TDS u/s 194N on Cash withdrawals by societies member; GSTR-3B and FORM 26AS – Comparing Apples with Oranges & “Judicial forward & backward reference" and ....lots more!
Issue No. 219 / November 19th, 2020
Dear Professionals,
We are glad to present to you the 219th edition of ‘Taxsutra Database Bulletin’, with a new feature “Judicial forward & backward reference”. This new feature aims to update readers about the judicial impact of a ruling in terms of the other rulings where it has been relied on, followed, distinguished etc. Every issue of the Database Bulletin will contain 10 rulings with judicial forward & backward references along with updates of current trends in the tax arena!
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Judicial forward & backward reference
1) Shambhu investment private limited vs CIT (2003) 263 ITR 143 (SC) distinguished in [TS-6344-ITAT-2020(DELHI)-O] on Income from letting of property.
2) Hewlett Packard Global Soft Ltd (2017) 159 DTR 89 (Karnataka) followed in [TS-5340-HC-2020(MADRAS)-O] on Sec 10A / 10B tax-holiday eligibility on interest income.
4) Ghanshyam (HUF) [2009] 315 ITR 1 (SC) distinguished in [TS-5298-HC-2020(PUNJAB & HARYANA)-O] on interest on enhanced compensation treated as "income from other sources".
5) Piyoosh Kumar Goyal [2020] 426 ITR 546 (Delhi) distinguished in [TS-5018-HC-2020(Delhi)-O] on Abetment in tax evasion, directs authorities to recall look out circular in name of petitioner.
6) R T Industries (2018) 170 DTR 281 (DELHI) followed in [TS-5174-HC-2020(Madras)-O] on distinction between cause of action jurisdiction and doctrine of forum conveniens.
7) Swabhimani Souharda Credit Co-operative Ltd [2020] 421 ITR 670 (Karn) applied in [TS-5166-HC-2020(KARNATAKA)-O] on Souharda Co-operative entitled to claim Sec.80P benefit.
8) CIT v. Calcutta Export Co. [2018] 404 ITR 654 (SC) distinguished & explained in [TS-5097-SC-2020-O] on Sec. 40(a)(ia) disallowance.
9) CIT v. R. S. Bajaj Society [2014] 222 Taxman 111 (All) approved in [TS-5037-SC-2020-O] on provisions of Sec.12AA and scope of powers of PCIT/CIT to grant registration.
10) Shreyas S. Morakhia [2012] 342 ITR 285 (Bom) applied in [TS-5205-HC-2020(BOMBAY)-O] on bad debts on account of inter corporate debt and advances in contravention of Section 36(1)(vii) r.w.s 36(2)
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Key Takeaways from Handpicked Rulings
1) SC: Limitation Act stricto sensu does not apply to the writ jurisdiction; Sets aside HC order dismissing petitioner’s writ petition on grounds of delay - SC holds that it is “not a mandatory requirement that every delayed petition must be dismissed on the ground of delay”; States that there is no doubt that the High Court in its discretionary jurisdiction may decline to exercise the discretionary writ jurisdiction on ground of delay in approaching the court; Explain that however, “it is only a rule of discretion by exercise of self restraint evolved by the court in exercise of the discretionary equitable jurisdiction and not a mandatory requirement that every delayed petition must be dismissed on the ground of delay”; Opines accordingly, that “The discretion vested in the court ..........Click here to read and download SC Judgment
2) HC : Cash withdrawals by member societies of District Co-operative Bank not income in their hands, thus not subject to TDS u/s. 194N - HC holds assessee (a District Co-operative Bank) not liable to deduct tax u/s. 194N (TDS on cash payments), follows Co-ordinate Bench ruling rendered under similar circumstances and remands the matter back to AO for fresh consideration; Notes that the Co-ordinate Bench held that the sums withdrawn by the member society would not constitute ''income'' at the hands of the society and quashed proceedings u/s 201 against District Co-op. Banks' for alleged TDS default u/s 194N.............Click here to read and download HC judgment
3) HC: CBDT Circular has to be read and construed in consonance with the provisions of the IT Act – HC sets aside ITAT order, holds that no liability to deduct tax at source u/s 194C where C & F agents raises separate bills towards reimbursement of freight charges / transportation components alongwith supporting bill invoices, receipts etc; Notes that the Tribunal in its impugned order appears to have misread the bills issued by Jet Air Freighters and proceeded to incorrectly style “Jet Air Freighters” as “carriers” and not as the C & F agents; Infers that these bills as well as other material on record very clearly establishes that Jet Air Freighters were indeed the C & F agents and it is “Jet Airways” which was the carrier in these cases; Opines thus that the reasoning of the...........Click here to read and download HC Judgment
