Issue No. 258 / April 13, 2022
Dear Professionals,
We are glad to present to you the 258th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
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Expert Column
Period of limitation has taken centre stage over the last two years due to the onset of the pandemic and the same has been one of the main grounds for challenging a notice or an order issued by the tax authorities. In this regard, Ms. Vidushi Maheshwari (Advocate), highlights the significance of the period of limitation especially in tax matters, which is to be adhered by authorities while issuing the notice or passing order and by the taxpayers while filing the appeal. She discusses the recent Allahabad HC ruling in Daujee Abhushan, wherein the issuance of notice was objected to on the ground of being time-barred as the notice was signed digitally on a date within the limitation period but was received after the same had elapsed and the High Court held that merely digitally signing of the notice cannot be termed as issuance of notice. She also discusses Madhya Pradesh HC ruling in Yuvraj, which was rendered on similar issues. She opines that, “The above rulings have a far-reaching impact on the taxpayers, as it is a very common phenomenon to term the notice as issued on the date of signing instead of the actual date of issuance, which may or may not fall within the period of limitation. The rulings will preclude them from issuing any after-thought notices by merely signing them within the period of limitation.”
Click here to read, article titled - “Signing of Notice – A Simple Procedure with Significant Impact”
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Key Takeaways from Handpicked Rulings
1) ITAT: Interest on loan taken to deposit under CGDA Scheme not eligible for deduction under Sec.57(iii) - ITAT dismisses Assessee’s appeal hold that since loan borrowed from HSBC Bank was never used for investment to earn interest income, instead used to invest in CGDA Scheme, the interest paid on the borrowings cannot be set off against interest earned from CGDA Scheme; For AY 2015-16, Assessee-Individual sold some equity shares in Rangson Electronics and initially invested the net sale consideration into mutual funds; Subsequently, in order to avail benefit of Section 54F, Assessee invested in Capital Gains Deposit Scheme by taking a loan from HSBC Bank; Assessee claimed interest paid on loan as deduction against interest received from fixed deposit parked under CGDA Scheme u/s 57(iii); Revenue accepted Assessee’s claim whereas PCIT issued notice u/s 263 observing that deduction claimed in respect of interest paid on loan from HSBC against the interest received from the CGDA scheme deposit should have been disallowed and that no enquiry was carried out by Assessing Officer; PCIT rejected Assessee’s objections to notice and passed order u/s 263 holding that assessment order was erroneous and prejudicial to the interest of revenue and directed Assessing Officer to disallow the interest paid against the interest received from …………Click here to read and download ITAT Order
2) HC: AO’s prima facie view based on materials before it sufficient to initiate reassessment proceedings - Bombay HC dismisses Assessee writ petition challenging the notice seeking to reopen assessment and order that followed by observing that from materials placed before it at the time of initiating proceedings, Revenue had prima facie reason to believe that income had escaped assessment for the relevant assessment year; Assessee-firm had not filed returns for AY 2017-18 ; Revenue found cash deposits of Rs. 4.3 Cr made against Assessee’s PAN number in Goa Urban Coop Bank and issued notice seeking to reopen assessment for year under consideration; Revenue disposed of Assessee’s objections by not accepting its contention that no cash was deposited in current account or other account since all Bank Accounts were opened after 31st March 2017; Revenue observes there was reason to believe that income chargeable to tax has escaped assessment and concludes that reopening has been done within time period; Revenue noted return of income has not been filed u/s 139 and placed reliance on Rajesh Jhaveri Stock Brokers; Assessee challenged the notice and order before the HC and contended that during the relevant AY it did not have an account with the bank which was clarified by the Goa Urban Coop Banks communication; HC observes that the letter from the bank was not before the Revenue and therefore it was not taken into account by them; HC also notes that for the relevant AY the Assessee had not filed returns even though prima facie it had made deposit of Rs. 4.39 crores in the non-current account; Holds there is reason to believe that income had escaped assessment and that this is not a case where the Assessee’s objections have not been considered …………Click here to read and download HC Judgment
