Sunday, September 30, 2012

CBDT Notification Regarding “Certificate of Tax Residency” For DTAA

S. 90 (4) of the Act, as inserted by the Finance Act 2013 w.e.f 1.4.2012 provides that an assessee, not being a resident, to whom an agreement referred to in sub-section (1) of s. 90 applies, shall not be entitled to claim any relief under a Double Taxation Avoidance Agreement unless a certificate, containing such particulars as may be prescribed, of his being a resident in any country outside India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory. A similar provision has been inserted in sub-section (4) of s. 90A of the Act. Pursuant therto, the CBDT has issued Notification dated 17.09.2012 to insert Rule 21BA and Forms 10FA and 10FB specifying the manner in which the aforesaid Certificate of Tax Residency should be obtained


Tuesday, September 25, 2012

Euro Down On Growing Spanish Concerns, Yen Steady


The Euro fell to a 1-week low against the Dollar during early trading on Tuesday after a short term recovery. Growing concerns about Spain's debt problems persisted and weak German business data did little to allay fears of slowing growth.

Meanwhile, the Japanese Yen drew back against the US Dollar and the Euro, but managed to eventually claw its way back later in the day.
 
Data due out today, is forecast to show that French business confidence has worsened. Yet more reports could show that consumer sentiment in Germany and Italy has all but stagnated.

I foresee that because any signs of improvement in the Euro zone economies are few and far between, we could see that sentiment will keep the Euro under pressure in the near term.

Some leading economists are predicting that the Euro members will have to share debts and speed the creation of a banking union, in order to prevent a situation in which "the whole system falls apart".

Spain has not yet decided whether it needs a full rescue, while discussions remain inconclusive as between Greece and its lenders, on how to meet bailout commitments.

The Euro was virtually unchanged earlier at $1.2932, slightly up from $1.2891 yesterday, it lowest level since the 13th of September. A Euro bought 100.69 Yen.

The Yen fetched 77.85 per Dollar earlier today, its strongest level since the 14th of September, as demand was boosted for Japan's currency as a refuge.

Monday, September 24, 2012

Euro Falls To Recent Lows, Investors Wary Of Yen


The Euro went on to re-test its recent low versus the US Dollar during early trading on Monday after growing uncertainty over Spain and Greece hampered the currency.
Meanwhile the Japanese Yen was helped by Japanese repatriation ahead of the half-year book-closing due at the end of this month. Investors remain wary about a possible Japanese intervention kept the currency under control.
 
The Yen was at its strongest in over a week against the Euro earlier today. This was ahead of a report due today, that may indicate that business confidence in Germany is near to its lowest level in more than two years.

The Ifo institute's business climate index is expected to come in at 102.5 for September. The index had fallen to 102.3 in August, its lowest level since March 2010. The index is a gauge of confidence among German executives.

On Friday Greece's troika of creditors: the International Monetary Fund (IMF), the European Central Bank (ECB) and the European Commission, announced that they will take a "brief pause" for a week after making "good progress" in talks around Greek budget cuts.

The market is still absorbing the effects of Spain possibly seeking a bailout and as a result of a confluence of factors, what I expect to see is that investors will regard the Yen as the current best safe haven. The Yen usually strengthens during periods of financial turmoil as Japan isn't reliant on foreign capital due to its current account surplus.

The Fundamentals in Europe are looking weak, mainly because of austerity measures.

The Yen gained 0.4% to 101.04 per Euro earlier today, near to its strongest level since the 14th of September. The Yen reached 78.05 per Dollar, 0.1% higher than its close on Friday.

The Euro declined 0.3% to $1.2944.

The Bank of Japan (BOJ) released its August minutes earlier today that show that Japan's economy has returned to a recovery path and that it will implement monetary easing seamlessly.

Sunday, September 23, 2012

Withholding tax on Foreign Borrowings has been reduced.

Despite a series of controversial reforms undertaken recently the government is unfazed. It has decided to continue with its growth supportive steps ignoring any political ramifications. In that regard, it has formally approved a cut in the tax rate on interest paid to overseas lenders. The proposal to cut the tax rate was already made in the Union Budget. But the formal announcement came on Friday. It may be noted that the withholding tax on foreign borrowings has been reduced to 5% from the earlier figure of 20%. The tax holiday period will range from July 2012 to June 2015. A cut in the tax rate will attract more debt refinancing via External Commercial Borrowings (ECBs). This will attract capital into the country. It will also reduce interest rates as the tax benefits get passed on to the local borrowers. The move will be particularly beneficial to the companies from the infrastructure sector because they borrow heavily from the overseas markets.  

U.K. deficit hits August record.

 So much for austerity - the U.K.'s budget deficit increased to £14.41B in August from £14.37B in the same month last year. The latest figure is the highest for August since records began in 1993, and was caused by a 2.1% fall in corporation tax receipts and a 4.9% increase in benefit payments.

Thursday, September 20, 2012

Eurozone PMI points to recession.

