Database NewsLetters

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

Taxsutra Database Bulletin : Can the 2016 Benami law be applied retrospectively; Interpreting whether a Corporation is established 'By the Act or Under the Act

Issue No. 143 / July 13, 2018

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?”

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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'”

Taxsutra Database Bulletin : Res-Judicata vs Consistency, Bogus Purchases; CBDT Updates and Other Handpicked Rulings

Issue No. 142 / July 6, 2018

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

Click here to read the Ruling Copy

Updates:

CBDT: Issues final notification u/s. 115JH specifying tax consequences on foreign company having Indian POEM – Notification No.29/2018

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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