3) ITAT: Amendment to Rule 8D applicable to AY 2015-16, upholds revision - ITAT upholds revision of assessment order for AY 2015-16 in the light of amendment to Rule 8D that came into effect from Jun 2, 2016; Case of the Assessee was selected for limited scrutiny and PCIT noted that Assessee had earned dividend income of Rs. 27.16 lacs during relevant AY; PCIT observed that on Mar 31, 2016, non-current investments stood at Rs. 249.78 Cr and having earned exempt income, expenditure in relation to income not includible in total income was liable to be disallowed as per Section 14A r/w Section Rule 8D which was not done in assessment order; PCIT invoked Section 263 and gave a finding that as per amended Rule 8D(2)(iii) r/w Section 14A w.e.f. 02.06.2016, the disallowance of expenses has to be computed @1% of the annual average of the monthly averages of the opening and closing balances of the value of investment and directed the Assessing Officer to re-do the assessment; Both Revenue and Assessee challenged this order before ITAT; Assessee submitted that revision order was incorrect insofar as the amended provision had no application to AY 2015-16…………Click here to read and download ITAT Order
4) HC: Reckons limitation period for Sec.264 from Assessee’s knowledge of Sec.143(1) intimation over original email - HC sets aside order rejecting Assessee’s application u/s 264 with the reasoning that intimation u/s 143(1) may have been sent via email in 2014 but was only realized by Assessee in 2019 and therefore petition filed was within time as contemplated u/ s 264; Assessee-petitioner is a doctor and vide notice u/s 226(3) her bank accounts were attached on Mar 26, 2019; On enquiry Assessee realized demand of Rs. 7.95 lacs was intimated u/s 143(1) issued on Feb 19, 2014; Assessee contended she never received intimation and realized there was a mistake in returns filed and filed revision petition u/s 264 which was rejected on the ground that it was highly belated and that intimation was sent to Assessee vide email so no cause remained to invoke Section 264; Assessee challenged order rejection application u/s 264 and contented that she never received any intimation dated Feb 19, 2014 and that there was no material to show such intimation was sent to her email id alongwith the fact that rules for e-communication came into effect only in 2015; Revenue argued that there was delay of more than 5 years in preferring the revision petition u/s 264 and it had no choice but to dismiss the same; HC notes Assessee’s contention that once intimation issued u/s 143(1) came to her knowledge on Mar 26, 2019, Assessee requested for a copy of intimation dated Feb 19, 2014 which was issued along with cover letter dated 15th May 2019, pursuant to which revision petition u/s 264 was filed …………Click here to read and download HC Judgment
5) HC: Upholds reassessment proceeding as AO's reasons independent of Investigation Wing's report- HC upholds re-assessment u/s 147/148, rejects assessee's stand that re-assessment, being based on information received from Investigation wing. Notes that AO pursuant to an information received from the Investigation wing, the AO has conducted an investigation and has gone through the income tax return and other related documents of the assessee and has observed that the assessee is a beneficiary of receiving bogus accommodation entries and it is only thereafter that he has recorded that he has reason to believe that the income has escaped assessment. HC rejects submission made on behalf of the petitioner that the AO has acted on a report of the Investigation wing and he has not recorded his own reasons to believe……………. Click here to read and download HC Judgment
6) HC: Dismisses assessee’s writ, no procedural lapse and irregularity in passing the re-assessment order - Madras HC dismisses writ petition filed by assessee challenging the assessment order. HC rejects assessee submission that pursuant to the notice u/s 148 of the Act, when an objection was submitted, no speaking order was passed on it, rather an assessment order was passed directly. HC notes that the objections raised by the assessee have been dealt with by the Revenue and it was pursuant to the same, the SCN along with draft assessment order was issued to the petitioner and while sending the show cause notice (SCN) and draft assessment order on 24.09.2021, the order on the objections was also sent, after dealing with the objections. When no response to the SCN along with the draft assessment order was received, the final assessment order was passed on 28.09.2021. Thus, it cannot be stated that the assessment order under challenge is without an order on the objections raised pursuant to the notice u/s 148 of the Income Tax Act…………..Click here to read and download HC Judgment
7) SC: Quashes HC order, reproduction of the observations made by the Tribunal without independent reasoning is bad in law. Notes that HC except reproduction of the observations made by the Tribunal, there is no further independent reasoning given by the High Court and nothing has been further discussed on merits and even the substantial question of law has also not been framed.SC sets aside the HC order and remanded back to decide afresh in accordance with law and on its own merits, at the earliest……………Click here to read and download SC Order
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“Taxsutra Database”, a true Income-tax research tool, is an archive of over 116385+ Income Tax Rulings reported across ITR, CTR, Taxman, DTR, ITD, TTJ, and ITR (Trib) and also includes recent ‘unreported handpicked rulings of SC, HC & ITAT’. It is a completely integrated service with the following features:
· Comprehensive coverage of all latest cases powered by an advanced search engine to provide a seamless user experience;
· Effective search results supported by active filters around Court Level, Location, Case Numbers and Citation;
· Enhanced search feature, using the Unique Bulls Eye Application, by including "Exact words", "Any of these", "none of these" options.