 Eurozone manufacturing PMI increased to a preliminary 46 in September from 45.1 in August, although composite output fell to a 39-month low of 45.9. The flash PMI is consistent with GDP of -0.6% in Q3, "sending the region back into a technical recession," says Markit. German manufacturing PMI improved but still contracted, while France's manufacturing output slumped to 39.8 vs 45.3, suggesting that the country is also heading for recession

BOJ Sparks Fizzle Out, Spanish Bond Auction Up Next


The Japanese Yen blasted off against the US Dollar during early trading on Thursday, after reaction to the Bank of Japan's monetary easing fizzled out.

Meanwhile, investors are waiting to see if Spain will seek a bailout and kick-start the European Central Bank's bond-buying programme. Another key near-term focal point is an auction of Spanish bonds scheduled to take place today.
PMI Data anticipation keeps Euro down
Data is due out today which is expected to show that European services and manufacturing have contracted. This would add to evidence that the region's debt crisis is stunting growth. Ahead of the data, the Euro fell against both the Dollar and Yen

Most economists are expecting that a Euro zone composite index for services and manufacturing industries in September, due for release by London-based Markit Economics today, was below 50, signalling contraction.

If this turns out to be the case, then I foresee that the European economy will worsen before getting any better.

Also on the agenda today is an auction by Spain, the fourth largest economy in the Euro bloc, of its 3 and 10 year notes.

Since the European Central Bank (ECB) unveiled a limitless bond purchase program on the 6th of September, which was aimed at lowering government borrowing costs, Spain's benchmark 10 year yield has dropped to 5.7% from an Euro-era record of 7.75% in July.

Spain could consider a bailout if it determines that the conditions imposed are acceptable, according to Deputy Prime Minister Soraya Saenz de Santamaria.

Should we see a poor auction result today, ironically this may be positive for the Euro as it would incentivise Spain to ask for assistance sooner than it might otherwise have planned.

Earlier today the Euro dipped 0.8% to 101.5 Yen and was down 0.4% to $1.2995. The Yen rose 0.3% to 78.13 per Dollar.

The Yen has risen against all of its 16 major peers. This is mainly as a result of speculation that the recent unexpected expansion of monetary stimulus by the Bank of Japan (BOJ) might do little to spur economic growth. This could be true I think, in light of a current territorial dispute with China and general weak global demand which impacts negatively on exports.

Japan's Finance Ministry announced earlier today, that its trade deficit has widened to 754.1 billion Yen in August.

The Aussie came under pressure, after a private survey has shown that China's manufacturing may shrink for an 11th successive month. This has dimmed prospects for China's exports and, as China is Australia's largest trade partner, the outlook reflects negatively on the Aussie.

The Aussie earlier was down 0.7% at $1.0403.

Monday, September 17, 2012

US Dollar Looks Set To Remain Under Pressure


The US Dollar held steady close to a 7-month low against a basket of currencies during the Asian session on Monday. The currency looks more than likely to remain under pressure after the US Federal Reserve initiated aggressive monetary stimulus policies last week.
The Federal Reserve's decision to initiate a 3rd round of quantitative easing, QE3, means it will now buy $40 billion a month of mortgage-backed securities until the jobs market improves, all the while weighing heavily on the US Dollar.
How much can things change in the 45 days that fall between two monetary policy announcements? Well, a lot has transpired in this 1.5 month period. The US Fed has announced a fresh round of policy easing, popularly called as QE3. Plus the government has finally shown that it is taking reform measures seriously by announcing Foreign Direct Investment in a few sectors and raising diesel prices and reducing subsidy levels. Macro numbers in India however continue to remain poor. GDP growth is still below 6%, inflation remains high and Index of Industrial Production (IIP) growth is feeble.
Fearing an onslaught of higher commodity prices post the liquidity measures enacted by the Fed and the European Central Bank (ECB), the central bank has decided to keep rates unchanged. However, in order to boost liquidity, the RBI reduced the cash reserve ratio (CRR) by 0.25% to 4.5%. This will help inject Rs 170 bn into the system. This may please the SBI Chairman, who had a famous tussle over this ratio a few weeks earlier. A rate cut at this stage may have stoked inflation. As expected, the central bank has once again taken a conservative stance. The Reserve Bank of India (RBI) caution coupled with the government's new found resolve may just help macro numbers going forward.

Offshore supply profits not taxable. Ishikawajima still good law. Despite retrospective amendments to s. 9(1)(vi) no tax on software in view of DTAA

DIT vs. Nokia Networks OY (Delhi High Court)
The assessee, a Finnish company, sold GSM equipment manufactured in Finland to Indian telecom operators from outside India on a principal to principal basis, under independent buyer-seller arrangements. Installation activities were undertaken by the assessee’s Indian subsidiary. The AO & CIT(A) held that the assessee’s liaison office and subsidiary constituted a Permanent Establishment (PE) and that a portion of the revenue was attributable to sale of hardware and a portion to the supply of software. A part of the equipment revenue was held attributable to the PE and the whole of the software revenue was held assessable as “royalty” u/s 9(1)(vi) & Article 13. The Special Bench (Motorola Inc 95 ITD 269 (Del)) held that, in view of Ishikawajima-Harima 288 ITR 408 (SC) no part of the equipment profits was taxable in India as the title had transferred abroad and no part of the software royalty was taxable in India as it was for supply of a “copyrighted article” and not a “copyright“. The Special Bench verdict was approved by the High Court in DIT vs. Ericsson AB 343 ITR 370 (Del). Before the High Court, the department argued that Ericsson AB should not be followed because (a) Ishikawajima-Harima 288 ITR 408 (SC) was no longer good law in view of the larger Bench judgement in Vodafone International 345 ITR 1 (SC) as held in Roxar Maximum (AAR) & Alstom Transport (AAR) and (b) s. 9(1)(vi) had been retrospectively amended by the Finance Act 2012 to provide that even supply of a copyrighted article was assessable as “royalty“. HELD by the High Court dismissing the appeal.

