Taxsutra Database Post Budget 2020: Taxing non-residents on citizenship criteria; DDT abolished & Proposed amendment u/s 194J...and more!
Issue No. 192 / February 05th, 2020
Dear Patrons,
The Union Budget 2020, presented by Hon’ble Finance Minister Nirmala Sitharaman on 1st Feb, 2020 has announced a new regime for individual taxpayers to make a choice between the old and new regimes with an objective that the taxpayers would be able to file their Income tax returns themselves; Amongst the various proposals contained in the Union Budget 2020-21 in the form of Finance Bill, 2020, at Taxsutra database Budget special, we bring to you Snapshot of 11 important proposed amendments and articles by three authors discussing the important proposals of the Budget.
Read here - Snapshot of Direct Tax Proposals in Budget 2020
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Post Budget 2020 - Expert Columns
Finance BILL, 2020 proposes to amend the tax residency of non-residents by inserting sub-section (1A) to Section 6 to deem an Indian Citizen to be resident in India, if such an individual is not liable to tax in any other country or territory by reason of his residence or domicile or any other criteria of similar nature.
Author CA Shyam Nori discusses the proposed anti-abuse measure by looking at: what the expression ‘Liable to tax’ means, stateless person, conflict between Finance Bill and memorandum, and in the context of treaty. The author elucidates that “Liable to tax doesn’t necessarily mean subject to tax”. In this context a reference is made to SC decision in Azadi Bachao Andolan which clarified that “'liable to tax' connotes that a person is subject to one of the taxes mentioned in Article 2 in a Contracting State and it is immaterial whether the person actually pays the tax or not”. The author further highlights that the amended section does not meet the intention of the amendment as stated in the memorandum i.e., anti-abuse measure to address statelessness as a person cannot be said to be not liable to tax, if the person were to be resident of a country and the income earned may not be subject to tax, but the person is liable to tax. Speaking of the CBDT clarification on the amendment stating that in case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned outside India, shall not be taxed in India unless it is derived from an Indian business or profession, the author opines that “This would put to rest any concerns the Indian citizens, who are tax residents elsewhere but not liable to tax, may have about getting taxed in India. This would equally be the case with non-treaty countries.”
Read here the article titled - Taxing non-residents on citizenship criteria
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The Union Budget 2020 has proposed, of what can be termed as a sigh of relief especially to the India inbound investors community and is likely to attract foreign investments. Finance Minister Mrs. Nirmala Seetharaman has proposed to make the provisions of section 115-O redundant and inoperative, in a move to tax the shareholders in the conventional manner and has further, proposed to introduce a new section 80M, to avoid any cascading effect, in the case of distribution of dividends through multiple layers of holding companies before reaching the ultimate shareholders.
Authors Deepak Manoharan and Nathansha Dilip, (Chartered Accountants) evaluate the impact of the proposed amendments. In the context of its impact on foreign investors in light of higher tax rates in India, the authors opine that “...foreign companies can now pay taxes on dividend at this reduced rate and claim the credit of the same in the country of residence.”. Speaking of the reduction of tax cost that the amendment brings about to companies, the authors state that “This also diminishes the upper hand an LLP structure had over a company.”. Going by the sign of impetus that the Government is providing towards inclusive growth, they sign off with an anticipation that “It may not be surprising if the Government does away with the provisions of buyback tax as well, which was introduced as a measure to counter the alternate repatriation strategy adopted to avert DDT”
Read here the article titled: DDT abolished – The boon of the decade for India inbound investors!
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In its endeavor to reduce tax litigation, Government in the Budget 2020 has taken quite a few steps. One such step which is likely to be very effective is the proposal to reduce the rate of TDS u/s. 194J in cases of fees for technical services (other than professional services) from 10% to 2% to bring it on par with rates as provided u/s. 194C for any work pursuant to a contract.
Authors Dindayal Dhandaria & CA Naveen Kumar Dhandaria (Chartered Accountants), while discussing the proposal state that “It is heartening to note that the Finance Bill, 2020 proposes to amend the existing provisions of section 194J of Income tax Act, 1961 (“the Act”) with a view to reducing litigation and to provide certainty in tax matters”. The authors highlight and discuss certain cases where this dispute has arisen. The authors sign of with a suggestion that similar to the different rates provided u/s. 194C based on the payees’ status (i.e., individual/HUFs & Others), “It is desirable that in section 194J also, different rates for deduction of tax at source from ‘fee or technical services” should be prescribed depending upon the payees concerned as is provided in section 194C.”
Read here the article titled - Proposed amendment u/s 194J would reduce litigation and not eliminate it?