· Judicial “forward & backward reference”
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Issue No. 257 / March 21, 2022
Dear Professionals,
We are glad to present to you the 257th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
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Expert Column
CBDT issued Circular No. 3/2022 to clarify its position on applicability of the Most Favoured Nation (MFN) Clause in the Protocol to India’s Double Taxation Avoidance Agreements with several countries.
Mr. S.P. Singh (Ex-IRS & Ex-Senior Director, Deloitte) and Mr. Sharad Goyal (Founding Partner, GSAP & Associates LLP) discuss the concept of MFN, its applicability, controversies, finer points of the Circular and a few relevant decisions by various judicial authorities. Discussing the definition of MFN Clause, the authors highlight that that MFN Clause is not part of the OECD Model Convention however, finds place in the UN Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries 2019. They opine that while the CBDT Circular intends to provide an understanding of how MFN Clause should apply and give clarity to the taxpayers, the issue regarding its applicability still remains as the Circular is binding on tax authorities but not on taxpayers thus, “the taxpayers can still resort to the judicial interpretation on this matter.”
The authors highlight that MFN Clause has gained prominence in the recent past following abolition of DDT. They discuss various decisions rendered on this matter and also the most recent Pune ITAT ruling in GRI Renewable Industries which specifically dealt with the applicability of the Circular. While signing off, the authors opine that “Going by the accepted legal process it is likely that other judicial authorities will be guided more by the preceding judicial decisions rather than the Circular.”
Click here to read, “CBDT Clarification on MFN Clause – Impact Analysis”
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Key Takeaways from Handpicked Rulings
1) HC: Interest on funds invested under Govt. directive, used for infrastructural development scheme, are capital receipts - Karnataka HC holds unutilized funds invested in FDs and mutual funds used for Government scheme on infrastructural development to be capital receipts; Assessee-Company wholly owned by Govt. of Karnataka received funds during AY 2007-08 which were deposited in FD and mutual funds earning interest and dividends; Assessee contended that dividend income on mutual funds were exempt u/s 10(35) and claimed short term loss of Rs. 5.02 Cr arising out of redemption of units with mutual funds; Revenue held income of Rs. 10.30 Cr earned on deposits as taxable which was upheld by the CIT(A) and reversed by ITAT; Before HC, Revenue relied on Tuticorin Alkali Chemicals and Fertilizers ltd, and submitted that if the capital of the company is fruitfully utilized instead of keeping it idle, income generated will be revenue and liable to tax; Further contended that profit motive was germane to the project undertaken by Assessee; Assessee argued that it was a SPV acting as nodal agency for Govt and not carrying out any business of its own but purely for public use; Also that interest earned on deposits of unutilized funds cannot be income of Assessee………….……….. Click here to read and download HC Judgment
2) HC: Allows deduction as expenditure incurred for purpose of earning income, not necessary to actually earn income - Karnataka HC holds Section 57 requires expenditure to be incurred for purpose of earning income and not necessarily result in actual income; Assessee, engaged in development and purchase, lease and sale of properties was sanctioned a loan for Rs. 35 Cr from Union Bank of India; Assessee paid Rs. 33.5 Cr to PEPPL as advance for purchase of properties and subsequently withdrew from transactions with a request for refund of earnest money; Thereafter, Assessee lent money to shareholders and made inter corporate deposits of Rs.35.62 Lacs; Assessee declared income of Rs. 5.34 Cr for AY 2009-10 after claiming loss of Rs. 81.95 lacs under head “income from other sources” after reducing interest payable on loan of Rs. 2.84 Cr against interest income of Rs. 2.02 Cr earned from inter corporate deposits and loans to shareholders; Revenue disallowed Rs. 81.95 lacs u/s 37 which was upheld by CIT(A) and ITAT dimissed Assessee’s appeal..……….……….. Click here to read and download HC Judgment