Sunday, September 16, 2012

Markets soar on QE3.

 Global equity and commodity markets have continued to bask in the glow of the lights at the Fed's money printing factory after Ben Bernanke yesterday pledged to buy $40B of mortgage-backed securities a month until unemployment improves. Not surprisingly, though, the dollar has taken a dive, while Treasurys have been punished as well. By making the asset purchase program open-ended, the onus now falls onto the hawks to assemble the votes to end it. QE could be Fed policy for a very long time.
Can having tonnes of cash floating around the economy be bad? Definitely, if this money cannot be accounted for. According to a Reserve Bank of India (RBI) official, this can lead to myriad problems. The central bank is now focused on bringing down the cash component in the economy. If India moves to a cashless, or more plastic society it can solve corruption, monetary policy transmission issues, and cash management for banks. Currently, the amount of cash circulating in the system is around 14% of GDP. This makes India one of the highest cash markets. The implementation of communications and technology solutions such as mobile and online banking, electronic fund transfers etc can help bring down the reliance on cash. Both the government and RBI are making efforts to address this problem. Well, with the government in the soup over corruption allegations, this may be a welcome step.

Friday, September 14, 2012

Draghi's planned bond-buying scheme has desired effect, so far. Yields dropped at an Italian auction of €6.5B of government paper today, including €4B of 3-year debt which carried a rate of 2.75%. That's down from 4.65% in July and the lowest since October 2010. The falling yields were attributed to the ECB's planned bond-buying scheme, but it's early days yet to see how long Italian yields will stay low, not to mention those of Spain

Germany's On Board With The ECB, Fed Up Next


The Euro held its ground close to a 4-month high on Thursday after Germany's Constitutional Court gave the thumbs up for Berlin to participate in the Euro Zone's permanent rescue fund.
The Euro is now looking to further extend gains on the back of possible stimulus from the US Fed Reserve. The Euro was also aided by the positive results from elections held in the Netherlands.
Speculation abounds today, that the Federal Reserve will announce that it will purchase bonds under another program of quantitative easing. Such a program tends to debase the currency. As a result, the Dollar declined to its lowest level in seven months versus the Yen and towards a four month low against the Euro.
It appears to me that the majority view of economists is that the Fed will conduct another round of quantitative easing, which will weigh on the Dollar.
The central bank is also expected to extend the duration of its zero-interest-rate policy as far as 2015. What is interesting, is that two previous rounds of bond purchases have failed to revive the labour market and this is now viewed as a "grave concern" by Fed Chairman Ben S. Bernanke and as a potential justification for a third round.
Although some anticipation for QE.3 has been priced into the markets, I predict that this is not completely so, and that we could see that the Dollar may extend declines, at least in the near term.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, yesterday hit 79.522, its lowest level in Four months.
The Dollar dropped 0.2% to 77.70 Yen earlier today, slightly up from 77.65 Yen which was its weakest level in seven Months. It also dropped 0.2% to $1.2923 per Euro, close to its weakest level in four months.
Gains in the Euro remained subdued as Greece's Prime Minister, Antonis Samaras, was again faced with refusal from coalition partners over plans to cut spending, as regards wages and pensions, that are key to Greece receiving international aid. The European Central Bank (ECB) and the International Monetary Fund (IMF) have already criticised the plans as not going far enough to receive the next tranche of aid.
In the eyes of many analysts, there is now a strong chance that Greece will leave the Euro bloc.
The Euro strengthened on Wednesday though, following Germany's constitutional court ruling that Germany can ratify the European Stability Mechanism (ESM), a 500 billion Euro ($646 billion) rescue fund. The court though had stressed a condition, that Germany's 190 billion Euro contribution can't be increased without legislative approval.
As a result, Spanish and Italian government bonds advanced yesterday. Spain's 10 year yield declined to 5.63%, while Italy's 10 year rate fell to 5.03%.
Today, Italy will auction up to 6.5 billion Euros of government securities set to mature in 2015, 2017 and 2026.

