Database NewsLetters

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

Issue No. 136 / May 16, 2018

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.

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 ...

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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 ...

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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” ....

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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] ...

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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 ....

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Taxsutra Database Bulletin : 10 things to focus on while filing this year's personal tax return

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

1. Prosecution Proceedings for Default in Payment of Tax Deducted at Source

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 : Taxation of Royalty on Patent Licensing; Cancellation of S.197 Certificate Sans Reasons and Other handpicked rulings

Issue No. 134 / Apr 30, 2018

Key Takeaways from Handpicked rulings

1. [TS-5115-HC-2018(Bombay)-O] : Cannot cancel certificate issued u/s. 197 sans copy of reasons recorded when issued: Cancellation of certificate u/s. 197 not possible in absence of a copy of the reasons recorded at the time of issuing the certificate under Section 197 – HC allows assessee’s writ; Quashes order passed by TDS authorities cancelling certificate u/s. 197 given to the assessee to deduct tax at lower rate of 0.39 percent; HC follows its coordinate bench ruling in Tata Teleservices (Maharashtra) Limited [TS-5033-HC-2018(Bombay)-O]…

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2. [TS-6652-ITAT-2018(Delhi)-O] : Taxation of Royalty on Patent Licensing : Royalty income on licensing of patents earned by assessee (a US based company) from Original Equipment Manufacturers (OEMs) situated outside India, not taxable in India u/s. 9(1)(vi)(c) - ITAT holds in favour of assessee; Holds that royalty income received from OEMs on sale of handsets to Indian telecom companies which were embedded with CDMA technology patented by the assessee, is not taxable in India; ITAT relies on ruling of coordinate bench in assessee’s own case for AYs 2000-01 to 2004-05; ITAT in the said decision had held that the source of the royalty is the place where patent is exploited, viz. where the manufacturing activity takes place, which is outside India…

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3. [TS-6476-ITAT-2018(Cochin)-O] : Time limit for passing order u/s. 201(1)/ 201(1A)when payee is a Non-Resident: When the statute does not prescribe the time limit for passing order u/s. 201(1)/ 201(1A), then reasonable time limit ought to be read into the provisions – ITAT rules in favour of assessee for AY 2007-08; Holds order passed u/s 201(1)/ 201(1A) after eight years from end of the financial year was barred by limitation; Reverses CIT(A)’s order holding that limitation prescribed u/s 201(3) would apply only to payments made to Indian resident companies, and thus would not apply to assessee who made payments to a foreign company…

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4. [TS-6634-ITAT-2018(CHENNAI)-O] : Credit must be allowed for TDS shown in Form 16 : Once there is evidence in Form No.16 disclosing the salary paid to assessee and tax deducted and deposited with the Government, no further liability can be levied on assessee-employee in respect of salary income - ITAT rules in favour of assessee for AY 2014-15, allows credit of taxes paid in Egypt; Holds that assessee (a resident deputed to Egypt on an assignment for part of the year) has produced evidence in form of Certificates issued by his employer to prove his claim of the payment of taxes in Egypt and consequently, the assessee is entitled to the claim of exemption under article 16(1) of the DTAA…

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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

Issue No. 133 / Apr 27, 2018

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 18^th 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!!!”.

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

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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…

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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…

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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…

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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…

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Taxsutra Database Bulletin : Insight on Prosecution Proceedings for Default in Payment of Tax Deducted at Source

Issue No. 132 / Apr 16, 2018

Taxsutra Database Insight on Prosecution Proceedings for Default in Payment of Tax Deducted at Source

While penalties and interests for various non-compliances are a common scenario in India, taxpayers have, in the past one year, witnessed a steep surge in prosecution proceedings for offences under the Income Tax Act. A whopping 2225 prosecution complaints have been filed, with 1052 complaints compounded and 48 defaulters convicted by Courts during the period of April to November 2017 as per press release issued by the Finance Ministry on 12 January 2018. Some of the lapses which can attract prosecution provisions are wilful attempt to evade tax or payment of any tax, wilful failure in filing returns of income, failure or delay in depositing tax deducted/collected at source etc.

This edition of our newsletter is exclusively on one of the most discussed topics of the day namely Prosecution for defaults in payment of TDS dealt with by Sec. 276B of the Income Tax Act. The duration of delay in payment of TDS is not specified in the Act. So technically, a delay as small as one day can attract prosecution proceedings. Defaults by companies result in prosecution proceedings against the ‘principal officer’ of the company. Madras HC recently rejected Revenue’s treatment of Mr.Kalanithi Maran as the ‘principal officer’ of Spicejet [TS-5215-HC-2018(Madras)-O]. There is sufficient jurisprudence on what constitutes ‘reasonable cause’, who is the ‘principal officer’, ‘sanction’ for initiation of prosecution etc.

In this edition, we have garnered columns from experts in the field, giving insight on the provisions, procedures and current trends. We have also compiled some recent and important rulings by High Courts on various issues pertaining to prosecution besides the insightful commentary by Chaturvedi and Pithisaria on some of the consequential and litigated issues.

Click here to read the insight on prosecution for default in payment of tax deducted at source.

Expert Column:

Sanjay Sanghvi (Tax Partner, Khaitan & Co.) and Ashish Mehta (Principal Associate) discuss the changing trends and multi-fold increase in prosecution cases by Tax Administration. The authors discuss what should be done when one receives a prosecution notice and various defences available to taxpayers. Compounding of offence can be used as a last resort in case none of the defences are available to the taxpayer, but such an action should be used with caution in accordance with various guidelines on the issue. The authors discuss on whether issues like lack of financial capacity / financial difficulties, status of tax refunds, age or health of the defaulter etc can be termed as ‘reasonable cause’ to mitigate the punishment risk.

Click here to read the article titled “Income Tax Prosecution- Need for Balancing Act!”.

M.P. Lohia (Advisor & former Senior Revenue officer) and Rajendra Agiwal (Senior Manager, SRBC & Associates LLP (Member firm of EY Global)) in their article elaborate on the provisions and practical aspects relating to prosecution along with procedure followed by the Department to initiate the same. Speaking of the recent trends and developments, the authors explain how initiation of prosecution is being adopted as a tool to realise additional revenue by means of compounding. Explaining the entire procedure for compounding, the authors caution that TDS default u/s. 276B committed for third time cannot be compounded. Based on their experience, the authors also provide answers to certain FAQs in a lucid tabular format.

Click here to read the article titled “Prosecution – A Tool to Prevent Tax Evasion and Ensure Compliance”.

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