3) HC: Holds reassessment due to change of opinion based on Revenue Audit to be invalid - Karnataka HC allows Assessee’s (Co-operative Society) appeal, holds reassessment to be pursuant to change of opinion pursuant to raising of audit query; Assessee-society is a Regional Rural Bank, engaged in banking services was subjected to reassessment whereby its total income was determined at 44.53 lakh; On appeal CIT(A) partly allowed Assessee’s appeal whereas ITAT dismissed the appeal held against by the Assessee by the CIT(A); Before HC Assessee submitted that reopening of assessment was made on mere change of opinion and that there was no reason recorded that income has escaped assessment which is required as per Section 147; HC notes that Audit Officer had made enquiry on 25th July 2006 regarding short assessment of tax due to deduction of capital gains u/s 80P and Assessing Officer replied stating that Assessee was eligible for exemption u/s 80P and had earned profit of Rs. 44.53 lacs from sale & purchase of Govt securities and was entitled to deduction u/s 80P as the said income was derived from banking business only…….………….. Click here to read and download HC Judgment
4) HC: Principles governing cash credit u/s 68 cannot be extended to unexplained investments u/s 69A - Telangana HC finds no infirmity with ITAT’s order, dismisses Assessee’s appeal and factually distinguishes Tilak Raj ruling relied on by Assessee and holds that principles governing cash credit u/s 68 cannot be extended to unexplained investments u/s 69A; During assessment proceedings for AY 2017-18, cash deposits of Rs. 13.16 lacs were found in Assessee’s bank account; Assessee submitted that he had deposited only Rs. 10 lac which were his savings, during demonetization; Revenue rejected explanation and found Rs.2.75 lacs also remained unexplained; Revenue added Rs. 12.75 lacs to returned income as unexplained deposits considered as income u/s 69A; CIT(A) granted relied of Rs. 2.75 lacs which was stated to be on account of withdrawal from his GPF, while confirming addition of Rs.10 lacs; On Assessee’s appeal, ITAT observed from decision of CIT(A) that Assessee’s statement u/s 131 was recorded and that Assessee did not have sufficient money to pay monthly chit instalments…..………….. Click here to read and download HC Judgment
5) HC: Impugned order passed by traversing beyond the SCN violative of natural justice - HC allows writ petition, directs for renewal of approval under Section17(2)(viii) proviso (ii)(b), finds the order rejecting application to be violative of principles of natural justice since it considered various issues not covered in the Show cause notice; Before HC, Assessee submitted that it was granted approval under Section 17(2)(viii) proviso (ii)(b) initially in FY 2011-12 for a period of 3 years which was renewed twice over till 21st March 2020; It was contended that it filed application for renewal conforming with conditions prescribed under proviso (ii)(b) to clause(viii) of sub-section (2) to Section 17 and Rule 3A (1) of the Income Tax Rules, well in advance but the same was not renewed and is kept pending; Assessee was granted approval for providing treatment for Covid-19 patients which was revoked on 3rd August 2020 and while pursuing issue of revocation, Revenue had issued SCN calling for Assessee to respond to why cancellation order of State Govt for Covid-19 treatment be not considered for deciding the application filed by the petitioner for recognition u/s 17(2)(ii)(b) to which Assessee responded that at time of application, there was no Covid-19 outbreak and that only permission for Covid treatment was revoked, not other treatments……………….. Click here to read and download HC Judgment
6) HC: Assessee entitled to PMGKY Scheme on 66% fulfilment of requirement - HC holds Assessee eligible for benefit under Pradhan Mantri Garib Kalyan Yojna Deposit Scheme (PMGKY Scheme)as more than 66% compliance for said scheme had been completed; Sum of Rs. 29.98 lakh was seized from Assessee's employee by the Police Department which was taken over by the Income-tax Department and summons were issued under Section 133; Assessee had to comply with Section 199F of Finance Act, 2016 in as much as an amount equal to 25% of the undisclosed income was to be deposited in PMGKY Scheme initially by Mar 31, 2017; Assessee tried to deposit amount by said date when he was informed by the bank that the branch was not permitted to accept deposit PMGKY Scheme and referred the Assessee to another branch but by then the bank terminal was closed and could not accept