Wednesday, September 12, 2012

German Court Ruling Could Ruin The ECB's Plan


The Euro approached a 4-month high against the US Dollar on Tuesday on the back of expectations that the German constitutional court will support the Euro Zone bailout fund and speculation that the US Federal Reserve will ease monetary policy.
However Germany's constitutional court could shock most investors by rejecting the European Stability Mechanism in it's ruling later today.
A negative decision would threaten the European Central Bank's plans to lower borrowing costs of debt troubled nations like Spain and Italy, the same plans that gave the Euro a boost last week.
Germany is the only European country that has as yet not ratified the European Stability Mechanism (ESM). The ESM is a 500 billion Euro ($643 billion) fund that extends loans to Euro zone members and may purchase their bonds to lower borrowing costs.
Today's court ruling is important, as should the court rule that Germany can not join, then the mechanism will not be created and other bailout measures could be thrown into doubt.
I think it's likely that the Court will rule that the ESM is legal, however it may impose conditions on its future use.
Dutch voters head to the polls today to elect a new parliament. Polls show that the opposition Labour Party would take 34 seats, while Prime Minister Mark Rutte's Liberal Party should take 35 seats.
Should the Liberal party take the majority seats, as expected, then we could see a return of the grand coalition that governed for eight years until 2002.
This would make it unlikely that there will be any shift in direction in Dutch backing for German Chancellor Angela Merkel's "austerity first" approach which she has towards the Euro area financial crisis. In other words, Netherlands would then support further bail outs for peripheral Euro zone governments.

Tuesday, September 11, 2012

Euro Tense Ahead Of Fed Meeting And German Court Ruling


The Euro remained in a state of limbo near a four month high against the US Dollar on Tuesday with most investors now growing wary ahead of events in Europe and the United States, in particular, the Fed Reserve Meeting and German Court Ruling.
Most analysts believe that as long as there are expectations of quantitative easing by the Fed, the Euro is likely to have support.
Meanwhile, Germany's constitutional court is set to make a vital decision by ruling on Wednesday about whether Germany can legally participate in the Euro Zone's permanent bailout fund.
On Wednesday, the Federal Open Market Committee (FOMC) starts a two day meeting. Speculation as to the outcome of the meeting saw the Dollar decline earlier today against most of its 16 major peers.
The Dollar Index (DXY) which IntercontinentalExchange Inc. uses to track the Dollar against the currencies of six U.S. trading partners, slid 0.1% to 80.361,having hit 80.151 on Friday, its lowest level in four months.
Speculation abounds that the Federal Reserve will purchase bonds in a third round of quantitative easing, or QE, a measure that tends to debase the currency.
I think that it is probable that additional easing will be announced at the FOMC meeting. Should it be the case that QE3 is announced, the result will be that the Dollar will be sold and then likely continue to weaken. In fact, many traders will be looking to sell any type of large rallies in the Dollar.
The Fed, in two previous rounds of quantitative easing, from 2008 to 2011, has bought $2.3 trillion of securities.
In August, Fed Chairman Ben S. Bernanke had defended his policies and stressed that further action was likely to combat unemployment, which he declared to be a "grave concern".
Earlier today, the Dollar dropped by 0.1% to 78.22 Yen and 0.1% to $1.2765 per Euro.
Demand for the Euro was subdued ahead of a report due out on Wednesday, which is predicted to show that European industrial production has contracted as concerns linger that the sovereign debt crisis is constraining growth.
The Euro remained little changed at 99.85 Yen, having dropped 0.4% on Monday.
In Greece, the leaders of the coalition parties had agreed to meet again on Wednesday, ahead of the Euro area finance ministers gathering in Cyprus for a briefing on Greece's progress on Friday.
On Wednesday, Germany's Federal Constitutional Court is also due to rule on the country's participation in the European Stability Mechanism (ESM), which is a permanent 500 billion Euro ($639 billion) fund that extends loans to member states and that may purchase their bonds to lower borrowing costs. Germany, which holds a 27% share in the fund, is expected to be the largest contributor.
For the moment, the market is expecting that the German Constitutional Court will approve the ESM. Should this be the case, I predict that the Euro will be given a boost.

U.S.Trade deficit seen widening.

 U.S. trade data for July is due out this morning, with economists estimating that the deficit widened to $44B from $42.9B in June in what would be the first increase since March. While rising oil prices may have caused imports to grow, weakening economies in Europe and China, as well as other emerging markets, may have sapped U.S. exports.

Monday, September 10, 2012

S. 145: Excise duty need not be included in closing stock

CIT vs. Dynavision Limited  (Supreme Court)

The assessee valued its closing stock without including excise duty. The AO held that excise duty had to be included in the closing stock though the CIT(A), Tribunal and High Court (267 ITR 600 (Mad)) upheld the assessee’s plea on the basis (following English Electric Co. 243 ITR 512 (Mad)) that the inclusion of excise duty in the valuation of closing stock was permissible only if the liability for that amount in the excise duty account was given a deduction and otherwise it would be anomalous. On appeal by the department to the Supreme Court, HELD dismissing the appeal:

S. 194H TDS: “Discount” in a “sale” is not “commission or brokerage”


CIT vs. Ahmedabad Stamp Vendors Association (Supreme Court)
The assessee, an association of stamp vendors, bought stamps from the State Govt. at a discount. The department claimed that the stamp vendors were “agents” of the State Govt. and that the said discount was “commission or brokerage” and the State Govt. ought to deduct TDS u/s 194H. The assessee filed a Writ Petition to challenge the department’s action. The Gujarat High Court (257 ITR 202) upheld the assessee’s plea that (a) title in the stamps passed to the vendors and that they were not “agents” of the State Govt. but were transacting on a “principal to principal” basis and (b) the discount available to the stamp vendors was not “commission or brokerage” so as to fall within s. 194H. On appeal by the department to the Supreme Court, HELD dismissing the appeal:

