Database NewsLetters

Taxsutra Database Bulletin : Expert Columns Analysing a Decision under the Benami law, Allowability of Education Cess and Section 94B; and CBDT Updates

Issue No. 149 / Aug 31st, 2018

Expert Column

The Tax Department is gearing up to implement the Benami Transactions (Prohibition) Act ( the Act). Ajay Mankotia (IRS (Retd.), discusses a recent order passed by an adjudicating authority under the Act for the region of Madhya Pradesh and Chattisgarh the news of which as per the author is "not good for the Tax Department’s drive against Benami transactions". In what can be termed as a strict order in applying the provisions of the Act with respect to the Tax Department, the Authority has lifted a provisional attachment of a property allegedly held by a Benamidar (a person of meagre means, for a company) stating procedural lapses in passing of the order. The authority has pointed lapses such as reference not being filed with the Authority within the statutory time limit of 15 days, lack of reasons and non-mention of the specific sections under which the provisional attachment was made. The author ponders if the Tax Department can, to protect the interests of the revenue (since the properties now stand unattached and can be alienated), provisionally attach the property again, this time scrupulously following proper procedure as per the Authority's order. He concludes stating that the deficiencies pointed out by the Authority will certainly be taken care of by the Benami Prohibition Units (BPUs) hereinafter so that technical issues do not derail the substantive case that the BPUs build-up.

Click here to read the article titled “An analysis of a recent decision lifting Provisional Attachment under the Benami Act ”

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Following the mandate u/s. 40(a)(ii) which does not allow income-tax as an expenditure, taxpayers have as a practice, been disallowing income-tax along with surcharge and education cess. Abbas Joarawala (Chartered Accountant) analyses a recent judgment of Rajasthan HC in Chambal Fertilizers & Chemicals [TS-6741-HC-2018(Rajasthan)-O] which held that 'education cess' is not a 'tax' as envisaged under section 40(a)(ii) of the Act and hence, should not be disallowed from taxable business profits / income. Author points out that in rendering the judgment, HC has not considered SC decision in Smith Kline & French and Bombay and Goa HC decisions in Lubrizol India and Sesa Goa wherein it was held that education cess is not a fee but is a tax which is disallowable u/s. 40(a)(ii). He ponders if an argument can be made that even the 'surcharge' on income-tax should not be disallowed u/s. 40(a)(ii) considering that the Finance Act states that 'education cess' is in the nature of an additional surcharge. Further, the author states that the settled position that the term 'tax' in India's tax treaties includes 'education cess' should not be impacted by this judgment.

Click here to read the article titled “'Education Cess' on income-tax - Is it an allowable business expenditure?”

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The Finance Act 2017 introduced Sec. 94B in the Indian income tax law, in line with BEPS Action Plan 4, to overcome loss of revenue caused by thin capitalisation, by way of paying excess interest to non-resident lenders (particularly AEs). Authors CA Shweta Gupta (Partner, SGPM & Associates), CA Gaurav Garg and CA Arushi Jain explore critical aspects of the section and their impact on foreign investments in India. They highlight that unlike in case of loans taken directly from AEs wherein excess interest paid only to non-residents is disallowed, in cases of loans taken from third parties that are guaranteed or back funded by AEs, excess interest paid to both residents and non-residents is disallowed. Stating that there is no base erosion in cases of loans guaranteed by residents, and disallowing of interest in all cases of explicit guarantee is discriminatory and unreasonable, the authors point out the difficulties where there are genuine business reasons where AEs are required to grant guarantee to enable newly set up subsidiaries to avail loan. Recently, a writ petition has been filed by Seimens Gamesa Renewable Power Pvt. Ltd challenging the constitutional validity of Section 94B and seeking striking down of the proviso therein, which has been admitted by Chennai High Court.

Click here to read the article titled “Analysis of Sec. 94B limiting interest deduction”

CBDT Updates:

1. CBDT extends timeline seeking comments on 'Significant Economic Presence' threshold till September 30th

2. Press Release on Demonetisation and its impact on Tax collection and Formalisation of the Economy

Click here to read more latest news

Taxsutra Database Bulletin : Decoding India`s Significant Economic Presence'; Prosecution - Limitation period for payment of compounding fees; CBDT Updates and other handpicked rulings

Issue No. 147 / Aug 22nd, 2018

Dear Professionals,

We are glad to present to you the 147th edition of ‘Orange Bulletin’ which comprises of weekly updates from tax world, where we keep you updated with recent rulings vis-a-vis their quick overview by our Orange Experts and some Landmark Rulings alongwith commentary on the respective subjects by Chaturvedi & Pithisaria’s Income Tax Law Commentary.