4) HC: Omission to provide details of number of workmen working in Units in Form No.10CCB doesn’t disentitle assessee from deduction u/s 80IB - HC holds that although it is true that there was an omission on the part of the assessee whilst filling in the Form 10CCB to the extent of details of workmen, it is not as if the omission was not rectifiable as to merit the penalty of disallowance of deduction u/s 80IB / 80IC; HC with respect to disallowance of deduction u/s 80IC, confirms ITAT order that mismatch between the production and the profits at the various Units as determined by rate of consumption of electricity at such units, cannot be the sole ground for concluding that there has been some unreasonable inflation of profits..........Click here to read and download HC Judgment
5) HC admits Revenue's appeal challenging ITAT’s order allowing entire expenditure claimed by the assessee for betterment of title of the land sold, while computing the capital gain tax in the hands of the assessee; Revenue also claims that ITAT ignored Revenue's contention that the genuineness of such payments had not been established.....Click here to read and download HC order
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Expert Column
Pursuant to a M.O.U. between the CBIC and the Income Tax Department, information contained in GST Return has, recently, been made part of Annual Information Report in Form 26AS.
In this backdrop, Chartered Accountants Dindayal Dhandaria and Naveen Kumar Dhandaria discuss the purpose which is intended to be served by incorporating such information and state that if the Income Tax Department wishes to match the Turnover as per an Assessee’s accounts and records with that furnished in GSTR 3B, it would be comparing apples with oranges. The authors believe that it is a futile exercise, inter alia, for the basic reason that whereas in GST, inter-state branch transfers of goods/services are treated as supply and forms part of turnover, it is not so considered in financial statements prepared under Generally Accepted Accounting Principles (GAAP) which stipulate that a person cannot sell goods or render services to himself. The authors opine that “If an Assessee is required to reconcile the amount of turnover reported in Form GSTR 3B with that in his Income Tax Return and is subjected to scrutiny for such mismatch, there would be serious miscarriage of justice and unnecessary harassment to him.”
Click here to read their insightful article titled – GSTR-3B AND FORM 26AS – Comparing Apples with Oranges
“Taxsutra Database”, a true Income-tax research tool, is an archive of over109530+ 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.
Face trial for not filing IT returns; Settlement under VSVS; TDS on purchase of software license; “Judicial forward & backward reference" and ....lots more!
Issue No. 218 / November 6th, 2020
Dear Professionals,
We are glad to present to you the 218th edition of ‘Taxsutra Database Bulletin’, with a new feature “Judicial forward & backward reference”. This new feature aims to update readers about the judicial impact of a ruling in terms of the other rulings where it has been relied on, followed, distinguished etc. Every issue of the Database Bulletin will contain 10 rulings with judicial forward & backward references along with updates of current trends in the tax arena!
2) CIT v. Ghanshyam (HUF) [2009] 315 ITR 1 (SC) distinguished in[TS-5298-HC-2020(Punjab & Haryana)-O] on interest received on compensation or enhanced compensation
3) RICHA GLOBAL EXPORTS PVT. LTD [2012] 54 SOT 185 (Delhi) Assessee`s appeal admitted by Delhi HC in as reported in [TS-5987-HC-2013(Delhi)-O] on Whether surcharge and education cess eligible for MAT credit u/s 115JAA?
4) GARG DYEING & PROCESSING INDUSTRIES vs ACIT (2013) 212 TAXMAN 0160 (DELHI) followed in[TS-6344-ITAT-2020(DELHI)-O] on income from composite letting of property, furniture etc.. should be assessed as income from other sources or income from house property
5) Kishanchand Chellaram vs CIT (1980) 125 ITR 0713 (SC) & Andaman Timber Industries vs CCE (2015) 127 DTR 241 (SC) relied in[TS-6370-ITAT-2020(DELHI)-O] on right of cross-examine.
