Taxsutra Database Insight: Interpretations of the words "derived from" and ‘attributable to’ – Deduction u/s 80IA and 80IB on Interest income
Issue No. 196 / March 4th, 2020
Dear Patrons,
The expression used in Sec. 80-IA is “Profits and gains derived from any business of an Industrial Undertaking etc” and the expression “derived from”’ is narrower then ''attributable to'' the business. The source of the income must be directly connected with the business and generated therefrom. Interest income is not considered to be directly “derived from” eligible industrial undertaking and is also not to be considered for deduction.
SC in the case of Cambay Electric examined the expressions “attributable to” and “derived from”, and elucidated that the legislature intended to cover receipts from sources other than the actual conduct of the business and concluded that the expression “derived from” covers the receipts by way of all the profits and gains of the industrial undertaking. Further Bombay HC in the case of HINDUSTAN LEVER examined the word "derived" and noted that as far as income-tax law is concerned, it has been given a narrow meaning—a strict meaning by Courts and has been understood in the restricted sense of a direct derivation and not understood in the broad sense as equivalent to derived directly or indirectly. In other words, one has to only consider the proximate source and not the source to which it may ultimately be referable.
In this context, the expression, “Profits and gains derived from an Industrial Undertaking”, has generated a lot of controversies and the issue has been in debate before the Courts & Tribunal. At Taxsutra Database Insight - Issue No. 195, we mainly focus on eligibility of deduction u/s 80-IA, 80-IB of the Act on interest earned on fixed deposits, etc.
Read Here - Taxsutra Database Insight: Interpretations of the words "derived from" and ‘attributable to’ – Deduction u/s 80IA and 80IB on Interest income
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Taxsutra Database Insight: Interpretation of Applicability of Sec. 50C to transactions covered by Sec. 45(3); Taxpayer’s charter – Custodian of Rights?
Issue No. 195 / February 26th, 2020
Dear Patrons,
Profits and gains arising from the transfer of a capital asset by a partner to a firm shall be chargeable as the partner`s income of the previous year in which the transfer took place under sub-section (3) to section 45. Circular 495 dated 22-9-1987 explained the intention of the sub-section inserted by the Finance Act, 1987 and the effect of this amendment. For purposes of computing the capital gains, the value of the asset recorded in the books of the firm on the date of the transfer shall be deemed to be the full value of the consideration received or accrued as a result of the transfer of the capital asset.
Section 45(3) and Section 50C both are deeming fiction and SC has categorically held that one deeming fiction cannot be extended by importing another deeming fiction. Expl. 2 inserted in Section 50C w.e.f. 1-10-2009 stating that the expression "assessable" by the stamp valuation authority means the price which would have been adopted/assessed had the transaction been referred to such valuation authority for the payment of stamp duty.
The question that arises is whether sec. 45(3) and sec. 50C operate in different fields or in the same field.
At Taxsutra Database Insight, we have complied 11 rulings on “Interpretation of Applicability of Sec. 50C to transactions covered by Sec. 45(3)” which explain the invocation of deeming in computing capital gains on land introduced into a partnership firm as a capital contribution.
Click Here to Read - Taxsutra Database Insight - Interpretation of Applicability of Sec. 50C to transactions covered by Sec. 45(3)
Finance Minister Mrs Nirmala Sitharaman in her Budget 2020 speech has proposed to incorporate taxpayer’s charter in the income tax statute, while emphasizing that, “An important aspect of both ease of living and ease of doing business is fairness and efficiency of tax administration. We wish to enshrine in the statutes a “Taxpayer charter” through this budget. Our government would like to reassure taxpayers that we remain committed to taking measures so that our citizens are free from harassment of any kind.”
Authors Subham Kumar and Ankita Baid (Chartered Accountant) in their article analyse Taxpayer’s charter as introduced and Rights adopted internationally. They quote “One of the significant reasons for the foreign investors to invest in India being sceptical about tax regime in India. India is considered as one of the most aggressive tax regimes in the world”. The authors sign off stating that, “If Taxpayer's charter is adopted in spirit and coupled with an efficient grievance redressal system, will largely ensure that there are no violations of Taxpayer’s rights.”
