Recent updates on Service Tax , FDI Policy, TDS Rates by abm & associates, chartered accountants

1. abm & associates
CHARTERED ACCOUNTANTS
NEWS FLASH
May 2013

2. abm & associates
CHARTERED ACCOUNTANTS
Head Office : Navi Mumbai Branches : Pune | Kolhapur | Belgaum 1
Contents
WEB SEARCH ONLINE ADVERTISEMENT PAYMENTS MADE TO GOOGLE AND YAHOO NOT
TAXABLE IN INDIA______________________________________________________ 2
IN BRIEF ...................................................................................................................................2
ISSUE UNDER CONSIDERATION ........................................................................................................3
TRIBUNAL RULING........................................................................................................................3
OUR VIEW .................................................................................................................................3
CHANGES IN THE CONSOLIDATED FDI POLICY GUIDELINES EFFECTIVE FROM APRIL 25,
2013_________________________________________________________________ 4
TAX DEDUCTION AT SOURCE (TDS) RATES FOR FY 2013-14 ______________________ 6
UNINTERRUPTED POWER SUPPLY (“UPS”) IS ENERGY SAVING DEVICE AND HENCE
QUALIFIES FOR 80% DEPRECIATION _______________________________________ 8
IN BRIEF ...................................................................................................................................8
ISSUE UNDER CONSIDERATION: .......................................................................................................8
TRIBUNAL RULING: ......................................................................................................................8
TRIBUNAL HELD THAT ...................................................................................................................8
SERVICE TAX RETURN FILING DATE FOR OCT-2012 TO MARCH-2013 EXTENDED TO
31.08.2013____________________________________________________________ 9

3. abm & associates
CHARTERED ACCOUNTANTS
Head Office : Navi Mumbai Branches : Pune | Kolhapur | Belgaum 2
Web Search Online Advertisement Payments made to Google and Yahoo
not taxable in India
In Brief
Recently, ITAT Kolkata ‘B’ Bench in case of
Right Florists Pvt. Ltd1
held that payment
made to Google and Yahoo for Online Web
Search engine based advertisement is not
liable to be tax in India as “Website”
doesn’t constitute ‘PE’ unless the servers
on which websites are hosted are also
located in the same jurisdiction. As the
servers of Google and Yahoo are not
located in India, there is no PE in India.
Further, it has also held that payment is
neither “Royalty” u/s 9(1)(vi) nor “FTS” u/s
9(1)(vii).
Facts
Assessee is a florist and he uses advertising
1 I.T.A. No.: 1336/ Kol. / 2011 for A.Y. 2005-06
on search engines, i.e. by Google and
Yahoo, which does a web search for anyone
on use of certain keywords whereby
assessee name is shown as a result of such
search. The assessee had made payments
aggregating to Rs 30.44 Lakhs in respect of
online advertising to US based entities,
namely Google Ireland Limited (Google
Ireland, in short) and Overture Services Inc
USA (Yahoo USA, in short). However, no
taxes were withheld from these payments.
The AO held that the assessee ought to
have deducted TDS and that as there was
a failure, the expenditure was not allowable
u/s 40(a)(i). This was deleted by the CIT
(A) on the ground that Google and Yahoo
did not have a PE in India.

4. abm & associates
CHARTERED ACCOUNTANTS
Head Office : Navi Mumbai Branches : Pune | Kolhapur | Belgaum 3
Issue under consideration
Whether payment made to Google and
Yahoo for Online Web Search based
Advertisement Payment is taxable in India
either as “Business Income”, or as
“Royalty” or as “FTS”.
Tribunal Ruling
Tribunal held that
 A website does not constitute a
‘permanent establishment’ unless the
servers on which websites are hosted
are also located in the same jurisdiction.
As the servers of Google and Yahoo are
not located in India, there is no PE in
India. S. 9(1)(i) does not apply as there
is no “business connection” in India nor
are the online advertising revenues
generated in India.
 As regards s. 9(1)(vi), relying on
decision in case Yahoo2
and Pinstorm3
that the advertising revenues are not
assessable as “royalty”.
 As regards ‘FTS” under s. 9(1)(vii), the
services are not “managerial” or
“consultancy” in nature as both these
2 140 TTJ 195 (Mum)
words involve a human element.
Applying the rule of noscitur a sociis,
even the word “technical” in
Explanation 2 to s. 9 (1) (vii) would
have to be construed as involving a
human element. If there is no human
intervention in a technical service, it
cannot be treated as a technical service
u/s 9(1)(vii). The process is a wholly
automated as services are rendered by
the search engines, there is no human
touch at all. The results are completely
automated. Consequently, the whole
process of actual advertising service
provided by Google & Yahoo, even if it
be a technical service, is not covered by
the limited scope of s. 9(1)(vii).
Consequently, the receipts in respect of
online advertising on Google and Yahoo
cannot be brought to tax in India under the
provisions of the Act or the India US and
India Ireland tax treaty.
Our View
 This verdict has reasserted that mere
‘Website’ doesn’t constitute “Permanent
Establishment” and wholly automated
process without human intervention
doesn’t amount to ‘Technical Service’
3 54 SOT 78 (Mum)

