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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Taxsutra Database Bulletin : NR to NR royalty payment, TDS and POEM implications; Multiple properties and eligibility of exemption u/s. 54F; CBDT Updates and Other Handpicked Rulings
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Issue No. 136 / May 16, 2018
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Updates:
CBDT : New PAN allotment and change request applications for 'transgender' is now hassle-free
CBDT : Notifies the Protocol amending India-Kuwait DTAA widens EOI scope, modifies 'taxes covered' clause
CBDT : Releases draft rules for FMV computation upon conversion of inventory into capital-asset
State Election Machinery and Income Tax Department step up their action against misuse of money in forthcoming Karnataka Assembly elections
Click here to read more latest news.
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Key Takeaways from Handpicked rulings
1. [TS-6764-ITAT-2018(MUMBAI)-O] : Non-resident to non-resident royalty payment and TDS; POEM implications: Royalty paid by a foreign company (a tax resident in India by virtue of POEM in India) to another foreign company for patents used in manufacture of products in India by its 100% holding company, taxable in India even if products were entirely sold outside India – ITAT rules in favour of Revenue for A.Y.2009-10; Holds that assessee (a US based company and a 100% subsidiary of an Indian company) who acquired the patents from a US company and paid royalty on sales in USA, clearly had business connection in India as the patents have been utilized for the purpose of manufacture of products in India ...
Click here to read the Ruling Copy
2. [TS-5298-HC-2018(PUNJAB & HARYANA)-O] : Application of mind by AO to reopen an assessment u/s. 147 : Mere mention of External Development Charges (EDC) in the balance sheet and in reply to a questionnaire would not render the AO powerless to re-open the case – HC dismisses assessee’s (a development authority) writ petition for quashing of the order disposing its objections to the reasons recorded for re-opening of assessment for AY 2010-11; Upholds the reasons for reopening that EDC of Rs. 127.70 Crores received under the Punjab Apartment and Property Regulation Act (PAPRA Act) was revenue in nature and was required to be brought to the ambit of tax; Accepts that there was no discussion or application of mind by the AO on the issue of EDC ...
Click here to read the Ruling Copy
3. [TS-6684-ITAT-2018(BANGALORE)-O] : Multiple properties and eligibility of exemption u/s. 54F : Multiple adjacent properties used in a combined manner to be treated as one property for counting the existing properties for purpose of exemption u/s. 54F; Property constructed for residential purpose but used for commercial purposes to be treated as commercial and not to be counted as a residential property; Proviso to Sec. 54F not applicable - ITAT explains law on Sec. 54F, remits the matter to CIT(A) for fresh decision by way of a speaking order; Rejects denial of exemption u/s. 54F by AO taking recourse to proviso to Sec. 54F that assessee owned more than one residential property at the time of transfer of original asset by treating two adjacent properties as two separate properties on the premise that they were acquired separately; ITAT holds that “if two or more adjacent properties are combined together by the assessee and is being used in a combined manner, than even if these properties are acquired separately, these should be considered as one property” ....
Click here to read the Ruling Copy
4. [TS-6753-ITAT-2018(DELHI)-O] : Block assessment on a non-existent company invalid :Assessments u/s 153A framed on a non-existent company is bad in law – ITAT rules in favour of assessee, quashes assessment orders u/s. 153A for A.Ys 2005-06 to 2009-10 as being void-ab-initio; Holds that pursuant to amalgamation of assessee company with Pernod Ricard India Pvt. Ltd. w.e.f. 1st April 2009 vide HC order dated 8th Dec 2010, assessee company was no longer in existence and assessments in the name of nonexistent amalgamating company being jurisdictional defect are not sustainable; Notes that notice u/s 153A dated 3rd Dec 2012 was issued in the name of a company which was no longer in existence; Follows jurisdictional HC decision in the case of Spice Entertainment Ltd. vs. CIT [TS-5857-HC-2011(DELHI)-O] ...
Click here to read the Ruling Copy
5. [TS-6760-ITAT-2018(MUMBAI)-O] : Treatment of undisclosed stock in books of accounts :Right treatment of unaccounted excess stock of raw materials in books is to credit the profit & loss a/c. and not partners’ capital account - ITAT allows Revenue’s appeal, remits the issue back to AO; Discards assessee’s method of accounting of unaccounted excess stock of raw materials of debiting purchases account and crediting partners’ capital account; Holds that upon disclosure of undisclosed income in respect of unaccounted excess stock of raw materials during the course of a survey proceedings, the right treatment in books after debiting purchases account, is to credit the same in the profit & loss a/c. and not to partners’ capital account ....
