), including technology solutions, warehousing and selection of vendors for non-trading transactions, were significantly dependent on Financial Technologies India (FTIL) — the anchor investor of the commodity derivatives exchange — an independent audit report prepared by the audit firm PricewaterhouseCoopers (PwC) has noted.

MCX spent approximately Rs 649 crore over the years for services stipulated to have been rendered by FTIL under various agreements, the special audit by PwC has found, noting the total amount of money paid by MCX to disclosed related parties was approximately Rs 709 crore.

The audit report remarks that key management personnel at MCX may have only executed decisions taken by FTIL’s senior management. “It appears that the management of FTIL has played a significant role in decisions pertaining to commercial terms between MCX and other FTIL group companies. In various instances, key management personnel of MCX, such as the ex CFO, head-IT, ex-chief compliance officer stated that the decisions were directly taken by and instructions received from the ‘chairman’s office’ (FTIL) or the MD & CEO office (MCX),” PwC said. The commercial terms negotiated between MCX and FTIL, the audit points out, are not substantiated by market benchmarks or a competitive bidding process.

In a BSE filing put out on Tuesday, MCX shared an executive summary of the audit report sought by the Forward Markets Commission (FMC) after the commodity market regulator ordered FTIL to reduce its stake in MCX from 26% to 2% in light of the R5,600-crore scam at National Spot Exchange (NSEL), also promoted by FTIL. The summary highlighted findings of the auditor on the operations of MCX and FTIL, the management style of FTIL and related-parties transaction.

The report notes that although MCX emerged as a significant customer for FTIL by driving around 25% of FTIL revenues, it was not able to enjoy adequate bargaining power with FTIL at the time of negotiating the technology support and business support agreements.

“Under the existing contractual terms and conditions MCX appears to be contractually bound to FTIL for an unprecedented long tenure ranging between 33 to 50 years with a provision of automatic renewal for up to two similar terms,” the PwC report said.

The audit summary also raised red flags on the “known” and “additional” related parties. It noted that while MCX and the FT group disclosed names of 235 related parties, background checksand public domain checks on these identified 676 additional entities or individuals who could be deemed to be directly or indirectly related to either MCX or the FT group, FTIL key management personnel or their immediate family members. It alleged that out of these related parties, select entities or individuals were identified as being members or clients who traded on MCX platforms over the years.

“Specific abnormal patterns have been noted in trades performed by these entities as wash trades,” said the report, asserting that regulators in India prohibit such practices. Pertaining to agreements and transactions with National Bulk Handing Corporation (NBHC) and other FT group companies, PwC said MCX was unable to demonstrate or provide documentation to support whether the warehousing requirements agreed upon with NBHC were indeed commensurate with MCX’s scale of operations and in line with its business requirements. PwC could not substantiate the compensation agreed to be paid by MCX to NBHC by any market benchmarking or competitive bidding process. Hence the actual utilisation of warehouses or existence of warehouses that were deemed to have assigned to MCX could not be ascertained. The review also identified 15,131 instances of trades aggregating to about Rs 1,856.56 crore where the same party placed buy and sell orders within 60 seconds of each other resulting into no change in position.

Source: http://www.financialexpress.com/news/pwc-audit-finds-mcxftil-ties-too-close-for-comfort/1245593/2

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