5. abm & associates
CHARTERED ACCOUNTANTS
Head Office : Navi Mumbai Branches : Pune | Kolhapur | Belgaum 4
Changes in the Consolidated FDI Policy Guidelines effective from April
25, 2013
 Pricing of shares
The criteria has been changed for the
shares subscribed under Memorandum
of Association. Now the condition of
DFCF method in case of subscription
shares has been dispensed with and
such shares can be issued at face value.
 Conversion of External Commercial
Borrowings / Lump Sum Fee /
Royalty etc. into Equity
As per old FDI Policy, the companies
were allowed to issue Equity Shares
against import of capital goods /
machinery (excluding second hand
machinery), subject to certain
conditions. One among these conditions
was mandatory requirement of
independent valuation of Capital goods
/ machinery by third party, preferably
by an independent valuer from the
country of import along with production
of copies of documents issued by
customs authorities towards
assessment of the fair value of such
imports. The said condition is dispensed
with in new FDI Policy dated April 5,
2013.
 Pakistan citizens, nationals and
companies are allowed to invest in India
after prior approval from the
government.
 RBI has prescribed the format for filing
annual Return of Foreign Assets &
Liabilities for Indian Companies. The
said return is to be filed with RBI.
 Transfer of Shares / Convertible
debentures from Resident to Non –
Resident
As per amended definition of ‘Person
Resident Outside India’ includes foreign
national, NRI, incorporated non-
resident entities, FII other than
erstwhile OCBs. Earlier definition of
‘Person Resident Outside India’
excluded foreign national, FII, NRI for

6. abm & associates
CHARTERED ACCOUNTANTS
Head Office : Navi Mumbai Branches : Pune | Kolhapur | Belgaum 5
the purposes of transfer of Shares /
Convertible Debentures from resident
to non-resident.
 Allowed 49% stake by a foreign airlines
in the domestic carriers which are cash-
strapped.
 Raised FDI cap in various broadcasting
services to 74%.
 Allowed upto 51% inflows of FDI in
multi-brand retail sector.
 Permitted up to 49% foreign investment
in the power trading exchanges.
 Increased foreign investment ceiling in
ARCs to 74%, up from 49%. This move
is aimed at inviting foreign expertise in
this segment. It has also been said that
the total shareholding of an FII in an
ARC will not exceed 10 per cent of the
total paid-up capital.

7. abm & associates
CHARTERED ACCOUNTANTS
Head Office : Navi Mumbai Branches : Pune | Kolhapur | Belgaum 6
TAX DEDUCTION AT SOURCE (TDS) RATES FOR FY 2013-14
Sr.
No.
Section
of
Income
Tax Act
Nature of Payment to Resident
Threshold
Limit
₹
Rates in force4
(%)
Individual
or HUF
Others
1 192 Salaries (including payments to Non-Resident)
Basic
Exemption
Slab
Rates5 -
2 193 Interest on Securities 5,000 10 10
3 194 Deemed dividend - 10 10
4 194A
Interest other than Interest on Securities by
Bank on Term Deposit
10,000 10 10
5 194A Interest other than Interest on Securities 5,000 10 10
6 194B Lottery, Cross Word Puzzle, Gambling 10,000 30 30
7 194BB Winnings from Horse Race 5,000 30 30
8 194C
Contracts including Sub-Contracts,
Advertisement Contracts6 30,0007
1 2
9 194D Insurance Commission 20,000 10 10
10 194EE Payments out of deposits under NSS 2,500 20 -
11 194F Repurchase of units by MF/UTI 1,000 20 20
12 194G Commission on sale of lottery tickets 1,000 10 10
13 194H Commission or Brokerage 5,000 10 10
14 194I
Rent for Land, building, furniture or fittings 1,80,000 10 10
Rent for Plant and Machinery, Equipment,
Vehicles etc.
1,80,000 2 2
15 194IA
Transfer of immovable property other than
agriculture land8 50 Lakh 1 1
16 194J
Fees for Professional, Technical Services or
Royalty or Non-compete
30,000 10 10
Any remuneration or fees or commission paid to
director of the company including Sitting Fees
other than Salaries9
NIL 10 10
17 194LA
Compensation on acquisition of immovable
property
2,00,000 10 10
4 Rate shall be at “rates in force” or 20% whichever is higher in case payee doesn’t possess PAN
5 Equal Monthly Instalment of Estimated Yearly Tax (Tax including Surcharge and cess applicable)
6 No TDS on payment of freight for Goods Transport to Transport contractor furnishing PAN to payer
7 Individual Contract less than ₹ 30,000 but aggregate of all contracts during the year exceeds ₹ 75,000- TDS applicable.
8 Newly inserted by Finance Bill, 2013, shall be effective from 1.06.13, Purchaser shall deduct the Tax.
9 Effective from 1.07.12

