India: Reclassification of marketing expenditure and discounts as capital expenditure
India: Relaxation in levy of Minimum Alternate Tax for Insolvent Companies
India: SEBI issues Circular for usage of Electronic Book Mechanism for issuance of securities
India: SEBI issues circular for prevention of unauthorized trading by stock brokers
India: Reclassification of marketing expenditure and discounts as capital expenditure
Source :www.incometaxindia.gov.in
Background:
It has been reported[1] that e-commerce giant Flipkart has lost an appeal against the Income Tax department (hereinafter referred as ‘I.T. dept.’) for classification of marketing expenditure and discounts. The Commissioner of Income Tax (Appeals) after hearing the arguments opined that such marketing expenditure and discounts cannot be treated as revenue expenditure because the same are expenses done to build the brand value of the corporation and thus, should be reclassified as capital expenditure.
Creation of market intangibles:
The I.T. dept. has been reported in the media[2] to claim that apart from influencing customer behavior, such high spending by e-commerce operators results in improving the goodwill and thereby creating intangible assets for the company, and hence, should be reclassified as capital expenditure. The I.T. dept. was also reported to be of the opinion that the discounts to customers, marketing expenses and advertising expenses create market intangibles for the company and therefore, such expenses should be considered as capital
expenses for the company.
If such are expenses are allowed to be treated as revenue expenditure, it shall reduce the net income of the company which in effect will show that there have been losses on the sale of products and thus, will reduce the taxable income. Flipkart had thus, been treating such expenses as revenue expenditure. However, as per the tax department’s standpoint, since the expenditure is building goodwill, it is a capital expenditure and it should not be deducted from revenue. It should rather be shown as assets in the balance sheet from which only depreciation should be deducted.
Flipkart is expected to soon challenge this ruling at Income Tax
Appellate Tribunal.
Remarks:
Such ruling could also seriously impact how much e-commerce players are spending towards their marketing cost and how much discounts are availed by such e-commerce players to the final consumers.
_________________________________
[1] Refer:
http://www.businesstoday.in/current/corporate/it-rule-on-treating-
discounting-as-revenue-expense-will-hit-small-e-tailers-the-most/story/268677.html.
[2] Refer: https://economictimes.indiatimes.com/small-
biz/startups/newsbuzz/income-tax-department-asks-flipkart-to-reclassify-
discounts-as-capital-expenditure/articleshow/62597949.cms.
India: Relaxation in levy of Minimum Alternate Tax for Insolvent Companies
Source : www.incometaxindia.gov.in
Background:
Minimum Alternate Tax (hereinafter referred as ‘MAT’) is levied in case of companies which have generated income during the year, however, after claiming benefits available under the provisions of Income-tax law like exemptions, deductions, depreciation, etc., the tax liability of the company has been reduced to negligible. The objective of introduction of MAT is to levy tax on such companies which in spite of having earned substantial book profits and having paid dividends, do not pay any tax due to various tax concessions and incentives.[1]
Relaxation introduced for insolvent companies:
The Central Board of Direct Taxes (hereinafter referred to as ‘CBDT’) vide notification[2] dated January 6, 2018, has eased the applicability of provisions relating to levy of MAT for companies against whom an application for corporate insolvency resolution process has been admitted under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as ‘IBC, 2016’).
Note that as per Section 115JB of the Income-tax Act, 1961, the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account of the company was allowed to be reduced from the book profit. However, the CBDT has received various representations that a lot of hardship has been faced by the companies against whom an application for corporate insolvency resolution process has been admitted under IBC, 2016, due to restriction in allowance of brought-forward loss for computation of book profit under Section 115JB of the Act.
In furtherance of the same, the CBDT has now notified that the amount of total loss brought forward (including unabsorbed depreciation) shall be allowed to be reduced from the book profit for the purposes of levy of MAT under Section 115JB of the Act. Note that such relaxation is only allowed for those companies against whom an application for corporate insolvency resolution process has been admitted by the National Company Law Tribunal under Section 7 or Section 9 or Section 10 of the IBC, 2016.