Expert Column:

India has introduced the concept of 'Significant Economic Presence' (SEP) for taxation of non-residents in India by amplifying the scope of the definition of "business connection" vide Finance Act, 2018. Vishal Anand (Partner, Corporate and International Tax, PWC) and Arjun Khandelwal (Director) in their article analyse the BEPS Action Plan 1 vis-a-vis the recently introduced Indian SEP. The authors articulate the global take on taxation of digital economy and state that the launch of BEPS AP 1 has accelerated the pace at which global economies are adopting ways of taxing digital businesses. Speaking of the Indian scenario before the introduction of SEP, the authors discuss certain ITAT rulings wherein fees paid for online advertisement on foreign companies' portals was held not taxable in India. Further, pointing at the interplay of SEP with Equalisation Levy (EL), authors suggest that SEP should not be applicable for transactions on which the ELis levied in line with Sec.10(50) that provides for exemption of any income that is subject to EL. The authors bring out the complexities that are likely to arise on implementation of SEP such as whether the presence of consumer base in India would be sufficient if the principle functions and risks are undertaken outside the country, what would be the attribution mechanism in the case of loss-making companies etc.

Click here to read the article titled “Decoding India's Significant Economic Presence”

Key Takeaways from Handpicked rulings

1.[TS-5657-HC-2018(ANDHRA PRADESH)-O] : Prosecution u/s 279(1) - Period of limitation for payment of the compounding fee : Compounding fee to be computed at the rate that existed on the date of filing of the application; Statute does not stipulate an inviolable period of limitation for the payment - HC dismisses assessee's plea in writ challenging the rejection of compounding application made on the ground that when there is a genuine dispute about the quantum of compounding fee payable, Revenue cannot reject the application for compounding, without resolving the dispute and prosecution sanctioned u/s. 279(1); Observes that the IT Officer issued a clarification on how the compounding fee was arrived at; Noting that assessee was granted opportunity which it did not avail, HC states that ".... the 1st respondent, realising the futility of granting opportunity, rejected the application for compounding."; Holds that the amount of compounding fee is statutorily fixed and the question of raising any dispute on the same does not arise; Notes that the CBDT Circular dt. 23/12/2014 which was relied on by the assessee for the quantum of fee, was applicable only to compounding applications filed after 01-01-2015 and was not applicable to assessee;

Click here to read the Ruling Copy

2. [TS-5611-HC-2018(Madras)-O] : Powers of High Court : Plenary powers of HC includes the power of review relating to errors apparent on the face of the record; No appeal can lie before the ITAT if the favorable order of CIT(A) is based on AO's remand report - HC reviews its order dismissing assessee's appeal against ITAT order; Rejects Revenue’s plea regarding maintainability of the Review petitions on the ground that Income Tax Act does not confer the power of Review under Section 260A(7); Refers to and relies on a host of rulings wherein it was held that High Courts in India are superior courts of record, they have original and appellate jurisdiction and they have inherent and plenary powers, unless expressly or impliedly barred and subject to the appellate or discretionary jurisdiction of the Supreme Court, the High Courts have unlimited jurisdiction;

Click here to read the Ruling Copy

3. [TS-7702-ITAT-2018(BANGALORE)-O] : Exemption u/s. 54 not claimed in ROI : Deduction u/s. 54 cannot be denied for the reason that the claim was made during appellate proceedings and not made in the ROI - ITAT allows assessee's appeal, holds that " If the assessee is entitled to deduction while computing the long term capital gain, that cannot be denied on the ground that such a claim was not before the AO."; Explains that a lawful claim of deduction cannot be denied by the revenue authorities purely on technicalities, that tax is to be levied and collected in accordance with the law; Relies on Bombay HC decision in Pruthvi Brokers & Shareholders Pvt. Ltd.[TS-463-HC-2012(BOM)-O], wherein it was held that even if a claim is not made before the AO, it can be made before the appellate authorities;

Click here to read the Ruling Copy

4. [TS-5365-SC-2018-O] : Total Turnover and Export Turnover, set off of losses for purpose of Sec. 10A : Exclusion from Export Turnover to be reduced from Total Turnover for Sec 10A; STP unit’s profits for Sec 10A relief to be computed before adjusting loss and depreciation - SC dismisses Revenue's SLP against HC order which had dismissed Revenue's appeals against ITAT order; HC had noted that the issue of whether expenses reduced from the export turnover have to be reduced from the total turnover also, was covered by coordinate bench decision in case of Tata Elxsi Ltd. [TS-5561-HC-2011(Karnataka)-O] wherein it was held that any exclusion from 'export turnover' to also be excluded from 'total turnover' for Sec 10A relief;