8. abm & associates
CHARTERED ACCOUNTANTS
Head Office : Navi Mumbai Branches : Pune | Kolhapur | Belgaum 7
Note:
a) TDS needs to be deducted on payment or credit whichever is earlier including credit to
“Suspense Account”.
b) TDS needs to be paid with 7 days from date of deduction in case of salaries and before
7th of the succeeding month in case of payments other than salaries. TDS deducted on
31st March (on Credit) shall be paid before 30th of April.
c) Quarterly Return in Form 24 in case of Salary and in Form 26 in case of others before
15th of the end of Quarter and before 15th of May in case of March Quarter needs to
filed.
d) Non-deduction, delay deduction, wrong deduction are liable for interest @ 1.5% per
Month and delay in payment is liable for interest @1 % per month.
e) Non-deduction, Non-payment of Tax before due date of filing Return of Income is liable
for disallowance of Expenditure and penalties and prosecutions (in case delay is beyond
1 year) and Deductor shall be treated as “Assessee in Default”
f) Delay in filing Quarterly Returns is liable for fees of ₹ 200 per day of delay (mandatorily)
in addition to Penalty.

9. abm & associates
CHARTERED ACCOUNTANTS
Head Office : Navi Mumbai Branches : Pune | Kolhapur | Belgaum 8
Uninterrupted Power Supply (“UPS”) is Energy Saving Device and hence
qualifies for 80% Depreciation
In Brief
Recently, ITAT Mumbai ‘G’ Bench in case of
Godery Phillips India Ltd10
held that
Uninterrupted Power Supply (“UPS”) is an
‘Automatic Voltage Controller’ falling within
the heading ‘Energy Saving Device‘in the
Appendix to the Income Tax Rules 1962
giving depreciation rates @ 80% and hence
qualifies for such depreciation.
Facts:
Assessee for the Assessment Year 2006-07
and 2007-08 considering the Uninterrupted
Power Supply (“UPS”) as Energy Saving
Device had claimed depreciation at higher
rate i.e. 80%. AO disallowed such excess
depreciation of ₹ 5,74,579 for A.Y. 2006-07
and ₹ 4,72,596 for A.Y. 2007-08.
Issue under consideration:
Whether Uninterrupted Power Supply
(“UPS”) is an ‘Automatic Voltage Controller’
falling within the heading ‘Energy Saving
Device‘ and eligible for higher Depreciation.
Tribunal Ruling:
Tribunal held that
“Automatic Voltage Controller’ falling
within the heading of energy saving device
10 ITA No. 7682/Mum/2010 and ITA No. 8549/Mum/2010
in the Appendix to the Income Tax Rules
1962 giving depreciation rates. Legislature
in its wisdom has chosen to show an
Automatic Voltage Controller’ as an
electrical equipment eligible for 100%
depreciation, falling under the broader
head of energy saving devices. Once
Legislature deemed that an ‘Automatic
Voltage Controller’ is a specie falling within
energy saving device, it is not for the
Assessing Officer or Ld. CIT (A) to further
analyse whether such an Item would
indeed an energy saving device. In fact it
is beyond their powers. Hence the only
question to answer, in our opinion is
whether an UPS is an Automatic Voltage
Controller’. It is mentioned in the product
that the UPS automatically corrected low
and high voltage conditions and stepped up
low voltage to safe output levels. Thus in
our opinion there cannot be a quarrel that
UPS was doing the job of voltage
controlling automatically. Even when it was
supplying electricity at the time of power
voltage, the outages remained controlled.
Therefore in our opinion a UPS would
definitely fall under the head of ‘Automatic
Voltage Controller’.

10. abm & associates
CHARTERED ACCOUNTANTS
Head Office : Navi Mumbai Branches : Pune | Kolhapur | Belgaum 9
Service Tax Return Filing date for Oct-2012 to March-2013 Extended
to 31.08.2013
Date for filing the ST-3 return, for the
period from Oct’12 to March’13 has been
extended from 25th Apr, 2013 to 31st
August, 2013
Vide Order No: 03/2013-Service
Tax, CBEC has extended the return filing
date for the period starting October, 2012
to March, 2013, from 25th April, 2013 to
31st August, 2013. Further it is also
informed that utility to prepare the service
tax return will be available at ACES website
by 31st July, 2013.
Please refer Notification No: Order No:
03/2013-Service Tax dated 23rd
April, 2013
at
https://www.aces.gov.in/Documents/orde
r_3_of_2013_service_tax_dated_23_4_20
13.pdf

11. abm & associates
CHARTERED ACCOUNTANTS
Head Office : Navi Mumbai Branches : Pune | Kolhapur | Belgaum 10
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The information contained herein is of general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor
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in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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