Taxability of workstations lease rent; Assessee’s right of cross-examination of evidence; Decoding POEM - Test of Residency.....and lots more!
Issue No. 216 / October 1st, 2020
Dear Professionals,
“Taxsutra Database”, a true Income-tax research tool, is an archive of over108925+ 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.
We are glad to present to you the 216th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
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Expert Column
The Finance Act 2015 amended the test of residence for foreign companies to provide that a company would be treated as resident in India if its “place of effective management” (POEM) in the previous year is in India. The intention of the provision is to target shell companies and companies which are created for retaining income outside India although real Control and management of affairs is located in India. A set of guiding principles to determine POEM has been issued by CBDT vide Circular No. 06 of 2017 dated 24.01.2017. Further, Circular No 8 of 2017 clarifies that section 6(3)(ii) shall not apply to companies having turnover or gross receipts of Rs.50 Crore or less in a financial year.
In this regard, Rishabh Jain (Chartered Accountant) discusses the nuances of the provision as to determination of POEM, Meaning of ‘Active business outside India (ABOI) etc. Speaking of the some instances where the facts will not be conclusive of a POEM, the author highlights a foreign company which is completely owned by an Indian company, foreign entity having a PE in India, etc. The author signs off with an opinion that the provisions and the Circulars related to POEM “lead to several tax disputes and the existence of POEM in India would be a subject matter of litigation in various cases”
Click here to read an article titled, “Decoding POEM - Test of Residency”
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Key Takeaways from Handpicked Rulings
1) Onus of establishing genuineness of a cash credit to AO’s satisfaction, always on the assessee – ITAT notes that AO made addition u/s 68 as assessee failed to establish the identity and credit worthiness of two persons from whom loan was obtained; On appeal before CIT(A) assessee had filed contemporaneous documents to prove the identity and credit worthiness of the loan creditors and genuineness of the transaction, however the addition was sustained by CIT(A); ITAT in the interest of justice restores the issue to AO with a direction to give one more opportunity to the assessee to substantiate with evidence to his satisfaction regarding the identity and credit worthiness of the loan creditors and the genuineness of the transaction and directs assessee to produce the creditors ................Click here to read and download ITAT Order
2) ITAT: Creditworthiness does not necessarily mean that company should have given the money out of profits only; Nil return by lender, not a deterrent to loan’s genuineness – ITAT sets aside addition u/s 68 with respect to unsecured loan; Referring to how the money passed amongst various entities, notes that “there is a complete trace of the transaction of the above loan received”; Further, noting that the creditworthiness of the amount given to the assessee by the lender is a source of fund from another group company, holds ....................Click here to read and download ITAT Order
3) Income from leasing of workstation, taxable under the head of “other source”, not income from house property – ITAT rules in favour of Revenue, notes that in the instant lease, the prime objective is exploitation of asset in the form of workstations installed by the assessee and not the building or any part thereof; Accordingly, infers that “The use of easement and common areas by the second party is incidental to the lease of exploitation of workstation.” and concludes that “The workstation in the form of plant and machinery are inseparable from the building and for exploitation or use of the workstation, the use of the building is incidental..................Click here to read and download ITAT Order
4) Any adverse materials collected / recorded from a third party when not allowed for cross-examination by assessee cannot be considered against the assessee and cannot be read in evidence against the assessee - ITAT holds that the assessee has the right to confront the evidence relied on by Revenue by asking for cross-examination; Notes that adverse material collected at the back of the assessee when not confronted and that if any statement is recorded by the AO / Revenue Department at the back of the assessee and such statement is not allowed for cross-examination on behalf of the assessee, such material cannot be considered against the assessee in the Income Tax proceedings and such material/statement cannot be read in evidence against the assessee; Observes that the entire case is set-up on the basis of the statement of third party recorded during the course of search u/s 132(4) in which, he has admitted to have received donation/capitation fees in cash ................Click here to read and download ITAT Order
