“Equalization Levy and Treaties”; Amendment in Sec. 12AA(3) by FA, 2010 is clarificatory; HC stays demand of 669cr from faceless assessment......and lots more!
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We are glad to present to you the 232nd edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
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Expert Column
There has been a lot of fuss about the tax abuse done by giant tech corporations that have been drawing the attention of the Government as well as the public. Financial crisis of 2008 led to a lot of attention on such tax affairs leading to retaliation by OECD in the form of its BEPS Projects. India has been at the forefront in introducing the action plans of the BEPS in its tax laws by introducing Equalization Levy to tax the Digital economy.
In this regard, Mr. Arpith Jain (Lead, India and APAC Corporate Tax at Finastra) discusses the interplay of Equalization levy (EL) and the treaty provisions. Observing that the EL has been specifically kept out of the Income tax provisions, the author ponders over the question as to whether the EL can be kept outside of the income tax treaties as well.The author makes a comparative analysis of OECD model treaties and Indian treaties, discusses Article 2 and 24 of the tax treaties, elucidates on whether EL can be treated as covered tax under Article 2. Comparingthe EL provisions with Income tax, the author states “the only de-link between EL and income tax is the PE. Income tax needs PE to tax an income and EL does the exact opposite i.e. taxes where PE is absent.” The author also analyses if the EL is discriminatory in terms of Article 24. Further, the author states that introduction of Article 12B (similar to the EL) in the UN model and its commentary suggest that the treaties currently do not tax these specified services in absence of PE and hence the necessity of the new article has arisen. While signing off, the author remarks “We already have a wider definition of business connection, with introduction to Dependent Agent PE, and Significant Economic Presence in the income tax Act. We also have the Equalisation Levy, it seems like Indian administration is not leaving no stone unturned in the attempt to tax the Digital Business.”
1) ITAT: Urban Development Authorities' income earned while discharging statutory function eligible for exemption u/s 11 - ITAT grants exemption u/s 11 despite earning income exceeding limit prescribed u/s 2(15), holds it to be Assessee’s statutory obligation under Uttar Pradesh Urban Planning & Development Act, 1973 (UP Act) ; Assessee, a body corporate under the UP Act, registered u/s 12A and enjoyed exemption u/s 11 and was assessed as AOP/BOI under the head PGBP as its receipts exceeded the limit prescribed u/s 2(15) and were classified as activity in the nature of trade and commerce; ITAT observes that assessee received income of Rs. 9.98 Cr. on sale of plot which was found objectionable by Revenue, notes that objects of an urban development authority are to promote and secure development area according to plan ................Click here to read and download ITAT order
2) HC dismisses assessee’s writ, upholds CIT order cancelling assessee-trust’s registration u/s 12A/12AA, holds that amendment in Sec. 12AA(3) by Finance Act, 2010 is only clarificatory in nature and the insertion of clause (3) would not affect the pre-existing power of the CIT for cancellation of registration; Assessee-trust, registered u/s 12A since the year 1984, assailed the CIT order passed in 2008 cancelling the registration on the ground that that the amendment in Sec. 12AA(3), granting power to cancel the registration of a trust/institution,is applicable prospectively from June 1,2010, i.e. from AY 2011-12 and subsequent years, which was also clarified by CBDT Circular No.1/2011 dated April 6, 2011; HC, after analysing the provisions of Sec. 12A and Sec. 12AA, remarks “even prior to the Finance Act, 2010, the Principal Commissioner or Commissioner is............Click here to read and download HC Order
3) HC dismisses assessee’s writ petition challenging reassessment proceedings u/s 147 initiated on non-existing entity for AY 2005-06; Assessee contented that the company was merged with effect from April 01, 2009 whereas the impugned order was issued on July 17, 2012 anddespite communicating the Revenue about the change in address of the entity, notice was served on non-existing entity; HC observes that the changed address as communicated to the department of both the entities are one and same; Takes note of Sec. 170(1) pointed out by the Revenue and remarks “When Section 170(ii) contemplates that the successor Company is liable and responsible, mere service of notice............... Click here to read and download HC Order
4) Assessment order u/s.158BC r.w.s 143(3) r.w.s 254 barred by limitation as per provisions of section 153(2A), liable to be quashed - ITAT quashes tax assessment order u/s. 158BC r.w.s 143(3) r.w.s 254 determining undisclosed income of about rs. 57 crores against TTV Dhinakaran, notes that the HC dismissed assessees` plea and directed AO to complete the assessment proceedings without any further lapse of time; Notes that the said order was received in the Office of PCIT on 13.02.2019, the AO has sixty days clear time to pass order giving effect order and if such 60 days is considered for limitation period, then the AO ought to have passed assessment order on 14.04.2019; ITAT holds that the assessment order passed u/s. 158BC r.w.s 143(3) / 254 dated 31.12.2019 is barred by limitation and liable to be quashed............... Click here to read and ITAT Order
5) Gujarat HC upholds transfer order passed u/s 127 by Revenue to centralise the case of the assessee-firm from ADIT (Investigation) Gandhidham to DCIT Rajkot; Pursuant to survey action conducted on the assessee, Revenue issued show cause notice to assessee-firm to centralize thecase of the assessee along with the other cases with the “DCIT, Central Circle – 2, Rajkot” with a view to facilitate effective investigation and coordinated action and subsequently passed order u/s 127 transferring assessee’s case; Relies on co-ordinate bench ruling in Shree Ram Vessel Scrap P. Ltd. wherein it was held that for effective and coordinative investigation, if otherwise established on the record, the same can be agood ground for transfer of a case; Also refers to Bombay HC ruling in Aamby Valley Ltd., where it was held that “if the transferorder does indicate some valid reasons to justify the transfer and suchreasons are neither perverse or arbitrary or mala fide this Court would.............. Click here to read and download HC Order
