-
2022-03-03
Issue No. 256 / March 03, 2022
Dear Professionals,
We are glad to present to you the 256th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
***********************
Expert Column
Indisputably, global warming is a looming threat to the environment caused by emission of harmful greenhouse gases (GHG) into the atmosphere. In an attempt to rein this threat, the United Nations Framework Convention on Climate Change has introduced Certified Emissions Reduction (‘CERs’) conventionally known as 'Carbon Trading'. In the said framework, trading is nothing but buying and selling the right to emit CO2 and other GHG components such as CH4, N2O and fluorinated gases. The GST law in India since large has been elusive with regard to intangibles and given that in the case of supply of CERs, there is no delivery of tangible goods, the applicability of GST on carbon credit trading has led to some warring viewpoint.
Against this backdrop, authors Sachin Kumar B P (Chief Strategic Partner, Manohar Chowdhary & Associates) and Akella A. S. Prakasa Rao (Director) infers that even if the carbon tax is an effective tool to combat climate change, it has resulted into market creation for carbon credit where developed countries entities exceeding their emission limits can buy carbon credits from those whose actual emissions are below their set limits. Accepting that exchange of carbon credits is not a charitable activity alone, and linked with execution of profitable project, the authors feel that it is here where Governments naturally proposed to tax carbon credits. Discussing the taxability under the Direct and Indirect tax in great length, the author examines whether carbon credits under Direct taxes is a revenue receipt or a capital receipt after the introduction of Section 115BBG under Income-tax Act 1961 (which was specifically introduced to mitigate the tax litigation on taxability of income from carbon credits. From a GST point, the authors explore the narrow compass of whether CER is a 'good or service' and if the same qualifies as 'money' or 'securities'. Here, considering the CBIC circular and newly introduced section 194Q vide Finance Act, 2021 to Income Tax Act, 1961, the authors extensively entertain the notion that Carbon credits are similar to Priority Sector Lending Certificates (PSLC) and Renewable Energy Certificates (RECs) which according to CBIC are ‘goods’ and if the same notion could be linked, carbon credits can be brought under the umbrella of GST. Stressing on said notion, authors anticipate that taxing the supply of CERs will put extra burden on buyers resulting into less demand of CERs which would inevitably deter the companies to make extra efforts in acquiring carbon credit by cutting on their carbon emission. Therefore, in such a situation, the authors hope that carbon credits can be treated in a similar manner as the duty credit scrips issued under FTP.
The Author Mr. Harish Kara (Chartered Accountant), writes about the rationalization of provisions applicable to Charitable Trusts through the amendments proposed by the Finance Bill, 2022 relating to taxability of Trusts and the implications thereof. He analyses the amendments proposed under the two regimes applicable to charitable trusts which are categorised as trusts or institutions referred to in Section 10(23C)(iv)/(v)/(vi)/(via) and Trusts and Institutions registered u/s 12AA/12AB. He highlights that the proposed rationalisations can be achieved through effective monitoring and implementation. Underscores that the proposed amendments aim to bring consistency in the two regimes and provide clarity. He discusses the attributes of the proposed amendments regarding maintenance of books of account for Trusts, levy of penalty for passing unreasonable benefits to the Trustees / Specified Persons, Time Limit for cancellation of Registration etc. 
The author, Dr. CA Abhishek Murali, in his article explores the implications of updated return u/s 139(8A), vide Finance Bill, 2022. He highlights that the extended time period for updated return is upto 24 months from the end of the relevant Assessment Year. He addresses the scope and applicability of the proposed updated return such as, who can and cannot file the updated return. The author briefly discusses the penalty liable for filing updated return and underscores that the proposed provisions for updated return also provides for penalty ranging from 25% - 50% depending on when the Assessee files the return of income. Opines that, “The likelihood the Income Tax will now issue notices (including re-opening notices for earlier year) to defaulters who have not filed or not disclosed their incomes properly is much higher and likely to happen”. He concludes that even if the provisions for updated return may seem steep, it’s still largely beneficial to the Assessee to be able to disclose the income and file the updated return upto 2 years.
Key Takeaways from Handpicked Rulings
1) CIT cannot invoke revisionary powers u/s 263 to initiate penalty unlike AO – HC dismisses assessee’s writ challenging AO order imposing penalty u/s 271(1)(c) consequent to a remand proceeding as passed by PrCIT u/s 263 of the Income Tax Act 1961; Notes that the initial assessment order passed by AO was wholly set aside by the PrCIT u/s 263 and the proceedings were remanded as an open remand; HC rejects assessee contention that the words "on the above issues" in the concluding paragraph of order indicates a limited remand; HC observes, “on a reading order in its entirety, it is explicit that there were no limited issues for the AO to decide and in our considered opinion the order was an open remand, conferring power upon the AO to pass fresh orders of assessment on all the issues"; Further notes that there is a distinction between the proceedings u/s 263 and the initiation of penalty u/s 271(1)(c); However, when PrCIT in exercising its powers u/s 263 of the Act, the assessment order………….…….Click here to read and download HC Judgment
Editorial Note: Kolkata ITAT in [TS-7444-ITAT-2017(Kolkata)-O] held that, PrCIT has rightly invoked Sec. 263 to hold that assessment order passed by AO is erroneous insofar as prejudice to the interests of the Revenue on account of non-initiation of penalty proceedings u/s. 271(1)(c).