Click here to read the Ruling Copy
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Taxsutra Database Bulletin : 10 things to focus on while filing this year's personal tax return
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Issue No. 135 / May 2nd, 2018
Filing of Tax Return for A.Y.2018-19-Top Ten Things to Focus on
With less than 100 days to go for the first due date for tax return filing, most practitioners would find it useful to have a list of major changes handy. In this article, authors, Ameet N. Patel (Partner, Manohar Chowdhry & Associates) & Ayesha Aziz (Tax Executive), list out the top ten things to focus on while filing the return of income for A.Y 2018-19, of taxpayers who are required to furnish their return of income by 31st July, 2018. The major changes include the income tax rates, rebate u/s. 87A, surcharge & cess, change in amount of set-off of loss from house property, various components for calculating capital gains, like change in base date for Cost Inflation Index (CII), changes in holding period of capital asset, introduction of Sec. 50CA, penalty for late filing of returns, payment of TDS and advance tax, taxability of gifts, and the new ITR Forms introduced by CBDT on 5th April, 2018. One major change in the ITR Forms is that taxpayers earning Income from Salary and Income from House Property are required to furnish break-up of amounts, as against only the final taxable figures as per ITR forms for the earlier A.Y. They are expected to report particulars with respect to value of perquisites, profits in lieu of salary, taxable allowances and deductions u/s. 16 in case of Income from Salary, and the gross rent, taxes paid to local authorities, and interest payable on borrowed capital in case of Income from House Property.
Click here to read the article titled “Filing of Tax Return for A.Y.2018-19-Top Ten Things to Focus on”
Insights/Articles recently published on Taxsutra Database
2. Prosecution – A Tool to Prevent Tax Evasion and Ensure Compliance
3. Income Tax Prosecution- Need for Balancing Act !
4. Sec. 270A - A Pragmatic Move Towards Rationalizing the Scope of Penalty under the Income Tax Act, 1961
5. India & Hong Kong Tax Treaty – Finally Sees Light!!!
Taxsutra Database Bulletin : Sec. 270A - A Pragmatic Move Towards Rationalizing the Scope of Penalty; India & Hong Kong Tax Treaty – Finally Sees Light!!; Transfer of Attached Immovable Property
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Issue No. 133 / Apr 27, 2018
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Expert Column :
 Section 271(1)(c) was the main, most widely used section for levying penalty; by introducing Sec. 270A w.e.f. 1-4-2017, the entire law on penalty has undergone a paradigm shift. Authors, Bhavin J Marfatia (Partner, Direct Tax, KC Mehta & Co.) and Virat A Bhavsar (Associate Director, Direct Tax - Representation) discuss in this article various similarities and differences between the two provisions. The authors discuss the quantum of penalty, on what amount penalty will be calculated, penalty in various cases like re-assessment, search cases, upward transfer pricing adjustments, and when penalty cannot be levied. They conclude "The provision of section 270A has been enacted with the clear object of bringing more certainty and clarity, and reducing potential litigation arising therefrom. In view of the same, this step is certainly a pragmatic move towards rationalizing the penalties under the existing tax law, yet one cannot avoid potential of litigation arising in the era of section 270A." Click here to read the article titled “Sec. 270A - A Pragmatic Move Towards Rationalizing the Scope of Penalty under the Income Tax Act, 1961”. Hong Kong is India’s newest Double Tax Avoidance Agreement (DTAA) partner. Author Sudarshan Rangan (Advocate), discusses in this article the important aspects of this much awaited DTAA, which was signed on 18th of March, 2018. Speaking of how the new DTAA is a mix of the OECD Model Convention and incorporation of the BEPS action items, he points out that certain articles are visibly in line with BEPS Project recommendations. He identifies the substantive articles which adopt the Principle Purpose Test (PPT), by virtue of which, if the main purpose, or one of the main purposes, is to get a tax benefit, then the treaty shall not be applicable; and Article 14, which adopts source-based taxation of capital gains. The author discusses Article 28, which incorporates Anti Avoidance Provisions, and Article 4 on dual residency. Noting that Hong Kong ranks as India’s top economic trade partner, the author concludes that “The signing of the DTAA, will definitely bring lot of cheer among the Indo-Hong Kong trade community, as it will bring in certainty on taxation matters, and also avoid double non-taxation, tax evasion and avoidance”.Click here to read the article titled “India & Hong Kong Tax Treaty – Finally Sees Light!!!”.