Euro Holding On To Gains Ahead Of Fed Meetings


The Euro dropped against the US Dollar during early trading today but managed to hold steady near its recent 4-month high. The fall came after weak US jobs data raised speculation that the US Federal Reserve would introduce more monetary stimulus later this week.
Last week, the Euro was aided by the ECB's plan to help lower borrowing costs for troubled Euro Zone nations, and the currency managed to hold on to much of its gains from last week.
However, the Euro will more than likely run into tough resistance in the form of the Fed's two-day policy meeting scheduled to run until Thursday this week.
Euro Weakens Ahead Of Samaras Meeting with Lenders
Earlier today, the Euro was showing signs of declining ahead of Greece's Prime Minister, Antonis Samaras, meeting officials from the nation's lenders. This has reignited concerns about the region's debt woes
Greece's Prime Minister, Antonis Samaras, is due to meet with officials from the Euro area, the European Central Bank (ECB) and the International Monetary Fund (IMF) today.
The Euro declined against most of its 16 major peers, following the failure of Samaras in securing agreement from his coalition partners on 11.5 billion Euros ($14.7 billion) of spending cuts required by Greece's lenders.
Fotis Kouvelis, Greece's Democratic Left leader, whose party is one of the three in the coalition government, announced that no decision has been made on spending cuts. He added that poorer Greeks should be protected from austerity measures.
The three coalition leaders agreed to meet again on Wednesday, before Euro area finance ministers meet on Friday to be briefed on Greek progress.
On Wednesday, Germany's Federal Constitutional Court is due to rule on Germany's participation in the European Stability Mechanism (ESM). The ESM is a permanent 500 billion Euro fund that offers loans to member states and that may purchase their bonds to lower borrowing costs.
As Germany is the largest economy in the EU, it is also expected to be the biggest contributor to the fund as it holds a 27% share.
I agree with expectations of many analysts, that we could see a decline in the Euro in the medium to long term as some countries in the Euro region simply won't be able to make much progress in deficit reduction, or fiscal consolidation.
So far the Euro has fallen 3.5% since the start of 2012. In comparison, the Yen has dropped 3.8% and the Dollar 2%.
Earlier today the Euro was down 0.3% to $1.2784 and had fallen 0.2% to 100.01 Yen.
The Dollar remained steady at 78.23 Yen.
The Dollar Index was the lowest it has been since the 11th of May, at 80.301. IntercontinentalExchange Inc. uses the Dollar Index to track the greenback against the currencies of six U.S. trading partners.
This followed a report released last week that showed that U.S. jobs growth had slowed. This in turn has bolstered speculation that the Federal Reserve will undertake a third round of bond buying.
Labor Department figures, released on Friday, showed that nonfarm payrolls had increased by 96,000 in August, down from 141,000 in July. The unemployment rate was now 8.1% compared with a rate of 8.3% in July.
Two weeks ago the Fed Chairman, Ben S. Bernanke, had said that weak hiring and unemployment exceeding 8% posed a "grave concern".
He went on to say that bond purchases are an option to spur growth. The Fed will start its next two day policy meeting on Wednesday.

Japan GDP slower than estimated.

 Japanese Q2 GDP  rose 0.7% Q/Q, half the initial estimate of +1.4% and below consensus of +1%. GDP fell a nominal 1% in annualized terms vs. +5.5% in Q1. The current account surplus declined 41% to ¥625.4B ($8B) in July. With the economy losing momentum, economists increasingly expect Japan to slip into contraction this quarter.

Friday, September 7, 2012

Euro Near Two-Month High Ahead of ECB Bond-Buying Plan


The Euro maintained gains from Wednesday ahead of the ECB today disclosing its plans. The Aussie traded near a seven week low following weak unemployment data.
the European Central Bank (ECB) is expected to announce unlimited, sterilized bond buying to tackle the Euro region's debt concerns.
What Sterilization in effect means, is that money will be drained from other parts of the financial system in order to offset new funds added.
The market is reacting favourably on expectations that the ECB is going to follow through with a bond purchase program. What I think that we will see, is that the Euro could remain around current levels and even find some support into the ECB meeting.
ECB President Draghi is due to speak at a press conference following an ECB Governing Council meeting in Frankfurt.
On September 12th, Germany's Constitutional Court is due to rule on the legality of the European Stability Mechanism (ESM), which is the Euro region's permanent bailout fund. The ECB may delay fully disclosing its plans until after this date.
Earlier today the Euro fetched $1.2612 and climbed 0.1% to 98.91 Yen. The Yen remained little changed at 78.42 Yen per Dollar.

Thursday, September 6, 2012

French unemployment hits 13-year high.

France's jobless rate reached a 13-year high in Q2, rising to 10.2% from 10% in Q1. Excluding France's overseas territories, the figure was 9.7% vs. consensus of 9.8%. In all the talk about bond-buying and austerity, the figures are a reminder of the desperate state of the eurozone economy. The ECB is also making an interest rate decision today, with Credit Agricole expecting the bank to cut rates to 0.5% from 0.75%.

