Issue No. 275 / May 15^th, 2023

Dear Professionals,

We are glad to present to you the 275^th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!

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Expert Column 

Not long after Govt.’s Notification bringing certain activities by CAs, CS and CWAs under the PMLA ambit viz. handling of clients assets, money etc., another Notification has specified certain activities that need to be taken note of by the other business entities rendering similar services. While the latter notification exempts certain activities, many critics have assailed these notifications as a brazen attempt to expand the law through gazette notification. These serially issued notifications portray that the Government wants all persons to become aware of the PMLA provisions and the specific duties cast under that Act on them. 

In this thought-provoking article, CA S. Ramanujam points out the interesting features of the second notification that defines “activities”, which include normal business transactions, in contradistinction with professional activities carried out by professional firms which cannot be in the normal parlance called as business activity. Laying emphasis on the clarification regarding the word “activities” specified in the second notification, the Author states that “…once the law has mandated a professional to carry out duties in accordance with certain regulations, the same cannot again become a reportable activity under another law, that too, through a notification.”

Click here to read this interesting article titled “PMLA Second Notification - Stretching the Law?”.

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Key Takeaways from Handpicked Rulings 

1) HC: Evaluating co-ordinate bench ruling & SC dicta beyond scope of 'review petition' - HC dismisses Assessee’s Review Petition against the ruling holding that an alternative claim of deduction under Section 10A cannot be made before the appellate authority without filing revised return; Rejects Assessee's contention to dismiss the appeal under review considering the dismissal of connected appeal due to ceiling of monetary limit and holds that the coordinate bench in Assessee's own case under review allowed Revenue's appeal after considering the SC ruling in Goetze (India) and recorded the non-presence of Assessee despite being served a notice of hearing to defend the appeal; Rejects Assessee’s reference to non-consideration of coordinate bench ruling in Flytxt Technology wherein it was held that the Assessee is entitled to raise an alternate claim of deduction under Section 10A before the appellate authority as against the relied upon SC ruling in Goetze (India) Ltd; Holds that evaluation of SC ruling in Goetze (India) Ltd. as well as the coordinate bench ruling in Flytxt Technology is not within the scope of jurisdiction under review petition and would not be a ground to recall the ruling challenged under review petition…………Click here to read & download HC Judgment

2) ITAT: Money received by shareholder's legal heir pursuant to liquidation taxable under Sec.46(2) -  ITAT dismisses Assessee’s appeal, holds that money received by a shareholder of a company towards distribution of assets due to liquidation of the company shall be deemed to arise from transfer of capital asset under Section 46(2) and chargeable to tax under ‘Capital Gain’; Holds Section 46(2) nowhere uses the term ‘registered shareholder’ and receipts from transfer of asset pursuant to liquidation shall be taxable even in the hands of legal heir of shareholder of the investment company; Also holds that no submissions to rebut CIT(A) findings were made by the Assessee and rather the Assessee was not interest in prosecuting the appeal which led to ex-parte order; Assessee, a legal heir of shareholder of a private limited company received certain money towards distribution of assets in pursuance to liquidation of the company which was subjected to revisionary proceedings under Section 263 wherein AO was directed to treat the money received on liquidation of company as taxable under Section 46(2) since the said section does not use the word ‘registered shareholder’, consequently, capital gain was taxed in the hands of Assessee;  CIT(A) relied on SC ruling in R.M. Amin wherein it was held that money or other asset received by the shareholder in respect of his share held in a company in liquidation, the receipt is deemed to arise from the transfer of a capital asset, which will be chargeable to tax under Section 45 under the head capital gain and accordingly, dismissed Assessee’s appeal………….. Click here to read & download ITAT Order

3) ITAT: Cash advanced by Director to Company against Sec.269SS, liable to penalty - ITAT dismisses Assessee’s appeal, holds that amount advanced in cash by the director to the Assessee-Company falls within the meaning of ‘loan or deposit’ and since the same was advanced in cash in contravention of Section 269SS, penalty provided under Section 271D shall be leviable; Rejects Assessee’s contention of being unaware of Section 269SS and observes that ignorance of law is not excuse, but it is equally true that all the citizens are not expected to know all the laws but since the Assessee is duly assisted by a team of professionals who are responsible for audit cannot be expected to be ignorant or unaware of the consequences pertaining to cash loan in contravention of Section 269SS; Relies on SC ruling in Vasan Healthcare and observes that  that there was no valid and reasonable cause for the Assessee to have received loan or deposit in cash from its director who is having all the requisite banking facilities available and the Assessee failed to provide justification or urgency of receiving such huge cash loan; Distinguishes Assessee’s reliance on coordinate bench ruling in Dimple Yadav and observes that in the said ruling, the Assessee able to demonstrate the bona fide and reasonable cause, however, in the present case, the Assessee failed to demonstrate the reasonable cause or urgency for having accepted cash of Rs. 1.10 Cr on different occasion from its director to not comply with Section 269SS; Rejects Assessee’s challenge to jurisdiction due to non-recording of satisfaction and observes that on perusal of the show cause notice and order under Section 271D, it is evident that Revenue has recorded satisfaction before invoking…………….. Click here to read & download ITAT Order

4) HC: Interest from short-term deposit of unutilized subsidy 'capital receipt' - HC dismisses Revenue’s appeal, holds that interest received by a public sector undertaking from short term deposits made out of unutilized capital subsidy/debt or equity fund received as capital during the formative years till the completion of project shall be considered to be capital in nature following the dictum laid down by SC in Bokaro Steel ruling;  Observes that undisputedly, the Assessee is a public sector undertaking which has earned interest income from short term bank deposits made from the unutilized funds by way of capital subsidy during the formative years of the project undertaken by it; Relies on Assessee’s own case for AY 2009-10 and 2010-11 wherein similar nature of income was considered as capital receipt and observes that the Revenue could not distinguish the nature of interest earned in the year of consideration and the guidelines issued by Ministry of Chemical and Fertilizers (MoCF) clearly states that interest earned from a temporary parking of capital subsidy will be treated to be a part of capital subsidy and it be correspondingly reduced from the amount of capital subsidy sought from the Government, accordingly, is to be considered as capital receipt; Assessee, a PSU garnered funds for carrying out the project through capital subsidy and before the completion of project the utilized capital subsidy was invested in short term deposits and the interest income was claimed as capital receipt in the return of income for AY 2011-12; AO held that income from short term deposits made out of unutilized subsidy is a revenue receipt..…………Click here to read & download HC Judgment

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“Taxsutra Database”, a true Income-tax research tool, is an archive of over 122030+  Income Tax Rulings reported across ITR, CTR, Taxman, DTR, 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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