the deposit; Due to the non-deposit of balance Rs. 7.5 lac, Revenue has held that Assessee is not entitled to PMGKY Scheme and denied him refund of amount held with the department; HC observes the short question to decide is whether the Assessee can be denied benefit of scheme when there is partial fulfilment of requirement of scheme; HC observes Assessee has complied with Section 199D and 199E inasmuch as the tax at rate of 33%, surcharge at rate of 33% on the income tax and penalty at rate of 10% has been received by department; HC notes only Section 199F which requires 25% of penalty to be deposited with the Revenue department for a period of 4 years remains unfulfilled; HC notes Revenue continues to have in its possession Rs. 14.98 lacs; HC notes the scheme is being made burdensome since the amount has already been seized and then Assessee is being required to pay tax, surcharge and penalty as well as deposit………………….. Click here to read and download HC Judgment
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“Taxsutra Database”, a true Income-tax research tool, is an archive of over 116070+ Income Tax Rulings reported across ITR, CTR, Taxman, DTR, ITD, TTJ, and ITR (Trib) and also includes recent ‘unreported handpicked rulings of SC, HC & ITAT’. It is a completely integrated service with the following features:
· Comprehensive coverage of all latest cases powered by an advanced search engine to provide a seamless user experience;
· Effective search results supported by active filters around Court Level, Location, Case Numbers and Citation;
· Enhanced search feature, using the Unique Bulls Eye Application, by including "Exact words", "Any of these", "none of these" options.
· Judicial “forward & backward reference”
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Issue No. 256 / March 03, 2022 Dear Professionals, We are glad to present to you the 256th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena! *********************** Expert Column Indisputably, global warming is a looming threat to the environment caused by emission of harmful greenhouse gases (GHG) into the atmosphere. In an attempt to rein this threat, the United Nations Framework Convention on Climate Change has introduced Certified Emissions Reduction (‘CERs’) conventionally known as 'Carbon Trading'. In the said framework, trading is nothing but buying and selling the right to emit CO2 and other GHG components such as CH4, N2O and fluorinated gases. The GST law in India since large has been elusive with regard to intangibles and given that in the case of supply of CERs, there is no delivery of tangible goods, the applicability of GST on carbon credit trading has led to some warring viewpoint.
Click here to read the article titled, “Conundrum of Taxing Carbon Credits in India” **********************
Click here to read the article titled, “Rationalisation of the provision of Charitable Trust and Institutions” *********************
Click here to read the article titled, “Updated Return u/s 139(8A) – A Comprehensive Snapshot of the New Type of Return” ******************** Key Takeaways from Handpicked Rulings 1) CIT cannot invoke revisionary powers u/s 263 to initiate penalty unlike AO – HC dismisses assessee’s writ challenging AO order imposing penalty u/s 271(1)(c) consequent to a remand proceeding as passed by PrCIT u/s 263 of the Income Tax Act 1961; Notes that the initial assessment order passed by AO was wholly set aside by the PrCIT u/s 263 and the proceedings were remanded as an open remand; HC rejects assessee contention that the words "on the above issues" in the concluding paragraph of order indicates a limited remand; HC observes, “on a reading order in its entirety, it is explicit that there were no limited issues for the AO to decide and in our considered opinion the order was an open remand, conferring power upon the AO to pass fresh orders of assessment on all the issues"; Further notes that there is a distinction between the proceedings u/s 263 and the initiation of penalty u/s 271(1)(c); However, when PrCIT in exercising its powers u/s 263 of the Act, the assessment order………….…….Click here to read and download HC Judgment Editorial Note: Kolkata ITAT in [TS-7444-ITAT-2017(Kolkata)-O] held that, PrCIT has rightly invoked Sec. 263 to hold that assessment order passed by AO is erroneous insofar as prejudice to the interests of the Revenue on account of non-initiation of penalty proceedings u/s. 271(1)(c). 