Italy could be forced to seek EU aid by year-end.

 Senior Italian officials have warned that the country might have to ask the EU to buy its government bonds by the end of the year due to its deteriorating economy and high debt costs, the FT reports. In return, Italy would have to implement even more tough austerity, with Germany especially - to prevent that nightmare - wanting to lock in any government that comes in after elections in 2013.

ECB bond-buying could bring on German nightmare.

 With Mario Draghi expected to announce the resumption of ECB purchases of eurozone government bonds today, what will he do if EU states fail to live up to their pledges, like Greece? Threats to halt the buying might carry little weight as the central bank would be too far in. A German nightmare could follow - the ECB financing governments who no longer feel the need to reform

Wednesday, September 5, 2012

Euro Drops After The ECB Reality Starts To Sink In


The Euro dropped versus the US Dollar during trading on Tuesday after notching up two consecutive days of solid gains. The fall came as investors suddenly grew cautious that the proposed European Central Bank plan to tackle the region's debt crisis may lack any real detail.
The ECB are scheduled to meet on Thursday and are expected to announce a bond-buying plan to help lower Spanish and Italian borrowing costs. Time will tell how much of an impact the meeting will have.
The markets remain fixated on Thursday's ECB Meeting, with expectations of intervention running high. Other risk events due throughout this month also continue to weigh on the Euro's performance.
Other factors still influence the Euro in the short term, one of which is that Germany's Constitutional Court is set to rule on the legality of the European Stability Mechanism (ESM), the Euro region's permanent bailout fund, next Wednesday. Given the weight that the ruling will carry, the ECB may well delay giving full details of any bond buying plan until after the ruling.
Also due for release today, is a final reading of an index based on a survey of purchasing managers in services industries in the Euro area by Markit Economics. This could confirm a drop to 47.5 in August from 47.9 in July. If so, the figure will be further below the 50 level which indicates economic contraction.
Ahead of the ECB meeting tomorrow, the Euro earlier fell 0.3% to $1.2523 and by 0.4% to 98.16 Yen. The Yen itself was little changed at 78.39 to the Dollar.

Tuesday, September 4, 2012

Euro Holding Steady Despite Moody's Negative Rating


The Euro held held firm on Tuesday despite Moody's changing the regions rating to a negative. The Euro outlook remains bright as investors are banking on the ECB to unveil a plan to tackle the region's debt crisis later this week.
Whether or not this will come through, remains to be seen. Moody's also warned that it might downgrade the bloc if it decides to cut the ratings on the EU's big four i.e. Germany, France, UK and Netherlands.
Draghi's plan is expected to bolster confidence, however with long term forces acting on the Euro, the currency will likely remain an underperformer. Let's take a look at its position today and the week ahead.
The Euro has gained against the Yen, riding the waves of speculation that European Central Bank (ECB) President, Mario Draghi, has plans to purchase bonds of debt burdened nations in the region, in order to boost confidence in the currency.
At the central bank's meeting on Thursday, Draghi may reveal details of any plans or, he may wait until after September 12th, when Germany's Constitutional Court rules on the legality of Europe's permanent bailout fund.
Earlier today, the 17 nation Euro rose against most of its major peers. It neared a two month high to the Dollar, ahead of today's meeting between European Union President Herman Van Rompuy and German Chancellor Angela Merkel. Also scheduled today are talks between Italian Prime Minister Mario Monti and French President, Francois Hollande.
On Monday Moody's Investors Service cut the EU's rating outlook to negative, a move seen as reflecting the risks of the crises to Germany, France, the U.K. and the Netherlands, all of which account for about 45% of the group's budget revenue.
The ECB's meeting on Thursday however, remains in focus and what we could see, should the ECB disclose that it will purchase bonds with up to a three year maturity, would be a positive surprise for the Euro.
Ahead of the meet we could see some short covering of the Euro. Short covering occurs when investors end bets that an asset will decline.
Greece's institutional creditors are also set to decide whether Greece merits access to aid that would help it stay in the EU, and in Holland, Dutch citizens will be voting on parties that include a group that advocates exiting the bloc.
With a myriad of events on the horizon, traders and strategists appear more divided than at any time since 2011, over whether officials will be able to keep the currency from plummeting. September could be one of the most pivotal months in the Euro's 13 year history.

Spanish, Italian yields fall on Draghi bond comments.

 ECB President Mario Draghi yesterday indicated that the bank would be open to buying government bonds with a maturity of 2-3 years, telling the European Parliament that doing so wouldn't contravene EU treaties. The remarks add further confirmation that the ECB is set to act, sending Spanish and Italian bond yields sharply lower today. Meanwhile, Bundesbank chief Jens Weidmann is reportedly totally isolated in the ECB in his opposition to the bond purchases.

India's domestic economy is also showing clear signs of a slowdown.