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Read here - Latest News, CBDT clarification...and more!
Read here - Speech of Nirmala Sitharaman, Minister of Finance with “Annex B in Direct tax”
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Taxsutra Database Insight: Royalty / FTS - Supply of designs & drawings; Budget expectation- Controversy over delayed contribution towards PF / ESI
Issue No. 191 / January 29th, 2020
Dear Patrons,
The ’make available‘ clause in respect of Fees for Included Services (FIS)/ Fees for Technical Services (FTS) is more or less similarly defined under the Income Tax Act and under several DTAAs. We have various HC, AAR and ITAT rulings that have held that an amount paid for technical services would be considered as FTS only if the services paid for ‘made available’ the technical knowledge, experience, skill, know-how or processes. In 2017, the Gujarat HC order reported in [TS-6865-HC-2017(Gujarat)-O]admitted an appeal filed by the Revenue against the ITAT’s order, holding that payment made to a non-resident company did not fall within the definition of Fees for Technical Services in view of the ’make available‘ clause in the concerned treaty, although the AO had given a categorical finding that ‘make available’ clause is not necessary for treating a payment as Fees for Included Services under the DTAA, as there is development & transfer of a technical plan or technical design to the assessee by the Canadian party.
In the “Taxsutra Database Insight” Issue No. 191, we have compiled 30 rulings on issues arising specifically on the question whether payments towards supply of designs & drawings are “Royalty” u/s 9(1)(vi)” or FTS/ FIS. Some of these cases have also examined whether the foreign entity had a PE in India.
Read here: Taxsutra Database Insight - “Make available” – Payment towards supply of designs & drawings whether Royalty u/s 9(1)(vi)?
There is a fervent debate regarding disallowance of employees’ contribution of provident fund post the “due date” and inclusion of such contribution as income of the employer owing to conflicting judgments of various high courts and the CBDT Circular No. 22/2015, dated 17-12-2015. Authors CA T G Suresh (Partner, Suresh & Balaji) and Arjun Suresh
In their article discuss the attempt made to justify the reasons for making an amendment in the upcoming budget to put an end to this controversy. Pondering on the different treatments given by the Government to contributions made by employer and employee, authors state that “They are constructively two parts of the same payment and ...there is no concrete rationale to separate the two and make it operate as two different transactions.” The Authors further discuss the impact of the CBDT Circular which sought to withdraw all litigation made with regards to Section 43B but however made a specific statement that this shall not affect any claim or litigation with respect to Section 36(1)(va). The authors opine that if this circular is not intended to be applicable to the employee’s contribution , one cannot understand the logical reason behind its issuance after nearly 6 years of SC decision which had held that that the omission of the Second proviso of Sec. 43B as curative in nature and hence would operate retrospectively. The authors sign off with a remark that “Considering the keenness of the Government to reduce the litigation and improve the ease of doing business , let’s hope that the upcoming budget makes a deserving amendment in either in Sec 36(1) (va) or sec 43 B so that this controversy can be finally put to rest.”
Read herethe article titled – Budget expectation on controversy over delayed deposits of employees' contribution of PF / ESI
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
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Taxsutra Database Bulletin: Validity of e-Assessment Scheme, 2019; Implications of amendments to Indian Stamp Act by the FA, 2019
Issue No. 190 / January 25th, 2020
Dear Patrons,
Taxsutra Database, a rich repository of Tax Rulings, is complemented by the equally rich Taxsutra Library of Statutes which provides updated text of over 250 Acts, including tax and corporate laws, DTAAs, Ind-AS...and subordinate legislation. In the Taxsutra DatabaseBulletin Issue No. 190, we bring to you two comprehensive expert columns titled “Implications of amendments to Indian Stamp Act by the Finance Act, 2019” and “Validity of E-Assessment Scheme, 2019"
1) CBDT recently notified a new E-Assessment Scheme to reduce interaction between assesses and assessing officers. It has also been announced that over 58,000 notices have been issued under this new scheme, notified on Sep 12, 2019, in respect of AY 2018-19.
Authors, Dindayal Dhandaria & Naveen Kumar Dhandaria (Chartered Accountants), in this article in this article, the authors examine the validity of this scheme when the ratio of a recent Mad HC decision in the case of Vedanta Ltd is applied. In this case, the assessee succeeded in contending that the new scheme u/s.144C of assessments by a Dispute Resolution Panel was a substantive change and not a procedural change. The authors also cite the apex court’s decision in Dhadi Sahu (which was cited while deciding the Vedanta case) to the effect that “where the question is of change of forum, it ceases to be a question of procedure only. The forum of appeal or proceedings is a vested right as opposed to pure procedure to be followed before a particular forum". As a result, the authors feel that the Vedanta case ratio casts a shadow on the validity of the assessment proceedings initiated under the Scheme for Assessment Year 2018-19.