5) Interest can be capitalized only in respect of capital assets purchased out of borrowed funds, rejects Revenue’s attempt to capitalise interest expenditure on inventories – ITAT dismisses Revenue’s appeal in respect of disallowance of interest expenditure made by the AO in A.Y 2008-09; holds that inventories held by the assessee are current assets and hence the requirement of capitalising the interest does not arise; Notes that proviso to section 36(1)(iii) mandates capitalization of interest only in respect of capital assets.................Click here to read and download ITAT Order
6) Allows Sec.54 benefit against LTCG arising on sale of more than one residential flats – ITAT held that capital gains arising from sale of more than one residential flats will be eligible for exemption u/s 54 if gains are invested in a residential house within the permitted time period from the sale of the residential flats; Notes that assessee had purchased two residential flats and modified both the flats and converted two units as one residential unit; Later assessee has sold both the flats through two separate sale deeds and purchased a residential flat at Noida within the permitted time period from the sale of the residential flats; Noting that there is no restriction placed in section 54 that exemption is allowable only in respect of sale of one residential house, ITAT holds that ................Click here to read and download ITAT Order
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CBDT Corner
CBDT issues guidelines on applicability of TDS on E-commerce operators u/s. 194-O & TCS on sale of goods u/s. 206C(1H) – Circular No. 17/2020
CBDT amends Rule 29B, allows foreign 'insurers' to apply for 'tax non-deduction' certificate u/s. 195(3) - NOTIFICATION NO. 76/2020
Access to a strong repository of Tax Rulings is a key requirement of tax professionals like yourselves. Taxsutra Database is a brand new addition to the Taxsutra bouquet of services. Largely known for its world class real time news and updates service, Taxsutra brings to you a comprehensive, easy to use Database service which offers the following features:
Over 108925+ Income Tax Rulings reported across ITR, CTR, Taxman, DTR, ITD, TTJ, and ITR(Trib) and which also includes recent unreported handpicked ruling
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Profits of sick industrial company for computation of MAT liability; “Beneficial Ownership” of a Family Trust's foreign bank deposits and lot`s more..…!!
Dear Professionals,
Issue No. 215 / September 11th, 2020
“Taxsutra Database”, a true Income-tax research tool, is an archive of over 108650+ 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.
We are glad to present to you the 215th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
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Expert Column
Recently, the Mumbai bench of the Tribunal in the case of Renu T Tharani (“the assessee”) [TS-6762-ITAT-2020(Mumbai)-O], held the peak credits appearing in the HSBC bank account of one GWU Investments Ltd, a Cayman Islands Company, shares of which were held by the family trust of the assessee, as taxable in the hands of the assessee (Indian beneficiary). It was held that non-signing of 'consent waiver' disproved the assessee’s 'conduct'.
In this backdrop, Bharath Janarthanan (Advocate, KB Legal Chambers) discusses the observations of the Tribunal in the context of “Identification of beneficial ownership”. The author states that the requirement of providing the details of “beneficial owner”, to identify the “natural persons” (and not intermediary legal persons) who ultimately owns or controls the entity or on whose behalf the transactions are being conducted, are purely to collate information and documents and carry out customer due diligence from the anti-money laundering regulations perspective. The author accordingly opines that it does not automatically imply that the funds lying in such bank accounts automatically belong to such identified beneficial owners available at their disposal and representing their undisclosed income / asset. The author signs off concluding that “Not co-operating with the investigation in India has its own consequences but that by itself cannot be sufficient enough to draw an adverse inference qua the taxability of the sum under the Act…”
Click here to read the article titled, “Beneficial Ownership” of a Family Trust's foreign bank deposits
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Key Takeaways from Handpicked Rulings
1) ITAT: Having participated in the assessment proceedings, assessee cannot challenge issuance of notice u/s. 143(2) - ITAT rejects Assessee additional grounds raised first time before the Tribunal challenging the issuance of notice u/s.143(2); Notes that there is evidence regarding issuance of the notice u/s 143(2) which has not been returned unserved and also clear from the assessment order that the assessee has appeared from time to time before the AO; Accordingly, observes that “Therefore, it would be presumed that the letter sent for selection of scrutiny u/s 143(2) has been duly served to the assessee and assessee participated in the assessment proceedings”............Click here to read and download ITAT Order
Editorial Note: Click here to read “Taxsutra Database Insight - Compendium: Notice u/s 143(2), is it mandatory!”