6) HC upholds reassessment proceedings initiated in case of assessee for AY 2011-12, rejects assessee’s change of opinion plea; Revenue initiated reassessment proceedings when the issues in the original assessment were already disposed of by the ITAT; Assessee contended that reopening of a concluded assessment was mere change in opinion and thus was liable to be set aside; Observes that the issue involved in original assessment and the reason for reopening the assessment was different, opines that Revenue “in clear terms,formed an opinion that the issue involved during the original assessmentwas dis-allowance of slump sale and the reasons for reopening of assessment under Section 147 of the Act, was to reassess the income ofRs.82,49,045/-, which has escaped assessment being entirely different.”; Remarks that when factually Revenue formed an opinion by assigning reasons that the issue involved ......................Click here to read and download HC Order
7) Karnataka HC dismisses Revenue appeal, deletes the disallowance made u/s 14A made in case of assessee-company (Real estate developer); For AY 2009-10, Revenue made disallowance of Rs. 4.95 Cr u/s 14A r.w.Rule 8D(2)(ii) by computing 0.5% of average investments in respect of exempt dividend income earned by the assessee; Observes that capital and reserves of the company are far in excess of the investment made, opines that the presumption can be drawn that such investments have been made from capital and reserves and non-interest bearing funds and not out of borrowed funds to warrant any disallowance while computing the income; Opines that there is no positive material to show that assessee had incurred such expenditure to earn exempt income as envisaged under Rule 8D(1)...........Click here to read and download HC Order
8) HC stays demand of 669cr from faceless assessment made without hearing the Assessee - HC stays the operation of faceless assessment order passed and as well as the penalty proceedings initiated u/s 274 read with 270A of the Act. HC considers assessee's submission that in reply of show cause notice w.r.t. draft assessment the submissions were filed and a hearing was requested. However, without considering his request for hearing, notice of demand for Rs.669.31 crores and penalty proceedings have been initiated......................Click here to read and download HC Order
9) HC stays demand of 374 cr from faceless assessment made without hearing the Assessee - HC stays the operation of faceless assessment order passed and as well as the show cause notice (SCN) for penalty u/s 274 r.w.s 270A and 271AAC. HC considers assessee's submission that in reply of SCN w.r.t. draft assessment order dt. 15th April 2021 the submissions were filed and a hearing was requested. However, without considering his request for hearing, assessment order on 21st April, 2021 raising a demand of Rs. 374,02,52,160/- has been passed and the penalty proceedings have been initiated.................Click here to read and download HC Order
10) HC issues notice, stays operation of impugned assessment order for AY 2018-19 - HC issues notice, stays operation of impugned assessment order for AY 2018-19; Considers assessee’s submission that no show-cause notice has been served upon it before making the addition u/s. 69; Also considers the submission that while an addition of Rs. 90,00,000 has been made u/s. 69, tax at the rate of 60% has been levied in terms of Section 115BBE, as a result of which the tax demand raised has scaled up to Rs. 92,14,550/-, an amount, which is more than the addition made by the AO......................Click here to read and download HC order
11) HC: Issues notice, grants stay on writ against assessment order passed in breach of its own timeline - HC issues notice to Revenue upon writ petition filed by assessee-company assailing assessment order passed in breach of its own timeline. Observes that a show cause notice was issued to the assessee on April 18, 2021 and seeking explanation from the assessee by 23:59 hours on April 22 and AO passed an assessment order u/s 143(3) r.w.s 144B of the IT Act, 1961 for the concerning AY 2018-2019 on April 22 at 14:11 hours. HC notes that prima facie, it appears that there has been a breach of principles of natural justice, grants stay on impugned order as well as the notice of demand issued u/s 156 and the notice initiating penalty proceedings u/s 270A of the Act.................. Click here to read and download HC order
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In this regard, Mr. Arpith Jain (Lead, India and APAC Corporate Tax at Finastra) discusses the interplay of Equalization levy (EL) and the treaty provisions. Observing that the EL has been specifically kept out of the Income tax provisions, the author ponders over the question as to whether the EL can be kept outside of the income tax treaties as well.The author makes a comparative analysis of OECD model treaties and Indian treaties, discusses Article 2 and 24 of the tax treaties, elucidates on whether EL can be treated as covered tax under Article 2. Comparingthe EL provisions with Income tax, the author states “the only de-link between EL and income tax is the PE. Income tax needs PE to tax an income and EL does the exact opposite i.e. taxes where PE is absent.” The author also analyses if the EL is discriminatory in terms of Article 24. Further, the author states that introduction of Article 12B (similar to the EL) in the UN model and its commentary suggest that the treaties currently do not tax these specified services in absence of PE and hence the necessity of the new article has arisen. While signing off, the author remarks “We already have a wider definition of business connection, with introduction to Dependent Agent PE, and Significant Economic Presence in the income tax Act. We also have the Equalisation Levy, it seems like Indian administration is not leaving no stone unturned in the attempt to tax the Digital Business.”