6) (2002) 174 CTR 0090 (Guj) followed in, [TS-6628-ITAT-2015(Mumbai)-O] Relied in[TS-6628-ITAT-2015(Mumbai)-O] on invokes 5th proviso to Sec.32(1) and also refer recent Karnataka HC ruling [TS-523-HC-2020(KAR)] HC allows depreciation on 'revalued' intangibles to successor-company, rejects invocation of Sec.32(1) proviso
7) Umicore Finance Luxmeborg (2010) 36 DTR 0249 (AAR) approved in [TS-6127-HC-2016(Bombay)-O] on conversion of a partnership firm to a private limited company
9) TRF Ltd (2010) 35 DTR 0156 (SC) distinguish in[TS-6411-ITAT-2017(MUMBAI)-O] on written off the bad debt as irrecoverable in accounts
10) Virmani Industries Pvt. Ltd (1995) 83 TAXMAN 0343 (SC) followed in[TS-5551-HC-2020(BOMBAY)-O] on carry forward of depreciation of the following previous year.
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Key Takeaways from Handpicked Rulings
1) HC: Settlement under VSVS is to be considered on the basis of the rectified assessment order – HC allows petitioner writ, directs the competent authority officiating on behalf of Principal Commissioner Income Tax to rectify and pass appropriate order with reference to the petitioner’s claim for One Time Settlement under Vivad Se Vishwas Scheme [VSVS] strictly in accordance with the terms of Circular No.9/2020 dated 22.04.2020; Assessee submitted before the HC that as per Circular, several guidelines are issued with reference to the manner in which the assessment is required to be completed under VSVS; HC observes that as per the records there was an error while passing the assessment order for the relevant period, which is subsequently rectified vide order dated 18.03.2020 by the Assessing Officer.........Click here to read and download HC order
2) HC: Face trial for not filing IT returns, it was obligatory on the part of the petitioner to file ROI and then claim exemption u/s. 54F - HC rejects assessee’s writ to quash prosecution proceedings u/s 276CC, grants liberty to raise all the grounds before the trial Court; Notes that Revenue has filed a complaint against the petitioner for the offence u/s 276CC under the IT ACT, alleging that the petitioner has not filed return of income [ROI] against income from sale of property and even after the Revenue issued two notices, calling upon the petitioner to file her ROI, the petitioner failed to file the ROI and hence, a show cause notice was issued on 29.04.2016 and upon receipt of the same the petitioner submitted her return stating that she had reinvested the entire sale consideration in a residential property and therefore, the income was exempted from tax u/s 54F and there was no taxable income..........Click here to read and download HC Judgment
Note: SC in [TS-43-SC-2014-O] lays down law on criminal proceedings for non-filing of tax return and interprets scope of Sec 276CC and its proviso, says benefit of proviso available only on 'voluntary filing' and not after detection of failure to file return; Recently Madras HC in [TS-5064-HC-2020(Madras)-O] quashes prosecution initiation, held that failure to pay self-assessment tax along with returns, no 'offence' for purpose of prosecution u/s 276C.
3) SC: Issue of notice on same issue as examined in original assessment proceedings is change of opinion and hence, without jurisdiction - SC rules in assessee`s favour, notes that as per the record certain queries were raised by the AO during the assessment proceedings which were responded by the Assessee and after considering said responses, the assessment order was passed by the AO.........Click here to read and download SC judgment
4) ITAT: MCI Regulations applicable only for medical practitioners and not for pharmaceutical companies, holds that pharma company’s 'freebies' to doctors allowable deduction u/s 37 - Notes that MCI Regulations are applicable only to the doctors/medical practitioners and not to pharmaceutical companies; Therefore, the MCI Regulations cannot be brought into play to invoke Explanation to section 37(1) of the Act for disallowing expenditure claimed by the assessee.........Click here to read and download ITAT order
Note: In [TS-5878-HC-2010(PUNJAB & HARYANA)-O] HC held that commission paid by Diagnostic Centre to private Doctors for referring patients for diagnosis not allowed as business expenses.
