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2022-02-14
Issue No. 255 / February 14th, 2022
Dear Professionals,
We are glad to present to you the 255th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
Taxsutra Database Budget Special
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Expert Column
Section 14A of the Income-tax Act provides that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income that does not form part of the total income as per the provisions of the Act. The Finance Bill, 2022 proposed to amend Section 14A, by inserting an explanation. The author, Mr. Arpith Jain, Tax Lead, Finastra delves into the implications of the proposed amendment. The author explains that the proposed amendment entails the inclusion of a non-obstante clause in respect of other provisions of the Income-tax Act and an Explanation is introduced in the section to clarify that the expenditure incurred shall be disallowed even in absence of the income. The author highlights that the proposed amendment is prospective and shall be applicable from AY 2022-23, but the wordings of explanation, "shall be deemed to have always applied" leaves room for ambiguity. The author analyses the brief history of Section 14A and states that the ambiguity with respect to the amendment may subject it to different interpretation, thus creating a cause for litigation. The author opines that, "with vastly income surrounding shares are now taxable and hence the judgements on these transactions are not relevant anymore. As the scope of this section is narrowed, the amendment in this section was uncalled for."Click here to read the article titled, “Proposed Amendment to Sec.14A - Analysis of Ambiguities”
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Mr. Prakash Sinha (Partner, Prakash Sachin & Co. Chartered Accountants) examines the legality of Virtual Digital Assets. He analyses the definition of Virtual Digital Assets under newly inserted section 2(47A) and states that the term has been defined widely, thereby including every form of virtual assets barring Indian or Foreign Currency. He points out that RBI in the past had taken actions to deter the financial institutes and people at large from dealing increasingly popular in Virtual Digital Assets. The author discusses the decisions of the Apex Court and HC, wherein the legality of the virtual digital assets were questioned along with their taxability. He opines that, "the absence of any legislative/regulatory framework or policy confirming the status of crypto currencies till date and the validity of trading in and dealing with them, questioned their future in India which hinged over a murky structure."Click here to read the article titled, “Virtual Digital Assets ( VDA ) – Unlawful or Unregulated”
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Mr. Vishnu Bagri and Mr. Amar Kumar (Chartered Accountants, Singhvi, Dev & Unni LLP) discern the newly introduced regime for taxation of Virtual Digital Assets and discuss the accrual of income from crypto transactions and its characterization. They opine that “The characterization of the income is a debate, particularly in the context of VDAs qualifying as capital assets.” They are of the view that given the all-encompassing definition of VDAs, any digitally represented balance attributable to a specific user could be covered within the definition of VDAs such as cashback points in payment aggregator applications, loyalty points accumulated on membership cards specific to shopping outlets, credit card reward points, promotional balance and virtual coins provided to users in online games and other applications. The authors also discuss whether specific transactions such as generation of VDA, acquisition of NFT as collectibles, P2P sale of VDA and sale of VDA on centralized exchange, would tantamount to a transfer or raise further ambiguity. They are of the view, “...the Web technology is not limited to gains arising on account of high volatility in the Cryptocurrency markets. As the markets mature and technologies evolve further, the tax regime would need to address the peculiarities of the underlying technology and the new business models.”
Click here to read the article titled, “India Opens the Door to Crypto Tax Maze!”
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Mr. Pradip R Shah (M/s Pradip R Shah & Co.) in his analytical article examines the proposals pertaining to withholding tax provisions on benefits or perquisites provided to resident assessees. He delves into a comparative of the proposed provisions with extant provisions of Sections 194A and 194C and opines that, at this stage it is not known what types of transactions would be covered under the term ‘benefits’ or ‘perquisites’. The author brings out pertinent issues emerging from the provision such as whether provision of benefit / perquisite under a contract can be considered as 'benefit' and or only when something more than agreed upon is provided is to be considered as 'benefit'. He also highlights that issues related to valuation of such benefits or perquisites are likely to arise as one deals with implementation of the proposed provisions. He also points out the issues as regards the manner of tax deduction and the timing aspect. He concludes on the note that Section 194R tries to take in its sweep wide and varied nature of transactions which are difficult to envisage and to define, and cautions that new transactions would find their way in the proposed Section’s ambit each year.Click here to read the article titled, "TDS on Benefits or Perquisites of Business - Expanse & Complexity"
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Mr. Dindayal Dhandaria (Chartered Accountant) extensively discusses the amendments proposed by Finance Bill, 2022 meant to rationalize the provisions u/s 10(23C) and 12A/12AA. He analyses the amendments from the perspective of computation of taxable income, maintenance of books, audit, penalty, cancellation of registration, specific violations, furnishing of return, etc. He also points out inconsistent provisions between two regimes which are not addressed by the proposed amendments. Discussing the proposed procedure for re-registration of existing trusts, he highlights that the PCIT/CIT imposed as many as 18 conditions in Form 10AC as conditions subject to which registration was granted, which were not there in Sections 10 and 11 to 13. He illustrates the impact of non-compliance of any of the conditions by a Trust in a flow chart and exclaims, “The consequences of failure are devastating…”. He finds the proposed amendments to be whimsical, confiscatory and unconstitutional.Click here to read the article titled, “No Trust on Trusts”
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