Read here the article titled “Validity of e-Assessment Scheme, 2019”
2) Government of India vide Notification No. S. O 115(E) dated 8th January 2020 deferred the effective date of applicability from 9th January 2020 to 1st day of April, 2020.
The authors, CA Mukesh Kumar M, CA Swetha A, Vivek V & Varsha at M2K Advisors Pvt Limited have written this well-researched article analysing in-depth the amendments made to the Indian Stamp Act (ISA) by the Finance Act, 2019. Authors, point out that the newly introduced sections 8A and 9A of the ISA have wrought changes to stamp duty on transfer of securities in demat form (earlier exempt) and on transfer of listed and unlisted shares (earlier different in each state, now uniform). It now also levies stamp duty on issue/ re-issue and transfer of unlisted as well as listed debentures, and on derivatives, Government securities and on repo on corporate bonds. Stamp Duty collection and deposit mechanisms have also been clarified, and the new dispensation has been described conveniently in a single table. The term, ‘market value’ on transfers as applicable to securities has also now been defined.
The authors point out that because of some of the new provisions, some states will be beneficiaries as new higher rates replace lower or no stamp duty rates, while in other cases, states will stand to lose revenues. As an example, they have tabulated the impact of the changes as applicable to the State of Tamil Nadu. They foresee two major issues:
A state which now gets new jurisdictional powers will not accept/ implement the amendments under the amended ISA; and
States whose revenues are expected to fall will oppose the changes.
Besides, the authors point out a few possible controversies where the position after amendments remains unclear, like stamp duty on warrants, transfer of interest in LLP, etc.
Stamp duty implications pursuant to amendment in Finance Act, 2019–Simplification at the cost of Constitutional powers?
Read here the article titled “Implications of amendments to Indian Stamp Act by FA, 2019 - Simplification at the cost of Constitutional powers?”
Taxsutra Database Insight series on Demonetization (OCM) cases : -
1) Read here and download Taxsutra Database Insight: Demonetisation (OCM) - “Unexplained Cash Credits and GP-Rate additions” – Part 1
2) Read here and download Taxsutra Database Insight: Demonetisation (OCM) Cases: Explanation for Duration/ Link between Cash Deposits & Withdrawal - Part 2
3) Read here - Demonetization (OCM): Cash Deposits/ Receipts/ Advances and Presumptive Tax u/s 44AD - Part 3
4) Read here and download Taxsutra Database Insight: Compendium of recent rulings on undisclosed income, unexplained credits, unexplained expenditure & unexplained investments – Part I
5) Read hereand download Taxsutra Database Insight: Compendium of Recent Rulings on Undisclosed Income, Unexplained Credits, Unexplained Expenditure & Unexplained Investments - Part II
6) Read here and download Taxsutra Database Insight: Compendium of Rulings Impacting ‘Unexplained Money’ Taxation u/s. 69A
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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
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Taxsutra Database Insight - Demonetization (OCM): Cash Deposits/ Receipts/ Advances and Presumptive Tax u/s 44AD - Part 3
Issue No. 189 / January 22nd, 2020
Dear Patrons,
Continuing our series relevant for the first assessment after demonetisation (OCM) at Taxsutra Database Insight, we have compiled recent 15 cases that operate at the intersection of presumptive taxation, assessment of cash deposits after demonetization and additions u/ss. 68 to 69C. Some important principles that emerge are listed below in brief:
1. When case was selected for limited scrutiny of cash deposits in bank account, other disallowances like u/s. 43B for non-payment of VAT (in one case) not permissible.
2. Assessee opting for s. 44AD is not obliged to explain individual entry of cash deposit in bank unless such entry has no nexus with gross receipts.
3. Cash in hand cannot be ascribed to bogus sales without bringing evidence on record, when assessee had filed sales & purchase details which AO had not enquired into.
4. That the assessee opting for presumptive taxation filed a balance sheet (in one case) and appearance of Accountant or CA before AO (in another case) does not prove that he maintained books of account.
5. Ss. 28 to 43C (including s.40A(3) not applicable if assessee assessed u/s 44AF.
6. Where assessee declared income u/s 44AD, AO’s invoking s. 69 for cash deposits (in one case) or s.69A (in another case) or S. 69C (in a third case) not justified.