2)ITAT: Quantum additions being deleted, no default on non-compliance to notice u/s. 142(1); Penalty u/s. 271(1)(b) liable to be deleted– ITAT sets aside penalty order us/ 271(1)(b), noting that additions on merit have already been deleted by the CIT(A) and no further appeals are pending, states that “there may not be a default on the part of the assessee and at best it could be considered as a technical default, for which, ...penalty should not be levied ...for failure to comply with the notices u/s. 142(1)”..............Click here to read and download ITAT order
Database Note: SC in [TS-5569-SC-2018-O] dismissed Assessees` appeal against HC upholding penalty u/s 271(1)(b) for non-compliance of the notice u/s 142(1); In another recent ITAT ruling in [TS-8857-ITAT-2019(Delhi)-O] upheld levy of penalty u/s 271(1)(b) for non-compliance of notice u/s 142(1) of the Act. ITAT noted that AO is both of the investigator and adjudicator and assessee has not made out a case of any reasonable cause for failure in furnishing the information before the AO; One may also refer [TS-10349-ITAT-2018(Delhi)-O] ITAT had upheld the penalty levied u/s 271(1)(b) for not submitting “consent letter” for verification of alleged foreign swiss bank accounts.
3) Revenue to withdraw penalty order passed during lockdown period, without considering assessee's hardship - HC disposes Assessee’s writ in terms of statement made by the Senior Standing Counsel of the Income Tax Department that the Revenue will withdraw the impugned penalty orders u/s 271C and shall afford an opportunity to the petitioner to reply to the Show cause notices [SCN]; Directs that “Immediately after the lockdown is withdrawn by the Government of India [GOI], a period of two weeks should be granted to the petitioner to reply to SCN issued by the AO”.............. Click here to read and download HC Order
4) ITAT - Reduction u/s 115JB towards profits of sick industrial company available only till net worth becomes positive – ITAT rules in Revenue’s favour for AYs 2013-14 and 2014-15, holds that relief under Explanation 1(vii) to Sec.115JB(2) would be available only till net worth becomes positive; Notes that Assessee was discharged by Sick Industrial Companies (Special Provisions) Act, 1985 [SICA] on 16/08/2011 and its net worth turned positive by virtue of implementation of revival scheme and holds that “the assessee would be precluded from relief u/s 115JB in view of Explanation 1(vii) to Section 115JB (2) and therefore, no relief would be available from AY 2011-12 onwards”; Distinguishes Tube Investments of India ................ Click here to read and download ITAT order
DB Note : Explanation 1(vii) to Sec.115JB(2) provides for reduction of “the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.”
5) Madras HC rejects Bangalore based assessee’s writ against SETCOM order absent Jurisdiction – Madras HC dismiss Assessee’s Writ against the order passed by Settlement Commission [SETCOM], noting that the assessee and the assessing authorities are at Bangalore, holds that merely because the order under challenge had been passed by the Chennai Bench of the SETCOM, the cause of action cannot be said to arise within the territorial jurisdiction of this court (Madras HC); Notes that, when the events leading to the filing of the proceedings before the .................... Click here to read and download HC Judgment
6) HC: Section 57 of the TP Act is applicable, whether sale of immovable property is conducted ‘by a court’, ‘out of court’ and ‘in execution of a decree’ – HC allows petitioner’s appeal and sets aside the impugned order of the District Judge, observes that “there can be little ground for divergence that the provisions of Section 57 of the Transfer of Property Act [TP Act] would come to play in a case of this nature, whether the sale been conducted by the court or in execution of a decree or by parties outside court”; HC notes, that Section 57 also provides that in the case of sale of immovable property subject to ..............Click here to read and download HC Judgment
Access to a strong repository of Tax Rulings is a key requirement of tax professionals like yourselves. Taxsutra Database is a brand new addition to the Taxsutra bouquet of services. Largely known for its world class real time news and updates service, Taxsutra brings to you a comprehensive, easy to use Database service which offers the following features:
Over 108650+ Income Tax Rulings reported across ITR, CTR, Taxman, DTR, ITD, TTJ, and ITR(Trib) and which also includes recent unreported handpicked ruling
Completely integrated service with all the latest cases powered by an advanced search engine to provide a seamless user experience
Search results supported by active filters around Court Level, Location, Case Numbers and Citation
A Unique Bulls Eye application to further enhance search by including "Exact words", "Any of these", "none of these"
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Sec. 115BBE does not apply to business receipts / turnover; Interplay of Domestic GAAR and PPT...and lot's more!
