Advance Tax-Last Minute Revision Notes

MODULE III - PAPER 6 ADVANCED TAX LAWS AND PRACTICE
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LAST MINUTE REVIEW
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Professional program LMR/Short Notes
Index
Serial no 1 2 3 4 5 6 7 8 9 10 11 12 13 14 14 15 16 17 18 19 20
Details Syllabus for the subject Detailed topics for Part A Pattern of question for Part A Chapter 1 General framework of direct taxation in India Chapter 2 - Companies under Income-tax Laws Chapter 3 - Tax Planning Chapter 4 - Tax Management Detailed topics for Part B Pattern of question for Part B Chapter 5- Introduction Chapter 6 - Central Excise Laws Chapter 7-.Customs Laws Chapter 8-.Promissory Estoppels in Fiscal Laws Chapter 9 - Tax Planning and Management Detailed topics for Part C Pattern of question for Part C Chapter10 -. Basic Concepts of International Taxation Chapter11 - Advance Ruling and Tax Planning Chapter 12-. Taxation of Inbound Transactions Chapter 13-. Taxation of Outbound Transactions ALL THE BEST AND WISH YOU GOOD LUCK
Page number 3 4 5 6 8 10 15 20 21 22 24 30 37 38 39 40 41 46 49 51 56
PRESCRIBED SYLLABUS MODULE III PAPER 6: ADVANCED TAX LAWS AND PRACTICE -------------------------------------------------------------------------------------------------------------------Level of knowledge: Expert knowledge To provide I. Knowledge of framework of taxation system in India. II. knowledge of various concepts and their application relating to tax laws with a view to integrating the relevance of these laws with financial planning and management decisions III. an overview of international taxation. --------------------------------------------------------------------------------------------------------------------Objectives: Contents and marks distribution
Part A
Subject Direct Taxation Law and practice 1. General Framework of Direct Taxation in India 2. Companies under Income-tax Laws 3. Tax Planning 4. Tax Management Indirect Taxation Law And Practice 5. Introduction 6. Central Excise Laws 7. Customs Laws 8. Promissory Estoppels in Fiscal Laws 9. Tax Planning and Management International Taxation 10. Basic Concepts of International Taxation 11. Advance Ruling and Tax Planning 12. Taxation of Inbound Transactions 13. Taxation of Outbound Transactions
Marks 30
50
20
Part A: Direct Taxation - Law and Practice Detailed topics of syllabus Chapter 1 Topic Detailed syllabus
General Framework Different direct tax laws and their interof Direct Taxation in relationship; importance of Income Tax Act and India Annual Finance Act and related Constitutional provisions; harmonization of tax regime. Companies under Classification and tax incidence; corporation tax Income-tax Laws as per Article 366; computation of taxable income and assessment of tax liability considering special provisions relating to companies. Tax Planning Concept of tax planning; Tax planning with reference to setting up a new business; locational aspects; nature of business; tax holiday, etc. Tax planning with regard to specific management decisions such as mergers and takeovers; location of undertaking; introduction of voluntary retirement; tax planning with reference to financial management decisions such as borrowing or investment decisions; reorganization or restructuring of capital decisions. Tax planning with respect to corporate reorganization; tax planning with reference to employees remuneration. Tax planning vis--vis important provisions of wealth-tax including court rulings and legislative amendments Tax Management Return and procedure for assessment; special procedure for assessment of search cases, ecommerce transactions, liability in special cases; collection and recovery of tax; refunds, appeals and revisions; penalties imposable, offences and prosecution.
Pattern of question in Part A Three questions are set in this section generally and the student is expected to answer any two questions out of three Each question carry 15 marks each thereby making the total marks to 30 First Question The first question is divided into three parts a, b and c each section carrying 5 marks Question 1 a Multiple choice questions (MCQ) of 5 are set and the student is expected to pick up the correct answer One should make use of this so that one gets sure shot the entire 5 marks Question 1 b This question generally is of fill up the blank by putting appropriate words or figures 5 are set and the student is expected fill up the blanks correctly One should make use of this also to ensure to get the entire 5 marks Question 1 c This question is at times divided into 5 sub category and asking the student to examine the applicability of one of the direct tax laws such as wealth tax carrying 1 mark each or asking the students to discuss a particular provision of an act under any one of the tax law carrying 5 marks - Here also one could get the maximum marks Question 2 This question is also generally divided into 3 parts a, b, c the marks are divided either equally or at times differently (5+5+5 or 4+5+6 etc) This question generally on computation of tax aspect, allowability or dis-allowability of expenses in computation and such other related matters it is a practical question (one should know the current assessment years provisions for answering this question) Question 3 This question is also divided into 3 parts a, b, c the marks are divided either equally or at times differently. Practical question with reference to decided case laws, differentiate
and distinguish or certain provisions effect of noncompliance etc are tested under this question. This also should not be much of a problem to get marks one has to remember at least some of the decided cases which are discussed in study material. Chapter 1 - General framework of direct taxation in India
S.No
Topic -
details different laws of direct taxation and as well the inter-relationship between them.
Chapter 1 deals with
Importance of Income Act and the Annual Finance Act which is presented every year in the Parliament and as well the related constitutional provisions need to be understood. Also the harmonization of the current tax regime to be understood for answering any questions. Question pattern at times short notes are asked in this distinguish between two different aspects chapter descriptive questions at times Tax what is tax avoidance and what is tax evasion 2 Tax avoidance It simply means, minimizing the impact of the tax by proper planning within the framework of the permitted law but at times it defeats the basic intension of the legislative provisions. - The lacunas in the provision are taken into account and tax is avoided - Though tax avoidance is legal and within the framework of law yet involvement of mala fide intention is there - Tax avoidance is well planned in advance before the actual liability comes into existence 3 Tax evasion This is nothing but totally avoiding the tax liability by legal means - This is done with unfair means - This is unlawful and illegal - Evasion takes place after the tax liability has actually arisen Administrative circular issued by CBDT vis--vis extra level benefits to tax payers 4 Sec 119(1) CBDTs instructions. Circulars, instructions are to be followed by all the administrative people employed in the execution of tax department and it is of binding nature since CBDT has got a delegated authority to issue such circulars though the circulars are not in reality a law. Binding of instruction, circulars and notifications are applicable for taxpayers and it may not bind the following: - Appellate authority, Income Tax Tribunal and the judiciary i.e. the High Courts As you are all aware, Judiciary has a duty to interpret the statues and the executive authority needs to accept and adhere. (Decided case law on this CIT vs. Hero cycles Pvt Ltd of 1997) A notable point on this is when the administrative machinery gives Professional program LMR/Short Notes
I T Act 1961
8 9
relief to the taxpayer beyond the norms of the provisions by law or the relevant statue then the contention of the department that the circular has no effect cannot be accepted. The circulars issued by CBDT are binding on the tax authorities and there is also a case law on this which is: Ellermen Lines In this case held by Apex court recognized the validity of beneficent Ltd vs. CIT circulars and the right of the assesses to enforce there and get relief even in the court In summary the benefits arising out circulars by CBDT to assesses held permissible even though the circulars CIT vs. Similar decision has also come in the case of CIT vs. Aspinwall & Aspinwall & Co. Ltd clearly spelling out that the benefits arising out of circulars Co. Ltd though departed from the provisions of law, yet the beneficial to the assesses would be permitted. Question could be on this subject either by way of short notes, or description question or even concept explanation with reference to decided case laws One need to be familiar with tax avoidance, tax evasion CBDT circulars and their effects, binding with whom and with whom not.. Distribution of Also get familiarization of the three fold distribution of legislative legislative powers under our constitution read with the relevant schedules powers distributing the powers via - Central list - State list and - Concurrent list Article 146 of our constitution confers these to central and state and also to both under concurrent list Tax collection Tax collection method at source, on self assessment individual method and corporate, one need to have the basic ideas Finance bill Finance bill passed every year in February last week keeps amending the tax provision in direct taxes and as well in indirect taxes from the examination point of you, one need to know the current years tax law provisions
Chapter 2 - Companies under income tax laws