2) SC: Dismisses SLP against HC order upholding Sec.271(1)(c) penalty for non-disclosure of capital gains by rejecting assessee's reliance on CA's reporting – SC dismisses SLP preferred by the assessee against HC ruling upholding levy of concealment penalty u/s. 271(1)(c) for non-disclosure of capital gains from sale of windmills (STCG of Rs. 21.60 crores) and land (LTCG of Rs. 1.37 crores) in the return of income by assessee-company; HC had Rejected assessee's claim that the Chartered Accountant reported the capital gains as nil and relied on on HC ruling (SLP against which is dismissed by SC) in case of Jivanlal & Sons wherein it was held that attempt to blame the Chartered Accountant cannot result in the assessee's exoneration………………Click here to read and download SC Order 3) HC: Existing contractual liability between assessee and its employees disallowance of expatriate cost is not justified - HC sets aside ITAT order upholding disallowance of expatriate cost charged by Head Office; HC restored the appeal to the file of the AO to re-consider the matter in the light of the jurisdiction case of Rambus Chip Technologies; HC notes that since no adjudication was made by AO on aspect of any existing contractual liability between assessee and its employees, the said impugned order was required to be reconsideration as the expenditure of expatriate cost should be given deduction from operating cost or not…………… Click here to read and download HC Judgment 4) ITAT: Addition u/s 68 not sustainable on mismatch of cash withdrawals and deposits w.r.t. denomination. Assessee-Individual and a partner in a firm engaged in the business of civil construction was assessed on difference in the denominations of the cash withdrawn which did not match with the cash deposits; AO conclude that the deposits to the extent of Rs.75 lakh remained unexplained and therefore added the same u/s 68; On appeal CIT(A) restricted the addition to extends to Rs.33 lakh; ITAT notes that CIT(A) has restricted the addition to the extent of Rs.33 lakh which did not match with the cash deposits in the denomination of Rs. 1000/- and Rs. 500/- notes and the deposits were made in different dates; It is quite possible to keep the withdrawals of specific denomination of notes for a certain period and specifically the same deposit notes with the bank after some time for any specific period; ITAT holds that the disallowance on presumption the cash deposits is nowhere seems justifiable on account …………… Click here to read and download ITAT Order 5) HC: Unless allowance notified u/s 10(14) no portion of it qualifies for exemption. HC dismisses LIC's writ challenging order passed by the AO u/s 201 in respect short deduction and non-deduction of the tax; Assessee before the HC placed reliance on a CBDT Circular dated Nov 19, 1986 and contented that conveyance / additional allowance are not income and therefore not liable for deduction of tax at source whereas Revenue it was bring into notice that in terms of instructions dated Mar 18, 1991 the CBDT followed by another circular dated Mar 23, 1995 consequent upon the amendment to Section 10(14) of the Direct Taxation Laws (Amendment), 1980 with effect from Apr 1, 1989 all circulars / instructions and clarifications earlier issued by the CBDT as regards Section 10(14) of the Act would cease to have with effect from AY 1989-90 onwards; Therefore, it is to no avail for LIC to rely on its earlier instructions which were based on earlier circulars; A clarification to this effect was issued by the CBDT to the LIC on Jan 4, 2001……………………. Click here to read and download HC Judgment ***********************
*********************** Lot's more at Taxsutra Database Click here to download “the Copy of Finance Bill, 2022” Click here to download “the Memorandum Explaining the Finance Bill 2022” Click here to download “the Budget Speech, 2022” Access all “Taxsutra Database Newsletters”, in case you have missed any! Access latest News....and more! ------------------------------------------------------------------------------------------ About Taxsutra Database! “Taxsutra Database”, a true Income-tax research tool, is an archive of over 115940+ Income Tax Rulings reported across ITR, CTR, Taxman, DTR, ITD, TTJ, and ITR (Trib) and also includes recent ‘unreported handpicked rulings of SC, HC & ITAT’. It is a completely integrated service with the following features: · Comprehensive coverage of all latest cases powered by an advanced search engine to provide a seamless user experience; · Effective search results