DIRECT TAX - Nangia & Co

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Tax & Regulatory Newsletter Issue 05 – AUGUST, 2010 NANGIA & CO. Chartered Accountants New Delhi – Mumbai - Dehradun such mandatory use of the trademark. Even where payment was made by the foreign entity, the arm‘s length price in respect of the international transaction was to be determined taking into consideration all the rights obtained and obligations incurred by the parties under the international transaction including the value of marketing intangibles obtained by the foreign entity on account of compulsory use of its trademark by the domestic entity. Suitable adjustments in this regards would have to be made considering the individual profiles of these entities and other facts and circumstances justifying such adjustments; The advertisement expenditure incurred by a domestic entity on advertising, promotion and marketing its products, using a foreign trademark/logo did not require a compensation by the owner of the trademark since the benefits of the expenditure accrue to the domestic entity only. The benefit which the owner of the foreign brand/logo received in the form of the increased awareness and goodwill of its brand in the domestic market, was purely incidental. Compensation for the advertisement costs incurred by a domestic entity became relevant only where such a payment was agreed by the foreign entity and/or the expenses incurred by the domestic entity on advertisement exceed normal expenses, which an independent entity would incur in this regard; If the expenses incurred by the domestic Associate Enterprise were more than what a comparable independent domestic entity would have incurred, the foreign entity was required to suitably compensate the domestic entity in respect of the advantage obtained by it in the form of brand building and increased awareness of its brand in the domestic market. The said “arms length price” would have to be determined by taking into consideration all the rights obtained and obligations incurred by the two entities, including the advantage obtained by the foreign entity. In determining whether the advertisement expenses incurred by the domestic Associate Enterprise on advertising the brand trademark/logo of the foreign entity are more than what an independent domestic entity would have incurred, the TPO had to identify appropriate comparables and make suitable adjustments considering the individual profiles of these entities and other facts and circumstances justifying such adjustments. [Source: Maruti Suzuki India Limited Vs. Addl.CIT (TPO)[High Court of Delhi dated July 01, 2010] Income Tax Returns of all companies to be filed electronically with digital signature mandatorily The Central Board of Direct Taxes has amended the Rules relating to electronic filing of income tax returns vide Notification No. 49/2010 dated which come into effect from July 09, 2010. As per the amended Rules, it is now mandatory for all companies to file income tax return [in Form No. ITR-6] electronically with digital Page | 11
Tax & Regulatory Newsletter Issue 05 – AUGUST, 2010 NANGIA & CO. Chartered Accountants New Delhi – Mumbai - Dehradun signature. Earlier, companies could file their electronic returns with or without digital signature. Further, now all individual and Hindu Undivided Families, who are required to get their accounts audited under Section 44AB of the Income tax Act 1961, are also required to file their income tax return [in Form No. ITR-4] electronically, with or without digital signature. Earlier, this condition was applicable only to companies and partnership firms. INDIRECT TAX [Source: Notification No. 49/2010 dated July 09, 2010] Finance Minister’s Speech – Meeting with the Empowered Committee of State Finance on GST The Finance Minister concluded his meeting with the Empowered Committee of State Finance on GST on July 21, 2010. A summary of major disclosures in his Speech are as under – Threshold Limits Exemption limit for both Central Goods and Service Tax *“CGST”+ and State Goods and Service Tax [“SGST”+ has been prescribed at INR 10 Lakh. Exemptions All 99 items exempted under the existing VAT regime shall continue to remain exempt from both CGST & SGST. A review of existing exemptions from Central Excise Duty has been proposed to align the list of goods exempt with CGST & SGST. Compensation to States The Central Government is to fully compensate the States for the revenue loss sustained on account of reduction in the Central Sales Tax during the year 2009-10 with the balance amount to be released immediately; The Center shall also compensate the States for subsuming (into GST), purchase tax on food grains, which would be provided along with the VAT compensation over the next four years; The Center may also increase the amount of compensation to the States on adoption of GST as recommended by the Thirteenth Finance Commission in case the need so arises. Page | 12
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DIRECT TAX - Nangia & Co

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