Issue No. 279 / Nov 16^th, 2023 

Dear Professionals, 

We are glad to present to you the 279^th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena! 

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Journals Current Status 

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Expert Column 

In a recent judgment, the SC ruled that a notification under Section 90(1) is necessary and a mandatory condition for a court, authority, or tribunal to give effect to a DTAA, or any protocol that has the effect of altering the existing provisions of law. This judgement upsets the steady views on automatic enforcement of MFN Clause.

Mr. S. Ramanujam (Chartered Accountant), critically analyses the SC ruling in Nestle SA & Others. The author gives an overview of the MFN clause, need for the same and its significance. He apprises that the SC deliberated on the issues, whether the MFN Clause is to be given effect automatically or if it is to only come into effect after a notification is issued by the Government. The author opines that retrospective tax as suggested by media reports based on SC ruling may lead to dispute under Bilateral Investment Trade Agreements. He remarks that the Revenue authorities will have to address various questions of the affected parties before it can reap the monetary benefits resulting from the SC ruling.

Click here to read the article “Tremors at Most Favoured Nations – Once Friendly, Now Unfriendly!”

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Key Takeaways from Handpicked Rulings

1) SC: Dismisses Revenue's SLP against judgment denying trust's probe over Sec.11 exemption - SC dismisses Revenue’s SLP against Andhra Pradesh HC ruling wherein it was held that Revenue is not empowered to probe into the objects of the charitable trust which is registered under Section 12A, consequently exemption under Section 11 cannot be denied by considering the objects of the Assessee-Trust as commercial in nature; Observes that the main object of the Assessee-trust does not reflect profit motive as the role of the Assessee is only to identify, enrol and regulate operations of private workers which activity was being carried on the objects of the Trust; Assessee-trust engaged in identifying, enrolling and allotting work to workmen in Visakhapatnam Dock Labour Board filed return of income for AY 2000-2001 and claimed exemption under Section 11 and 13; Revenue held that Assessee is not entitled to claim exemption under Section 11 and 13 even though it is registered under Section 12A as its activities are commercial in nature; CIT(A) dismissed Assessee’s appeal; ITAT allowed Assessee’s appeal………….Click here to read and download SC Order

2) HC: Absent wilful default, delayed TDS deposit not tax-evasion; Quashes Sec.276B prosecution – HC allows Assessee’s appeal, quashes Special Judge for Economic Offences  order wherein criminal complaint under Section 276B over delay in deposit of TDS amount to the credit of Central Government was upheld; Holds that delayed deposit of TDS does not amount to wilful evasion of tax in absence of wilful default or mala fide intention since the entire TDS amount to the credit of the central government with interest and late fees have been deposited much before the issuance of show cause notices, accordingly, Assessee is entitled to the relied from being prosecuted in terms of CBDT circular F.No.255/339/79-IT (Inv.) dated May 28, 1980; Observes that the sanctioning authority failed to apply judicious mind and simply recorded all non-acceptance of the reply submitted by the Assessee wherein it was contended that the delay pertain to severe acute illness of the accountant which led to issuance of show cause notice by the Revenue which was compensated by voluntary deposit of TDS along with penalty and late fees, accordingly, contrary to spirit of Section 278AA ……………Click here to read and download HC Judgment

3) HC: Allows co-operative society’s Sec. 80P(2)(d) claim on interest income; Distinguishes Totgars ruling - HC allowed assessee-society writ petition and quashed the reopening notice, allows Sec. 80P benefit to assessee-society (engaged in providing credit facilities to the members and to other public as well) with respect to interest earned on deposits made in co-operative banks during AYs 2016-17 and 2017-18; Assessee-society made investments with the Co-operative Bank from which, they received interest and therefore they are entitled to claim deduction under section 80P(2)(d). AO stated that the Society are not entitled for deduction holding that the deduction available in the above provision is only for the income and interest received from the Co-operative Society and not from the Co-operative Bank; HC observed that, “a Co-operative Society referred [in Section 2(19) of Income Tax Act] is only a co-operative society as defined………………Click here to read and download HC Judgment

4) ITAT: Running account overdraft with closely held company, deemed dividend, despite repayment - ITAT holds that amount overdrawn by the Assessee from the running account maintained in closely held company/lender company wherein the Assessee is a shareholder would be considered as loans and advances under Section 2(22)(e) irrespective of whether the same is repaid in the same year or not; Observes that plain reading of Section 2(22)(e) as well as Explanation embedded therein makes it clear that the law makers wanted to bring to tax monies paid by closely held companies to their principal shareholders in the guise of loans and advances to avoid payment of tax; Relies on SC ruling in Navneet Lal C. Jhaveri wherein it was held that Section 2(22)(e) must be made applicable where dividend disguised as loan is paid by a company, but, they have also held that this concept should not be stretched too far to involve any absurdities; Observes that Section 2(22)(e) enacted a fiction whereby the scope and ambit of the word dividend has been enlarged to bring within its sweep certain payments made by a company as per the situation enumerated in Section 2(22)(e); Rejects Assessee’s contention that running account with lender company cannot be considered as loans and advances ……….…..Click here to read and download ITAT Order

 

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6) ITAT: Interest on delayed TDS remittance not compensatory, disallowable under Sec.37(1) - ITAT holds that interest on delayed TDS remittance under Section 201(1A) is not an expenditure wholly and exclusively incurred for business purpose, therefore, not compensatory in nature and not allowable as deduction under Section 37(1); Observes that deduction of TDS amount is required to be statutorily done by the Assessee as per Section 200 in case if any payment is made under the Act which attracts deduction at the time of payment; ITAT also holds that interest paid on delay payments of PF/ESI is compensatory in nature in view of SC ruling in Checkmate Services and observes that the law declared in the said ruling will take retrospective effect w.e.f. the enactment of the provision of Section 36(1)(va) inserted by way of Finance Act, 1987; During AY 2018-19, Assessee filed return of income declaring total income of Rs. 14.01 Cr and claimed expenditure of (i) Rs. 2.49 Lac towards ESI & PF, (ii) Rs. 12.19 Cr towards interest on TDS and (iii) Rs. 26.95 Lac towards interest on GST which was disallowed by the Revenue under Section 37(1)……….. Click here to read and download ITAT Order

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About Taxsutra Database! 

“Taxsutra Database”, a true Income-tax research tool, is an archive of over 125008+  Income Tax Rulings reported across ITR, CTR, Taxman, ITD, TTJ, and ITR (Trib) and also includes recent ‘unreported handpicked rulings of SC, HC & ITAT’. It is a completely integrated service with the following features:  

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