S.No Topic details - classification and tax incidence; corporation tax as per Article 366; computation of taxable income and assessment of tax liability considering special provisions relating to companies. Practical question Descriptive question At times short notes Distinguish between two aspects We refer section 2(26) of the IT Act - obviously the company is registered and incorporated under the Indian Companies Act of 1956 and it will also includes:- company formed and registered under any law relating to companies formerly in force in any part of India except J & K and Union territories - corporation established under Central / State or Provisional Act - any institutions, associations or body which is declared by the board as company In respect of J & K company formed and registered under any law for the time being in force and in case of union territories of Dadra and Nagar Haveli, Goa, Daman and Die and Puducherry, a company formed and registered under any law for the time being in force in that union territory. Provided that the registered or as the case may be, principal office of the company, corporation, institutions, association or body, in all cases is in India. Where in the case of a company, the income tax payable on the total income as computed under the IT Act, in respect of previous year relevant to assessment year 2011-12 or thereafter is less than 18% ( it was 15% for A.Y2010-11) its book profit, such book profit shall be deemed to be the total income of the assessee on such total income i.e. book profit shall be the amount of the income tax at the rate of 18% Income Tax payable would be higher of the following two:a) tax on total income computed as per normal provisions of the Act by charging applicable normal rates and special rates if any, income included in the total income of the company taxable at special rates b) 18% of book profit For this purpose, the net profit as per P & L account is adjusted for various items under sec. 115 JB, by adding them back to net profit
Question pattern in this chapter 1
Indian Company
Minimum Alternate Tax (MAT)
What is the MAT payable
Computation of book profit Professional program LMR/Short Notes
or deducting from it. By and large the following are not added back 1) Fringe benefit tax 2) Wealth tax 3) Penalty for nonpayment of income tax 4) Excise duty due not paid 5) Gratuity provision By and large the following are added back 1. Provision for doubtful debts 2. Proposed dividend Addition and deduction of Depreciation whole amount of depreciation added back and the amount of depreciation which is not on account of revaluation of assets is then required to be deducted from the net profit One could expect a practical question on the computation of MAT 5 Preparation of While preparing the account it is to be seen that the company has accounts and adopted the following computation of a. Accounting policies of the company MAT b. Accounting standards followed for preparation of ARs c. The method and rates adopted for calculating the deprecation ARs is required to be laid before the annual general meeting of the company as required under section 210 of the Cos Act Even if the company adopts different financial years than the one that is followed of IT Act ( IT act is for period April to March of each year) the above required to be followed 6 Applicability of MAT applies to any company whether it is domestic or foreign. MAT to foreign However, where a non resident companys income is assessed on company a presumption at a flat rate under section 115A on royalty and technical fees, the book profit becomes immaterial for regular assessment and the presumptive income tax would prevail. 7 Supreme court decision in CIT vs. Mysore Sugar Co. Ltd Held Computation of tax Where advance was given by a sugar mill to sugar cane grower but allowability the grower did not supply the sugar cane, the loss on account of Or non-recovery of advance was foregoing them shall be allowed as a Otherwise deduction while computing the income tax liability relevant case laws Allahabad HC case L H Sugar Factories & Oil Mills Co. Ltd Held Sum expended to replacement of old roof by using new khaprails (tiles) in new roofing of labourers quarters was not allowed as it is not the one, necessary for repairs. It would be a capital expenditure and depreciation could be claimed on this Expenditure towards dismantling and refitting the plant at another place is a capital expenditure will not be allowed as deduction Case Sitalput Works Ltd Vs CIT Supreme court decision in L H Sugar Factories & Oil Mills P.Co. Ltd Construction of road within the premises was facilitating the running of the business and no benefit of enduring nature accrued to the assessee and expenditure is revenue nature and allowed as deduction
Practical questions involving computation of tax is set in Part A you would be able to tackle = get familiarized with the adjustments, relief, exemption provisions- MAT seems to be another facourte topic of the examiner since questions have been repeatedly asked on MAT/
Chapter 3 - Tax planning -------------------------------------------------------------------------------------------------------------------S.No Topic details Concept of tax planning; Tax planning with reference to setting up a new business; locational aspects; nature of business; tax holiday, etc. Tax planning with regard to specific management decisions such as mergers and takeovers; location of undertaking; introduction of voluntary retirement; tax planning with reference to financial management decisions such as borrowing or investment decisions; reorganization or restructuring of capital decisions. Tax planning with respect to corporate reorganization; tax planning with reference to employees remuneration. Tax planning vis--vis important provisions of wealth-tax including court rulings and legislative amendments Tax planning, tax management, tax evasion, tax avoidance Fringe benefits its applicability Question on wealth tax reverse mortgage Transfer pricing officer Certain practical questions This is an arrangement of financial activities in such a way so that maximum tax benefits are enjoyed by making use of all beneficial provisions of the tax laws which entitles the assessee to get certain rebates and reliefs and this is permitted by law and not frowned upon This refers to the compliance with the statutory provisions of law while tax planning is optional but tax management is mandatory. It includes maintenance of accounts, filing returns, payment of taxes, deduction of tax at source, timely payment of advance tax etc. It is deliberately suppressing the income or inflating the expenditure and resorting to various types of deliberate manipulation. Tax evasion which is the cancer of modern societies and weighted against planned development achievement of socio-economic goals, has to be curbed and the society has a greater role to play in this. It simply means, minimizing the impact of the tax by proper planning within the framework of the permitted law but at times it
Questions could be on
Tax planning
Tax management
Tax evasion
Tax avoidance
defeats the basic intension of the legislative provisions. - The lacunas in the provision are taken into account and tax is avoided - Though tax avoidance is legal and within the framework of law yet involvement of mala fide intention is there Tax avoidance is well planned in advance before the actual liability comes into existence At times question are asked deposit in PPF comes into what category evasion, avoidance this would not come under any category treating personal expenditure as business expenditure under what category this is evasion you need to know the difference and answer accordingly 5 Provision relating to Special provisions in respect of certain undertakings or substantial enterprises in certain special category of states of Sikkim, expansion Himachal Pradesh, Uttaranchal or the North Eastern states as Sec. 80-IE and 8-IC per section 80 IC as per this provision of this section substantial expansion means increase in the investment in the plant and machinery before taking depreciation in any year as on the first day of the previous year in which the substantial expansion is undertaken Special provisions in respect of certain undertakings in North Eastern states section 80-IE substantial expansion means increase in the investment in the plant and machinery by at least 25% of the book value of plant and machinery before taking depreciation in any year, as on the first day of the previous financial year in which the substantial expansion is undertaken 6 Transfer pricing As per section 92CA Transfer Pricing Officer is wither a Jt officer Commissioner or Dy Commissioner or Asst Commissioner Time limit for authorized by board to perform all or any of the function of the assessment assessing officer specified in section 92C and 92D in respect of any person or class of persons The time limit for completing the assessment, re-assessment, assessment pursuance to search etc is 33 months from the end of the relevant assessment year in which the income was first assessable. The transfer pricing officer should determine the arms length price at least two months before the expiry of such time limit by making the assessment or re-assessment. 7 Wealth tax Non profit making companies registered under section 25 of the All companies liable Cos Act 1956 are exempt from levy of wealth tax. Scope of minimizing Where the company is not resident in India, its assets and debts located outside India shall be excluded fro9m the computation of net wealth. Companies could minimize their wealth tax liability by - By avoiding investment in taxable assets like jewelry, motor cars, other unproductive assets - In unavoidable cases, investment in the said assets could be made out of loans or debts may be incurred in relation thereto by way of furnishing a security for the loans, so that such debts could be claimed as deduction in computing net wealth. - Purchase house property likely to be used by the Professional program LMR/Short Notes
Scientific research Sec. 35(1)(iia)
Reverse mortgage
9(a)
Section 10(43)
9(b)
Section 47(xvi)
directors, managers or senior officers as their residential accommodation or by any other employee having substantial interest in the company could be funded out of loan As per section 35(1)(iia) any sum paid to a company to be used by it for scientific research is allowed as a deduction @ 125% of the amount so paid in the previous year in which payment is made. The sum paid to a company to be used for scientific research shall be allowed to the assessee only if the company registered in India with the main object of scientific research and development and it should be approved by the prescribed authority for this purpose. This deduction could be claimed by any person whether it is company or not making payment to company approved for the purpose. There is no requirement that the scientific research carried out by the approved company should be related to the business by the assessee. It also give a scope of tax planning especially by small and medium sized assesses who are otherwise handicapped for making heavy investment for building in house scientific research. When the borrower makes monthly or yearly repayment to lender then it is called to be regular mortgage but when a lender makes payments to the borrower it is known as Reverse Mortgage. The central government has notified the Reverse Mortgage Scheme 2008. As per the same, an individual aged 60 years or above and in case of a married couple, where either the husband or wife is 60 or above, will be treated s an eligible reverse mortgagor to avail the above benefit. Any eligible person may enter reverse mortgage transaction by applying in writing to the approved lending institution if the capital asset as a residential house property located in India, which is mortgaged, is owned by him is free from any encumbrances. An approved lending institution being any scheduled bank 0or housing finance company may disburse the loan to the reverse mortgagor by any one or more of the following modes namely:a. Periodic payment to be decided mutually between the institution and the reverse mortgagor b. Lump sum payment in one or more trenches, to the extent that the aggregate amount disbursed as lump sum payment does exceed 50% of the total loan amount sanctioned c. The loan under reverse mortgage shall not be granted for a period exceeding 20 years from the date of signing the agreement by the reverse mortgagor and the approved lending institution As per section 10(43) any amount received by an individual as a loan either in lump sum or in installment, in a transaction of reverse mortgage shall be exempted Any transfer of a capital asset in a transaction of reverse mortgage is not treated as transfer for the purpose of capital gain
10
Provisions relating to hospitals section 80-IB(11C)
11
Meaning of Jewellery Under Wealth tax
12
Meaning of urban land Under Wealth tax
13
Asset held by minor child provision under wealth tax Sec 4(1)(a)(ii)
tax. - incase of alienation of the mortgaged property by the mortgagor for the purpose of recovery of the loan will be treated as transfer and the borrower i.e., mortgagor will be liable to tax on capital gains if any, arising out of such alienation. As per this section deduction of 100% of profits and gains derived from business of operating and maintaining hospitals anywhere in India other the excluded areas for a period of 5 consecutive assessment years, beginning with the initial assessment year if the following conditions are satisfied i. The hospital is constructed and has started or starts functioning at any time during the period beginning on 1 April 2008 and ending on 31 December 2013 ii. It has at least 100 beds for patients iii. The construction of the hospital is in accordance with the regulations or bye-laws of the local authority iv. Report of audit in the prescribed form certifying the correctness of claim for deduction is furnished along with the return of income Excluded areas- Delhi urban agglomeration, Greater Mumbai urban agglomeration, Chennai urban agglomeration, Kolkata urban agglomeration, Hyderabad urban agglomeration, Bangalore urban agglomeration, Ahmadabad urban agglomeration, Districts of Faridabad, Gurgaon, Ghaziabad, Gautam Budh Nagar and Gandhi Nagar and City of Secunderabad. Ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing and precious or semi-precious stones and whether or not worked or sewn into any wearing apparel Precious or semi-precious stones whether or not set in any furniture, utensils or other article or worked or sewn into0 any wearing apparel In any area comprised with in jurisdiction municipality or cantonment board having a population of 10,000 or more according to the last preceding census or Within 8 km from the local limit of such municipal or cantonment board Note municipality includes municipal corporation, notified area committee, town planning committee, town committees or a municipality known by any other name As per this section of wealth tax act, assets held by the minor child shall be included in the net wealth of that parent whose net, wealth excluding the assets of the minor child is greater. However the following assets shall not be included in the net wealth of the parent and would be taxable in the hands of the minor only i. iAssets held by minor child suffering from any disability of the nature specified under section 80 of the IT act i.e, disability or severe disability (section
4(1)(a)(ii) Assets held by a minor married daughter Assets acquired by a minor child out of the following income referred to in proviso to section 64(1A) of the IT act. a. Income from manual work done by him b. Income from any activity involving application of his skill, talent or specialized knowledge or experience Also where the marriage of the parents does not subsist then the assets of minor child will be clubbed in the net wealth of the parents who maintained the minor in the previous year as defined in the IT act Also get familiar with depreciation provisions under section 32 read with section 43 Best example when a non-operating plant and machinery is a part of block of assets and the said block assets is used for purpose of business allowability of depreciation You should know once various assets are clubbed together and they become block of assets with the meaning of sec 2(ii).- then it is said to be one asset for the purpose of depreciation. Individual assets lose their identity from that very moment and become inseparable part of block of assets in so far as calculation of depreciation is concerned Question would be asked based on certain facts allowability, exemption, relief etc Practical question would also be asked better to get to familiarized with this Past question papers might help you on this to know the type of practical questions asked ii. iii.
Chapter 4 - Tax management --------------------------------------------------------------------------------------------------------------------S.No Topic details Return and procedure for assessment; special procedure for assessment of search cases, e-commerce transactions, liability in special cases; collection and recovery of tax; refunds, appeals and revisions; penalties imposable, offences and prosecution.
Question pattern in this chapter 1 Tax planning vs Tax management
Annual information return Sec 285 BA
Tax collection at source Sec 206(C)
Tax management Narrower term and in the first step towards the planning It is essential for every person It helps in complying the conditions for effective decision making It helps in complying the conditions for claiming tax benefits The person specified under section 285BA(1) responsible for registering, or maintaining books of account or other documents containing a record of any specified financial transaction, under any law for the time being in force, shall furnish an annual information return. Annual information return shall have to be furnished for (i) Such specified financial transactions which is registered or recorded by the above persons during any financial year beginning on or after 1.4.2004 and (ii) Such in information which is relevant and required for the purposes of this act Every person being a seller shall collect from the buyer of goods specified in section 269C(1) at source the tax. Tax has to be collected by the seller by the seller at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt such amount from the buyer whichever is earlier. 206C(1) it shall be paid to the central government within 7 days.
Tax planning Wider and includes tax management Every person may not require tax planning Tax planning helps decision making Tax planning helps in claim various benefits of the act
TDS on fees paid for professional and technical services Sec 194J
Tax management in respect to advance payment of tax (companies) Sec 210 and the importance and need of the tax planning
Such amount shall be deemed as payment of tax on behalf of the person from whom the amount has been collected and credit shall be given for the amount so collected on production of certificate. According to this section, any person other than an individual or a HUF who is responsible for paying to a resident any sum by way of fees for professional services or technical services, shall deduct tax on income comprised therein. Tax is to be deducted either at the time of payment of such fees or its credit to the account of the payee whichever is earlier. No deduction shall be made under this section, where the amount of such sum or as the case may be, the aggregate or the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the amount of, or to the payees does not exceed Rs. 30,000 w.e.f 1.7.2010 in the case of fees for professions serviced or technical services Professional services means services rendered by person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or such other profession as is notified by the board for this purpose of section 44AA As per section 210, the company has to suo moto pay relevant tax in the financial year immediately proceeding the relevant financial year in 4 installments. The advance has to be paid by the assessee on the basis of an estimate of his current income assessed in the immediately proceeding A.Y. as reduced by the tax deducted or collected at source. Section 208 f the IT act species that the advance tax shall be payable in every case where the amount of such tax payable by the assessee during a finance year is nRs.10,000 or more. The advance tax shall be paid as under Due date of installment Amount payable a. On or before 15 June Not less than 15% of advance tax liability b. On or before 15th Sept. Not less than 45% of advance tax as reduced by the amount if any paid in earlier installments c. On or before 15 Dec ---- do ---- 75% d. On or before 15 Mar ----do whole amount Conceptually, it is clear that the company is required to make an estimate of total income even before the year is completed or in other words, even before it is fully earned. Estimate of income cannot exactly be identical with the income finally earned when accounts are drawn or prepared. As the advance tax is adjustable only in the regular assessments, tax management is needed. A good tax manager should be able to estimate the figure more or less near, the final figure that would be payable on regular assessment. If any excess amount is paid, though would be eventually refunded, the companies resources will be blocked with the government. But charge of interest for defaults in payment of advance tax under section 234B as well mandatory charge of interest for deferment tax under section 234C,. if one fails to pay advance tax, the assessing
Provision relating to filing of T return in electronic form Sec. 139D
Revision of order & Rectification of order
officer may pass an order under section 210(4) and issue notice of demand under section 156 requiring him to pay advance tax on his current years income specifying the installments in which the amount has to be paid. Hence, tax management of the company should be in such way that neither the funds of the company is blocked by paying higher advance tax than required nor the company has to pay interest payment of advance tax. The board may make the provisions as under as per sec 139D a. The class / classes of persons who shall be required to furnish the return in electronic form b. The form and manner in which the return in electronic form may be filed c. The documents, statements, receipts, certificates or audited reports which may not be furnished along with the return in electronic form but shall be produced before the assessing officer on demand d. The computer resource or the electronic record in which the return in electronic form may be transmitted Revision of assessment section 263/264 Revision is made under section 263 if prejudicial to the interest of the revenue. However, revision under section 264 either of his own motion by the commissioner or an application made by the assessee cannot be prejudicial to the assessee No order under the revisional jurisdiction can be passed after the expiry of two years from the date of order sought to be revised as per section 263(2). The CIT on his own motion cannot revise any order, if the order has been made more than one year previously Rectification of assessment The rectification is done with a view to rectifying any mistake apparent and rectification at the instance of the assessee can also be favourable or prejudicial to him. There can be no rectification order after the expiry of four years from the end of the financial year in which it was passed. 1. Nature of default Sec 271AA failure to keep and maintain any such information and documents as required under section 92(d)(1) & (2) in relation to international transaction Sec 271B failure to get accounts audited or to furnish a report in such audit as required under section 44AB 2.Minimum Penalty Sec 271AA a sum equal to 2% of the value of each international transaction Sec 271B 0.5% of total sales turnover or gross receipts as the case may be 3.Maximum Penalty Sec 271AA same as minimum Sec 271B Rs. 1,00,000 revised w.e.f 1.4.2011 Rs. 1,50,000 4.Person who can impose penalty
Points of difference between section 271AA and Section 271B
Revised return Sec 139(5)
10
Defective return Sec.39(9)
Sec 271AA assessing officer or commissioner appeal Sec 271B assessing officer If an assessee having furnished a return of income under section 139(1) or in pursuance of a notice issued under section 142(1) discovers any omission or any wrong statement in the return filed, he may furnish a revised return. Such revised return can be filed at any time before the expiry of one year from the date of the relevant assessment year or before the completion of the assessment, whichever is earlier According to section 139(9) a return shall be considered as a defective return if it is not properly filed in and also not accompanied by all the necessary annexures. If the assessing officer considers that the return is defective, then he may intimate the defect to the assessee and give him an opportunity to rectify the same within 15 days or the extended period as may be allowed. If the assessee does not rectify the defect within 15 days, then it is treated as voidab-initio and it shall be deemed that the assessee has not filed the return of income Provided where the assessee rectified the defect after the said period of 15 days or the extended time period but before the completion of assessment, then the assessing officer may condone the delay and treat the return as valid return. Where any person a. Fails to make return of income under section 139(1) and has not made a return or a revised return under section 139(4) or 139(5) b. Fails to comply with all terms of a notice issued under 142(1) c. Fails to comply with a direction issued under sec 142(2A) d. Fails to comply with all terms or a notice issued under section 143(2) Then the assessing officer after taking into consideration all relevant material facts which he has gathered shall make an assessment in the of his judgment and determine the tax payable by the assessee. The assessing officer shall not make the assessment unless he gives an opportunity of being heard to the assessee. According to section 153(3) notwithstanding anything contained in section 153(1) and (2) but subject to the provisions of section 153(2A) the following cases of assessment / reassessment, recomputation of income or assessment or re-assessment of fringe benefits may be completed at any time a. Where the assessment. Re-assessment or re-computation is made on the assessee or any person in consequence of , or to give effect to, any findings or directions contained in order under section 250, 254, 260, 262 and 264 or order of court under any other law and b. Where in case of a firm an assessment is made on a partner of the firm in consequence of an assessment on the firm. However, as per section 153(2A) if in the above case, the original assessment is set aside or cancelled, the period for
11
Best judgment assessment Sec 144
12
Assessment which is not subject to time limit under IT act
fresh assessment will 9 months. Descriptive question are set in this chapter You should get familiarized Possibilities of reduction/ waiver of interest under section 234A, 234B and 234C the circumstances - Circumstances when revised return could be filed - Duties of persons who deducts tax at source consequences of not deducting tax - Powers of the commissioner appeals - What order could be appealed against? - Revision of order, rectification of order - Original return, revised return, defective return related provisions - There could be questions on special audit under section 142(2A to 142(2D) get to know this also since questions are asked at times - Penalties for not filing return under section 139 - Failure to get accounts audited under section 44AB (section 271B - You might be also asked in some of the questions the relevant case laws Practical question, computation of income, advising on certain matters considering the given facts are some of the questions set in this section you need to get familiarized with this too -
Practical questions
Part B: Indirect Taxation Law and Practice Detailed topics of syllabus Chapter 5 Topic
Introduction
Detailed syllabus
Special features of indirect tax leviesall pervasive nature, contribution to Government revenues; constitutional provisions authorizing the levy and collection of duties of central excise, customs, service tax, central sales tax and VAT. Basis of chargeability of duties of central excise goods, manufacture classification and valuation of excisable goods, CENVAT; assessment procedure, exemption, payment, recovery and refunds of duties. Clearance of excisable goods; Central Excise Bonds; maintenance of accounts and records and filing of returns. Duties payable by small scale units. set-off of duties concept, meaning and scheme; Central Excise Concessions on exports; search, seizure and investigation; offences and penalty. Adjudication, Appeal and Revision, including appearance before CEGAT by Company Secretary as authorized representative; settlement of cases. Levy of and exemption from, customs duties specific issues and case studies; assessment and payment duties; recovery and refund of customs duties. Procedure for clearance of imported and exported
Central Excise Laws
Customs Laws
8 9
Promissory Estoppels in Fiscal Laws Tax Planning and scope and management in customs, with specific Management reference to important issues in the respective areas.
goods; drawback of duties. Transportation and warehousing Confiscation of goods and conveyances and imposition of penalties; search, seizure and arrest, offences and prosecution provisions. Adjudication, Appeal and Revision; Settlement of Cases Principles and applicability with reference to indirect taxes.
Pattern of question in Part B In this section, there is always a compulsory question carrying 20 marks. In addition the student is expected to answer 2 more questions out of 3 questions each carrying 15 marks each. The total marks in this section is of 50 marks consisting basically the central excise, customs, promissory estoppels of fiscal laws and the related tax planning and tax management Fourth Question - This question is generally a compulsory one. Sub-section (a) is a MCQ writing the appropriate answers from the given one Sub-section (b) is fill up the blanks with appropriate words or figures Sub-section (c) is either brief notes or practical problem or examination of a particular situation Sub-section (d) is a descriptive question relating to certain provisions, rules etc All four sections carry 5 marks each making up to the total of 20 marks Three more questions are in this section one has to answer 2 questions each carries 15 marks each Fifth Question By and large this is also divided into 3 sub-question of 5 marks each. The questions are examination of certain facts, practical questions, certain rules, or elaborate and write on certain specific provisions of the act, rules etc. Sixth Question and Seventh Question These questions also divided into three or four sub-questions and questions are in the nature of writing brief notes, examination of facts of a given case, remedy available or
question relating to provisions, or examination of certain real life situation and asking for comments
Chapter 5 Introduction --------------------------------------------------------------------------------------------------------------------S.No Topic Brief details