supported by active filters around Court Level, Location, Case Numbers and Citation; · Enhanced search feature, using the Unique Bulls Eye Application, by including "Exact words", "Any of these", "none of these" options. · Judicial “forward & backward reference” The Taxsutra Database comes at a very special Annual Subscription price of 4200+ GST AND includes an annual license to the Taxsutra Library. Click Here to Sign up, make payment and join the Taxsutra Family. Copyright © TAXSUTRA. All Rights Reserved |
Against this backdrop, authors Sachin Kumar B P (Chief Strategic Partner, Manohar Chowdhary & Associates) and Akella A. S. Prakasa Rao (Director) infers that even if the carbon tax is an effective tool to combat climate change, it has resulted into market creation for carbon credit where developed countries entities exceeding their emission limits can buy carbon credits from those whose actual emissions are below their set limits. Accepting that exchange of carbon credits is not a charitable activity alone, and linked with execution of profitable project, the authors feel that it is here where Governments naturally proposed to tax carbon credits. Discussing the taxability under the Direct and Indirect tax in great length, the author examines whether carbon credits under Direct taxes is a revenue receipt or a capital receipt after the introduction of Section 115BBG under Income-tax Act 1961 (which was specifically introduced to mitigate the tax litigation on taxability of income from carbon credits. From a GST point, the authors explore the narrow compass of whether CER is a 'good or service' and if the same qualifies as 'money' or 'securities'. Here, considering the CBIC circular and newly introduced section 194Q vide Finance Act, 2021 to Income Tax Act, 1961, the authors extensively entertain the notion that Carbon credits are similar to Priority Sector Lending Certificates (PSLC) and Renewable Energy Certificates (RECs) which according to CBIC are ‘goods’ and if the same notion could be linked, carbon credits can be brought under the umbrella of GST. Stressing on said notion, authors anticipate that taxing the supply of CERs will put extra burden on buyers resulting into less demand of CERs which would inevitably deter the companies to make extra efforts in acquiring carbon credit by cutting on their carbon emission. Therefore, in such a situation, the authors hope that carbon credits can be treated in a similar manner as the duty credit scrips issued under FTP.
The Author Mr. Harish Kara (Chartered Accountant), writes about the rationalization of provisions applicable to Charitable Trusts through the amendments proposed by the Finance Bill, 2022 relating to taxability of Trusts and the implications thereof. He analyses the amendments proposed under the two regimes applicable to charitable trusts which are categorised as trusts or institutions referred to in Section 10(23C)(iv)/(v)/(vi)/(via) and Trusts and Institutions registered u/s 12AA/12AB. He highlights that the proposed rationalisations can be achieved through effective monitoring and implementation. Underscores that the proposed amendments aim to bring consistency in the two regimes and provide clarity. He discusses the attributes of the proposed amendments regarding maintenance of books of account for Trusts, levy of penalty for passing unreasonable benefits to the Trustees / Specified Persons, Time Limit for cancellation of Registration etc. 
The author, Dr. CA Abhishek Murali, in his article explores the implications of updated return u/s 139(8A), vide Finance Bill, 2022. He highlights that the extended time period for updated return is upto 24 months from the end of the relevant Assessment Year. He addresses the scope and applicability of the proposed updated return such as, who can and cannot file the updated return. The author briefly discusses the penalty liable for filing updated return and underscores that the proposed provisions for updated return also provides for penalty ranging from 25% - 50% depending on when the Assessee files the return of income. Opines that, “The likelihood the Income Tax will now issue notices (including re-opening notices for earlier year) to defaulters who have not filed or not disclosed their incomes properly is much higher and likely to happen”. He concludes that even if the provisions for updated return may seem steep, it’s still largely beneficial to the Assessee to be able to disclose the income and file the updated return upto 2 years.