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Over 105800+ 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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Taxsutra Database Bulletin : Corpus-Specific Voluntary Contributions of Unregistered Trust; Directions by DRP and Other Handpicked Rulings
Issue No. 123 / Feb 22, 2018
1. [TS-5242-ITAT-2018(Pune)-O] : Corpus-specific voluntary contributions of unregistered trust : Corpus specific voluntary contributions are outside scope of taxation in case of an unregistered Trust u/s. 12/ 12A/ 12AAA - ITAT rules in favour of assessee; Holds that “provisions of section 2(24)(iia)/ 12(1)/ 11(1)(d)/ 35/ 56(2) are relevant for deciding the current issue. It is a settled legal proposition, in case of a registered Trust under the Income-Tax Act, that corpus-specific Voluntary Contributions are outside the scope of ‘income’ as defined in s. 2(24)(iia) of the Act due to their "capital nature". But it is a case of an unregistered Trust. … principles relating to judicial discipline assume significance and the priority. It is also decided issue that there is need for upholding the favourable view if there exists divergent views on the issue. ”…
Editorial Note :Agra ITAT in Gaudiya Granth Anuved Trust[TS-6035-ITAT-2013(AGRA)-O] held that corpus donation is in the nature of a capital receipt and are not taxable, irrespective of the fact whether the trust is registered u/s. 12AA or not.
SC in Radhasoami Satsang [TS-12-SC-1991-O] had held that no formal document is necessary to create a trust.
2. [TS-8445-ITAT-2017(Mumbai)-O] : Taxability of discount on ESOP : Discount on shares issued in ESOP is an allowable expenditure, and not a contingent liability - ITAT rules in favour of assessee; Sets aside CIT’s order u/s. 263 wherein he has expressed his opinion that the assessee's claim of expenditure towards employee cost on account of equity stock options was payable in future, and was an unascertained liability which cannot be allowed as an expenditure since the same is relatable towards future pending obligation not determinable with reasonable certainty in the year of accounting…
3. [TS-5387-ITAT-2018(Bangalore)-O] : Directions by DRP : Order passed by DRP u/s. 154 is not appealable - ITAT rules in favour of assessee; Holds that Revenue’s appeal against DRP’s directions is not maintainable; Notes that as per Sec. 253(1)(d), an order passed by the AO under Sec. 143(3) or Sec. 147 or Sec. 153A or Sec. 153C pursuant to DRP’s directions, or an order passed u/s. 154 in respect of such order, is appealable before the Tribunal and not DRP’s order u/s. 154…
4. [TS-5468-ITAT-2018(Chandigarh)-O] : Taxability of interest on NPAs : Taxability of interest on loans categorized as NPA’s/ sticky loans to be on receipt basis - ITAT rules in favour of assessee; Holds that interest on NPA’s was being accounted for on receipt basis consistently in the past also, following Accounting Standard-9 relating to Revenue Recognition prescribed by Institute of Chartered Accountants of India, which required income to be recognized only on becoming certain, and the method followed by assessee was in consonance with the guidelines issued by Reserve Bank of India from time to time…
Taxsutra Database Insight - Part 2: Amnesty Scheme - Effect of pendency of Assessee and Dept. appeal - Disputed Tax & Arrears...and more!
Issue No. 194 / February 19th, 2020
Dear Patrons,
As Govt. of India aims to settle the unresolved issues with the 'Direct Tax Vivad se Vishwas Bill, 2020' [“The Scheme”], the Union Cabinet approved amendments to “The Scheme” with a view to increase its scope to cover litigations pending in revision, arbitration, DRP cases, etc.
The Finance Minister in her Budget speech while introducing the Scheme announced that, Taxpayers in “whose” case appeals are pending at any level can take the benefit from this scheme. However as per the Bill No. 29 of 2020 [“Vivad se Vishwas Bill, 2020”], introduced in LOK SABHA, in definition section 2(1)(a), the term used is "appellant" [which includes ‘The person or the income-tax authority or both’] while Sec. 2(1)(c) its "declarant" means a person who files declaration u/s 4.
At Taxsutra Database Insight Part 2, we bring to you rulings on certain key principles which examine whether “the scheme” applies to appeals by both the “Assessee” and the “Departmental”, effect of pendency of Departmental Appeal, power of AO to reopen assessment once tax arrears determined “the Scheme”, whether delay in payment of tax can be condoned or Amount Paid under Protest can be considered?
Read Here - Taxsutra Database Insight - Part 2: Amnesty Scheme - Effect of pendency of Assessee and Departmental appeal - Disputed tax and Tax arrears;
Read Here - Taxsutra Database Insight - Part-1:Amnesty Scheme - Interpretation of the word "Admitted and Pending"
Finance Bill, 2020 has proposed a major concession and in order to bring uniformity between the co-operative societies and corporates, Finance Minister Nirmala Sitharaman proposed reduction of tax on Co-operative societies to 22 per cent plus surcharge and cess with no exemptions / deductions, from 30 per cent at present. Further to enlarge the scope of the section 194A(3)(v) , Finance Bill 2020 proposes co-operative societies are liable to deduct tax.