Issue No. 214 / August 27th, 2020
Dear Professionals,
“Taxsutra Database”, a true Income-tax research tool, is an archive of over 108430+ 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.
We are glad to present to you the 214th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
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Expert Column
With a view to curb tax avoidance, BEPS Action Plan 6 imposes minimum standards to prevent grant of treaty benefits obtained by circumvention of either the treaty itself (e.g. treaty shopping through conduit finance arrangements) or of domestic tax legislations. Under the MLI provisions, Article 7 (which deals with prevention of treaty abuse and is applicable as a minimum standard), prescribes Principal Purpose Test (‘PPT’) as one of the measures to prevent treaty abuse.
In this regard, Vrinda Bagaria (Advocate) analyses the interplay of domestic general anti-avoidance rules (‘GAAR’) and treaty GAAR or the Principal Purpose Test (‘PPT’). Illustrating by way of an example on perpetual securities, the author explains that uncertainties in application and conflicting results of domestic GAAR, often render it unsuitable for prevention of treaty abuse in international context whereas “PPT ensures a consistent approach to meet common objectives of both states, in accordance with the treaty provisions.” Similarly, the author elucidates on the interplay of LOB (Limitation of Benefit) and PPT. The author also discusses about transactions which might lead to overlap of PPT and domestic GAAR. While signing off the author states that, “...while the MLI reveals prospects for ‘cooperative multilateral solution’, differing approaches adopted by states and the current stream of unilateral measures in digital taxation indicate that the road to multilateralism is far.”
Click here to read the article titled, “Interplay of Domestic GAAR and PPT – An Overview”
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Key Takeaways from Handpicked Rulings
1) ITAT: Section 115BBE does not apply to business receipts / business turnover – ITAT quashes revision order u/s 263 passed by PCIT made on the ground that AO failed to tax the undisclosed income of Rs.3,65,933/- as per provisions of sec. 115BBE (Tax on income referred to in sec. 68, 69 etc.); Explains that “business activity related income may not ordinarily get placed u/s 68 to section 69D of the Act”; Notes that, AO treated the undisclosed amount in bank account as undisclosed business receipt or turnover of the assessee, and hence, held that the provisions of section 115BBE does not apply; ITAT further held that, there is no concept of "partial application of mind", it should be either application of mind or non-application of mind......Click here to read and download ITAT order
2) SC: Right of daughter in coparcenary is by birth, it is not necessary that father coparcener should be living as on 9.9.2005 (date of amendment to the Hindu Succession (Amendment) Act, 2005) - SC holds that (i) Section 6 of the Hindu Succession Act, 1956 confer status of coparcener on the daughter born before or after amendment in the same manner as son with same rights and liabilities. (ii) The rights can be claimed by the daughter born earlier with effect from 9.9.2005 with savings as provided in Section 6(1) as to the disposition or alienation, partition or testamentary disposition which had taken place before the 20th day of December, 2004................Click here to read and download SC judgment
3) HC: Approval in terms of Sec. 10(17A) may either be express or implied, and in the latter – HC allows petitioner’s (Senior Security Advisor to the Union Home Ministry and an ex-an IPS officer, instrumental in Veerappan’s case) writ, sets aside CIT direction to the AO to allow the claim of exemption u/s 10(17A) on land allotted by State Government as ‘award’, only if the petitioner is able to produce an order granting approval of exemption by the Government of India u/s 10(17A)(ii); States that for purpose of Sec. 10(17A), “...‘approval’ of the Centre may either be express or implied, and in the latter, gleaned from surrounding circumstances and events.”,..........Click here to read and download HC Judgment