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Updates :
CBDT : Draft notification specifies non-STT scenarios vis-a-vis 10% LTCG tax and invites comments
Ministry of Finance: Amendments to section 208 of Part XIV (PMLA, 2002) vide Finance Act 2018 w.e.f 19.04.2018
CBDT invites comments on draft notification proposing amendment to Rule 44E, Form 34C, 34D and 34DA as per BEPS Action 5, for improving transparency in tax rulings
CBDT: PAN / TAN obtained via MCA single window sufficient compliance for corporate assessees
CBDT notifies the Protocol amending the DTAC between India and Kazakhstan
Click here to read more latest news.
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Key Takeaways from Handpicked rulings
1. [TS-5272-HC-2018(Madras)-O] : Transfer of attached immovable property: Adjudication by TRO that transfer of immovable property by legal heirs of tax defaulter is null and void u/s. 281 is without jurisdiction, in the absence of intention to defraud the Revenue – HC holds in favour of assessee; Holds that it is for the Income Tax Department to file a suit under Rule 11(6) to have the transfer declared void u/s. 281; Observes that before purchasing the property, petitioner got a legal opinion and also obtained encumbrance certificates from the Joint Sub-Registrar, Tuticorin, which did not reflect any entry relating to attachment by the Department…
Click here to read the Ruling Copy
Editorial note :
Ø Madras HC in D.S.Senthilvel, [TS-5271-HC-2018(Madras)-O] refused to lift attachment on immovable property purchased by petitioner from a tax defaulter, noting that demand notice under Rule 2 of Second Schedule (as mandated u/s. 281) was served upon tax defaulter prior to the execution of the sale transaction, and remarks that “The moment such a notice was served ..., by virtue of Rule 16(1) of the second schedule, he became incompetent to deal with the property.”
Ø Rajasthan HC in Premier Texto Trade Pvt Ltd [TS-5273-HC-2018(Rajasthan)-O] has held the sale transaction executed in favour of the assessee by defaulter purchaser as void, upheld demand raised on assessee to pay the dues of defaulting company as 'wholly justified', imposed cost on assessee. In this case, property was attached by TRO well before the impugned transaction.
2. [TS-6390-ITAT-2018(MUMBAI)-O] : Interest u/s. 244A on refund : No interest u/s. 244A(i)(a) is payable when the refund arises out of excess advance tax and TDS, and the refund amount is less than 10% of the total tax amount – ITAT dismisses assessee’s appeal; Rejects its argument that once excess advance tax and TDS is adjusted with tax liability arising out of regular assessment, it loses the character of advance tax and TDS, and becomes tax paid on regular demand…
Click here to read the Ruling Copy
3. [TS-5210-HC-2018(Karnataka)-O] : Condonation of delay in filing return: Financial crisis in US and accident injuries are genuine hardships; Delay of up to 1,232 days in filing returns condoned - HC allows NR assessee’s writ for assessment years 2010-11, 2011-12 and 2012-13; Holds that the phrase “genuine hardship” employed in sec. 119(2)(b) should be construed liberally, particularly in matters of application for condonation of delay…
Click here to read the Ruling Copy
4. [TS-6638-ITAT-2018(Mumbai)-O] : Approval of Board for deduction u/s. 10B: No deduction u/s. 10B allowable in absence of an approval by the Board or ratification by the Board of approval granted by the Director, STPI, as prescribed under Explanation–2(iv) to section 10B – Mumbai ITAT denies deduction u/s. 10B to assessee (engaged in export of software); Follows decision of non-jurisdictional HC in Regency Creation [TS-5645-HC-2012(Delhi)-O], as against favourable decisions by coordinate benches in Wizard Enterprises [TS-7433-ITAT-2016(Kolkata)-O] and Neural Technologies and Software [TS-6510-ITAT-2015(Mumbai)-O]; Observes that in the hierarchy of judicial system, decision of non-jurisdictional High Court directly on the issue is at a higher pedestal than the Tribunal; Holds that for availing deduction under section 10B of the Act approval of Board as prescribed under Explanation–2(iv) of Sec. 10B is mandatory…
Click here to read the Ruling Copy
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Top Columns
Whether CIT(A) Can Go to an Altogether New Source of Income?
Ramesh Khaitan
Rethinking Rule 11UA: Aligning Statutory Valuation with Economic Reality
Sujeet Sahani
Anand Laxmeshwar
PE & the Force It Attracts…
Kanishka Dutta
Key Judicial Rulings on ‘Total Undisclosed Income’ in Block Assessments
Taxsutra Database Insight
CBDT extends ITR filing due date to September 15, acknowledges significant revision in forms
CBDT