Issue No. 268 / October 17^th, 2022 

Dear Professionals, 

We are glad to present to you the 268^th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena! 

***********************

Expert Column 

More frequently than not, we come across writ petitions challenging withholding of tax refund by the Revenue after processing of return. The issue is crucial given the mandate for revenue collection and on the other hand, the need for running the businesses smoothly. The legal battles against withholding of refund by the Revenue evolved differently with the insertion of Section 241A to put a check on Revenue's powers to withhold refund. 

 Mr. K. Senguttuvan (Partner, SAPAA Law Firm), Ms. S. Keerthana (Lead Associate) and Ms. S. Akarshana (Trainee Associate) discuss the development of the legal framework on withholding of refund - from the rigorous Section 143(1D) to a reasonable Section 241A. They analyse various rulings from different High Courts expounding on the necessity and significance of reasons to be recorded for withholding the refund and insufficiency in mere notice without proper reasons. They bring out the peculiarity of Delhi High Court judgment in Cooner Institute and remark that in the absence of compliance as per Section 241A, any blocking of refund would be bad in law and encouraging such practice would defeat the intention of law makers. 

Click here to read the article, "Catching Missed Bus for Withholding Refund by Equity - Justifiable?" 

***********************

     

Key Takeaways from Handpicked Rulings

1) SC : Commission paid to non-resident agents not liable to TDS; Affirms HC order - SC dismisses Revenue's SLP against Bombay HC ruling that confirmed ITAT's order deleting the addition under Section 40(i)(ia) on account of TDS-default on the commission of paid to foreign agents; During AY 2010-11, Assessee-Company made payment in the nature of commission to non-resident agents; Revenue noted that payment was in the nature of commission were liable to tax deducted at source and since the Assessee failed to deduct the same, made disallowance of Rs. 5.07 Cr under Section 40(a)(ia) towards payment of commission to foreign agents; Similarly, Revenue also made a disallowance of Rs. 34.85 Cr under Section 40(a)(ia) for failure to deduct tax at source towards payment of demurrage to non-resident buyers of iron ore ……………..Click here to read and download SC order

2) SC: Remands HC order allowing unclaimed benefit of Sec.10(20) as erroneous - SC allows Revenue's SLP setting aside Rajasthan HC ruling which granted benefit under Section 10(20) to the Assessee, with a direction to consider the appeal afresh; Observes that Assessee never claimed the benefit of Section 10(20) and hence, HC erred in granting the benefit without adjudication of appeal on merits; Assessee- a statutory corporation, engaged in providing housing services claimed benefit of exemption under Section 11 and 12 but did not claimed deduction under Section 10(20) of the Act; Revenue denied the exemption under Section 11 and 12 on the ground that the activities carried out by the Assessee are not charitable in nature as per Section 13(8) read with Section 2(15) and accordingly, denied the exemption……………..Click here to read and download SC order

3) SC: Dismisses Revenue's SLP against SBI over taxability of NPA interest - SC dismisses Revenue's SLP against Rajasthan HC ruling wherein it was held that interest on non-performing assets ('NPA') not taxable on accrual basis in view of RBI norms relating to income recognition and assets classification; SC notes that Rajasthan HC relied on Gujarat HC ruling in Shri Mahila Sewa Sahakari wherein it was held that the banking company is not liable to pay tax on NPA interest on accrual basis in view of RBI norms and the provisions of Chapter IIIB of RBI Act have overriding effect qua other enactments including the Income Tax Act; Also noted that the coordinate bench dismissed Revenue's SLP against Shri Mahila Sewa Sahakari ruling on the ground that  RBI Guidelines and relevant act restrains banking companies to recognise income from NPA on accrual basis; Accordingly, SC dismisses Revenue's SLP……………..Click here to read and download SC order

4) ITAT: Upholds Sec.68 addition basis Settlement Commission findings in related cases - ITAT dismisses Assessee's appeal, upholds CIT(A) order making addition under Section 68 on account of unexplained loan received by the Assessee from the lender company by relying on findings of Settlement Commission already on record in case of the related group of concerns; Also holds that Assessee was also involved in activity wherein unaccounted money was laundered and re-introduced in the garb of unsecured loan through bank accounts of creditors; For AY 2011-12, Revenue initiated reassessment proceedings in pursuance to search under Section 132 conducted at the premises of Radheshyam Agarwal Group with whom Assessee was connected alleging that Assessee received certain amount of Rs.1 Cr from Karnimata Commerce P. Ltd. (lender company) in form of loan whose genuineness and creditworthiness seems doubtful ………….Click here to download the ITAT order

5) ITAT: Assessee liable for Sec.201 proceedings prior to 2012 amendment, despite tax paid by payee - ITAT dismisses Assessee’s appeal, holds that the Assessee is not eligible to benefits under Section 201(1) as amended via insertion of a proviso vide finance Act, 2012 providing that if it is proved that the payee has paid the tax, then the Assessee who failed to deduct tax at source will not be deemed to be an Assessee in default, since the same is not applicable to the relevant AY 2009-10 and is applicable from July 1, 2012; Further opines the first proviso to Section 201(1) was further amended by Finance Act, 2019, with effect from Sep 1, 2019, to restrict the benefit under proviso to Section 201(1) to the resident payee only, thus upholds the assessment order holding Assessee to be Assessee in default under Section 201(1) for non-deduction of TDS on payment to non-residents under Section 195 and liable to interest under Section 201(1A); Assessee, for AY 2009-10, purchased a land property from four Non Resident Indians for a total consideration of Rs.2 Cr; Revenue noted that Assessee did not deduct tax under Section 195 on the said payment to non-residents, thus initiated proceedings under Section 201(1) holding Assessee to be Assessee in default and levied ……………. Click here to read download ITAT Order

 

***********************

     

***********************