Special features of indirect tax leviesall pervasive nature, contribution to Government revenues; constitutional provisions authorizing the levy and collection of duties of central excise, customs, service tax, central sales tax and VAT Generally descriptive question are asked from this chapter The necessity of Provisional Collection of Taxes Act 1931 that budget provisions in respect of imposition or increase in duty of excise and customs will take effect immediately if a declaration is inserted in the bill that it is expedient in public interest to have immediate effect to the provisions of the bill. This provision is not applicable for reduction in duty. After the declaration is given, the new rate becomes effective on the expiry of the day when the bill is introduced. Accordingly, every year, the declaration is given and budget provisions come into effect immediately. Such declaration is valid for 75 days or the date when the finance bill is passed, whoever is earlier If rates are reduced when the bill is passed, refund will be granted of excise duty collected subject to provisions of refund of unjust enrichment of section 113(2) of Central Excise act Re-structuring of tariff headings is not covered under this act. This will be effective only when bill become an act Tax planning in indirect taxes means a. Taking advantage of the legitimate concessions and exemptions provided in the tax law and thus reducing the tax liability
Questions could be on The Provisional Collection of Taxes Act 1931
Scope of tax planning in indirect taxes
Collection of taxes by government before finance bill is passed let us examine With the advent of VAT regime the multiplicity of rates prevalent till then has been reduced in four broad categories - Elucidate
b. Arranging business operations such that tax liability is reduced i.e., when two methods are possible to achieve an objective, select the one which results in lower tax liability Tax planning is permissible but not subterfuges. Tax planning may be legitimate if it is within the frame work of law, but colorable devices cannot be part of tax planning. It is wrong to say that it is honourable to avoid payment of tax by dubious methods This is the same point discussed under serial no. 1 which as per The Provisional Collection of Taxes Act 1931 you should be able to remember this and the provisions if related questions are asked In contract to the multiplicity of rates under erstwhile Sales Tax Laws, the VAT regime has four broad rates other than the 0% for exempted goods in the nature of unprocessed agricultural goods and goods of social importance. The four categories are as follows: i. 1% for precious and semi-precious metals ii. 4% for inputs used for manufacturing and declared goods iii. 20% for demerit / luxury goods iv. Rest of the commodities are taxed at a Revenue Natural Rate of 12.5%
Chapter 6 Central Excise Laws --------------------------------------------------------------------------------------------------------------------S.No Topic Chapter 6 deals with Brief details
Basis of chargeability of duties of central excise - goods, manufacture classification and valuation of excisable goods, CENVAT; assessment procedure, exemption, payment, recovery and refunds of duties. Clearance of excisable goods; Central Excise Bonds; maintenance of accounts and records and filing of returns. Duties payable by small scale units. Set-off of duties concept, meaning and scheme; Central Excise Concessions on exports; search, seizure and investigation; offences and penalty. Adjudication, Appeal and Revision, including appearance before CEGAT by Company Secretary as authorized representative; settlement of cases. - Short notes and Descriptive questions manufacture captive consumption such related issues - Practical questions based on facts - Last three exams (June and December 2010 & June 2011_ practical question on determination of assessable value. Computation of cenvat credit, cenvat exemption etc - One needs to get familiarized on this Section 2(f) of the act provides an inclusive definition of term manufacture. Manufacture includes any process incidental or ancillary to the completion of a manufacture product. The term incidental and ancillary to the completion of a manufactured product can be elaborated as manufacture of any product through a series of manufacturing process taking place in sequence. At a particular stage, after the necessary processes are completed, the product emerging may be functional nevertheless, a few process which take place to render the
Manufacture under Central Excise Act 1944
product which is already functional to become on which is also saleable, are those of which can be considered and incidental and ancillary to the completion of manufacture of product. The scope and meaning of the term which has been left undefined in the act has crystallized as a consequence of the various judicial decisions and it has come to be settled that a product can be treated as manufactured only if it emerges as a result of change on the inputs and such changes have brought in new characteristics or use or name as against, the input themselves. Mere value addition through a process would not tantamount to manufacture Supreme court held in Union of India V Delhi Cloth and General Mills and others is a landmark judgment and it says manufacture implies a change but every change is not manufacture, and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be a transformation, a new and different article must emerge having distinct name, character or use Some specific chapters in central excise talks about deemed manufacture for example chapter 38 says labeling, relabeling, packing bulk into retail making it saleable in the market are deemed to be manufacture. Similarly in another chapter 68, printing, decorating and ornamenting are recognized as manufacture you should know about this. Manufacturing and processing Processing not defined in CEA. A process is an operation or an activity which may or may not result in production, manufacture. For excise purposes mere process is not enough to call it manufacture or production. Such process / process should bring into existence an excisable entity preferably with a distinct name, character or use. The process is manufacture as it is distinct excisable item. Hence every manufacture is a process and not necessarily vice-versa. The definition of the term manufacture under section 2(10 states that a process, which is incidental to the manufacture of the product, is also manufacture under law. If the process is no integral to or connected with manufacture, it will not be incidental 2 Captive Captive consumption means goods are not sold but consumed consumption within the same factory or another factory of same manufacturer. In case of captive consumption, valuation shall be done on the basis of cost of production plus 10% (Rule 8 of valuation rules). Cost of production is required to be calculated as per Cost Accounting Standards 4 (CAS-4) 3 Self removal The assessee can maintain his own private records as long as procedure the requirements as specified in the rules are satisfied. The records should be kept in the factory to which they pertain. The records should be preserved for 5 years immediately after the financial year to which such records pertain. Non maintenance of records as per specified rules will mean contravention of specified rules and will attract penal provisions. The DSA (daily stock account) and even other records pertaining to central excise shall be pre-authenticated by assessee on first and last page of the book / register. Pre authentication is not possible in case of a. Records maintained on computer Professional program LMR/Short Notes
Provisions relating to cenvat credit
b. Records maintained in loose leaf form There is no statutory requirement that the records are to be maintained in book form only. Invoices issued by assessee are also required to be pre-authenticated as per rule 11(5) of central excise. Every assessee and first stage dealer and second stage dealer submit a list in duplicate, of all records prepared and maintained by him for the following as per rule 22(2) (i) All records prepared and maintained for accounting transaction in regard to receipt purchase, manufacture, storage, sale or delivery of goods including inputs and capital goods (ii) All the records prepared an maintained for accounting transaction in regard to payment of input services and their receipt and procurement and (iii) All the financial records and statements including trail balance or its equivalent. The assessee, first stage dealer and second stage dealer is required to submit to his range officer duly empowered by commissioner or audit party or audit persons of C & AG the following for security: a. Records maintained or prepared in terms of rule 22(2) as described above b. Cost audit report under section 239B of Companies Act c. Income tax audit report under section 44AB of IT act rule 22(3) of central excise rules a. The cenvat credit in respect of capital goods received in a factory or in the premises of the provider of output services at any point of time in a given financial year shall be taken o0nly for an amount not exceeding 50% of the duty paid on such capital goods in the same financial year. As per proviso, the cenvat credit in respect of capital goods shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year. If such capital goods are cleared as such in the same financial year. Further the cenvat credit of additional duty leviable under sub-section 5 of section 3 of custom tariff act in respect of capital goods shall be allowed fully immediately on receipt of the capital goods in the factory of a manufacturer. b. The balances of cenvat credit may be taken in any financial year subsequent to the financial year in which the capital goods were received in the factory of the ma manufacturer or in the premises of the provider of output service, if the capital goods, other than components spares and accessories, refractory and refractory materials .moulds, dies and goods falling in the first schedule to the central excise tariff act are in the possession of the manufacturer of final products or provider of output services in such subsequent years.
Any assessee can electronically maintain or generate all or any of records, returns, invoices and other documents prescribed under excise rules using a computer in electronically readable format. No intimation is required to be given to the department However, range office will record in Scrutiny register or any other record indicating assesses profile, that the assessee is maintain records or generating returns invoices or other documents, using computer The records on computer can be kept on any electronic media such as hard disk, floppies, CDS or taps and preserved. Proper electronic records as well as hard copies should be preserved for 5 years following the year in which a record / return, invoices or document pertains. 6 Related person It should be noted that the assessable value for excise duty under the Central would be the transaction value when buyer is not related. If Excise Act 1944 buyer is related, then the assessable value would be determined having regard to the related party transaction. The term related party is defined under clause (b) to sub-section (3) of section 4 of the Central Excise Act. As per this, persons shall be deemed to be related if i. They are inter connected undertakings ii. They are relatives iii. Amongst them, the buyer is a relative and distributor of the assessee, or a sub-distributor of such distributor or iv. They are so associated that they have interest directly or indirectly, in the business of each other. Explanation, in this clause a. Inter connected undertaking shall have the meaning assigned to it in clause(g) of section 2 of the MRTP Act b. Relative shall the same meaning assigned under Companies Act 1956 7 Doctrine of unjust If the manufacturer had charged excise duty from his buyer, it is enrichment under clear that he has passed on the burden to the buyer and has Central Excise Act already recovered duty from the customer. In such cases, 1944 refunds of excise duty paid to the manufacturer will amount to excess and undeserved profit to him. It will not be equitable to refund of excise duty to him, as he will get double benefit-first from the customer and second from government. This is called unjust enrichment. Refund if any should be paid to customers who have borne the burden of duty. However in majority of the cases, it is not practicable to identify individual co9nsumer and make a refund to him. At the same time. The duty is illegally collected and hence cannot be retained by government and in such cases the refund due is transferred to a Consumer Welfare Fund (instead of paying to the manufacturer) to be used for activities of protection and benefit of consumers The manufacturer has to prove for getting the refund that he has borne the burden of excise duty. Case law CCE vs. Allied Photographic held unjust enrichment doctrine would apply to refund even when duty is paid under protest Professional program LMR/Short Notes
Provisions relating to computerization of records
Get familiarized with the consumer welfare fund under this act which has been formed under section 126 of CEA question could be on the utilization of the fund Exempted goods means goods exempted by a notification under section 5A of the Central Excise Act. But goods removed under bond are not exempted goods. Exempted goods are basically leviable goods. Fully exempted goods may become dutiable at the time of removal if the exemption is withdrawn by that time. For example in Wallace Floor Mills Co Lt vs CCE, when the good were manufactured and packed they were fully exempted from duty. At the time of removal of goods from factory the exemption was withdrawn. The supreme court held that the goods are dutiable and hence duty is payable But same is not the case with NIL rated goods. When gods carry NIL rate at the time of manufacture, they continue to be nil and no duty is payable n them unless, there is subsequent change in the tariff rate. Subsequent change may have immediate effect by virtue of Provisional Collection of taxes Act 1982 9 Special audit Valuation is one of the most vital important aspects of Section 14A assessment of excise duty payable. In order to ensure that duty is being paid correctly on the assessable value a provision has been made to order special audit in some specified cases vide section 14A of Central Excise Act. The audit could be ordered only with the prior approval of chief commissioner of central excise 10 Central credit audit As this section, a special audit of central credit availed or utilized Section 14AA can be ordered by commissioner of central excise. Such audit can be ordered if the commissioner of central excise has reason to believe that a cenvat credit availed or utilized or not within the normal limits, having regard to nature of final products and type of inputs and cenvat credit has been availed or utilized by reason of fraud, collusion or any willful misstatement or suppression of facts Such audit can be done by practicing cost accountant or practicing chartered accountant to be appointed by commissioner of central excise. Expenses of and incidental of such audit including the remuneration payable to the cost or chartered accountant to be paid by the central government i.e. by the central excise department You could expect a question under the head distinguish between these two audits or even write short notes 11 Payment of duty Sometimes the assessee may be compelled to pay duty which under protest in according to him is not payable. Such payments are called central excise law payment under protest. Protest payment is not necessary when provisional assessment is allowed. Payment under protest is allowed under the excise manual released by the department a. The assessee has to record the fact in his records including invoice, return, daily stock account etc. b. The assessee can continue to pay under protest till the appeal filed by him is disposed off. Professional program LMR/Short Notes 8 Exempted good and Nil rated goods
12
Compoundable levy scheme under central excise
13
Ad valorem rate
14
MRP based excise duty
15
Scheme of valuation for MRP based excise
c. General period of limitation of one year is not applicable to the appeals filed under this d. If the assessee wins the case, he has to file for refund if eligible by a separate application A letter of protest or representation for paying duty under protest should not constitute a claim of refund. The persons eligi9ble has to apply for the refund separately once the appeal is decided in his favour. Rule 15 of CE rules provide that central government may by notification, specify the goods in respect of which the assessee shall have option to pay duty of excise on the basis of specified factor relevant to production of such goods and specified rates. Central government can specify procedure for payment, abatement allowable, interest and penalty payable etc. Under the scheme, the manufacturer has to pay prescribed duty for the specified period on the basis of factors relevant to production like the capacity of the machines used etc. after making the lump sum periodic payment the manufacturer does not have to follow any procedure of excise regarding storage and clearances of goods This scheme is presently applicable to stainless pattas / patties and aluminum circles. These articles are not eligible for SSI exemption. The scheme was applicable to panmasala and gutkha upto 30th June 2008 When duty of central excise or custom is levied by applying the given percentage of the value of the goods, then it is known as ad valorem rate. In other words ad valorem rate are the rates based upon the value of the goods. The incidence of levy of this case is different from product to product and from manufacturer to manufacturer, with goods of higher value being subject to greater amount of duty and so on. Ad valorem, rate has in-built elasticity and changes with the changes in the value of the item. The quantum of duty levied automatically varies as between superior varieties and inferior varies of the same goods. Central government is authorized to notify certain products s0old in a packaged form having MRP printed on them. The packaged commodity rules 1977 under standard of weights and measures act require the packaged commodities to bear the maximum retain price (MRP). Out of such packaged commodities some of them have been notified by the government from time to time and such commodities notified by the government are valued under section 4A of the CEA of 1944 a. The notified goods are necessarily to bear the MRP on it b. MRP declaration also statutorily required under SW & M act 1976 c. If the manufacturer prints MRP voluntarily, and not under legal obligation, the valuation of such goods need not be made under section 4A d. The MRP is the basis for arriving assessable value e. Rate of abatement are also notified by the government.
Rates of abatement may be different for different commodities Also to know - Distinction between goods and excisable goods - Return of goods under rule 173H and 173L of CEA - Audit under section 14A and 14AA who can conduct such audit - Exempted goods and nil rated goods - Duty paid in input goods and duty paid on capital goods - Export under bond merchant exporter manufacturer exporter
Chapter 7 Customs Laws --------------------------------------------------------------------------------------------------------------------S.No Topic Brief details