Author, CA Ashok Mudnur analyses the implications of Section 115BAD and infers that post Budget 2020, if a resident Co-operative bank opts to pay Tax under the new regime, it will save 9.77% on income tax. The Author cautions Co-operative Societies that exemption u/s 80P may be denied to those who have violated provisions of State Co-operative laws, hence it would be wise to choose new tax regime 115BAD. Presently, interest credited or paid by a co-operative society to a member or to any other co-operative society is not liable for tax deduction at source in view of section 194A(3)(v). The Author examines the impact of the proposed amendment in Sec. 194A(3)(v) w.e.f 01.04.2020, and points out that now Big Co-operative societies, having gross receipts exceeds Rs. 50 crore during the last financial year, would be required to deduct tax from interest credited or paid if the amount of interest is more than Rs. 50,000 in case of payee being a senior citizen and Rs. 40,000 in any other case;
Finance Bill, 2020 proposed to amend Section 43CA, 50C and 56 of the IT Act to increase in the safe harbour limit from 105% to 110%. It becomes an utmost aspect of concern that many times, there is a significant variation in the value of the properties within same locality considering which, the Courts, have in many occasions held that if the margin between the value as given by the assessee and the Departmental valuer is less than 10%, then this difference is liable to be ignored, has some merit.
Author Dharan V Gandhi, Advocate in his opening remarks quotes "Everything is fair in love and war" is now modified to "everything is fair in love, war and tax evasion". The Author examines various Judicial precedents and welcomes Finance Bill 2020, however cautions that they were late to recognise this concept itself, the limit itself was set at a meagre figure of 5%; The Author stating that u/s 50C & 56(2)(x) the FMV has to be determined on the basis of one ad-hoc method which is prescribed in Rule 11UA of the Income-tax Rules, 1962, concludes that “Such method is an absurd and vague one and there is no safe harbour provision in such cases, which is the need of the hour, considering the fact that great damage is caused otherwise.”
Read Herearticle titled - Increase in safe harbour limits on property valuations, a welcome move!
Lot's more at Taxsutra Database
Click Here to access all “Taxsutra Database Newsletters”, in case you have missed any!
Read Here - Latest News, CBDT clarification...and more!
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 105800+ Income Tax Rulings reported across ITR, CTR, Taxman, DTR, ITD, TTJ, and ITR(Trib) and which also includes recent unreported handpicked ruling with VECS summary
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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Taxsutra Database Insight Part - 1: Amnesty Scheme - Interpretation of the word "Admitted and Pending"; Budget 2020 - Proposals Relating To Charity Institutions
Issue No. 193 / February 12th, 2020
Dear Patrons,
The Govt. of India has been offering amnesty schemes practically every ten years to put an end to litigation in various forms and at various stages under Direct & Indirect Tax and the Schemes have been described as the “very last opportunity”. The constitutional validity of VDIS, 1997 was challenged at SC in the case of AIFTP vs UOI [TS-5092-SC-1997-O] and SC upheld the constitutional validity of the amnesty scheme rejecting the contention that more benefits are given to tax-evaders, the provisions of the scheme are arbitrary and violative of Art. 14 of the Constitution of India.
In the line of SVLDRs, Finance Minister, in her recent budget speech, introduced the scheme “The Direct Tax Vivad Se Vishwas Bill, 2020” (“the Bill”) (subsequently introduced in the “Lok Sabha”) to provide for resolution for the pending “direct tax disputes” and proposed waiver of interest & penalty provided the disputed tax amount is paid by March, 2020. The Scheme is to remain open upto June 2020. As per “the Bill”, any Taxpayer whose appeal is pending as on 31st January 2020 before any appellate forum [i.e., SC, HC, ITAT and CIT(A)] is eligible to avail the Scheme.
At Taxsutra Database Insight Part-1, we bring to you key rulings on principles which examine and interpret the words "Admitted and Pending" in the context of an appeal before an appellate forum. In Parts 2 & 3 at Taxsutra Database Insight we will focus on other issues pertaining to Amnesty scheme similar to 1) Delayed appeal 2) Eligible legal entities 3) Appeal against fee u/s 234E ...etc and more!
Read HereTaxsutra Database Insight Part-1:Amnesty Scheme - Interpretation of the word "Admitted and Pending"
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Post Budget 2020 - Expert Columns
The Finance Bill, 2020 proposes to make a plethora of procedural changes in the matter of granting exemption to Charitable Institutions from income tax and continuance thereof. Author Dindayal Dhandaria, Chartered Accountant, examines the nuances of the proposals and their impact on the charity institutions.
