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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Taxsutra Database Bulletin : Attachment u/s. 281- Alienation of immovable property; E-filing of appeals before CIT(A); CBDT Updates and Other Handpicked Rulings
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Issue No. 138 / May 30, 2018
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Updates:
 CBDT: Govt. grants 3 months extension to Task Force for drafting new direct tax legislation
MoF : Cabinet approves signing and ratification of Agreement between India and Brunei Darussalam for the Exchange of Information and Assistance in Collection with respect to Taxes Click here to read more latest news.
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Key Takeaways from Handpicked rulings
1. [TS-5361-HC-2018(MADRAS)-O] : Attachment u/s. 281; Alienation of immovable property after issue of demand notice : HC sustains attachment u/s. 281 of property alienated subsequent to service of notice of demand under Rule 11(2) of the second schedule; Quashes TRO's order to the extent it declared the transaction as null and void – HC refuses to lift attachment of property alienated by the tax-defaulter and purchased by the writ petitioner; Noting that the assessee-defaulter was served with notice under Rule 2 prior to transfer, holds that “The moment such a notice was served on the defaulter-assessee, by virtue of Rule 16(1) of the second schedule, he became incompetent to deal with the property”; Citing sec.11 of the Contract Act 1872, HC holds that since defaulter-assessee was not competent to deal with the property, he could not have passed any valid or legal title to the purchaser (petitioner) ...
Click here to read the Ruling Copy
2. [TS-5296-HC-2018(BOMBAY)-O] : Attachment of bank account- Stay Application: Stay application not filed against demand, Revenue can attach bank account - HC dismisses writ petition for AY 2014-15 challenging attachment of assessee’s bank account and withdrawal from the account in excess of 20% of tax demand as provided in CBDT Circular dated 29th February, 2016 (which provides that AO shall grant stay of demand till disposal of the appeal by the CIT(A) upon payment of 20% of the disputed amount); HC notes that, assessee had not filed any application for stay of the demand u/s. 220(6) before AO or CIT pursuant to receipt of demand notice u/s. 156 during the period of 30 days, although an appeal was filed before CIT(A) against the assessment order ..
Click here to read the Ruling Copy
3. [TS-6848-ITAT-2018(MUMBAI)-O] : E-filing of appeals : Appeal cannot be dismissed on the ground that it is not filed electronically – ITAT allows assessee’s appeal for AY 2013-14; Sets aside CIT(A) order who dismissed assessee’s appeal on the ground that it was not filed electronically as mandated by Rule 45; Directs assessee to re-file the appeal electronically within 10 days from the date of receipt of the order and that the delay in e-filing the appeal shall stand condoned; Notes that the assessee had filed the appeal in paper form within the prescribed time limit and non-filing of appeal electronically is only a technical consideration; Follows SC decision in State of Punjab Vs. Shyamalal Murari and others reported in AIR 1976 (SC) 1177....
Click here to read the Ruling Copy
4. [TS-5722-ITAT-2018(HYDERABAD)-O]: Chargeability of capital gains under a JDA : Capital gains taxable in the year of entering into development agreement, Sec. 45(5A) as introduced by Finance Act, 2017 cannot be applied to development agreement entered into in AY 2009-10 - ITAT upholds chargeability of capital gains on land transfer in AY 2009-10 in year of entering into development agreement between assessee and developer; Rejecting assessee’s contention that as per Sec. 45(5A) introduced by Finance Act, 2017 capital gains can be deferred to the year of completion of project, ITAT clarifies that it is a substantive provision which cannot be applied to the development agreement entered into earlier ...
Click here to read the Ruling Copy
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Taxsutra Database Bulletin : Collection of 5 handpicked articles on hot-button tax topics
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Issue No. 137 / May 24, 2018
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“Flipkart on sale – Will Taxman ‘cart’ tax on Walmart Entry?”
 A historic announcement was made on 9th of May by Soft Bank Chief about one of the biggest e-commerce deals — the “Flipkart-Walmart deal”. While presently most of the focus is on the size of the deal, its impact on the Indian market and consumers etc, the taxation element of the deal is drawing no less attention. Samir Sanghvi (Senior Partner, Synthesis group) in his article appraises the tax complexities that may surface out of the deal. Noting that substantial value of the shares being sold derives its value from Flipkart India business, the author states that Sec. 9(1)(i) will squarely apply to the foreign investors selling their stake. He points out certain challenges in computing the capital gains u/s. 9(1)(i) r.w. Rule 11UB such as computation of FMV of Indian assets in multi-layered structures with businesses in different countries; FMV of intangibles which is subjective and varies between countries and cultures etc. The author signs of with a note that “Since the deal is very complex and stakes are high, chances of invoking litigation till the Supreme Court of India can’t be ruled out." Click here to read the article titled “Flipkart on sale – Will Taxman ‘cart’ tax on Walmart Entry?”
