Taxsutra Database Bulletin : Can the 2016 Benami law be applied retrospectively; Interpreting whether a Corporation is established 'By the Act or Under the Act
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Issue No. 143 / July 13, 2018
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Expert Column:
The Benami Transactions (Prohibition) Amendment Act, 2016 (2016 Act) was enacted to strengthen the Benami Transactions (Prohibition) Act, 1988 (1988 Act) and make it more deterrent to benami transactions. Ajay Mankotia (IRS (Retd), Ajay Mankotia Associates, Tax And Legal Advisory) in his article analyses one of the most critical issues confronting the implementation of the 2016 Act viz., whether the 2016 Act can be applied retrospectively. Speaking of the harsher punishment introduced in the 2016 Act the author states that “the Government has been mindful of the fact that the new punishment provisions of the 2016 Act cannot be applied retrospectively in view of Article 20(1) of the Indian Constitution and a plethora of court decisions”. He also contemplates if the 2016 Act would have retrospective operation with respect to the new transactions now covered under the definition of benami transactions besides applicability of the 1988 Act to a company which is now covered under the definition of ‘person’ in the 2016 Act. Pointing at the four exceptions provided to the definition of benami transactions in the 2016 Act as opposed to only one in the 1988 Act, the author ponders “Can an assessee claim that the more generous provisions of the 2016 Act apply to him?”
Click here to read the article titled “Can the 2016 Benami law be applied retrospectively?” ______________________________________________________________
Supreme Court in its recent judgment set a precedent by holding that interest paid by banks to NOIDA (The New Okhla Industrial Development Authority constituted under UP Industrial Area Development Act, 1976) is not liable to TDS u/s. 194A. Vishal Rastogi (AGM Taxation, LG Electronics (I) P Ltd.) in his article explores the principles laid in the ruling which delineated the principle of “By the Act or Under the Act” after holding that NOIDA is constituted ‘by' the State Act (as against Revenue’s contention that it was established ‘under’ the Act), it is covered by the notification dated October 22, 1970 and is therefore, entitled to TDS exemption u/s. 194A(3)(iii)(f). He points out the litmus test provided by the Supreme Court is whether in a situation of non existence of statute will corporation continue to exist, and if answer to this question is no, it means the corporation is a statutory corporation. The author elucidates the principle laid down by the Court that “the statute must be interpreted collectively through its text and context both, whereas the Income Tax Act 1961 has interchangeably used the word “By the Act”; “Under the Act”; “By or Under the Act”, the principle has to be followed whether the legislature intent is towards the statutory corporation established by or under the Act or towards the non statutory corporation which are governed by the Act.”
Click here to read the article titled “Interpreting whether a corporation is established 'By the Act or Under the Act'”
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Taxsutra Database Bulletin : Res-Judicata vs Consistency, Bogus Purchases; CBDT Updates and Other Handpicked Rulings
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Issue No. 142 / July 6, 2018
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Key Takeaways from Handpicked rulings
1.[TS-7433-ITAT-2018(DELHI)-O] : Principle of Res-Judicata vs. Principle of Consistency : The doctrine of res judicata cannot be picked up and abused to shelter any and every wrong doing of the State - ITAT sets aside CIT(A) order, holds that assessee cannot be taxed on sale of land when the other co-owners for the sale of the same land have not been taxed; Disapproving the ‘pick and choose’ attitude of the Revenue, holds that while principles of res judicata does not apply strictly to the tax proceedings, there is no statutory bar on similar treatment of income in the hands of co-owners arising from sale of the same land under the same documents of sale on the principles akin to the principles of "consistency" rule enunciated in Radhasomi Satsang vs. CIT [TS-12-SC-1991-O];
Click here to read the Ruling Copy
2. [TS-5488-HC-2018(CALCUTTA)-O]: ‘Manufacture’ for purpose of Sec. 10B : Activities on semi-finished garments to bring it to export-worthy condition to be considered as 'manufacturing' – HC dismisses Revenue’s appeal, holds assessee eligible for deduction u/s. 10B; Holds that assessee’s activity of affixing/stitching stickers to improve the look, ironing and packing in poly poplin bags along with hanger to bring them to export-worthy saleable condition as manufacturing for purpose of Sec. 10B;