India's exports during the month of July 2012 dropped to US$ 22.4 bn, a decline of 14.8% over the same month last year. It is worth noting that this is the steepest decline in the last three years. The main reason for the drop is the ongoing sovereign debt crisis in the Eurozone and the slowdown in the US. This is a clear indicator of the ongoing slowdown in the global economy. But India's domestic economy is also showing clear signs of a slowdown. While exports declined, imports during the same period also dropped by 7.6% to US$ 37.9 bn.
The government had set a lofty exports target of US$ 360 bn for this year. Looking at the current grim situation, the government has already admitted that achieving the target would be quite challenging. With all major economic indicators pointing towards a slowdown, the Indian economy is likely to face some serious challenges in the medium term.

S. 147: In addition To allegation, there must be finding of failure to disclose material facts


Qualcomm Inc vs. ADIT (Delhi High Court)

For AY 2003-04 the AO reopened the assessment after 4 years from the end of the AY on the ground that the assessee had not fully and truly disclosed the fact that it had a permanent establishment (PE) in India and that it was subject to the higher rate of tax of 20% on the gross royalty. The assessee filed a Writ Petition pointing out that the AO had reopened the assessment earlier on the same point and that he had passed an assessment order after being satisfied with the assessee’s submissions that it had no PE. HELD by the High Court quashing the reassessment proceedings:

Euro Flattens Out After Hitting Recent 8-Week Highs


The Euro held steady against the US Dollar during the Asian session on Monday, with renewed hope that the US Federal Reserve and the European Central Bank would soon take policy steps to revive their struggling economies.
The Euro flattened out after hitting an 8-week high late on Friday after Fed Reserve chief Ben Bernanke's speech revived expectations of further stimulus to aid growth.
The Euro earlier today drew support on hopes of action by the U.S. Federal Reserve and the European Central Bank (ECB) with expectations that they would soon take policy steps to revive their respective economies.
The Euro earlier stood at $1.257 9, remaining flat against the Dollar and off an eight week high of $1.2638 hit on Friday.
Fed chief Ben Bernanke's speech a few days ago, has fanned expectations of further stimulus to revive growth, otherwise known as QE3.
He had announced that high unemployment is "a grave concern" to the Fed and that they would act as needed to strengthen the recovery, without saying exactly when.
I think it's very likely that the Fed may introduce QE3 in its policy meeting later this month. This may be especially so as, while many look forward to strong readings at Friday's U.S. payroll data release which they feel could reduce such expectations, its relevance will be slightly diminished in view of the larger picture.
The fact is, that the U.S has seen a loss of 8.78 million jobs since the start of the financial crises, while only approximately 4 million jobs have since been recovered. Friday's data will likely only show a few tens of thousands difference.
Expectations of a looser U.S. monetary policy might well support the Euro in the days leading to the Fed's policy meeting, which is scheduled for 12th and 13th September.
In focus now is also the ECB's policy meeting on Thursday, which is preceded by intense speculation that it will unveil its strategy to deal with the Euro zone's debt crisis.
The Dollar has come under pressure against the Yen after Bernanke's speech. It earlier stood near to a three week low of 78.187 Yen touched on Friday, at 78.29 Yen.
I think that we'll see the Dollar test 78 Yen in the near term, even though it could be supported by likely buying from Japanese importers.
Investors are choosing the Yen as a safe haven as they avoid the U.S. Dollar on concerns about QE3.
The Aussie was down at fresh six week lows against the Dollar and the Yen, after more signs of weakness in the Chinese economy and the release of weak Australian data.
The Australian Dollar slumped to a six-week low of 80.12 Yen and slid to a low of $1.0240, while a resurgent Euro hit a two month high of A$1.2266.
Concerns have emerged that the Australian economy may be losing momentum, from the mining boom spurred by Chinese demand, after a report showed that China's vast manufacturing sector had slowed further in July and after a weak reading in Australian retail sales.

Monday, September 3, 2012

S. 271(1)(c) Penalty + 14A On Trading Stock + FTS + 40(a)(i) TDS


ACIT vs. Ashok Raj Nath (ITAT Delhi)

Despite s. 143(2) notice, Revised ROI saves from s. 271(1)(c) penalty

Merely because a notice u/s 143(2) had already been issued and the assessee filed revised return thereafter, disclosing additional income towards capital gains, which was not correctly shown in the original return, does not tantamount to detection of concealment of income u/s. 271(1)(c) of the Act (Suresh Chandra Mittal 251 ITR 9 (SC) followed) {see also Radheshyam Sarda (ITAT Indore)}

Esquire Pvt. Ltd vs. DCIT (ITAT Mumbai)

S. 14A does not apply to dividend on shares held for trading purposes

If the dividend income is incidental to trading activity, following the principles laid down in CCI Ltd vs. JCIT 206 Taxman 563 (Kar), expenditure incurred in acquiring shares cannot be apportioned to the dividend for making disallowance u/s 14A. As held in CIT vs. Smt. Leena Chandran 339 ITR 296 (Ker) interest paid on funds borrowed for acquisition of shares in the form of investment would only attract disallowance under section 14A {see also Yatish Trading 129 ITD 237 ; Contra: American Express }

DCIT vs. Dodsal Pvt. Ltd (ITAT Mumbai)

Installation & commissioning services are an integral part of supply and not assessable as "fees for technical services" despite seperate contract

Though there was a seperate contract for supply and a seperate one for installation and commissioning services, the said services had to be treated as "ancillary and subsidiary as well as inextricable and essentially linked to the sale/supply of the equipment" and, therefore, was not chargeable to tax in India in the hands of the Canadian company as "fees for included services". Consequently, the s. 40(a)(i) disallowance was not sustainable.