4) ITAT: Deletes concealment penalty levied on account of debatable issue of addition u/s. 43B on unclaimed expenditure - ITAT sets aside the order of the CIT(A) and directs the AO to cancel penalty levied u/s 271(1)(c) on account of addition u/s 43B of non-payment of service tax liability when the same has not been debited in the Profit & Loss Account nor claimed as an expenditure, which has become a debatable issue; Notes that CIT(A) in the assessee’s own case for AY 2012-13, deleted the addition of unpaid service tax which was added back by the assessee in its revised computation of income, and Revenue had ...........Click here to read and download ITAT order
5) ITAT: Assessment proceedings initiated u/s. 153C without issuance of notice thereunder, devoid of valid jurisdiction – ITAT sets aside the order passed by lower authorities, holds that notice is mandatory and a condition precedent for taking action against the assessee u/s 153C; ITAT ............Click here to read and download ITAT order
6) ITAT: No notional interest income taxable on security deposit held by assessee-owner – ITAT holds that addition made by the AO on account of notional income on the security deposit cannot be held to be legally valid; Assessee owned a property and received a security deposit for leasing the property, during the year, no rent was offered to tax and on inquiry it was found that the said property had been sold in year 2013-14, hence no income from rentals was offered; However, Assessee continued to hold the security deposit of Rs. 5 crores as the lease agreement had a lock-in-period; AO treated the security deposit as an underlying asset and an interest amount deemed to have derived from such a security deposit of Rs.63 lakh has been brought to tax under the head “income from other sources” which was confirmed by CIT(A); ITAT observes that the addition ........Click here to read and download ITAT order
Access to a strong repository of Tax Rulings is a key requirement of tax professionals like yourselves. Taxsutra Database is a brand new addition to the Taxsutra bouquet of services. Largely known for its world class real time news and updates service, Taxsutra brings to you a comprehensive, easy to use Database service which offers the following features:
Over 108430+ Income Tax Rulings reported across ITR, CTR, Taxman, DTR, ITD, TTJ, and ITR(Trib) and which also includes recent unreported handpicked ruling
Completely integrated service with all the latest cases powered by an advanced search engine to provide a seamless user experience
Search results supported by active filters around Court Level, Location, Case Numbers and Citation
A Unique Bulls Eye application to further enhance search by including "Exact words", "Any of these", "none of these"
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ITAT: CIT(A) / AO cannot travel beyond the limited directions of ITAT in remand proceedings; A Deep dive into withholding taxes on dividend income
Issue No. 213 / August 12th, 2020
Dear Professionals,
“Taxsutra Database”, a true Income-tax research tool, is an archive of over 108150+ 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.
We are glad to present to you the 213th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
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Expert Column
Finance Act 2020 re-introduced the classical system of taxing dividends in the hands of the shareholders as was prevalent in the past and will apply to dividends distributed on or after 1 April 2020. The effective DDT rate of 20.56% was also significantly higher than the maximum rate at which India would have had the right to collect tax under most of the relevant tax treaties.
Upamanyu Manjrekar and Unnati Sharma (Chartered Accountants) in their article, examine deduction of tax at source on dividends as per the IT Act, 1961 and the correlation with the DTAAs while analysing the impact of BEPS and its implementation via the MLI. The authors highlight that where the total income of a non-resident or a foreign company includes dividend income and appropriate taxes have been deducted at source, the non-resident need not furnish his ROI. However, considering that the wordings used in Section 115A state deduction of tax at source as per the Act and not as per the DTAA, thus, where taxes are deducted in consonance with rates as per the DTAA, the non-resident is still under an obligation to furnish his ROI. The authors also analyze International Tax perspective, GAAR & MLI impact on the re-introduced provisions of tax on dividend income in the hands of the shareholders.
