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We are glad to present to you the 231st edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
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Expert Column
The Finance Act 2021 has introduced Section 194Q providing for TDS on purchase of goods with effect from July 1, 2021. Section 194Q is similar to Section 206C(1H) which was introduced by Finance Act 2020, to collect tax at source on transactions between a buyer and a seller.
CA Manjula A (Vishnu Daya & Co LLP) has authored an article to discuss the key elements of Section 194Q such as applicability on buyers turnover exceeding INR 10 Crore, rate of deduction 0.1% of the aggregate value of the goods that exceed INR 50 Lakh and 5% in case the seller does not hold a PAN in India. Further, the author clarifies, through FAQs, who is liable to deduct tax, applicability on types of the assessee, when shall tax be deducted, whether TDS is required to be made on the entire consideration or only on the consideration that exceeds INR 50 Lakhs and TDS to deducted on various kinds of purchases etc.
The author highlights the interplay between TDS u/s 194Q and TCS u/s 206C(1H) and the comparison of both on the various aspects such as liability of payment, turnover limit, effective date, PAN requirement and exclusions etc. She illustrates the applicability of the provision on the transactions after July 01, 2021.
Click here to read the article titled, “TDS on Purchase of Goods” - All Questions Answered!
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Key Takeaways from Handpicked Rulings
1) HC: No TDS on trade discounts given to newspaper vendors - HC rules in favour of assessee [engaged in printing and publishing of newspaper] holds that no taxes are required to be deducted on trade discounts given to newspaper vendors; States that the relationship between the assessee and the newspaper vendor was on a principal-to-principal basis and therefore there was no requirement of deducting taxes on the trade discount extended to them …………….. Click here to read and download HC Judgment copy
2) HC : TDS inapplicable on interest to members by co-operative banks pre-2015 amendment – HC upholds ITAT order deleting disallowance u/s 40(a)(ia) on interest paid by assessee (co-operative bank) to its members during AY 2012-13; Revenue disallowed the interest paid on account of non-deduction of taxes u/s 194A(3)(i)(b); Assessee contented non application of provisions of Sec. 194A(1) on the income credited or paid by a co-operative society to its members, following CBDT Circular No. 9/2002 where tax needs to be deducted on payment made to non-members only; Holds that sub-section (1) of Section 194A will........... Click here to read and download HC Judgment copy
Note: HC reverses ITAT order, assessee (a co-operative society engaged in banking business) not liable to deduct TDS u/s 194A on interest paid to members for AYs 2008-09 to 2014-15
3) HC: Valuation report shall be submitted within 6 months of reference u/s 142A - HC upholds CIT(A)’s action directing AO to seek valuation report in respect of assessee’s property exercising its power u/s 251, however directs CIT(A) to consider assessee’s plea of limitation u/s 142A(6) as expeditiously as possible preferably within three months; For the AY 2015-16, Revenue issued notice u/ 142A in Oct, 2017 to assessee for valuation of property; However, Revenue passed assessment order in Dec 2017 itself, without waiting for the valuation report, against which assessee filed an appeal with CIT(A); While the appeal was pending, a fresh notice u/s 142A was issued in Oct 2020 pursuant to CIT(A)’s direction; Acknowledges assessee’s contention that as per Sec. 142A(6) valuation report............. Click here to read and download HC Judgment copy
Note: ITAT allows assessee's appeal for AY 2007-08, holds that amendment in Sec.142A cannot be said to have retrospective effect
4) HC sets aside assessment orders passed u/s 143(3) r.w.s. 153C in case of assessee-individual, directs Revenue to issue fresh notice with sufficient time being given to the assessee to put-forth his submissions on merits; Holds that the Investigation officer is empowered to make a reference to valuation officer but such report should be made available to the assessee before using the same against him; Remarks that the assessment has been completed in haste and the delay is caused due to the department in taking stock of the search material, centralizing the cases and issuing the notices..................... Click here to read and download HC Judgment copy
5) HC reverses ITAT order, upholds CIT's revisionary order over allowability of expenditure , carry forward of losses – HC upholds CIT’s revisional powers u/s 263 exercised in case of the assessee; Assessee claimed to have earned fixed deposit interest which it showed as business income against which business expense was claimed; Revenue contented that without any nexus between the income and expenses, such income should be treated under the head other sources and thus, the expenses claimed on such interest income is to be disallowed by invoking the provisions of Section 57; However, this position adopted by the Revenue was later changed and assessee’s view was accepted without application of mind; HC holds that there is no infirmity in the CIT’s exercise of revisional jurisdiction as the twin conditions.................Click here to read and download HC Judgment copy