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“Dawn of a new era in Income Tax Filing”
 With the due dates of filing returns fast approaching and introduction of new Sec. 234F (seeking to penalise defaulters in return filing), the intricacies related to the changes made in the Income Tax Forms is a topic worth attention. Abhishek Murali (Partner, Victor Grace & Co.) in his article evaluates the various changes made in the Income Tax Forms for A.Y. 2018-19. He points out the additional details pertaining to house property now required to be filed in ITR 1 by salaried employees, that the ITR forms 3, 5 and 6 have incorporated the 40% ceiling on depreciation introduced vide CBDT Notification dt.7/11/2016. The author points out that the ITR 4 now requires assessees availing the Presumptive Income Scheme to detail their GSTR No. and the turnover/gross receipts, as per the GST Returns filed. Pointing out that non-residents can now provide details of their foreign bank accounts, the author states that “The same will be a big relief for a lot of tax-payers who live abroad as the refunds will be credited to active accounts regularly used by them”. Click here to read the article titled “Dawn of a new era in Income Tax Filing”
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“Delay in filing Objections before DRP - Consequences thereof"
 
The Income Tax Act does not provide for powers to DRP to condone a delay by assessee in filing objections u/s. 144C before it unlike powers provided to CIT(A) and ITAT u/s. 249(3) and 253(5) respectively. L.N.Pant (Senior Director, Deloitte Haskins & Sells LLP) & Darshana Deshmukh,(Deputy Manager) in their article discuss the recent ruling by Chennai ITAT in the case of Aalaya Jewel Industry [TS-243-ITAT-2018(CHNY)-TP] which dealt with assessee’s appeal against DRP order rejecting its objections on ground of a 3 days delay in filing of the objections and validity of the final assessment order passed beyond the time limit of 30 days from the end of the time limit for filing objections before the DRP. On examination of the time barring provisions u/s. 144C, the ITAT held that DRP has no power to condone delay in filing of objections and delayed filing of objections gives rise to the same consequence as non-filing of the objections. Noting that filing within the time limit is of utmost importance as DRP does not have powers to condone a delay, the authors sign off with a suggestion that “In a scenario wherein the assessee has failed to file an application with the DRP, filling an appeal with the CIT(A) could be considered as the CIT(A) has power to condone the delay in filing of appeal on the condition of establishment of a sufficient cause of such delay.”
Click here to read the article titled “Delay in filing Objections before DRP - Consequences thereof"
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Application of Sec 14A of the Income Tax Act, 1961 to ‘Strategic Investment’
Seventeen years since its introduction, the Sec. 14A battle continues. In a decision that is expected to impact holding-subsidiary relationships and banks holding stocks as trading assets in a big way, Supreme Court in the case of Maxopp Investments reported in [TS-5170-SC-2018-O] ruled on “dominant purpose test”for purpose of application of Sec. 14A to strategic investments and shares held as stock-in-trade.
Jaideep Kulkarni (Tax Partner, EY India) brings out the dichotomy in the decision of SC wherein on one hand while dealing with strategic investments, it has been held that dominant purpose test is not relevant while considering disallowance u/s. 14A, it has ruled in favour on the issue of shares held as stock in trade, which is nothing but based on the dominant purpose test. The author demonstrates how by providing benefits from taxation to parent-WOS companies (dividend set off u/s. 115-O, exemption from capital gains on transfers between parent and subsidiary u/s. 47(iv)/(v) etc.), the legislature has acknowledged that WOS/ subsidiaries are ‘extensions’ of the parent company itself. This being the case, author opines that the investments in subsidiaries/JVs “should be regarded as a part/ extension of the parent company and not a classical investment made to earn dividend income, and accordingly, no disallowance under Section 14A of the Act be applied.”
Click here to read the article titled “Application of Section 14A of the Income Tax Act, 1961 to ‘Strategic Investments’”
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“Recent SC ruling in Maxopp Investment Ltd – A Few Questions Answered and Some Raised on Section 14A”
Percy Chhapgar (Partner, Deloitte Haskins & Sells LLP), Milin Thakore and Jayesh Desai discuss the key principles laid down by Supreme Court on Sec. 14A in Maxopp Investments [TS-5170-SC-2018-O] . The authors point out the observation of SC that the AO needs to record his satisfaction that the suo moto disallowance, if any, made by the taxpayer was incorrect. They note that the SC though approved the Tribunal ruling which held that disallowance cannot exceed exempt income, it did not give any specific finding as the question was not specifically raised before the SC. The authors anticipate further litigation in view of the dichotomy on the manner of principle of apportionment as suggested by the SC (ratio of taxable to non-taxable investments) which is different from what is laid down in Rule 8D (ratio of non-taxable investments to total assets). They conclude stating “Some doubts have arisen, and some other issues need to be finally settled by the Apex Court before one can state that the sun has finally set on section 14A.”
Click here to read the article titled “Recent SC ruling in Maxopp Investment Ltd – A Few Questions Answered and Some Raised on Section 14A”
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