The author contemplates that the electronic process of registration and the automatic grant of URN will remove hardships caused due to loss of registration certificate and/or number. The author discusses the proposal to fix the duration of registration for 5 years and subject to examination by the authorities after every 5 years, without a provision for condonation for delay in applying for renewal of registration, and opines it as a cumbersome one, keeping the assessees on toes. Further, speaking of provisional registrations, the author ponders on what would happen in the eventuality of no commencement of activities of the Trust for a long period in absence of provision for renewal of the Provisional Registration. The author also points out at lack of clarity on how the income of the provisionally registered charity institution between the periods from its formation till rejection of its application would be taxed or dealt with if its application is not approved.
Read here article titled - Proposals Relating to Charity Institutions in Finance Bill, 2020 -"Vishwas To Vivad"!
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The Direct Tax Vivad Se Vishwas Bill, 2020 [“Bill”] was introduced in Lok Sabha on Dec 5th 2020 to reduce pending litigation related to Direct Taxes. The Bill will be enacted as law once it is approved by both houses of the Indian Parliament.
Author V P GUPTA , Advocate examines the proposals introduced in Bill to settle long pending appeals before all forums [SC, HC, ITAT & CIT(A)] and seeks clarification to avoid any risk of Tax Calculation in terms of Section 3. The author opines that the scheme should provide for adjustment in the amount of loss to be carried forward to avoid double payment of tax. He further opines that the periods mentioned in Section 5 of the scheme are not linked with the dates for payment mentioned in section 3 of the Bill i.e. 31.03.2020 or thereafter and states that this position needs to be clarified and dates have to be co-related.
Read here article titled – “Vivad Se Vishwas Scheme” - Broad Features and Clarifications required
Lot's more at Taxsutra Database
Click here to access all “Taxsutra Database Newsletters”, in case you have missed any!
Read here - Latest News, CBDT clarification...and more!
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 105500+ Income Tax Rulings reported across ITR, CTR, Taxman, DTR, ITD, TTJ, and ITR(Trib) and which also includes recent unreported handpicked ruling with VECS summary
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 3400 + GST AND includes a annual license to the Taxsutra Library.
Click here to sign up, make payment and join the Taxsutra Family.
In this context, the expression, “Profits and gains derived from an Industrial Undertaking”, has generated a lot of controversies and the issue has been in debate before the Courts & Tribunal. At Taxsutra Database Insight - Issue No. 195, we mainly focus on eligibility of deduction u/s 80-IA, 80-IB of the Act on interest earned on fixed deposits, etc.
At Taxsutra Database Insight, we have complied 11 rulings on “Interpretation of Applicability of Sec. 50C to transactions covered by Sec. 45(3)” which explain the invocation of deeming in computing capital gains on land introduced into a partnership firm as a capital contribution.
Author, CA Ashok Mudnur analyses the implications of Section 115BAD and infers that post Budget 2020, if a resident Co-operative bank opts to pay Tax under the new regime, it will save 9.77% on income tax. The Author cautions Co-operative Societies that exemption u/s 80P may be denied to those who have violated provisions of State Co-operative laws, hence it would be wise to choose new tax regime 115BAD. Presently, interest credited or paid by a co-operative society to a member or to any other co-operative society is not liable for tax deduction at source in view of section 194A(3)(v). The Author examines the impact of the proposed amendment in Sec. 194A(3)(v) w.e.f 01.04.2020, and points out that now Big Co-operative societies, having gross receipts exceeds Rs. 50 crore during the last financial year, would be required to deduct tax from interest credited or paid if the amount of interest is more than Rs. 50,000 in case of payee being a senior citizen and Rs. 40,000 in any other case;
Author Dharan V Gandhi, Advocate in his opening remarks quotes "Everything is fair in love and war" is now modified to "everything is fair in love, war and tax evasion". The Author examines various Judicial precedents and welcomes Finance Bill 2020, however cautions that they were late to recognise this concept itself, the limit itself was set at a meagre figure of 5%; The Author stating that u/s 50C & 56(2)(x) the FMV has to be determined on the basis of one ad-hoc method which is prescribed in Rule 11UA of the Income-tax Rules, 1962, concludes that “Such method is an absurd and vague one and there is no safe harbour provision in such cases, which is the need of the hour, considering the fact that great damage is caused otherwise.”
At Taxsutra Database Insight Part-1, we bring to you key rulings on principles which examine and interpret the words "Admitted and Pending" in the context of an appeal before an appellate forum. In Parts 2 & 3 at Taxsutra Database Insight we will focus on other issues pertaining to Amnesty scheme similar to 1) Delayed appeal 2) Eligible legal entities 3) Appeal against fee u/s 234E ...etc and more!