Levy of and exemption from, customs duties specific issues and case studies; assessment and payment duties; recovery and refund of customs duties. Procedure for clearance of imported and exported goods; drawback of duties. Transportation and warehousing Confiscation of goods and conveyances and imposition of penalties; search, seizure and arrest, offences and prosecution provisions. Adjudication, Appeal and Revision; Settlement of Cases - Short notes - Distinguish between and explain, comment - Descriptive questions and - Practical questions Importer Exporter code number IEC code is unique 10 digit code issued by DGFT Director General Foreign Trade, to Indian companies. To import or export in India, IEC code is mandatory. No person or entity shall make any export or import without IEC code number Application for IEC can be obtained from any zonal and regional office of the DGFT. It also could downloaded from www.dgft.gov.infor. The application should be accompanied by a certificate from bank in the format 18A, self certified copy of PAN,
IEC number
Procedure of obtaining IEC
Import manifest
self addressed envelope. In case of individual certified copy of date of birth, in case of a firm notarized partnership deed and in the case of company extract of board resolution Prescribed fees for IEC is Rs. 250 which can be deposited in the form of DD drawn in favour of zonal DGFT. Application submitted in duplicate and each page of application must be signed by the applicant. If the application is found to be in order a ten digit number is allotted by DGFT to any bonafide person, firm, company for carrying import /export Person in charge or vessel aircraft or vehicle has to submit import manifest. The import manifest I n case of vessel or aircraft is required to be submitted prior to arrival of a vessel or aircraft. Import manifest has to be submitted within 12 hours of arrival at the custom station. If the manifest could not be submitted within prescribed time, person in charge or any person specified as responsible by a notification is liable to penalty up to Rs. 50,000. Such penalty will not be imposed if the custom office is satisfied that there was sufficient cause for the delay section 30 (1) Import general manifest can be submitted electronically through floppy where EDI facility is available Alternatively it could be also answered as under:Section 14 of the finance act, the value of imports and exports shall be based on the transaction value. The custom valuation (determination of value of importer goods) Rules 2007 also deal with the transaction value and conditions for its applicability. It also deals with transaction value of identical goods, similar goods and the situation where the above methods cannot be applied, it also provides for deductive value methods. Where the proper officer has reason to doubt the truth or accuracy of the value declared in relation to the goods, he may ask he importer to furnish further information including documents or other evidence and on a consideration of the information received should proceed to consider the value declared and even after such consideration decides to reject the declared value, shall proceed to determine the value by proceeding in accordance with Rule r to 9 If the value of identified or similar goods imported at or about the same time in comparable quantities is significantly higher or where the said involves abnormal discount or reduction from the ordinary competitive price, special discount, mis-declaration of goods in parameters such as description, quantity, quality, country of origin, year of manufacture production etc. The authorities can raise doubts about the declared value. Where the declared value is reflecting and assessable value is redetermined by the assessing officer and he shall then issue detailed speaking order on this. Importer may submit inter-alia chartered engineers certificate or any equivalent in the country of supply, indicating the price, current CIF value of the new machinery. If purchased now, year
Custom duty When not levied
Provisional assessment of import duty
GATT
of manufacture, sale price of supplier, present condition of machinery, nature of conditioning or repairs carried out, if any, the cost thereof and expected life span. In the absence of proper lead port certificate of local chartered engineers certificate may be submitted. Following circumstances custom duty is not levied i. Under sec. 13 no duty will be levied on pilfered goods after uploading thereof and before the proper officer has made an order of clearance ii. When goods are damaged or defoliated before or during the course of unloading iii. When the warehouse goods are damaged before their actual clearance from warehouse iv. When goods are lost or destroyed due to natural calamity like fire, flood etc. v. Where goods are abandoned by the importer vi. If central government is satisfied that it is necessary in the public interest not to levy import duty by issuing the notification in the official gazette. Section 16 of custom act provides that provisional assessment can be done in the following cases a. Where the proper officer is satisfied that an importer or exporter is unable to produce any document or furnish any information necessary for the assessment of duty on the imported goods or the export goods or b. Where the proper officer deems it necessary to subject any imported goods or export goods to any chemical or other test for the purpose of assessment of duty thereon or c. Where the importer or the exporter has produced all the necessary documents and furnish full information for the assessment or duty but the proper officer deems it necessary to make further enquiry for assessing the duty The proper officer may direct that the duty leviable on such goods may be assessed provisionally if the importer / exporter furnish such scrutiny as the proper officer deems fit for the payment of deficiency, if any between the duties finally assessed and the duty provisionally assessed. GATT came into existence after the world war with a view to provide an international forum for the discussion on custom and other related problems so that barriers to world trade are progressively removed For the first time on 30th October 1947, an agreement signed at Geneva by 23 countries under the auspices of GATT provided some measures of control of customs valuation procedure. These valuation provisions are given in Article VII of the agreement titled valuation for customs purpose. Article VII sets out a broad statement of principles of customs valuation which the GATT contracting parties had accepted. However this did not bring the desired results as it allowed continuation of existing
Antidumping duty
Remission of duty under section 13 and 23(1) under Customs Act 1962
valuation procedure by the contracting parties. The implementation of article VII of GATT which is also called GATT valuation code came into existence. It envisaged transaction value to the principle yardstick to determination of custom value and sets out at hierarchy of alternative methods which are to be followed in case the transaction value cannot be determined this code came into force w.e.f - 1.1.1981. It has now been replaced by WTO formed on 1.1.1995. As per sec 9A when any article is exported from any country or territory to India at less than its normal value, then upon the importation of such article into India, the central government may, by notification in official gazette, impose an anti-dumping duty not exceeding the margin of dumping in relation to such article In this section margin of dumping is in relation to an article, means the difference between its export price and its normal price whereas export price means the price of the article exported from the exporting country or territory and in cases where the export price is unrelated because of association or compensatory, arrangement between the exporter and the importer or a third party the export price may be constructed on the basis of the price in which the imported article are first resold to an independent or if the article is not sold to an independent buyer or not resold in the condition as imported. On such reasonable basis a may be determined in accordance with the rules made under sub-section 6 Normal value in relation to an article means a. The comparable price, n the ordinary course of trade for the article when destined for consumption in the exporting country or territory as determined in accordance with the rule made under sub-section 6 or b. When there are no sale of the like article in the ordinary course of trade in the domestic market of the exporting country or territory, or when because of the particular material situation or low volume of the sales in the domestic market of the exporting country or territory, such sale do not permit a proper comparison, the normal value shall be either - Comparable representative price of the like article when exported from the exporting country or territory to an appropriate third party - The cost of production of the said article in the country of origin along with reasonable addition for administrative, selling and general costs and for profits. S.No Section 13 Section 23(1) I Deals with pilferage Deals with loss of destruction of goods, except pilferage Ii Loss must be only due to Loss or destruction may be pilferage due to fire accident etc but not pilferage
Is applicable for warehoused goods also Iv Duty is payable but it is remitted by Asst.Commi. of customs. Thus unless remitted, duty has to be paid under section 23(1) V Importer does not have to Burden of proof is on prove pilferage importer to prove loss or destruction Vi Pilferage should be Loss or destruction can be before order for any time before clearance clearance is made vii Normally duty is not paid, If duty is paid, then refund before examination of can be obtained only if goods, refund can be remission is granted by claimed if goods are custom authorizes. Thus found to be pilferaged remission under section during examination but 23(1) is at the discretion of before order for custom authorities clearance is made 9 Redemption fine Redemption fine and Section 125(1) of Custom act provides that whenever Penalty confiscation of goods is ordered the adjudication officer may give option to owner of good to pay fine in lien of confiscation, if the importation or exportation of good was prohibited. However, if importation or exportation of goods was not prohibited, the option to pay redemption fine shall be given to owner of goods. This is called redemption fine Penalties Excise authorizes are empowered to impose penalties line fines confiscation of goods etc. which are provided in the rules. Some rules themselves provide penalty for violating those rules which some are general penalties. The authorities can impose penalty for violation of law and confiscates the goods and give option to pay fine in lieu of confiscation i.e. redemption fine. Court of law can impose fine, imprisonment as well as confiscation of goods General penalty provisions Rules 25 of CEA rules provide provision for breach of various rules Get familiarized with transit of goods and transshipment of goods under customs act at times question could be asked on this 10 Duty drawback s.no Section 74 Section 75 under section 74 1 Imported goods and Imported goods are used in and under section exported goods as manufacture of goods which 75 such or after use are exported 2 Re-export of Customs, central excise duties imported goods and service tax drawback rules (duty drawback of 1995
Iii
Is not applicable to warehoused goods No duty is payable at all but liability revives of duty if goods are restored
3 4
11
Clearance for home consumption and clearance for warehousing
s.no 1
custom duties) rules 1995 Customs duties only are refunded When imported goods are exported as such without having been used in India 98% of the import duty paid at the time of importation (section 74(i) When imported goods are exported as such after having been used in India, duty drawback is granted at reduce rate as notified by CG for this purpose section 74(2) Clearance for home consumption When the goods lying at the place of importation and needed for immediate utilization, then goods are cleared for home consumption from the place of importation Goods can be cleared for home consumption upon payment of duty only While colour shall be filed in terms section 46 of the Customs Act. The bill of entry is assessed by the proper officer and returned to the assessee for payment of duty. Upon payment of
Customs and excise duties and service tax are refunded AIR (All Industry rate generally) BR(Brand Rule) when no AIR is fixed in the DBK schedule SBR (special brand rate) when fixed SIR 80% greater if the actual duties incidence
Clearance for warehousing When goods lying at the place of importation are not needed for immediate utilization, then the goods are cleared for warehousing from the place of importation
Payment of duty is not required for clearance of goods to warehouse. In fact goods are warehoused to defer duty payment Bill of entry for warehousing yellow colour shall be filled in terms of section 46 of the customs act. This bill of entry is assessed by the proper officer and returned to the assessee. The importer shall execute a bond equal to twice of the duty assessed. It shall be noted that in this case assessment is
are done not for the purpose of the payment of duty. The objective of this assessment of the amount to which bond shall be executed Get also familiarized with preferential rates of custom duty and lower customs duty under trade agreement Go through the Procedural matter on preparation of bill of entry Study the advance ruling its salient features too like in income tax, the advance ruling is also in this act Have an idea about settlement commission 12 Disallowances of Drawback rules provide for some dis-allowances which are as draw back under i. If sale proceeds of export goods are not received with the time stipulated by RBI ii. If no custom or excise duty is paid on the input or service tax is paid on the input service iii. If import duty were obtained under advance licence without payment of duty iv. Goods manufactured by EOU or a unit in SEZ 9 as they obtain inputs without payment of duty v. If cenvat was claimed vi. In a case of negative value addition i.e. selling price of exported goods is less than value of imported goods vii. If wholsale market price of goods in India is less than the amount of drawback due viii. If drawback is less than Rs. 50 ix. No drawback of sales tax, octroi or other taxes. 13 Section 114 Following export goods are liable for confiscation under section confiscation when 113. a) I goods attempted to be exported by sea or air from any place other than a custom port or a custom airport appointed for the loading of such goods b) Goods attempted to be exported by lands or inland water through unspecified route c) Goods attempted to be exported contrary to prohibition under custom act or any other law d) Goods found concealed in a package which is brought within the limits of a customs area for the purpose of exportation e) Goods which are not included or are in excess of those included in the entry made under this act f) Goods imported without duty but being re-exported under claim of duty drawback g) Goods cleared for exportation which are not loaded on account of willful act, negligence or default, or goods unloaded after loading for exportation without permission h) Goods which are loaded or attempted to be loaded in contravention of the prohibition of sections 33 or section 34 Professional program LMR/Short Notes
duty goods delivered to importer
i)
Specified goods in relation to which any provision is contravened.
Practical question are set in this chapter and you need to get familiarized go through the case laws on this chapter better you could refer the past question paper also to know the type of practical question.
Chapter 8 - Promissory Estoppels in Fiscal Laws --------------------------------------------------------------------------------------------------------------------S.No Topic Brief details