Click here to read the Ruling Copy of Supreme Court and High Court

5. [TS-7755-ITAT-2018(DELHI)-O] : Proceedings pending before CIT(A) & Sec. 263 revision : Issue of sales promotion expenditure to doctors, part of appellate proceedings before CIT(A), cannot be considered for revision by PCIT u/s.263 - ITAT quashes revisional order of PCIT u/s. 263, terms the approach of the PCIT 'callous' and findings devoid of application of mind; Noting that the issue raised in notice u/s. 263 viz., sales promotion expenses to doctors (prohibited by Circular No.5/12) was subject matter not only of assessment but was also a part of appellate proceedings before the CIT(A), ITAT holds that the doctrine of merger was clearly established; Clarifies that "...PCIT cannot assume jurisdiction for the issues which were subject matter of appeal before the CIT(A) and have been categorically decided by the first appellate authority";

Click here to read the Ruling Copy

6. [TS-5364-SC-2018-O] : Reassessment u/s. 147/Application of mind : SC refuses to interfere with HC order upholding IT authority's order disposing assessee's objections to reopening, as reassessment order was already passed; Directs filing of statutory appeal before CIT(A) against the reassessment order - SC dismisses assessee's SLP against HC order dismissing its writ for quashing order disposing its objections to reasons for reopening; States that " Since the reassessment is already complete and the assessing officer has passed the assessment order, we do not find any reason to interfere with the impugned order passed by the High Court"; Clarifies however that it will be open to the assessee to challenge the AO's reassessment order by filing statutory appeal challenge the correctness of notice u/s. 147/148 and the appellate authority may go into the said question uninfluenced by the HC observations;

Click here to read the Ruling Copy of Supreme Court and High Court

Updates:

1. CBDT clarifies treatment of telecommunication, freight, etc. for Sec 10A purpose following HCL ruling – Circular No. 4/2018

2. CBDT clarifies on immunity provided u/s. 270AA from penalty / prosecution - Circular No.5/2018

3. CBDT defers GAAR & GST reporting under amended Tax Audit Form till March 31, 2019 – Circular No. 6/2018

4. CBDT amends IT Rules in excercise of powers conferred u/s. 44AB r/w/s 295 to effect changes in Form 3CD (Tax Audit Report) – Notification No. 33/2018

5. CBDT notifies authority for furnishing information as per Section 138(1) - Notification No. 34/2018

6. Central Government notifies India International Exchange (IFSC) Limited as a 'recognised stock exchange' for the purpose of Sec. 43(5) - Notification No. 35/2018, 36/2018

7. Central Government designates the Court of Munsiff No. 3-cum-Judicial Magistrate, 1st Class, Kamrup (M), Guwahati as the Special Court for the North Eastern Region for the purposes of Sec. 280A(1) - Notification No. 37/2018

8. CBDT notifies ‘Insolvency and Bankruptcy Board of India’ as a board established by the Central Government, for purpose of Sec. 10(46) in respect of specified income - Notification No. 38/2018

9. Central Government notifies Madhya Pradesh Real Estate Regulatory Authority, for purpose of Sec. 10(46) in respect of specified income - Notification No. 39/2018

Click here to read more latest news

Taxsutra Database Bulletin : Is TRC still required to claim the treaty benefit; Revision vis-à-vis Reassessment; Royalty Taxation and other handpicked rulings

Issue No. 146 / Aug 4th, 2018

Expert Column:

Non-residents have been accessing the tax treaties based on Tax Residency Certificate (TRC) issued by the tax authorities of their respective country. However, the tax treaty claims based solely on the TRC have not always been accepted by the tax authorities, and there has been significant litigation surrounding this issue. In this article. CA Ashish Choudhary (Chartered Accountant) discusses a recent ruling pronounced by the Ahmedabad ITAT in the case of Skaps Industries India Pvt Ltd [TS-330-ITAT-2018(Ahd)] wherein it was observed that the taxpayer could not be denied the benefit under the India-U.S. tax treaty on the ground that it has not furnished TRC. The author deliberates upon various points regarding requirement of TRC and Form 10F. The author highlights that ITAT had ruled that the TRC is not the only document which will allow the foreign payee to claim tax treaty relief, any other document which demonstrates tax residency in the foreign country should suffice to claim treaty relief and states that "...it would be interesting to see which other documents could be considered for the treaty relief."