5) Liability to deduct tax at source cannot be fastened on the basis of retrospective amendment to the Act or a subsequent ruling of a Court - ITAT quashes order u/s.201(1) holding as assessee-in-default for failure to deduct TDS on purchase of software license from non-resident for AY 2010-11; Follows co-ordinate ITAT bench ruling wherein it was held that 'assessee’ was not in default for TDS non-deduction on software purchase........Clickhere to read and download ITAT order
“Taxsutra Database”, a true Income-tax research tool, is an archive of over109400+ 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.
New Feature of “Judicial forward & backward reference"; Important rulings of SC, HC and ITAT; Faceless Assessment Scheme...and lots more!
Issue No. 217 / October 17th, 2020
Dear Professionals,
We are glad to present to you the 217th edition of ‘Taxsutra Database Bulletin’, with a new feature “Judicial forward & backward reference”. This new feature aims to update readers about the judicial impact of a ruling in terms of the other rulings where it has been relied on, followed, distinguished etc. Hence forth, every issue of the Database Bulletin will contain 10 rulings with judicial forward & backward references along with updates of current trends in the tax arena!
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Judicial forward & backward reference
1) CIT vs Chetak Enterprises P. Ltd. [2010] 325 ITR 405 (Raj) approved in[TS-5018-SC-2020-O]on condition laid down u/s 80-IA(4)(i)
2) Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377 (SC) applied in[TS-6202-HC-2019(KERALA)-O]on test of 'enduring benefit'
8) Pr CIT vs Gujarat Narmada Valley Fertilizer and Chemicals Ltd (2019) 416 ITR 144 (GUJARAT) followed in[TS-6191-HC-2019(Gujarat)-O]on replacement of components of machinery, a capital or revenue expenditure
9) CIT vs Narsee Nagsee and Co. [1960] 40 ITR 307 (SC) relied in[TS-6170-HC-2019(Gujarat)-O]on assessment proceedings.
On Aug 13, the Government launched a transparent platform for faceless assessment, faceless appeals and Citizens Charter. In this backdrop, author CA Sachin Kumar BP (Partner, Manohar Chowdhry & Associates, Chartered Accountants) discusses the niceties and nuances of the new scheme and states that faceless assessment scheme attempts to overcome the lacunae existing in the current structure of the Income tax department - functional specialisation and impersonality. The author opines that the scheme “intends to achieve it by eliminating the interface between the Assessing Officer and the taxpayer to the extent technologically feasible and by optimising utilisation of the resources through economies of scale and functional specialization.”. Encouraging the tax professionals to embrace this change, the author signs off suggesting that “Let us face the ever-changing and ever-growing challenges in the profession by constantly and continuously updating and improving the professional knowledge”
Click here to read the article titled, “Faceless assessments and appeals - A shift from People-dependent to Process-dependent Governance”
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Key Takeaways from Handpicked Rulings
1) SC: Amount mentioned in a letter from a bank suggesting assessee to get a draft re-validated cannot be treated as assessee’s unexplained income - SC dismisses Revenue’s appeal against HC order; HC holds that mere letter from a bank suggesting assessee to get a draft re-validated would not establish a relation between the payable amount and the assessee, particularly when the draft was in favour of a limited Company; Notes that a search was conducted at the premises of a third party from where, bank drafts were recovered one of which was drawn in favour of assessee and one in favour of....... Click here to read and download SC order
2) HC cannot assume the role of an appellate authority defined under the Black Money Act under its writ jurisdiction – HC dismisses assessee’s writ petition challenging notice of penalty under the Black Money Act for failure to furnish the return of income and information, observes that the procedure for assessment has been prescribed under the Act and the remedy of appeal before the Commissioner of Appeal and the Tribunal was also provided; On behalf of Assessee, it was submitted that he was a non-resident and after his retirement returned to India and filed his income tax return for the AY 2016-17; In the meanwhile, Parliament introduced the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015; The assessee was under the bona fide belief that disclosure under Schedule FA was to be made only from the assessment year 2017-18........Click here to read and download HC Judgment
3) Assessing Officer should rectify Taxpayers’ mistake when it is brought to their notice and when they are satisfied with the genuineness of the claim – ITAT dismisses Revenue’s appeal, upholds CIT(A) direction to AO to compute the tax in accordance with provisions of section 115JB by reducing the amount of income to which section 10 applies, if such amount is credited to the profit and loss account; Notes that assessee computed the book profits while crediting the sale consideration of agricultural land to the profit and loss account and offered the same to tax which was a mistake..........click here to read and download ITAT Order
Note: Delhi HC in [TS-6377-HC-2016(DELHI)-O] held that CIT u/s 264-revisionary powers can rectify taxpayer's mistakes resulting in over-assessment. HC held that there is nothing in s. 264, which places any restriction on the Commissioner's revisional power to give relief to the assessee in a case where the assessee detracts mistakes because of which he was over-assessed after the assessment was completed. Once it is found that there was a mistake in making an assessment, the Commissioner had power to correct it under s. 264(1).