Principles and applicability with reference to indirect taxes. Promissory estoppels in sales tax Promissory estoppels plea falls where public interest intervenes explain comment etc Powers of central government to exempt partly or wholly any goods subject to custom duty doctrine of estoppels The matter is raised in taxes, especially in sales tax where the government provides exemption from tax by means of tax holidays for a certain period which could be of 5 years and then withdraw the exemption before the expiry of 5 years. The reason for promissory estoppels is one the ground that certain unit has been established expecting the tax benefits and withdrawal before the expiry has caused damage to them. Hence the units might be hit hard. They can go to the court of law Professional program LMR/Short Notes
Chapter 8 deals with Questions could be on
Doctrine of promissory estoppels In sales tax
Promissory estoppels plea falls where public interest intervenes explain comment etc Case law on this ---------------------Sree Sales Corporation and Another Vs. Union of India decided in 1997. Grant of Exemption Power of government
against the government under Doctrine of estoppels. (the benefits granted cannot be generally withdrawn before the period ends without any sufficient cause or reason it may not also get extended for a further period automatically) Courts while recognizing the principal of promissory estoppels as an instrument of equity remedy have consistently held that the promissory estoppels pleas fail where public interest intervenes. This means, though a concessions is extended for a fixed period by notification or otherwise, the same can be withdrawn in public interest Where it is in public interest, the Court will not interfere because public interest must override any consideration of private loss of gain Decided case law Sree Sales Corporation and Another Vs. Union of India decided in 1997. Power to issue exemption implies power to amend the exemption or withdraw exemption already granted. This is done generally by issue of notification /modification of notification etc. However, in some notification grant exemption for a prescribed period withdrawal of such notification of exemption could be done only in exceptional circumstances. Otherwise, government is bound to keep up the promise made by it as per the theory of promissory estoppels Government cannot go back from its promise simply on the ground of loss of revenue and this is known as principle of promissory estoppels.
Chapter 9 - Tax Planning and Management --------------------------------------------------------------------------------------------------------------------S.No Topic Brief details