Click here to read the article titled “Is TRC still required to claim the treaty benefit – Another twist to the tax litigation?"

Key Takeaways from Handpicked rulings

1. [TS-5568-HC-2018(DELHI)-O] : HC’s power to interfere with SETCOM order : HC dismisses Revenue’s writ petition against Settlement Commission (SETCOM) order; Holds that HC’s power to interfere with SETCOM order under Article 226 of the Constitution is categorical and it can interfere with SETCOM order only where there is manifest and egregious findings of law that are erroneous, or there is non-application of mind or lack of bona fides, or where no true and full disclosure is made by the assessee; Rejects Revenue’s contention that SETCOM order was unsustainable as it excluded receivables from a project only on the ground that in that unit assessee had reflected “supernormal profits of 500%”; even though assessee was open to adjustments in respect of the receivables;

Click here to read the Ruling Copy

2. [TS-5783-HC-2017(Madras)-O]: ‘Revision u/s. 263 vis-à-vis Re-assessment u/s. 147 : When Commissioner invokes his revisionary jurisdiction u/s 263 on issues which are not considered in the reassessment order, the time limit for invoking the revisionary jurisdiction will run from the date of the original assessment order and not from the reassessment order - HC sets aside single judge order and quashes notice u/s. 263 for AY as being hit by limitation; Holds that the two year limitation period stipulated u/s. 263(2) will run from the date of assessment only and not from the date of reassessment when the Sec. 263 notice deals with other issues which are not subject matter of reassessment proceedings; Relies on SC decision in Alagendran Finance [TS-5028-SC-2007-O]; However, rejects assessee's reliance on SC decision in Sat Pal Aggarwal case [TS-5114-HC-2007(Punjab)-O], and it's 'change of opinion' contention;

Click here to read the Ruling Copy

3. [TS-7697-ITAT-2018(KOLKATA)-O] Monetary Limits for filing appeals by Revenue : Tax effect of appeals filed by Revenue less than the monetary limit of Rs.20 Lakhs for filing appeals by Revenue before the ITAT as prescribed by Circular 3/2018, appeals not maintainable - Kolkata ITAT dismisses a bunch of low tax effect appeals by Revenue as being below the monetary limits for filing appeals as prescribed by recent Circular no. 3/2018 dated 11th July, 2018; Notes that the limits provided in the Circular are retrospective in nature; Further notes that Circulars issued by CBDT are binding on the Revenue as confirmed by SC in case of Indian Oil Corporation [TS-5004-SC-2004-O]

Click here to read the Ruling Copy

4. [TS-7648-ITAT-2018(DELHI)-O] : Software Purchase vs. Royalty : Software downloaded by assessee from website of the American vendor for its own use is a transaction of sale, not Royalty; TDS provisions u/s. 195 not applicable - ITAT deletes disallowance u/s.40(a)(ia) on payment made to American company; Holds that amount paid towards purchase of software which was directly downloaded from the website, is a transaction of sale and cannot be termed as Royalty and hence, TDS provisions u/s. 195 are not applicable; Relies on jurisdictional HC rulings in cases of Dynamic Vertical Software [TS-5143-HC-2011(Delhi)-O] and M Tech India [TS-5113-HC-2016(DELHI)-O] wherein it was held that payments made overseas for acquiring software to resell in Indian markets, cannot be construed as royalty, hence not liable for withholding taxes u/s 195;

Click here to read the Ruling Copy

Taxsutra Database Bulletin : CBDT extends return filing due date till Aug 31st, 2018

Issue No. 145 / July 27, 2018

CBDT Updates:

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CBDT extends return filing due date till Aug 31st, 2018

CBDT clarifies that the due date extension to August 31, is applicable for all taxpayers who have to file returns by July 31

Click here to read CBDT order u/s. 119 for return filing due date extension

Taxsutra Database Bulletin : One-time fees paid by mining company for use of forest land, revenue expenditure; Deemed dividend in hands of lender company; CBDT Updates and other handpicked rulings

Issue No. 144 / July 21, 2018

We are glad to present to you the 144th edition of ‘Orange Bulletin’ which comprises of weekly updates from tax world, where we keep you updated with recent rulings vis-a-vis their quick overview by our Orange Experts and some Landmark Rulings alongwith commentary on the respective subjects by Chaturvedi & Pithisaria’s Income Tax Law Commentary.