7. Once assessee’s option to be taxed u/s 44AD is accepted, additions u/s. 68 (in one case) and u/s 69A (in another case) not permissible without proving why s. 44AD inapplicable.
8. Assessee filing u/s 44AD cannot be asked to prove that 92% of his receipts have been expended.
9. Sale value of large no. of gold bars to undisclosed customers in cash held taxable u/s. 68 as story of business of sale of gold bars appeared non-genuine – assessee had no infrastructure for, and no experience in handling such large quantities of gold.
10. Merely because option to offer income u/s 44AD is not present in Form ITR-2 was no reason for rejecting appellant’s return.
11. Onus to prove genuineness of creditors is on assessee. AO justified in rejecting book results, estimating NP rate u/s 44AD and making additions u/s 68 for unexplained cash credits, in absence of proof that creditors represented income from already taxed source.
12. AO rejected assessee’s books, applied s. 69, and made other additions. Held that once AO has rejected books, he cannot use them to make additions/ disallowances.
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Click here to read and download: Taxsutra Database Insight: Demonetization (OCM) - Cash Deposits/ Receipts/ Advances and Presumptive Tax u/s 44AD - Part 3
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Taxsutra Database Insight series on Demonetisation (OCM)
1) Click hereto read and download Taxsutra Database Insight: Demonetisation (OCM) Cases: Explanation for Duration/ Link between Cash Deposits & Withdrawal - Part 2
2) Click here to read and download Taxsutra Database Insight: Demonetisation (OCM) - “Unexplained Cash Credits and GP-Rate additions” – Part 1
3) Click here to read and download Taxsutra Database Insight: Compendium of Recent Rulings on Undisclosed Income, Unexplained Credits, Unexplained Expenditure & Unexplained Investments - Part II
4) Click here to read and download Taxsutra Database Insight: Compendium of recent rulings on undisclosed income, unexplained credits, unexplained expenditure & unexplained investments – Part 1
5) Click here to read and download Taxsutra Database Insight: Compendium of Rulings Impacting ‘Unexplained Money’ Taxation u/s. 69A
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.
Taxsutra Database Insight - Demonetisation (OCM) Cases: Explanations for Duration/ Link between Cash Deposits & Withdrawal - Part 2
Issue No. 188 / January 15th, 2020
Dear Patrons,
Continuing our series relevant for the first assessment after demonetisation, we look at 21 cases, of which 3 were decided in Revenue’s favour. Most cases are culled from cases arising out of earlier instances of demonetisation in India.
All cases discussed below have as an important factor the time gap between cash withdrawals and deposits in different factual circumstances where the withdrawals have been cited as source of deposits. This Taxsutra Database Insight on cases related to demonetisation also includes a recent ITAT ruling distinguishing a landmark ruling Bhaichand N. Gandhi to holds, that bank pass book could be treated as a book of the assessee; and an ITAT 5-member Special Bench ruling that held, that even if sec. 68 is not applicable, the assessee can be asked to explain cash deposit in bank account u/s 69 or sec. 69B of the Act.
Two important principles discussed are – on/ to whom the onus lies/ shifts, and the tests to be applied to decide whether the onus has been discharged or not.
Important Rulings on Duration/ Link between Cash Withdrawals & Deposits
Taxsutra database Citation
Duration between Cash Deposit & Withdrawal
Observation
In Favour
[TS-8479-ITAT-2019(Delhi)-O]
Over 3 FYs - Cash in hand
Cash deposit after date of demonetization
Assessee
[TS-6606-ITAT-2015(Bangalore)-O]
Within 14 months
Addition of account cash withdrawn from a cash credit account
Revenue
[TS-5363-HC-2017(Punjab & Haryana)-O]
Within 3 Months
Addition in absence of link between cash withdrawn from bank and the cash deposit
Revenue
[TS-5175-HC-2018(Delhi)-O]
Within 8 Months
Test of preponderance of probability is to be applied and is sufficient to discharge onus
Assessee
[TS-5893-ITAT-2008(Delhi)-O]
Within 6 Months
Time gap between cash withdrawals and cash deposits, explanation of the assessee cannot be rejected
Assessee
[TS-5480-ITAT-2015(Chandigarh)-O]
Within 10 days
Onus on AO to examine and to show that explanation offered by assessee should not be accepted
Assessee
[TS-9022-ITAT-2017(Delhi)-O]
Within 12 months
Non-cooperation of assessee on submitting explanation for cash deposit
Revenue
[TS-10298-ITAT-2018(Lucknow)-O]
Within 4 months
There is no law in the country which prevents a citizen from frequently withdrawing and depositing his own money
Assessee
[TS-5908-ITAT-2011(Delhi)-O]
Within 5 months
Mere existence of a time gap between cash withdrawal & cash deposits cannot be made basis for addition u/s 68
Assessee
[TS-6605-ITAT-2015(Ahmedabad)-O]
Within 11 months
Addition on account of speculation that amount might have been utilized for any other purpose
Assessee
[TS-6767-ITAT-2014(Mumbai)-O]
Within 11 months
No provision in the Act requiring that cash once withdrawn has to be re-deposited immediately if not utilized
Assessee
[TS-6602-ITAT-2015(Delhi)-O]
Within 5 months
AO demonstrates that the amount in question has been utilized for any other purpose
Assessee
[TS-5045-HC-1951(PATNA)-O]
Period of 7 Years
Encashment of high denomination notes
Assessee
Click here to read and download Taxsutra Database Insight: Demonetisation (OCM) Cases: Part 2 – Explanation for Duration/ Link between Cash Deposits & Withdrawal
Click here to subscribe, make payment and join the Taxsutra Family!