scope and management in customs, with specific reference to important issues in the respective areas. Concept of pricing of finished excisable goods Tax planning on this Tax planning is certainly possible in pricing of finished excisable goods While it is ones duty to pay legitimate tax, it is ones right not to pay taxes which are not due. Tax planning is legitimate right of any citizen All assessee should take certain precautions while deciding any tax planning exercise. Supreme court heldTax planning may be legitimate it is within the frame work of law, but colourable devices cannot be part of tax planning. All relevant facts must be disclosed. Professional program LMR/Short Notes
Chapter 9 deals with Questions could be on Pricing of finished excisable goods In the planning of tax planning in the central excise
Plans can be discussed with excise authorities and we need not be over confident in these matters. Study the product Study the pricing policies Thoroughly ensure that these are so designed that unnecessarily heavy excise duty is not paid Interest is payable for late payments. Thus if payment is delayed by filing appeal etc., and if appeal is decided after a long time, there will be a very heavy liability.
Part C: International Taxation Detailed topics of syllabus
Chapter 10
Topic
Basic Concepts of International Taxation
Detailed syllabus
Residency issues; source of income; tax havens; unilateral relief and Double Tax Avoidance; transfer pricing; international merger and acquisitions; impact of tax on GATT 94, WTO, anti dumping processing; the subpart F Regime : definition of CFC, Subpart F Income and Operating Rules. Authority for advance rulings, its power and procedure; applicability of advance ruling; application for advance ruling and procedure on receipt of application. Tax planning and special provisions relating to certain incomes of
11
Advance Ruling and Tax Planning
12 13
Taxation of Inbound Transactions Taxation of Outbound Transactions
nonresident corporate assessee. Double taxation avoidance agreements; general principles; provisions and tax implications thereof. Taxation of passive investments; capital gains & losses; income taxation; property taxation; branch profit taxation. Foreign tax credit; foreign income exclusions; indirect foreign tax credit (deemed paid system vs. current pooling system); Controlled Foreign Corporations; PFICs (Passive Foreign Investment Companies); cross border merger, acquisitions and transfers.
Pattern of question in Part C In this part there is only one question set which carries 20 marks The question is generally subdivided into five questions each carrying four marks asking the students to write notes, comment, examine, state briefly etc..Six sub-questions are set in this part generally and the student is expected to answer five of the question out of six. Eighth Question The first question is divided into five parts (one has to answer five out of six questions set) Each question carry 4 marks each Questions are generally Short notes 5 x 4 20 marks
Explain briefly Distinguish Some practical problem determination of tax on foreign income or relief that are available on foreign income Binding nature of advance ruling Option for foreign companies to set up business in India Role of transfer pricing officer Arms length pricing
Chapter 10 Basic concepts of international taxation --------------------------------------------------------------------------------------------------------------------S.No Topic Brief details