1) HC: Revenue can't hold expenditure as 'bogus', without considering reply received u/s 133(6) – HC disposes assessee’s writ, directs “No coercive steps” to recover the tax amount till PCIT passes the order against assessee’s stay application; Notes that AO disallowed the expenditure by calling payment as 'bogus expenses', further PCIT disposed the application for stay of demand,.....................Click here to read and download HC order
2) HC: Mere reference to a wrong section in the assessment order cannot render the entire assessment null and void – HC dismisses assessee’s appeal, upholds ITAT’s order rejecting the claim of the Short-term capital loss (STCL) relating to sale of shares of three companies as the same had resulted from bogus transactions, although ITAT held that Sec. 68 as applied by the lower authorities was not....... Click here to read and download HC judgment
3) ITAT: CIT(A) / AO cannot travel beyond the limited directions of ITAT – ITAT allows assessee’s appeal in the second round of appeal, notes that the scope of the remand proceedings was “circumscribed to the direction of the Tribunal, which was limited to, whether the repair and renovation expenses incurred on a lease property is revenue expenditure or is capital in nature”; Notes that the direction of the Tribunal was very categorical, firstly, to admit the lease deed, and secondly, to decide whether the expenditure incurred is revenue in nature or not; Observes that CIT(A), ............. Click here to read and download ITAT order
4) SC: Dismisses revenue's SLP, land not a depreciable asset, provisions of sec. 50 not applicable – SC dismisses revenue SLP against HC order upholding ITAT’s ([TS-7536-ITAT-2016(Mumbai)-O]) observation that the sold property remained as land and minimum structure of shed and compound wall was constructed; ITAT had held that the total sale consideration should be segregated ........................Click here to read and download SC order
5) ITAT: Income on account of sale of carbon credits a capital receipt, not chargeable to tax – ITAT dismisses Revenue’s appeal, that the rulings in favour of assessee (engaged in the business of generation of hydro and wind power) in cases of My Home Power and Ambuthirtha Power decisions have not been accepted by the department and Revenue is in further appeal, hence the issue has not reached finality; Assessee, claiming deduction u/s. 80IA .............. Click here to read and download ITAT order
6) ITAT condones delay of more than 2 years, reckons period of limitation for filing appeal from the date order was downloaded; Notes that though the order for default in late filing TDS statement u/s 234E passed by the TDS -CPC, was in 2016, no order ................... Click here to read and download ITAT order
Note: Bangalore ITAT in [TS-8822-ITAT-2019(BANGALORE)-O] also on similar facts held that, no order passed by TDS-CPC u/s 200A has been physically or electronically served to the assessee, question of delay in filing the appeals does not arise;
Access to a strong repository of Tax Rulings is a key requirement of tax professionals like yourselves. Taxsutra Database is a brand new addition to the Taxsutra bouquet of services. Largely known for its world class real time news and updates service, Taxsutra brings to you a comprehensive, easy to use Database service which offers the following features:
Over 108150+Income Tax Rulings reported across ITR, CTR, Taxman, DTR, ITD, TTJ, and ITR(Trib) and which also includes recent unreported handpicked ruling
Completely integrated service with all the latest cases powered by an advanced search engine to provide a seamless user experience
Search results supported by active filters around Court Level, Location, Case Numbers and Citation
A Unique Bulls Eye application to further enhance search by including "Exact words", "Any of these", "none of these"
The Taxsutra Database comes at a very special Annual Subscription price of 4200+ GST AND includes a annual license to the Taxsutra Library.
Prosecution SCN should contain specific particulars; Sec. 54F eligibility on investment in multiple plots; Code on Social Security.....and lots more!
Issue No. 212 / July 29th, 2020
Dear Professionals,
“Taxsutra Database”, a true Income-tax research tool, is an archive of over 107800+ 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.
We are glad to present to you the 212th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
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Expert Column
Totalization agreements/Social security agreements (SSA) are entered into to help the nationals of one country to remain covered in the social security schemes of their home country or to obtain / enhance benefits from coverage in the host country schemes.
CA Rohini Ramya (Partner, Taxkode Consulting LLP), in this article, discusses the totalization agreements that India has entered into with 18 countries so far, to avoid double coverage under a social security scheme. The author highlights that there is no law equivalent to Sec. 90(2) of the IT Act providing for application of beneficial provision in cases of dichotomy between local laws under the domestic social security legislation (PF Act). This leaves employees/employers at the mercy of the EPFO who is likely to decide such questions in favour of the PF Act. The author speaks about the expectations from the Draft Code on Social Security, 2019 introduced in the Lok Sabha by the Ministry for Labour and Employment in December 2019, will eventually replace nine laws related to social security, including the current PF Act. The author opines that “Including sufficient clarity in the draft Code will go a long way in reducing the regulatory uncertainty businesses and employees will face, if caught between the SSA and the Indian social security legislation.”