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 105000+ 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.
Author CA Shyam Nori discusses the proposed anti-abuse measure by looking at: what the expression ‘Liable to tax’ means, stateless person, conflict between Finance Bill and memorandum, and in the context of treaty. The author elucidates that “Liable to tax doesn’t necessarily mean subject to tax”. In this context a reference is made to SC decision in Azadi Bachao Andolan which clarified that “'liable to tax' connotes that a person is subject to one of the taxes mentioned in Article 2 in a Contracting State and it is immaterial whether the person actually pays the tax or not”. The author further highlights that the amended section does not meet the intention of the amendment as stated in the memorandum i.e., anti-abuse measure to address statelessness as a person cannot be said to be not liable to tax, if the person were to be resident of a country and the income earned may not be subject to tax, but the person is liable to tax. Speaking of the CBDT clarification on the amendment stating that in case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned outside India, shall not be taxed in India unless it is derived from an Indian business or profession, the author opines that “This would put to rest any concerns the Indian citizens, who are tax residents elsewhere but not liable to tax, may have about getting taxed in India. This would equally be the case with non-treaty countries.”
Authors Deepak Manoharan and Nathansha Dilip, (Chartered Accountants) evaluate the impact of the proposed amendments. In the context of its impact on foreign investors in light of higher tax rates in India, the authors opine that “...foreign companies can now pay taxes on dividend at this reduced rate and claim the credit of the same in the country of residence.”. Speaking of the reduction of tax cost that the amendment brings about to companies, the authors state that “This also diminishes the upper hand an LLP structure had over a company.”. Going by the sign of impetus that the Government is providing towards inclusive growth, they sign off with an anticipation that “It may not be surprising if the Government does away with the provisions of buyback tax as well, which was introduced as a measure to counter the alternate repatriation strategy adopted to avert DDT” 
Authors Dindayal Dhandaria & CA Naveen Kumar Dhandaria (Chartered Accountants), while discussing the proposal state that “It is heartening to note that the Finance Bill, 2020 proposes to amend the existing provisions of section 194J of Income tax Act, 1961 (“the Act”) with a view to reducing litigation and to provide certainty in tax matters”. The authors highlight and discuss certain cases where this dispute has arisen. The authors sign of with a suggestion that similar to the different rates provided u/s. 194C based on the payees’ status (i.e., individual/HUFs & Others), “It is desirable that in section 194J also, different rates for deduction of tax at source from ‘fee or technical services” should be prescribed depending upon the payees concerned as is provided in section 194C.”
In their article discuss the attempt made to justify the reasons for making an amendment in the upcoming budget to put an end to this controversy. Pondering on the different treatments given by the Government to contributions made by employer and employee, authors state that “They are constructively two parts of the same payment and ...there is no concrete rationale to separate the two and make it operate as two different transactions.” The Authors further discuss the impact of the CBDT Circular which sought to withdraw all litigation made with regards to Section 43B but however made a specific statement that this shall not affect any claim or litigation with respect to Section 36(1)(va). The authors opine that if this circular is not intended to be applicable to the employee’s contribution , one cannot understand the logical reason behind its issuance after nearly 6 years of SC decision which had held that that the omission of the Second proviso of Sec. 43B as curative in nature and hence would operate retrospectively. The authors sign off with a remark that “Considering the keenness of the Government to reduce the litigation and improve the ease of doing business , let’s hope that the upcoming budget makes a deserving amendment in either in Sec 36(1) (va) or sec 43 B so that this controversy can be finally put to rest.” 