Click here to read the Ruling Copy
3.[TS-7362-ITAT-2018(HYDERABAD)-O] Unexplained Cash Credit u/s. 68 :Temporary credits in bank account on account of bounced cheques, subsequently reversed cannot be treated as unexplained cash credit u/s. 68; A non-verifiable expenditure recorded in the books of account should be considered u/s. 37(1) and not u/s. 69C – ITAT dismisses Revenue’s appeal; Noting the general banking practice of crediting amounts in the bank accounts upon cheques being presented subject to clearance, and reversing the same in case the cheque bounces, ITAT holds that “the credits in the bank account are the funds of the bank which cannot be treated as ‘unexplained’ in any manner”; Separately, upholds CIT(A) order that when certain expenditure is accounted in the books and it is not verifiable, the correct provisions to be invoked are disallowances u/s. 37(1) and not sec. 69C which deals with ‘unexplained expenditure’ outside the books of account;
Click here to read the Ruling Copy
4. [TS-5310-SC-2018-O] : Conditions for Bogus Purchases: Purchases made by assessee not bogus - SC dismisses Revenue’s SLP against HC order;[ak1] HC noted ITAT’s observations that the purchases were supported by bills and payments were made in account payee cheques; It also noted that the party from whom the purchases were made confirmed the transactions and there was no evidence to the effect that the amount was recycled back to the assessee; Further the fact that the party accounted the sales and also paid taxes thereon was noted
Click here to read the Ruling Copy of Supreme Court, Ruling Copy of High Court
5. [TS-7392-ITAT-2018(AHMEDABAD)-O] : Disallowance of unclaimed expenditure u/s. 40(a)(i), Pre-commencement period interest : Sec. 40(a) is applicable only if the assessee has claimed deduction of expenditure mentioned in the section; Interest earned during the pre-commencement period out of funds raised for infusion in business, capital receipt, not taxable - ITAT deletes disallowance u/s. 40(a)(i) on amounts paid towards consultancy and legal service charges; Observes that coordinate bench in the case of Sonic Biochem Extractions [TS-5393-ITAT-2013(Mumbai)-O] disapproved the disallowances u/s. 40(a)(i) and 32 when no expenditure was claimed by the assessee and held that depreciation cannot be disallowed to the assessee with the help of section 40(a) because section 40(a) is applicable only if the assessee has claimed deduction of expenditure; Separately, holds that interest income earned during the pre-commencement period out of funds raised for the purpose of setting up of the power generation plants is a capital receipt, required to be set off against pre-operative expenses
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Updates:
CBDT: Issues over Rs. 70,000 Cr. refunds pursuant to special drive for pending appeal-effect, rectification matters
CBDT further extends PAN-Aadhaar linking due-date to March 31, 2019
CBDT: Assures prompt investigation in fresh series of cases pertaining to ‘Panama Papers’
Click here to read more latest news.
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Taxsutra Database Bulletin: Interest-free loan from employer, a perquisite; Notice issued on a deceased person; Continuing Saga of Sec. 14A and other handpicked rulings
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Issue No. 141 / June 26, 2018
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Expert Column:
 The authors Hiten Kotak ( Leader M&A Tax , PWC India) and Falguni Shah (Partner M&A Tax, PWC India) in their article take us though the legislative and judicial history of Section 14A. The authors refer to Delhi HC ruling in Cheminvest, the Supreme Court ruling in Godrej & Boyce and the the recent decision of Supreme Court in Maxopp investments. Pointing at the changes in the scheme of taxation vide Finance Act 2016 which introduced Sec. 115BBDA to tax dividends whereby, dividends earned by individuals and firms are taxable, whereas for companies, it continues to be exempt, the authors ponder whether “the form of the entity would impact the tax computation”. Further pointing at amendment vide Finance Act 2018 which brought under the purview of tax, long-term capital gains tax on which STT has been paid, the authors contemplate whether “assessees can claim investments in listed shares to earn taxable income, and that dividend is merely incidental to ownership, and hence, no disallowance is warranted under section 14A”. Click here to read the article titled “Disallowances Under Section 14A - The Saga Continues?”.