Key Takeaways from Handpicked rulings

1. [TS-5503-HC-2018(Calcutta)-O] : Nature of one-time fee paid as compensation :Mandatory one-time fees paid by mining company for use of forest land for mining purpose is a revenue expenditure – HC holds in favour of assessee; Holds the mandatory fee payable in pursuance of SC order is a kind of a compensation for using forest land for non-forest purpose is revenue in nature, states that “since the mining licence was previously issued in favour of the assessee and the payment of the NPV did not extend the area of the assessee’s mining operations, it merely removed an impediment in the carrying on of the operations in terms of the original licence”; Relies on SC ruling in Bikaner Gypsums Ltd.[TS-5030-SC-1990-O] wherein one-time payment made for removing the railway station and tracks to allow the area to be mined by the assessee for which it possessed a license was held to be revenue in nature; Distinguishes SC ruling in case of R.B.Seth Moolchand Sugachand [TS-5040-SC-1972-O] relied on by Revenue

Click here to read the Ruling Copy

2. [TS-7564-ITAT-2018(MUMBAI)-O] : Deemed dividend u/s. 2(22)(e) in hands of lender company : Deemed dividend u/s. 2(22)(e) cannot be taxed in the hands of the lender company (assessee) even if there is a commonality in shareholding of the lender company and the borrower company – ITAT allows assessee’s appeal, quashes the reassessment order passed by the AO; Upon noting the shareholding structure that assessee-lender held 50% shares in Libra U.K (the borrower company) with the other 50% being held by Libra Agencies which is the 100% holding company of the assessee, ITAT holds that the pre-requisite of invoking of Sec. 2(22)(e) qua the impugned advancing of inter-company deposit viz., payment being made to a shareholder or for his benefit is not ostensibly fulfilled; Rejects Revenue’s action of invoking of Sec. 2(22)(e) based on the shareholding of a borrowing concern;

Click here to read the Ruling Copy

3. [TS-7441-ITAT-2018(Bangalore)-O] : TDS on interest by co-operative society to its members; Specific clause overrides General :Interest on deposits paid to its members by assessee – society, covered under the specific provision of Sec. 194A(3)(v), not liable to TDS – ITAT allows assessee’s appeal; Clarifies that interest paid by a co-operative society to its members falls under the specific provision of Sec. 194A(3)(v) (providing for exception from TDS to interest paid by a co-operative society to its members or other co-operative societies), prevailing over the general provisions of Sec. 194A(3)(i)(b) (providing for exception to interest of an amount less than Rs. 10,000/- paid by a co-operative society carrying on business of banking); Holds thereby, that assessee-society is not liable to deduct TDS on the said interest amount irrespective of whether the amount is Rs. 10,000/- or more; Relies on coordinate bench decision in the case of Vasavamba Cooperative Bank Ltd.

Click here to read the Ruling Copy

4. [TS-7036-ITAT-2018(Jaipur)-O] : TDS on commission u/s. 194H : Commission paid by dealer in mobile handsets and sim cards to retailers, on behalf of the mobile operators not liable to TDS u/s. 194H – ITAT allows assessee’s appeal, notes that assessee is an intermediary and has only carried out necessary entries in his books of account for completion of record; Holds that “Once the payment in question was not made by the assessee and it was directly paid by the company and further the quantum and percentage of the said commission/discount was also in the full control of the company and not in the hands of the assessee, then merely because the assessee has passed the contra entry of the said amount would not bring the said transaction in the category of commission paid by the assessee so as to attract the provisions of section 194H”; Follows coordinate bench decision in the case of Chocopack Enterprises,

Click here to read the Ruling Copy

Updates:

CBDT revises monetary limits for appeal filing by the Department before ITAT, High Courts and SLPs/appeals before Supreme Court as a measure for reducing litigation – Circular No. 3/2018

CBDT issues protocol amending convention between India and Armenia – Notification No. 30/2018

CBDT issues final notification amending AAR-forms for implementing BEPS Action 5 on tax-rulings exchange – Notification No. 31/2018

Central Government notifies that the provisions of Mutual Agreement through exchange of letters shall be given effect to in the Union of India with effect from 29th April, 2018 – Notification No. 32/2018

CBDT’s appeal-filing limits revision to reduce litigation from Department's side by 41%

IT Dept. launches instant e-PAN allotment facility ‘free of cost’ for Aadhaar holders

CBDT inks 3 more unilateral-APAs in May & June; Total APA tally touches 223

Click here to read more latest news

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