Residency issues; source of income; tax havens; unilateral relief and Double Tax Avoidance; transfer pricing; international merger and acquisitions; impact of tax on GATT 94, WTO, anti dumping processing; the subpart F Regime : definition of CFC, Subpart F Income and Operating Rules. Transaction must be between two associate enterprises and at least one of the two must be of non resident In this case, the transaction is originating from one country and gets conducted in another country. Benefit cannot be denied to tax payer on the grounds of loss of revenue if the tax payer has legitimately reduced his tax burden by taking advantage of treaty because the need for agreement of Double Tax which arises because of rules in two countries regarding charge ability of income based on receipt and accrual, residential status and such other related matters. If income
2 3.
International transaction Cross border transaction Tax burden of a tax payer with reference to treaty between countries Case law vs. Azadi Bachao Andolan
Relief of tax in cases where no DTA agreement
Arms length price Section 92(F)
become liable to tax in two countries then in such scenario, the following are the possibilities:a. Income is taxed only in one country b. Income is exempt in both countries c. Income is taxed in both countries but credit for tax paid in one country is given against tax payable in the other country If the two countries do not have a DTA agreement between them, then in such case, the domestic law of the country applies. The CBDT has clarified that in case of conflict in the provision of the agreement for DTA and the IT Act, the provision contained in the DTA will prevail. Case law on this matter Union of India Vs Azadi Bachao Andolan held by Supreme Court the benefit of DTA cannot be denied even if it leads to loss of revenue As per sec 91 of IT act, if any person resident of India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India and which is not deemed to accrue or arise in India, he has paid in any country with which there is no agreement under sec.90 for relief or avoidance of double taxation, income tax by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction on such double taxed income at the Indian rate of tax or the rate of tax of the said country whichever is the lower or at the Indian tax rate if both rates are equal. The resident Indian can claim the unilateral relief as per section 91 of IT act and he will be entitled from the India income tax payable by him of a sum calculated on such double taxed income so included in his total income, at the Indian rate of tax of the said country, whichever is lower or at the Indian tax rate if both rate are equal As per section 92(F) arms length price means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in controlled conditions. It is the price that would have existed between enterprises not associated or related with each other The provision of arms length price shall apply not only to income generating transaction but also to transactions resulting into expenditure but the provisions of arms length price will not apply f their application results in decrease in the overall incidence of tax in India in respect of the parties involved in the international transaction. Where the computation of income or determination of the allowance for any expenses or interest on any cost or expenses allocated or apportioned, computed under section 92(2) has the effect of reducing the income chargeable to tax or increasing the loss computed on the basis of entries made in the books of account in respect of previous year in which the international transaction entered into, the provisions will not apply as per
Arms length price Applicable for all transactions
Computation of income comparable Uncontrollable price method (CUP) Rule 10B
Mode of granting relief under DTA agreement (Methods)
Effect of ADT (avoidance of Double Taxation) agreement
section 92(3) Rule 10 B prescribes one of the following method for computation 1. To identify the price charged / paid for property transferred or services rendered in a comparable uncontrolled transaction or a no of such transactions 2. Such price is adjusted to account for differences, if any between the international transaction and the comparable transaction, or between the enterprises entering into such transactions which could materially affect the prices in the open market. 3. Adjusted price is taken to be an arms length price in respect of the property transferred or services rendered in the international transaction a. Pricing of an unrelated party transaction T b. Less- adjustments made for related party specific transactions S c. Pricing of an unrelated transaction TS d. Pricing of the related party transaction U Compare(c) and (d) If (d) is greater then (c) Then ALP is (d) i.e.. U If (c) is greater then (d) then ALP is (c)i.e., T S The most important aspect of this method is the identification of an identical transaction, in a situation where a price is charged for product or services between unrelated parties. While applying the method, the comparability between controlled and uncontrolled transactions should not be only judged from the comparability of the product but should also take into consideration the effect on price of other broader business functions. Even minor differences in contractual terms or economic conditions, geographical area, risk assumed, functions assumed etc., could affect the amount charged in an uncontrolled transaction, There are two methods (a) exemption method and (b) Tax credit method Exemption method is a particular income is taxed in one of the two countries Tax credit method an income is taxable in both the countries in accordance with their tax laws read with the ADT agreement. However, the country of residence of the tax payer allows him credit for the tax charged therein in the country of source against the tax charged on such income in the country of residence. a. If no tax liability is imposed under the act, the question of resorting to the agreement would not arise, no provision of the agreement can possibility fasten a tax liability not imposed by the act b. If a tax liability is imposed by the act, the agreement may be resorted to for nullifying or reducing it c. In case of difference between the provisions of the act and the agreement, the provisions of the agreement prevail over the provisions of the act and can be enforced
10
Section 115AD Special rates for income tax to FIIs
11
Govt. power w.r.t section 90(A)(a) of IT act relating to agreement between specified associations
by the appellate authorities and the Courts As per section 90A any specified association in India may enter into an agreement with any specified association in the specified territory outside India and the central government may by notification in the official gazette, make such provisions as may be necessary for adopting and implementing such agreement. The provisions may be made for: i. Adopting and implementing such agreement, for double taxation relief ii. Avoidance of double taxation iii. Exchange in formation iv. Prevention of avoidance of evasion of tax and v. Recovery of tax Section 115 AD provides for specific rate of income tax to FIIs in respect of the incomes as follows a. Income other than units of MF covered under section 20 (23D) of UTI received in respect of securities special rate applicable 20% b. Any short term capital gain on transfer of securities covered under section 111A special rate applicable 15% c. In respect of other securities special rate applicable 30% d. Income by way of long term capital gains arising from the transfer of securities special rate applicable 10% Where the gross total income of FIIs consists only of income in case (a) above, no deduction shall be allowed to it under section 28 to 44C or section 57 C or under chapter Vi-A (80CCC to 80U) Where the gross total income of FIIs includes any income referred to is clause (a) or (b) or (c) above then the gross total income shall be reduced by the amount of such income e and the deductions under clause VIA shall be allowed as if the gross total income as so reduced were the gross total income of the FIIs Any specified association in India may enter into an agreement with any specified association in the specified territory outside India and the central government may, by notification make such provisions as may be necessary for adopting and implementing such agreement and the provisions are:1. For the granting of relief in respect of:a. Income on which tax have been paid under this act and income tax in any specified territory outside India or b. Income tax chargeable under this act and under the corresponding law in force in that specified territory outside India to promote mutual economic relation, trade and investment or 2. For the avoidance of double taxation under this act and under the corresponding law in force in that specified territory outside India or 3. For exchange of information for the prevention of evasion or avoidance of income tax chargeable under this act or under the corresponding law in force in that specified
12
Transfer pricing Determination of most appropriate method Sec. 929 (C)
territory outside India or investigation of cases of such evasion or avoidance or 4. For recovery of income tax under this act and under the corresponding law in force in that specified territory outside India or 5. When provisions have been made / modified as above, then in relation to the assessee to whom such agreement applies, the provisions of this act shall apply to the extent they are more beneficial to the assessee. As per section 92 (C) where more than one price is determined by the Transfer Pricing Officer by following the most appropriate method then the arms length price shall be taken to the arithmetical mean of such prices. However if the arithmetical mean so determined is within 5% of the price then the transfer price shall be deemed tube the arms length price and no adjustment is required to be made Example Tfr price ALP determined by ALP for transfer Applying arithmetical mean price adjustment (a) 200 210.2 210.2 (b) 200 209.9 200 In case of (a0 above, the difference between the arms length price and actual transfer price exceed 5% of actual transfer price, then in this case, arms length price shall be taken as RS. 210.2 Incase of (b) above, the difference between the arms length price and actual transfer does not exceeds 5% of actual transfer price, then this case arms length price shall be taken as Rs. 200 Question in December 2010 Prakash aged 66 and ordinarily resident in India is a professional.- has earned Rs. 1,00,000 from services provided outside India. His foreign income was taxed at 20% in that country whose services were rendered. India does not have any tax treaty with that country. Assuming that Indian income of Prakash is Rs. 3,00,000, what relief of tax under section 91 of IT act will be allowed to him for A Y 2010-11 Prakash has contributed Rs. 32,000 towards PPF during the previous year 2009-10 Computation Rupees Indian income 3,00,000 Foreign income 1,00,000 Gross total income 4,00,000 Less deduction under 80C 32,000 Total taxable income 3,68,000 Tax on 3,68,000 12,800 Edu / SHE cess @ 3% 384 Total tax payable 12,184 Less relief under section 91 3,583 Balance tax payable (rounded off) 9,600 Computation of relief
13
Computation tax would be asked for Section 91
Average rate of tax i.e. Tax on total income 13184 -------------------------- x 100 = --------------------- 3.5826% Total income 3,68.000 Average of rate of tax of foreign tax is 20% Hence relief available shall be @ 3.5826% or 20% of foreign income whichever is less Rs. 1,00,000 @3.5626% = 3,583
Chapter 11 - Advance ruling and tax planning --------------------------------------------------------------------------------------------------------------------S.No Topic Brief details
Authority for advance rulings, its power and procedure; applicability of advance ruling; application for advance ruling and procedure on receipt of application. Tax planning and special provisions relating to certain incomes of nonresident corporate assessee. Double taxation avoidance agreements; general principles; provisions and tax implications thereof What is advance ruling - determination of question of law or question of fact by the authority a. In relation to a transaction which has been undertaken / is proposed to be undertaken by a non-resident applicant or
Advance ruling
Can a resident Indian seek advance ruling
3.
PSU undertaken transaction with nonresident can they seek advance ruling?
b. In relation to the tax liability of a non-resident arising out of transaction which has been undertaken or is proposed to be undertaken by resident applicant with such nonresident c. In respect of an issue relating to computation of total income which is pending before any income-tax authority or the appellate tribunal The answer is positively YES Resident Indian can seek advance ruling subject to following conditions: a. If resident has undertaken a transaction with nonresident { Sec 245 N(b)(ii)} b. If resident falling within any such class / category of persons as the Cent.Govt may by notification in the official Gazette {Sec. 245 N(b) (iii)} YES PSU being a resident in India can see advance ruling in respect of its tax liability of the non-resident subject to following: a. If resident has undertaken a transaction with nonresident {section 245 N (b) (ii)} or b. If resident falling under any such class or category of persons as the Cent. Govt. may by notification specify {section 245N(b)(iii)} Where the authority finds, on a representation made to it by the commissioner or otherwise, that an advance ruling pronounced by it has been obtained by the applicant by fraud or misrepresentation of facts, it may by order declare such ruling to be void-ab-initio. There upon all the provisions of the Act shall apply (after excluding the period with the date of such advance ruling as void) to the applicant as if such advance ruling has never been made. Section 245 Q a. Application seeking advance ruling in form 34C, 34D or 34E in quadruplicate duly verified as prescribed b. Accompanied by fees of Rs. 2500/c. Duly signed by person / authorized representative d. Addressed to secretary and submitted either in person or through registered post e. If any mistake found secretary intimates needs to be rectified within the time limited permitted for the same f. Withdrawal of application possible within 30 days from the date of application. i. Taxability on total income including foreign income on which relief is available ii. Necessary addition of SC and Edu / SH Edu cess iii. Claim any relief allowable under IT Act, but before due as per section 90 / 90A and 91 iv. Calculate average rate of tax paid by dividing the tax computation with total income inclusive of foreign
Advance ruling becoming void
Procedure for making application for advance ruling
Method of calculating relief under DTA (double taxation treaty)
Method of calculating relief under DTA (double taxation treaty)
Binding provision of advance ruling section 245
income in India Calculate average rate of tax of the foreign country by dividing tax paid in the foreign country by the whole amount of the income as assessed in the foreign country vi. Claim relief from tax payable in India at average rate of tax in India or at average rate of tax in foreign country whichever is less a) Taxability on total income including foreign income on which relief is available b) Necessary addition of SC and Edu / SH Edu cess c) Claim any relief allowable under IT Act, but before due as per section 90 / 90A and 91 d) Calculate average rate of tax paid by dividing the tax computation with total income inclusive of foreign income in India e) Calculate average rate of tax of the foreign country by dividing tax paid in the foreign country by the whole amount of the income as assessed in the foreign country f) Claim relief from tax payable in India at average rate of tax in India or at average rate of tax in foreign country whichever is less Can a resident assessee claim that the advance ruling obtained by his brother in respect of a similar issue faced by him is applicable to him also? Will such ruling binding on him also? v. The answer is a big NO A resident assessee cannot claim that the advance ruling obtained by his brother in respect of similar issue faced by him is applicable to him also. If one refer the section 245, the binding provisions are as under i. On the application who had sought it and ii. In respect of specific transaction in relation to which advance ruling was sought Also it shall be binding on the commissioner and the IT authorities subordinate to the commissioner Whether tax is required to be deducted from commission paid to an agent outside India, if no services are performed in India or there is no fixed place of business in India? No tax is required to be deducted from commission paid to an agent outside India, if no services are performed in India or there is no fixed place of business in India. Authority shall not allow an application where the question of law or fact raised in the application is already pending in case of applicant ( whether non-resident or resident other than notified resident) before any tax authorities Without giving an opportunity to be heard to the applicant the advance ruling application cannot be rejected
Tax deduction where no services rendered in India and not place of business in India
10
11
Advance ruling application where similar issue is pending for disposal Rejection of advance ruling
12
application Withdrawal of advance ruling application
As per section 245 Q (3) the applicant could withdraw the application within 30 days from the date of application made for advance ruling and not thereafter.
Chapter 12 Taxation on inbound transactions --------------------------------------------------------------------------------------------------------------------S.No Topic

Questions in this chapter
Brief details
Taxation of passive investments; capital gains & losses; income taxation; property taxation; branch profit taxation Available entry options for FDI Financial collaboration and technical collaboration Advance ruling authority the way of dealing applications. rejections, considerations etc. Practical question relating to computation of taxes on capital gain involving section 115-A(1)(b) and section 115AB(i) any exemption under section 10(38) specific one (i)Dividend income; (ii) Interest on securities; (iii) Income from
Taxation of passive
investments
Inbound investment strategies
Entry options for foreign companies
Routes of investment FDI permissibility
Advance ruling grounds relating to rejection or modification
royalties; (iv) Income from technical services; (v) Rental income; (vi) Income from transfer of short-term capital asset. Dividend exempt from tax u/r sec 10(34) of IT Act. Domestic companies distributing dividends required to pay DDT u/r sec, 115-O of IT Act Tax rate of dividend distribution tax 2009-10, 2010-11, 2011-12 & 2012-13 the DDT is 15% Surcharge 10% of 2009-10 & 2010-11 and 7.5% for year 201112 and 5% for year 302-13 Education cess & SHE cess is 3% for all these years Dividend income is income from other sources definition refer sec. 2(22) & head of income refer section 56(2)(i) of IT Act - FIII can invest in Govt & Pvt securities subject to guidelines by RBI and SEBI and limits of investments from FIIs liberalized upon reforms. Interest on securities is income from other sources. Income from royalties & technical services, non-resident corporate entities / others assessed for incomes that may accrue or arise in India under provision of sec.9 of IT Act. Liberalization facilitated FIIs to make investment in India. Manufacturing sector got maximum tax incentives by which FIIs can invest up to 100% thro; automatic route & between 26% to 74% in telecommunication, banking insurance sectors, etc Issue of GDRs FCBs permitted. DTA is also available for many countries like U.K., Singapore, Mauritius, etc relief could be taken under DTA (sec.91) There are two ways could be through Joint venture of forming wholly owned subsidiary JV / WOS Collaboration could be financial or technical As an office of a foreign entity like a Liaison Office/ Representative Office/Project Office/Branch Office Investments - under automatic route or approval route. Automatic route - post facto approval of RBI for investments Approval route - prior approval of FIPB. FDI allowed on automatic route in almost all sectors except Proposals that require an industrial licence and cases where FDI more than 24% in the equity capital of units manufacturing items reserved for SSI. Proposals in which the foreign collaborator has a previous venture/tie-up in India. Proposals relating to acquisition of shares in an existing Indian company in favour of a Foreign/NRI/OCB investor; and Proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted etc Advance ruling authority shall now allow the application under following groundsa. If the question of law or fact raised in the application already pending before any IT authority or Appellate Tribunal b. If it involves determination of market value of any property
of an order
Advance ruling Powers of the authority
Royalty / taxability
Long term capital gain taxability
c. If the transaction in relation to which the question is raised is designed for the avoidance of IT ( this is not applicable for notified residents) If the authority finds on his suo moto or on a representation made by an applicant or the commissioner but before the ruling pronounced by the authority has been given effect to by the assessing officer, that there is a change in law or facts on the basis of which the ruling was pronounced then it may by order modify such ruling in such respects as it considers necessary appropriate, after allowing reasonable opportunity of being heard to the applicant and the commissioner. Computation of income tax on a royalty of Rs. 20 lacs received by a foreign company from an Indian company in pursuance of an agreement approved by the Government in the previous year 2007-08 Computation should be as underAs you know as per section 115A (1)(b) the income tax rate on income by way of royalty received in pursuance of agreement made after 31.5.2005 is 10% - here the royalty is Rs. 20 lacs hence the tax would be 10% of Rs. 20 lacs i.e. 2 lacs ( whatever cess applicable would be in addition) Rs 10 lacs long term capital gains received by an overseas financial company on transfer of units purchased in foreign currency Computation As per section 115AB(1) income tax rate on long term capital gain received by overseas company on transfer of units purchased in FC is 10% Capital gain tax @ 10% on 10 lacs would be Rs. 1 lac ( the applicable cess to be added)
Chapter 13 - Taxation of outbound transactions