This benefit will be available from the Assessment Year 2018-19 (i.e. Financial Year 2017-18).
The CBDT also stated that appropriate legislative amendment in this regard will be made in due course. This suggests that appropriate changes will be made in the upcoming budget to be presented on 1 February.
_______________________________
[1] Refer:
http://www.incometaxindia.gov.in/tutorials/10.mat-and-amt.pdf.
[2] Refer:
http://www.incometaxindia.gov.in/communications/circular/
circular_24_%202017.pdf.
India: SEBI issues Circular for usage of Electronic Book Mechanism for issuance of securities
Source : www.sebi.gov.in
In exercise of its power conferred under Section 11(1) read with Regulation 31(2) of Issue and Listing of Debt Securities (ILDS) Regulations of the Securities and Exchange Board of India Act, 1992, the Securities and Exchange Board of India (herein after referred to as “SEBI”) vide circular No. SEBI/HO/DDHS/CIR/P/2018/05 dated January 05, 2018, issued a circular with regards to usage of “Electronic Book Mechanism” for issuance of securities on private placement basis.
In light of the above circular, SEBI had previously vide circular No. CIR/IMD/DF!/48/2016, dated April 21, 2016, mandated usage of electronic book mechanism for issuance of debt securities on private placement basis. On receiving feedback from the market participants to further streamline the process with regards to this circular, SEBI issued a consultation paper and sought public comments on the matter. On the basis of the market feedback and the feedback received on SEBI consultation paper, SEBI decided to make suitable revisions to the existing framework for Electronic Book Mechanism.
There are certain revisions made to the existing framework which are aimed at further streamlining the procedure for private placement of debt securities, allowing private placement of other classes of securities which are in the nature of debt securities and enhancing transparency in the issuance, resulting in better discovery of price. The revised guidelines for the “Electronic Book Mechanism” are placed at Schedule-A, and annexed to the circular (circular No. SEBI/HO/DDHS/CIR/P/2018/05).
This circular shall come in to force with effect from April 01, 2018, and the SEBI circular No. CIR/IMD/DF!/48/2016, dated April 21, 2016, shall stand repealed from the date of the enforcement of this circular.
Lastly, SEBI gave the following directions to the Recognized Stock Exchanges to –
- Comply with the conditions laid down in this circular.
- Put in place necessary systems and infrastructure for implementation of this circular.
- Make consequential changes, if any, to their bidding portal and respective exchange by-laws.
- Communicate and create awareness about these revised guidelines amongst issuers, arrangers and investors.
India: SEBI issues circular for prevention of unauthorized trading by stock brokers
Source : www.sebi.gov.in
In exercise of the powers conferred by Section 11(1) of the Securities and Exchange Board of India Act, 1992, to protect the interest of investors in securities and to promote the development of, and to regulate, the securities market, the Securities and Exchange Board of India (herein after referred to as SEBI) vide circular No. CIR/HO/MIRSD/MIRSD2/CIR/P/2018/09 dated January 11, 2018, had issued directions for the Prevention of Unauthorized Trading by Stock Brokers.
Prior to the above circular, SEBI had earlier issued guidelines for the same vide circular No. CIR/HO/MIRSD/MIRSD2/CIR/P/2017/108, dated September 26, 2017, and also issued subsequent clarification vide CIRCULAR No. CIR/HO/MIRSD/MIRSD2/CIR/P/2017/124, dated November 30, 2017.
With regards to the above two circulars, SEBI received representations from BSE brokers Forum and Association of National Exchange members of India, expressing difficulties faced by Stock Brokers in the implementation of the said circulars and sought extension for the implementation of the same.
Therefore, in view of the above, SEBI has decided to make the said circulars effective from April 01, 2018. To this effect, other provisions shall remain unchanged and no further extension shall be granted for the implementation of the said circulars.
Thereby, the Stock Exchanges are directed to –
- Bring the provisions of this circular to the notice of the Stock Brokers and also disseminate the same on their websites.
- Make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above directions in co-ordination with one another to achieve uniformity in approach.
- Communicate to SEBI, the status of the implementation of the provisions of this circular in their Monthly Development Reports.