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Key Takeaways from Handpicked rulings
1. [TS-6833-ITAT-2018(MUMBAI)-O] : Interest-free unsecured loan from employer, a perquisite: Value of interest-free unsecured loan obtained from employer taxable as perquisite u/s. 17(iii)(c) – ITAT dismisses assessee’s appeal; Upholds AO’s action of determining the value of perquisite in respect of interest free unsecured loan obtained by assessee-employee from her employer; the AO observed that value of benefit obtained by an employee is assessable as perquisite u/s. 17(iii)(c), and brought to tax notional interest on the loan in the hands of the employee;
Click here to read the Ruling Copy
2.[TS-6858-ITAT-2018(MUMBAI)-O] : Recalling of its order by ITAT: ITAT order pronounced beyond period of 90 days from conclusion of hearing, liable to be recalled for fresh hearing – ITAT recalls its order for conducting fresh hearings before the Regular Bench in view of Rule 34(5) of ITAT Rules (which provides for a time limit of three months for passing the order) r.w.s 254(2) of IT Act; Allows assessee’s MA on the ground that the order was pronounced beyond a period of 90 days of hearing; Follows co-ordinate bench decision in G Shoe Exports [TS-7109-ITAT-2017(Mumbai)-O]; Notes that Mumbai Tribunal in G.Shoe Exports, following the jurisdictional HC decision in Shivsagar Veg. Restaurant [TS-6123-HC-2008(Bombay)-O] held that “..orders have to be passed invariably within three months of the completion of hearing of the case...such delay is incurable and even administrative clearance cannot cure the same.”;
Click here to read the Ruling Copy
3. [TS-5378-HC-2018(Madras)-O] : Disposal of assessee’s objections during a re-assessment proceeding: Disposal of assessee’s objections in a re-assessment proceedings is not a statutory requirement; Directions provided by SC in GKN Driveshaft is only a procedural safeguard - HC dismisses assessee’s writ petition for AY 2012-13, remits the matter to the AO for passing a fresh order, after disposind the objections; Holds that non-compliance with the procedure as directed by SC in the GKN Driveshafts' case [TS-4-SC-2002-O] would not make the re-assessment order u/s. 147 void or non est, states that “Such a violation in the matter of procedure is only an irregularity which could be cured by remitting the matter to the authority”;
Click here to read the Ruling Copy
4. [TS-7209-ITAT-2018(Bangalore)-O] : Validity of notice issued upon a deceased person: Where the AO was not aware of the demise of the assessee, notice u/s. 143(2) issued in his name cannot be held to be invalid – ITAT dismisses assessee’s appeal, holds the notice u/s. 143(2) issued in the name of the deceased person to be valid; Also denies exemption u/s. 54F on the ground that no evidence was placed to establish that a residential house was constructed within a prescribed period of 1 year prior, or 2 years post, the sale of immovable property; Notes that the AO did not have knowledge of the assessee’s demise at the time of issuance of the notice, and subsequently, upon becoming aware, passed the assessment order in the name of the deceased assessee through his legal heirs; Distinguishes Madras HC ruling in the case of Hemanathan [TS-5101-HC-2016(Madras)-O]
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Taxsutra Database Bulletin : Arrest Powers to IT Dept. under Black Money Act; Re-assessments, a dilemma of opinions & CBDT Updates
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Expert Column:
 It is a general perception that offences related to tax evasion are civil offences and thus non-cognizable (i.e., power to arrest without a warrant is not bestowed upon tax officers). Smarak Swain (IRS officer), in this article, addresses a fundamental question whether the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 empowers the IT Department to make arrests without a warrant. The author highlights that unlike the Income-tax Act, the Black Money Act (a special act administered and enforced by the Income Tax Department) does not explicitly mention whether offences under thereunder are cognizable or not, and therefore such offences have to be classified as per the CrPC (i.e. the Code of Criminal Procedure, 1973). On examination of classification of cognisable and non-cognizable offences under the CrPC, the author points out that an offence u/s. 51 of the Black Money Act, which provides for imprisonment of not less than 3 years, but upto 7 years for wilful attempt to evade tax, is cognizable, non-bailable offence. Supporting the enactment, the author signs off stating that “It may become necessary, in national interest, to prevent a person from tampering evidence once detection of offence is made under the Black Money Act. No doubt, the legislature provides legitimate power to authorities to arrest without a warrant for offences under Section 51 of the Black Money Act." Click here to read the article titled “Does Black Money Act empower the IT Department to arrest without a warrant?”
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 The provisions regarding re-opening/re-assessment have historically been the subject matter of lis across forums in India. Advocate Yojit Pareek (Associate, AZB& Partners) analyses in this article the recent decision in case of Greater Mohali Area Developmental Authority [TS-5298-HC-2018(Punjab & Haryana)-O] wherein the P&H HC upheld the reopening, and the reasons therefor that the External Development Charges (EDC) received were wrongly claimed under the schedule of current liabilities while it was revenue in nature and held that mere mention of the EDC in the balance sheet and reply to a questionnaire would not render the AO powerless to re-open the case. The author opines that the judgment “is a digression from the established jurisprudence so far.” He refers to the Chandigarh ITAT decision in assessee’s own case in [TS-7984-ITAT-2017(Chandigarh)-O] where under identical set of facts, the ITAT observed that the reopening was based on mere "change of opinion" as the "reasons to believe" were solely based on the information furnished during regular assessment; in the absence of no new material, the reassessment proceedings were invalid. The author further refers to the SC decision in Calcutta Discount Co. Ltd. [TS-2-SC-1960-O] wherein it was held that the assessee is not required to provide further assistance, once the burden to make full and true disclosure of facts is discharged and suggests that “...the decision of the Hon'ble Punjab and Haryana High Court may not serve as a useful reference in setting down any principles of law, as it is contrary to the judgment of the Hon'ble Supreme Court”. Click here to read the article titled “Re-opening of assessments : Dilemma of opinions!”
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Updates:
 1. CBDT specifies the “Indian Railway Finance Corporation Limited 54EC Capital Gains Bond” issued by Indian Railway Finance Corporation Ltd. for the purpose of Sec. 54EC – Notification No.28/20182. CBDT specifies the “Power Finance Corporation Limited 54EC Capital Gains Bond” issued by Power Finance Corporation Limited for the purpose of Sec.54EC – Notification No. 27/2018
3. CBDT notifies Cost Inflation Index for FY 2018-19 at 280 – Notification No. 26/2018
4. CBDT notifies M/s Indian Institute of Science Education and Research, Kolkata under the category of “University, College or other Institution” engaged in research activities for purpose of Sec. 35(1)(ii) – Notification No. 25/2018
5. CBDT proposes amending repatriation time-limit for secondary adjustment in APA/MAP cases
6. CBDT proposes amendments in Forms 36/36A for filing appeals / cross objections before ITAT
7. CBDT dedicates fortnight for pending appeal effect – rectification matters
8. CBDT : No loss / damage of Nirav Modi & Mehul Choksi case records / documents in Scindia House fire accident
Click here to read more latest news.
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Taxsutra Database Insight: Rulings Impacting Taxation of Salary Income
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