Sr.No Topic Brief notes Chapter 13 coverage is as Foreign tax credit; foreign income exclusions; indirect foreign under:tax credit (deemed paid system vs. current pooling system); Controlled Foreign Corporations; PFICs (Passive Foreign Investment Companies); cross border merger, acquisitions and transfers. This topic is added in the new syllabus and this was not part of the earlier syllabus No way to know, what the trend of the questions in this topic is. However, one needs to know the Professional program LMR/Short Notes
related topics of the coverage of this chapter. Get familiar with the following:- Foreign tax credit - Transaction involving cross border merger / acquisition/ transfers etc - PFIC The following are the gist of the chapter one could just glance through Origin US Internal Revenue Service (IRS) the US Foreign tax credit government agency service main features of the foreign tax credit Questions:a) Credit for taxes paid overseas allowed in India as credit .what do you mean b) Credit adjustable towards payment of advance tax by foreign credit c) Dividend is one such thing which happens with every company and the credit is available subject to DTA (double taxation agreement between countries) This arrangement provide an incentive for the flow of funds to the parent Indian company and it would also make them more competitive and larger availability of funds may generate increased investments by these Indian companies and a source for more taxes for the country. d) Underlying tax credit would be granted on dividends paid by a company whose 25% or more shares are held by Indian company. Held by Tribunal foreign taxes in respect of income earned Relevant case law abroad available as per DTA irrespective of income is taxable Wipro Ltd vs. DCIT- in India or not so long as income is shown in return of income filed in India and incentive provisions/deductions available ITA Nos. 895 & should not be brushed aside on a technical consideration. Even 896/Bang/030 and 881 & 8982/Bang/03 claim made under sec 80HHE of IT Tax Act it must be entertained. Order of deals with various issues including of 21 June 2005 computation of income u/r sections10A/80-1A Incentives in FTZ / 100%EOUs & special tax incentives of FII Tax Exclusions Dividends. interest on investment by FIIs taxed at concessions (Exemptions) with rate of 20% - Capital gains long term @ 10% (Indian respect to foreign companies @ 20%) - short term @ 30% - Foreign companies / income non-resident/ non-corporate tax payers charged at a concessional rate of 20% on long term capital gains. These Questions: concession includes: What are the a) Exemptions for new industrial undertakings in FTZs incentives and b) Deductions of royalties/ fees for technical services earned exemptions by foreign nationals in India available? c) Sec 80HHE, for deductions of all profits derived from export of computer Software from the total income. (also available to the Indian companies) d) Sections112 & 111A of IT Act deals with provisions relating to capital gains taxation. e) Special concessions available EEC investors u/r sec 10(23BBB) of IT Act f) Sec 196D for withholding tax @20% from income derived
1.1
Outward investment strategies
4.1
Current tax rates for 2011-12 (please run check)
Passive foreign investment company (PFIC) Questions could be on the provision of taxation of PFIC in India
by FIIs from securities. Deduction must be made either when income credited to payees account, when the payment is made in cash / cheque / draft issued whichever is earlier. g) Tax holidays relating to investments made in new industrial undertakings in underdeveloped areas & tax holiday facilities for power generating sector / investment in building infrastructures. h) Deduction for capital expenditure for scientific research u/r sec 35 of Act. Circulars are issued by government on this relating to granting of concessions to corporate or noncorporate entities under sections 35, 10(6), etc. To encourage VC capital financing sec. 10(23F) provides tax exemption for all dividends & long term capital gains of a VCF or a VC capital company from investments made by way of equity shares in VC undertakings. To obtain this exemption, VC fund/ company must obtain approval from authority and satisfy conditions. Indian enterprises going abroad for tax efficient jurisdiction for minimizing tax liability cross country investment have a financial dimension effecting the tax base of domestic coms. You need to be conversant with the tax slab applicable for the current Assessment Year 2011-12. For (a) domestic company / other than domestic company on Royalties received from Government or an Indian concern - fees for rendering technical services received and other income For Domestic Companies 1. Domestic companies are taxable @ 30 percent 2. Special method for computation of total income of insurance companies. The rate of tax on profits from life insurance business is 12.5 percent 3. Surcharge is applicable @ 7.5 percent if total income is in excess of INR 10,000,000. Marginal relief may be available 4. Education cess is applicable @ 3 percent on income-tax (inclusive of surcharge, if any). For Foreign Companies 1. Foreign companies are taxable @ 40 percent 2. Surcharge is applicable @ 2.5 percent if total income is in excess of INR 10,000,000.Marginal relief may be available Education cess is applicable @ 3 percent on income-tax (inclusive of surcharge, if any). PFIC is a foreign com with predominantly investment income, or whose assets are primarily intended to generate investment income. U.S. investors have different tax implications should they hold ownership of a PFIC the provisions of PFIC focuses on foreign investment structure rather than tax havens.
5.1
Classification as a PFIC PFIC how determined or considered a) Income Test or b) Asset Test
5.2
When 75% or more of income is passive, or when more than 50% of assets exist in investments earning interest, dividends, and/or capital gains Natural resource exploration companies tend to be PFIC's because their main assets are the cash they are using to explore with. That cash is earning more interest than the company earns from any other business which brings them under the PFIC definition that was set up to close a tax avoidance loophole. Tax code sections 1291 to 1297 of IRC provide rules for U.S. tax payers who invest in passive foreign investment companies. A foreign corporation is considered a "passive foreign investment company" for these purposes if either of two tests are satisfied -i.e. Income Test or Asset Test. A foreign corporation is considered a PFIC if 75 percent or more of the foreign corporation's gross income for the taxable year consist of passive income it includes dividends, interest, royalties, rents, annuities, net gains from certain commodities transactions, net foreign currency gains, income equivalent to interest, payments in lieu of dividends, income from notional contracts, and income from certain personal service contracts. Note that the active business of a licensed bank or insurance business is considered active income; similarly, certain foreign trade income and income allocated to a related person's nonpassive income is also excluded. A foreign corporation is considered a PFIC if 50% of foreign corporation's assets produce - or are held to produce - passive income. In applying the Asset Test, the fair market value of assets is generally used (the "FMV Method"). General exception is a foreign corporation that is not publicly-traded and is a - controlled foreign corporation - which must use the adjusted basis of its assets in applying the Asset Test - "Basis Method" - A taxpayer may also elect to utilize the basis method, but, once this is done, may not change back to the FMV method without IRS consent. in the first taxable year in which a foreign corporation has gross income (the "Start-up Year"), the company will not be considered a PFIC. The case law relating to taxability was decided in Madras High court on the transaction of sale of goods. Entry relating to sale of goods construed to mean a power to tax the transaction on the sale of goods and in V.M. Syed Mohamad & Co. v. State of Madras AIR (1953), Mad. 105 it was held that the entry should be construed to mean a power to tax the transaction of sale and the power to tax the transaction carried with it the power to tax either part thereto and thus the expression tax on sale in this entry was held to mean also tax on purchase of goods. By virtue of the power so conferred under the List many of the States started taxing goods by relying on one or more
Income Test
Asset Test
In India
ingredients of a sale, namely: (i) Existence of goods which form the subject matter of the sale, (ii) The bargain or contract which when executed, will result in passing of the property for a price, (iii) The payment or terms of payment of a price, and (iv) The passing of title in the goods.
This continued even when the Constitution was enacted; almost the same distribution of legislative powers between the Union and States came to be followed. Entry 54 of the State list gave exclusive power to the States to levy taxes on sale or purchase of goods other than newspapers. It is essential to note that the term purchase was added in List II Later many states contended on this and the short contention of each State was that there existed a territorial connection (nexus) between the State and the sale, the subject matter of taxation. This nexus theory was supported by reference to various court decisions abroad. The nexus theory was sought to be vigorously enforced by reference to an income tax case Governor General in Council v. Raleigh Investment Company Ltd. AIR (1944) FC 51, 15 ITR 332 (PC). Thus, the extra territorial operation of the sales tax laws of many of the States were sought to be justified on the basis of the nexus theory. The danger of this theory was that the same transaction of sale was brought to tax by different State Governments resulting in higher burden ultimately on the consumer of goods. Under the nexus theory it was considered sufficient that there should be a territorial nexus between the taxing State and the subject of taxation and that all the ingredients of a sale like the agreement to sell, passing of title, delivery of goods, etc. need not necessarily take place within the territorial limit of the State seeking to impose the tax. This reasoning was adopted in the State of Bombay and another v. United Motors (India) Ltd. and others (1953) 4 STC 133 (SC); Popatlal Shah v. State of Madras (1953) 4 STC 1988 (SC). Yet another amendment in year 1956 on this - in order to clearly enunciate the law on sales tax. Accordingly, Article 286 was amended by the Constitution (6th Amendment) Act, 1956. Gist of Article 286:a) No Law of a State shall impose or authorize the imposition of a tax on the sale or purchase of goods where such a sale or purchase takes place: outside the State or b) In the course of the import of the goods into or export of the goods out of the territory of India. Professional program LMR/Short Notes
c) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). d) Any law of a State shall, in so far it imposes, or authorizes the imposition of, a tax on the sale or purchase of goods declared by Parliament by Law to be of special importance in inter-State trade or commerce, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify. Simultaneously, the Parliament also amended List I whereby it inserted Entry No. 92A which empowered the levy of taxes on the sale or purchase of goods other than newspapers where such sale or purchase takes place in the course of inter-State trade or commerce. The Amendment Act further amended Entry 54 in the State List (List II) whereby the States, power was confined to taxes on the sale or purchase of goods other than newspapers subject to the provisions of Entry 92A of List I. The Amendment Act further provided in Article 269 that Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in course of inter-State trade or commerce.

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MODULE III - PAPER 6 ADVANCED TAX LAWS AND PRACTICE

LAST MINUTE REVIEW

------------------(SHORT NOTES from exam. Point )

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Chapter 1 deals with

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Chapter 2 - Companies under income tax laws

Chapter 2 deals with

Question pattern in this chapter 1

Minimum Alternate Tax (MAT)

What is the MAT payable

Computation of book profit Professional program LMR/Short Notes

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Chapter 3 deals with

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Scientific research Sec. 35(1)(iia)

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Provisions relating to hospitals section 80-IB(11C)

Meaning of Jewellery Under Wealth tax

Meaning of urban land Under Wealth tax

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Professional program LMR/Short Notes

Chapter 4 deals with

Question pattern in this chapter 1 Tax planning vs Tax management

Annual information return Sec 285 BA

Tax collection at source Sec 206(C)

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Professional program LMR/Short Notes

Provision relating to filing of T return in electronic form Sec. 139D

Revision of order & Rectification of order

Points of difference between section 271AA and Section 271B

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Revised return Sec 139(5)

Defective return Sec.39(9)

Best judgment assessment Sec 144

Assessment which is not subject to time limit under IT act

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Central Excise Laws

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Chapter 5 Introduction --------------------------------------------------------------------------------------------------------------------S.No Topic Brief details

Chapter 5 deals with

Questions could be on The Provisional Collection of Taxes Act 1931

Scope of tax planning in indirect taxes

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Manufacture under Central Excise Act 1944

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Provisions relating to cenvat credit

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Provisions relating to computerization of records

Compoundable levy scheme under central excise

MRP based excise duty

Scheme of valuation for MRP based excise

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Chapter 7 Customs Laws --------------------------------------------------------------------------------------------------------------------S.No Topic Brief details

Chapter 7 deals with

Procedure of obtaining IEC

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Professional program LMR/Short Notes

Custom duty When not levied