1) HC: CIT being a sanctioning authority u/s. 279, prior approval of CCIT sought by the CIT before passing sanction order u/s 279 not tenable in law – HC noting that CCIT is not the sanctioning authority u/s. 279, quashes the sanction letter and prosecution proceedings u/s 276CC against assessees; Holds that “The sanctioning authority being the Commissioner of Income Tax there was no need for the said Commissioner of Income Tax to have written to the Chief Commissioner of Income Tax to seek for approval”; Accordingly, .............. Click here to read and download HC order
Note: Karnataka HC in [TS-6114-HC-2019(Karnataka)-O] had rejected the assessee's challenge on the validity of the sanction u/s. 279 granted by Principal Director of Income Tax as against authority given to the Principal Commissioner u/s. 279......
2) HC: AO’s action in directing assessee to appear personally and not leave the premises until granted permission highly unreasonable - HC holds that issuance of summons to the extent of asking the assessee to be present for unlimited period till the time he obtains permission from the Assistant Commissioner, is highly unreasonable; The AO issued the impugned summons under which, apart from asking the assessee to be present on a particular day, he also directed the assessee not to depart from the premises till he grants permission .................. Click here to read and download HC order
3) HC: Onus on Assessee to provide a source of credit/deposit in the Bank Accounts – HC rejects Assessee submission that all the amounts deposited in the bank accounts are solely from agricultural income, cannot be accepted; HC notes that assessee in response to summons issued u/s 131(1A) having admitted that he was also doing real estate business and was also having rental income and by not furnishing any details of the same, he cannot blame the AO or the Tribunal for drawing a conclusion .................. Click here to read and download HC order
4) ITAT: Investment in multiple plots, merged as one single unit and construction of house on the same plot eligible for deduction u/s 54F – ITAT sets aside lower authorities order, allow Assessee claim u/s 54F on entire investment of four adjoining plots; ITAT held that investment in four adjoining plots on a single day and then merged by constructing one boundary wall around them leaving one entrance gate , then said merged bigger plot of land would be considered as part and parcel of........... Click here to read and download ITAT order
5) ITAT: Deletes 234B interest levied for shortfall in payment of advance tax liability arising qua retro amendment – ITAT held that, no interest can be levied u/s 234B for shortfall in payment of advance tax, consequent to retrospective amendment; Assessee- a public limited company filed its return of income declaring total income under normal provisions as well as u/s 115JB and claimed deduction u/s 80HHC, which was disallowed by AO in view of sun-set clause under section 80HHC(1B). AO also levied interest u/s 234B on addition made in Book Profit under MAT with respect to deduction on export profit under section 80HHC............ Click here to read and download ITAT order
6) HC: No justification of the AO to change method of accounting followed by assessee to determine income on estimate basis – HC upheld ITAT order that for the AY 2007-08, assessee could adopt completed contract method of accounts without appreciating the amendment to Section 145 of the Act w.e.f. 01.04.1997; Assessee, engaged in business of development of plots and construction of flats, following mercantile system of accounting and completed contract method of accounting for contracts; AO subsequent to notice issued u/s 148, passed an order holding that assessees` current profit cannot be decided by the method of book of accounting followed and estimated the income of by applying 8% rate on the advances received........... Click here to read and download HC order
7) HC: Prosecution SCN should specific particulars about the alleged violation with supporting material - HC allows assessee's writ, sets aside prosecution show cause notice [SCN] issued u/s 279; HC directs revenue to issue a fresh notice to the petitioner with specific particulars about the alleged violation; HC notes that no particulars have been given for which month there is short payment and which month there is a late payment and which provision of chapter XVIIB of the Act was violated.............. Click here to read and download HC order
8) HC: Service charges (maintenance and air conditioning hire charges) received from tenants are liable to be assessed as "Income from other sources" and not as "Income from house property", follows jurisdictional HC ruling in case of Tarapore; However, following SC ruling in assessee’s own case, rules that rental income derived from the house property should be treated as business income................Click here to read and download HC order