2) SC: Dismisses SLP against HC order upholding Sec.271(1)(c) penalty for non-disclosure of capital gains by rejecting assessee's reliance on CA's reporting – SC dismisses SLP preferred by the assessee against HC ruling upholding levy of concealment penalty u/s. 271(1)(c) for non-disclosure of capital gains from sale of windmills (STCG of Rs. 21.60 crores) and land (LTCG of Rs. 1.37 crores) in the return of income by assessee-company; HC had Rejected assessee's claim that the Chartered Accountant reported the capital gains as nil and relied on on HC ruling (SLP against which is dismissed by SC) in case of Jivanlal & Sons wherein it was held that attempt to blame the Chartered Accountant cannot result in the assessee's exoneration………………Click here to read and download SC Order
3) HC: Existing contractual liability between assessee and its employees disallowance of expatriate cost is not justified - HC sets aside ITAT order upholding disallowance of expatriate cost charged by Head Office; HC restored the appeal to the file of the AO to re-consider the matter in the light of the jurisdiction case of Rambus Chip Technologies; HC notes that since no adjudication was made by AO on aspect of any existing contractual liability between assessee and its employees, the said impugned order was required to be reconsideration as the expenditure of expatriate cost should be given deduction from operating cost or not…………… Click here to read and download HC Judgment
4) ITAT: Addition u/s 68 not sustainable on mismatch of cash withdrawals and deposits w.r.t. denomination. Assessee-Individual and a partner in a firm engaged in the business of civil construction was assessed on difference in the denominations of the cash withdrawn which did not match with the cash deposits; AO conclude that the deposits to the extent of Rs.75 lakh remained unexplained and therefore added the same u/s 68; On appeal CIT(A) restricted the addition to extends to Rs.33 lakh; ITAT notes that CIT(A) has restricted the addition to the extent of Rs.33 lakh which did not match with the cash deposits in the denomination of Rs. 1000/- and Rs. 500/- notes and the deposits were made in different dates; It is quite possible to keep the withdrawals of specific denomination of notes for a certain period and specifically the same deposit notes with the bank after some time for any specific period; ITAT holds that the disallowance on presumption the cash deposits is nowhere seems justifiable on account …………… Click here to read and download ITAT Order
5) HC: Unless allowance notified u/s 10(14) no portion of it qualifies for exemption. HC dismisses LIC's writ challenging order passed by the AO u/s 201 in respect short deduction and non-deduction of the tax; Assessee before the HC placed reliance on a CBDT Circular dated Nov 19, 1986 and contented that conveyance / additional allowance are not income and therefore not liable for deduction of tax at source whereas Revenue it was bring into notice that in terms of instructions dated Mar 18, 1991 the CBDT followed by another circular dated Mar 23, 1995 consequent upon the amendment to Section 10(14) of the Direct Taxation Laws (Amendment), 1980 with effect from Apr 1, 1989 all circulars / instructions and clarifications earlier issued by the CBDT as regards Section 10(14) of the Act would cease to have with effect from AY 1989-90 onwards; Therefore, it is to no avail for LIC to rely on its earlier instructions which were based on earlier circulars; A clarification to this effect was issued by the CBDT to the LIC on Jan 4, 2001……………………. Click here to read and download HC Judgment
***********************
Lot's more at Taxsutra Database
Click here to download “the Copy of Finance Bill, 2022”
Click here to download “the Memorandum Explaining the Finance Bill 2022”
Click here to download “the Budget Speech, 2022”
Access all “Taxsutra Database Newsletters”, in case you have missed any!
Access latest News....and more!
------------------------------------------------------------------------------------------
About Taxsutra Database!
“Taxsutra Database”, a true Income-tax research tool, is an archive of over 115940+ 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:
- Comprehensive coverage of all latest cases powered by an advanced search engine to provide a seamless user experience;
- Effective search results supported by active filters around Court Level, Location, Case Numbers and Citation;
- Enhanced search feature, using the Unique Bulls Eye Application, by including "Exact words", "Any of these", "none of these" options.
- Judicial “forward & backward reference”
The Taxsutra Database comes at a very special Annual Subscription price of 4200+ GST AND includes an annual license to the Taxsutra Library.
Click Here to Sign up, make payment and join the Taxsutra Family.
Copyright © TAXSUTRA. All Rights Reserved