6) ITAT : Actual sale consideration cannot be determined on basis of receipts shown in form 26AS - ITAT sets aside assessment for AY 2014-15 made based on entries in Form 26AS without verifying the sale consideration in the property sale deed; Assessee-individual, a co-owner of land, entered into an agreement with a developer for development of land for a total consideration of Rs. 4.8 Cr and the amount was reflected in assessee's Form 26AS since the developer deducted TDS on the sum; Subsequently, the MoU with the developer did not materialize and the assessee instead sold the property to an individual for a total consideration of Rs 2.7 Cr - his share being Rs. 67.5 lakhs (1/4th share in property) and claimed exemption u/s 54F; AO erroneously taxed LTCG of Rs. 6.7 Cr. instead of 67.5 lakhs on sale of land on account of failure of assessee to produce the documents/ details of sale; AO additionally taxed Rs. 4.8 Cr reflected in Form 26AS..............Click here to read and download ITAT Order
7) HC sets aside the impugned order and remands the matters to the ITAT with a direction to permit the assessees to raise the issue of compliance or non-compliance with the jurisdictional parameters necessary to initiate action u/s 153C; Holds it necessary to file cross-objections to raise a jurisdictional issue only to support the order of CIT(A) that was entirely in favor of the assessee............. Click here to read and download HC judgment
8) ITAT : Date of advance payment for new property relevant for Sec 54F exemption - ITAT holds that sale of the residential property by assessee-individual during AY 2013-14 gave rise to Long Term Capital gains, rejects Revenue’s STCG computation; Assessee owned a residential unit consisting of two floors- first floor purchased in 1989 and the second floor during 2009 and sold the entire unit during 2012; Revenue contented it to be short term capital gain for holding period being less than 36 months, however, on perusal ITAT finds that the assessee had entered into oral agreement to purchase the second floor on 2008 itself and also had made the payments right from 2008; Revenue again contented to reckon the period of holding from 2009 when the sale deed was executed; ITAT peruses the provisions of Sec. 2(47) and Sec. 54 / 54F to hold .................Click here to read and download ITAT Order
9) HC: Income from business of Chitties incidental to attainment of main object, allows exemption u/s 11. HC refers to SC ruling in Thanthi Trust wherein it was held that if the income from the business is utilized for achieving the objectives of the Trust or institution, then it is incidental to the attainment of the objectives of the Trust; Assessee, constituted as a trust with its main object of establishing, maintaining and running a hospital for philanthropic purposes and torun Chitties / kuries as its ancillary object; Revenue contented that the first proviso to Section 2(15) does not consider Chitty business incidental to the primary object of the assessee-Trust and hence, they are disentitled from claiming exemption u/s 11................... Click here to read and download HC judgment
10) ITAT remits the issue for re-adjudication allowing long term capital loss claimed by the assessee on sale of investments in the equity shares of assessee’s wholly owned subsidiary in Singapore (M/s. Aban Holdings Private Limited, Singapore); Revenue contended that the assessee did not give any background against which the Board of Directors had taken the decision to buy-back the shares of its wholly owned foreign subsidiary, nor any evidence in respect of the Minutes of the Meeting or extracts of the Minutes of the meeting were produced; Revenue further commented that Assessee failed to explain as to why such sale of shares was succeeded by reinvestment in the same shares, thus, disallowing the long term loss; ITAT observes that the Board has taken the decision to redeem its high cost bank debts through buying back the entire shares of.................... Click here to read and download ITAT Order
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CA Manjula A (Vishnu Daya & Co LLP) has authored an article to discuss the key elements of Section 194Q such as applicability on buyers turnover exceeding INR 10 Crore, rate of deduction 0.1% of the aggregate value of the goods that exceed INR 50 Lakh and 5% in case the seller does not hold a PAN in India. Further, the author clarifies, through FAQs, who is liable to deduct tax, applicability on types of the assessee, when shall tax be deducted, whether TDS is required to be made on the entire consideration or only on the consideration that exceeds INR 50 Lakhs and TDS to deducted on various kinds of purchases etc.