4) One deeming provision cannot be extended by importing another deeming provision, rejects invoking Sec 50C on land contributed by partner to firm as capital contribution - ITAT upholds the order passed by CIT(A) who referred to the order of the ITAT in assessee's own case for the AY 2012-13 wherein ITAT rejected AO’s invocation of deeming fiction u/s. 50C in computing capital gains on land introduced into an LLP as a capital contribution during AY 2012-13; Assessee (a private limited company and a partner in LLP) computed capital gains on land transferred by taking the amount recorded in the books of the LLP as full value of consideration u/s 45(3), however, Revenue invoked Sec. 50C and recomputed capital gains by adopting higher fair market value as determined by the stamp duty authority at the time of registration ........ Click here to read and download ITAT Order
5) Provisions of sec 2(47) r.w.s 53A of the Transfer of properties Act, 1882 are not applicable to transfer of development rights held by the Assessee as business asset – ITAT upholds the order passed by CIT(A), holds that the term transfer as defined in Sec.2(47)(v) applicable only in case of capital assets held by the assessee; Notes that assessee was engaged as civil contractor and the income earned from the stated project was assessed as Business Income and the development rights were held as business assets; Further, on year of taxability of consideration received, notes that from the terms of the Joint Venture Agreement that only part income accrued .........Click here to read and download ITAT Order
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About Taxsutra Database!
“Taxsutra Database”, a true Income-tax research tool, is an archive of over109100+ 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.
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
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.
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
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In this backdrop, Chartered Accountants Dindayal Dhandaria and Naveen Kumar Dhandaria discuss the purpose which is intended to be served by incorporating such information and state that if the Income Tax Department wishes to match the Turnover as per an Assessee’s accounts and records with that furnished in GSTR 3B, it would be comparing apples with oranges. The authors believe that it is a futile exercise, inter alia, for the basic reason that whereas in GST, inter-state branch transfers of goods/services are treated as supply and forms part of turnover, it is not so considered in financial statements prepared under Generally Accepted Accounting Principles (GAAP) which stipulate that a person cannot sell goods or render services to himself. The authors opine that “If an Assessee is required to reconcile the amount of turnover reported in Form GSTR 3B with that in his Income Tax Return and is subjected to scrutiny for such mismatch, there would be serious miscarriage of justice and unnecessary harassment to him.”
On Aug 13, the Government launched a transparent platform for faceless assessment, faceless appeals and Citizens Charter. In this backdrop, author CA Sachin Kumar BP (Partner, Manohar Chowdhry & Associates, Chartered Accountants) discusses the niceties and nuances of the new scheme and states that faceless assessment scheme attempts to overcome the lacunae existing in the current structure of the Income tax department - functional specialisation and impersonality. The author opines that the scheme “intends to achieve it by eliminating the interface between the Assessing Officer and the taxpayer to the extent technologically feasible and by optimising utilisation of the resources through economies of scale and functional specialization.”. Encouraging the tax professionals to embrace this change, the author signs off suggesting that “Let us face the ever-changing and ever-growing challenges in the profession by constantly and continuously updating and improving the professional knowledge”
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…”