Issue No. 254 / February 08th, 2021

Dear Professionals,

Taxsutra Database Budget Special

 

Mr. Dindayal Dhandaria (Chartered Accountant) in this article, analyses the proposed amendment for taxability of contributions received as corpus donations and challenges in execution of the same. The author explains that Section 11(1)(d) of the Act provides that a voluntary contribution would be treated as a corpus donation if there is a specific direction to this effect from the donor. The author observes that it may be difficult to execute due to various factors such as unspecific instructions or no-instructions, anonymity of the donors and in the absence of evidence, the intention of the donor loses its importance and such corpus donations are treated as non-corpus donations by the Revenue, resulting in inability of the trust or an institution to claim the exemption available under section 11(1)(d) in respect of corpus donations. The author points to the example of Ram Mandir and states that, "Shri Ram Janmbhoomi Teerth Kshetra is receiving voluntary contributions from all over the country and abroad in such large sums that cannot be applied in the year of receipt.  There is no doubt that such donations are meant for construction of a temple which is bound to take a few years for completion.  But, the Trust cannot prove such contributions as corpus donations as it cannot obtain confirmations to this effect in writing". The author states that in order to tackle the technical and practical difficulty, the Finance Bill, 2022 proposes to grant an option to the trusts or institutions referred to in section 10(23C)(v) and 11 to treat the voluntary contributions as corpus donations subject to the prescribed conditions. The author highlights that the proposed amendments are meant to do away with the necessity of having a specific direction from the donor for the purpose of proving a voluntary contribution as a corpus donation and this relaxation is only for notified places of worship and other trusts or institutions will have to produce evidence in the form of specific direction from a donor in respect of voluntary contributions which they claim as corpus. 

 

Click here to read the article titled “Option to Treat Voluntary Contributions as Corpus Donations Sans Specific Direction from The Donors”

 

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Dividend income has been subject to the various amendments over the course of years. The author, Mr. A. Sekar (Chartered Accountant), delves into the taxability of dividend received from a company and implications of proposed amendment by insertion of sub-section (4) to Section 115BBD. The author explains that vide Finance Act, 2020 the Dividend Distribution Tax was abolished and dividends are to be taxed in the hands of the investors. The Finance Bill, 2022 seeks to withdraw the concessional rate of 15% on taxation of dividend income from foreign entities under Section 115BBD, and the same shall be subject to tax at the applicable corporate tax rate including surcharge and cess. The author opines, "withdrawal of the concessional rate of tax at 15% as provided under the existing Section 115BBD would hamper the expansion of global companies, as the same would result in increased tax liability for Indian companies and compel some companies to move their headquarters." Further highlights that the same would, "impact companies across sectors with profitable foreign operations. It may drive up the tax cost of repatriation of the funds back to India unless the dividend so received are further distributed to its shareholders within the specified timelines." The author further remarks that, "This may have commercial implications on the overall structure for Indian Companies of start-up going global as well as encouraging spinning of their existing structures."

 

Click here to read the article titled “Tax Treatment of Dividend Received from Company and the Implications of Budget 2022”

 

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Mr. S. Ramanujam (Chartered Accountant), in his article, analyses the proposed amendment to section 37 and predicts the possible effects of the same on the Pharma Companies. The budget Bill 2022 proposes to insert another explanation under sec 37(1) that will be Explanation No.3 to include the expenditure incurred by an assessee (i) for any purpose which is an offence or (ii) to provide any benefit or perquisite which is in violation of any law or rule or regulation or guideline or (iii) to compound an offence, in the the expression “expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law” under Explanation 1. The author highlights that, “ The entire  amendment in the clause (ii) is  to overcome  many ITAT judgments relating to pharma Industry trade  practice , where freebies given to doctors , and inducing them to prescribe the products belonging to a particular company – like  reimbursements of travel costs ,  gifts etc were  held allowable”.  The author points out that the companies are being penalised from getting its expenditure allowed for marginal faults, if any, of their own.  The Author remarks that “a pragmatic business approach can result in prosperity for all rather than pinpointing compliance deficiencies all the time and penalising, both under the respective statutes as well as under the IT Act”.

 

Click here to read the article titled "Amendment to Sec 37: The Bitter Pill for Pharma Industries"

 

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The Finance Bill, 2022 proposed to amend Section 170(2A) to clarify on the validity of proceedings in case of business reorganization. The section provides that the assessment or other proceedings pending or completed on the predecessor in the event of a business reorganization, shall be deemed to have been made on the successor. In this regard, Mr. RAMPRASAD T (Chartered Accountant) outlines the existing provisions u/s 170 and outlines the intention of the legislation in introducing the said amendment. The author touches upon SC ruling in Maruti Suzuki and recent Bangalore ITAT ruling in Serendipity Infolabs and opines that the said amendment in Section 170 is intended to bring in clarity and uniformity on assessment/reassessment made pending approvals in case of amalgamation/demerger. Likewise, the author discusses the new section 170A which provides for filing of modified return by the successor company prior to the date of order by the High Court/Tribunal/Adjudicating authority.

 

Click here to read the article titled, “Assessment in case of Successor-in-interest”

 

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The Finance Bill 2022 proposes to remove the concessional tax rate of 15% plus applicable surcharge and cess under Section 115BBD of the Act, applicable on dividends received by Indian companies from specified foreign subsidiaries, with effect from Apr 1, 2023. The proposed amendment entails subjecting the dividend received by an Indian company from foreign companies to be taxed at normal rates applicable to corporates. The authors, Ms. Swetha Prasad A (Senior Manager, M2K Advisors LLP) and Ms. Varsha N (Associate M2K Advisors LLP), in their article, analyze the probable implications of the proposed amendment. The authors point out that vide Finance Act, 2020 the applicability of dividend distribution tax on dividend distributed by Indian Companies was removed and deduction under Section 80M of the Act was introduced. They observe that "Section 80M of the IT Act provides that where the gross total income of a domestic company includes dividend income from any domestic / foreign company, a deduction to the extent of dividend distributed by the Indian Company to its shareholders shall be available. In order to avail deduction under 80M, the domestic company has to distribute the dividend one month prior to the date of furnishing the return of income under Section 139(1) of the IT Act for the relevant year. Thus companies claiming Section 80M deduction would not be impacted by the amendment to the extent of dividends distributed to their shareholders before the said due date." The authors highlight that "Given that Section 115BBD is proposed to be inoperative from AY 2023-24, if the foreign sourced dividend is taxable under business income, eligible expenses can be claimed as a deduction and if it is taxable under income from other sources, interest expenditure up to 20% of such dividend income can be claimed as a deduction. The authors explain that the ambiguity on whether Section 80M deduction is an “allowance” and whether it can be claimed if dividend income is taxed under Section 115BBD would no longer exist."

 

Click here to read the article titled “Withdrawal of Concessional Rate of Tax on Foreign Sourced Dividends” 

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Lot's more at Taxsutra Database 

Click here to download “the Copy of Finance Bill, 2022”

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