9) ITAT: Trustee committee established under Bar Council of Delhi a charitable institution eligible for registration u/s 12AA - ITAT rules in favour of assessee (Advocate Welfare Fund Trustee Committee), notes that trustee committee established under the Bar Council of Delhi is engaged in safeguarding the rights, privileges and interest of the advocates; Its dominant purpose is the advancement of a general public utility within the meaning of section 2(15) of the Act, as such, genuineness of its activities and object of charitable purpose is proved, thus entitled for registration u/s 12AA and consequent exemption u/s 80G shall be exempt under Income Tax............ Click here to read and download ITAT order
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In this regard, Rishabh Jain (Chartered Accountant) discusses the nuances of the provision as to determination of POEM, Meaning of ‘Active business outside India (ABOI) etc. Speaking of the some instances where the facts will not be conclusive of a POEM, the author highlights a foreign company which is completely owned by an Indian company, foreign entity having a PE in India, etc. The author signs off with an opinion that the provisions and the Circulars related to POEM “lead to several tax disputes and the existence of POEM in India would be a subject matter of litigation in various cases”
In this backdrop, Bharath Janarthanan (Advocate, KB Legal Chambers) discusses the observations of the Tribunal in the context of “Identification of beneficial ownership”. The author states that the requirement of providing the details of “beneficial owner”, to identify the “natural persons” (and not intermediary legal persons) who ultimately owns or controls the entity or on whose behalf the transactions are being conducted, are purely to collate information and documents and carry out customer due diligence from the anti-money laundering regulations perspective. The author accordingly opines that it does not automatically imply that the funds lying in such bank accounts automatically belong to such identified beneficial owners available at their disposal and representing their undisclosed income / asset. The author signs off concluding that “Not co-operating with the investigation in India has its own consequences but that by itself cannot be sufficient enough to draw an adverse inference qua the taxability of the sum under the Act…”
Vrinda Bagaria (Advocate) analyses the interplay of domestic general anti-avoidance rules (‘GAAR’) and treaty GAAR or the Principal Purpose Test (‘PPT’). Illustrating by way of an example on perpetual securities, the author explains that uncertainties in application and conflicting results of domestic GAAR, often render it unsuitable for prevention of treaty abuse in international context whereas “PPT ensures a consistent approach to meet common objectives of both states, in accordance with the treaty provisions.” Similarly, the author elucidates on the interplay of LOB (Limitation of Benefit) and PPT. The author also discusses about transactions which might lead to overlap of PPT and domestic GAAR. While signing off the author states that, “...while the MLI reveals prospects for ‘cooperative multilateral solution’, differing approaches adopted by states and the current stream of unilateral measures in digital taxation indicate that the road to multilateralism is far.”
Upamanyu Manjrekar and Unnati Sharma (Chartered Accountants) in their article, examine deduction of tax at source on dividends as per the IT Act, 1961 and the correlation with the DTAAs while analysing the impact of BEPS and its implementation via the MLI. The authors highlight that where the total income of a non-resident or a foreign company includes dividend income and appropriate taxes have been deducted at source, the non-resident need not furnish his ROI. However, considering that the wordings used in Section 115A state deduction of tax at source as per the Act and not as per the DTAA, thus, where taxes are deducted in consonance with rates as per the DTAA, the non-resident is still under an obligation to furnish his ROI. The authors also analyze International Tax perspective, GAAR & MLI impact on the re-introduced provisions of tax on dividend income in the hands of the shareholders.
CA Rohini Ramya (Partner, Taxkode Consulting LLP), in this article, discusses the totalization agreements that India has entered into with 18 countries so far, to avoid double coverage under a social security scheme. The author highlights that there is no law equivalent to Sec. 90(2) of the IT Act providing for application of beneficial provision in cases of dichotomy between local laws under the domestic social security legislation (PF Act). This leaves employees/employers at the mercy of the EPFO who is likely to decide such questions in favour of the PF Act. The author speaks about the expectations from the Draft Code on Social Security, 2019 introduced in the Lok Sabha by the Ministry for Labour and Employment in December 2019, will eventually replace nine laws related to social security, including the current PF Act. The author opines that “Including sufficient clarity in the draft Code will go a long way in reducing the regulatory uncertainty businesses and employees will face, if caught between the SSA and the Indian social security legislation.”