Channel Guide India Ltd vs. ACIT (ITAT Mumbai)

S. 40(a)(i) disallowance cannot be made on basis of retrospective law 

At the time the payments were made, the rentals for user of satellite were not chargeable to tax as "royalty" u/s 9(1)(vi) as per Asia Satellite 332 ITR 340 (Del) & B4U International  and so there was no obligation of TDS. The retrospective amendment by FA 2012 cannot create an obkligation for TDS because the law cannot possibly compel a person to do something which is impossible to perform

Sunday, September 2, 2012

S. 10A Exemption + S. 197 TDS + S. 271(1)(c) Penalty


CIT vs. TEI Technologies Pvt Ltd (Delhi High Court )

S. 10A is an "exemption" provision even after the amendment and loss of non-10A unit cannot be set-off against s. 10A profits 

S. 10A, even after the amendment by the FA 2000 w.e.f. 1.4.2001 is an "exemption" provision and the current years and the brought forward loss suffered by a non-EPZ unit cannot be set-off against the s. 10A unit’s profits (Yokogawa India Ltd 341 ITR 385 (Kar), Hindustan Unilever 325 ITR 102 (Bom) & Black and Veatch Consulting (Bom) referred).

Serco BPO Pvt. Ltd vs. ACIT (Punjab & Haryana High Court)

S. 197 TDS application cannot be rejected for extraneous reasons

U/s 197 read with Rule 28AA, the AO’s decision not to issue a s. 197 certificate for lower TDS on the ground that (a) the assessee had violated the TDS provisions & (b) s. 276B & 271(C) proceedings were pending is not correct as these issues are not relevant to s. 197

CIT vs. Aditya Birla Nova Ltd (Bombay High Court )

Reliance Petroproducts 322 ITR 158 (SC) is not "per incuriam"

The department’s argument that Explanation 1(B) to s. 271(1) mandates levy of penalty where a claim for deduction is not upheld, even though there is disclosure of material facts and that Reliance Petroproducts has not noticed Explanation-1 to s. 271(1) and is “per incuriam” is not acceptable because the entire s. 271(1) was considered.
Data source: RBI Annual Report 2012
The Indian government's plan to review the double-taxation avoidance agreement (DTAA) with Mauritius was meant to prevent misuse of the treaty and track illicit money allegedly stashed in the African island nation. However, the same is also expected to impact the foreign direct investment (FDI) coming into India. Amongst the sectors that will be adversely impacted could be manufacturing and construction. As data from RBI shows, these two have been the largest recipients of FDI in FY12, followed by financial services and power generation and distribution.  

Transaction of “sale” of “pledged” shares at loss to a group company with object to set-off loss against gains is not a “colourable transaction”


ACIT vs. Biraj Investment Pvt. Ltd (Gujarat High Court)

The assessee earned capital gains on sale of certain shares. To offset the gains, the assessee sold shares of another company, which were pledged to IDBI, to a group company, at a loss. The AO & CIT(A) treated the transaction of sale to the group company as a “colourable device” & rejected the loss on the ground that as the shares were pledged, they could not have been sold. However, the Tribunal allowed the assessee’s claim. On appeal by the department to the High Court, HELD dismissing the appeal:
Though the shares were pledged with IDBI and the assessee did not have physical possession of the share certificates and had also undertaken to IDBI that the shares would not be transferred, there was still a “transfer” u/s 2(47). While there would be a serious question of validity of such transaction in so far as the assessee’s relationship with IDBI is concerned, and the purchaser would not be entitled to transfer the shares in its’ name, these issues were not relevant because the assessee did transfer whatever rights it had in the shares to the purchaser. The Revenue’s argument that the transaction was a “colourable device” and a “paper arrangement” is not acceptable because (i) there is no provision which prevents an assessee from selling loss making shares with a view to offset the loss against other gains and (ii) the transaction with the group company was at the fair value. The fact that the shares were pledged and could not be registered in the purchaser’s name did not establish that transaction was a contrived one (Sakarlal Balabhai 69 ITR 186 (Guj), Azadi Bachao Andolan 263 ITR 706 (SC) & Vodafone 341 ITR 1 (SC) followed).

Eurozone inflation rises.

 Eurozone August CPI rose to +2.6% on year from +2.4% in July and topped consensus of +2.5%. The increase takes inflation further away from the ECB's target of just below 2%, and may reduce the chances of the bank cutting rates at a policy meeting next week. The prospect of rising inflation is also cited as a reason for the ECB not to buy eurozone government bonds. Meanwhile, unemployment remained at a record high of 11.3% in July.

Japan's economic picture gets gloomier.

 Japan's industrial production fell 1.2% on month in July, sharply worse than consensus for growth of 1.7% and the 0.4% increase in June. CPI excluding food fell 0.3% on year, prompting fears that Japan is a long way from escaping deflation. The figures add to slowing retail sales and exports, and the government downgrading its economic forecast. Still, at least unemployment was unchanged at 4.3%.