Issue No. 255 / February 15th, 2022
Dear Professionals,
We are glad to present to you the 255th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
Taxsutra Database Budget Special
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Expert Column
Section 14A of the Income-tax Act provides that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income that does not form part of the total income as per the provisions of the Act. The Finance Bill, 2022 proposed to amend Section 14A, by inserting an explanation. The author, Mr. Arpith Jain, Tax Lead, Finastra delves into the implications of the proposed amendment. The author explains that the proposed amendment entails the inclusion of a non-obstante clause in respect of other provisions of the Income-tax Act and an Explanation is introduced in the section to clarify that the expenditure incurred shall be disallowed even in absence of the income. The author highlights that the proposed amendment is prospective and shall be applicable from AY 2022-23, but the wordings of explanation, "shall be deemed to have always applied" leaves room for ambiguity. The author analyses the brief history of Section 14A and states that the ambiguity with respect to the amendment may subject it to different interpretation, thus creating a cause for litigation. The author opines that, "with vastly income surrounding shares are now taxable and hence the judgements on these transactions are not relevant anymore. As the scope of this section is narrowed, the amendment in this section was uncalled for."
Click here to read the article titled, “Proposed Amendment to Sec.14A - Analysis of Ambiguities”
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Mr. Prakash Sinha (Partner, Prakash Sachin & Co. Chartered Accountants) examines the legality of Virtual Digital Assets. He analyses the definition of Virtual Digital Assets under newly inserted section 2(47A) and states that the term has been defined widely, thereby including every form of virtual assets barring Indian or Foreign Currency. He points out that RBI in the past had taken actions to deter the financial institutes and people at large from dealing increasingly popular in Virtual Digital Assets. The author discusses the decisions of the Apex Court and HC, wherein the legality of the virtual digital assets were questioned along with their taxability. He opines that, "the absence of any legislative/regulatory framework or policy confirming the status of crypto currencies till date and the validity of trading in and dealing with them, questioned their future in India which hinged over a murky structure."
Click here to read the article titled, “Virtual Digital Assets ( VDA ) – Unlawful or Unregulated”
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Mr. Vishnu Bagri and Mr. Amar Kumar (Chartered Accountants, Singhvi, Dev & Unni LLP) discern the newly introduced regime for taxation of Virtual Digital Assets and discuss the accrual of income from crypto transactions and its characterization. They opine that “The characterization of the income is a debate, particularly in the context of VDAs qualifying as capital assets.” They are of the view that given the all-encompassing definition of VDAs, any digitally represented balance attributable to a specific user could be covered within the definition of VDAs such as cashback points in payment aggregator applications, loyalty points accumulated on membership cards specific to shopping outlets, credit card reward points, promotional balance and virtual coins provided to users in online games and other applications. The authors also discuss whether specific transactions such as generation of VDA, acquisition of NFT as collectibles, P2P sale of VDA and sale of VDA on centralized exchange, would tantamount to a transfer or raise further ambiguity. They are of the view, “...the Web technology is not limited to gains arising on account of high volatility in the Cryptocurrency markets. As the markets mature and technologies evolve further, the tax regime would need to address the peculiarities of the underlying technology and the new business models.”
Click here to read the article titled, “India Opens the Door to Crypto Tax Maze!”
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Mr. Pradip R Shah (M/s Pradip R Shah & Co.) in his analytical article examines the proposals pertaining to withholding tax provisions on benefits or perquisites provided to resident assessees. He delves into a comparative of the proposed provisions with extant provisions of Sections 194A and 194C and opines that, at this stage it is not known what types of transactions would be covered under the term ‘benefits’ or ‘perquisites’. The author brings out pertinent issues emerging from the provision such as whether provision of benefit / perquisite under a contract can be considered as 'benefit' and or only when something more than agreed upon is provided is to be considered as 'benefit'. He also highlights that issues related to valuation of such benefits or perquisites are likely to arise as one deals with implementation of the proposed provisions. He also points out the issues as regards the manner of tax deduction and the timing aspect. He concludes on the note that Section 194R tries to take in its sweep wide and varied nature of transactions which are difficult to envisage and to define, and cautions that new transactions would find their way in the proposed Section’s ambit each year.
Click here to read the article titled, "TDS on Benefits or Perquisites of Business - Expanse & Complexity"
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Mr. Dindayal Dhandaria (Chartered Accountant) extensively discusses the amendments proposed by Finance Bill, 2022 meant to rationalize the provisions u/s 10(23C) and 12A/12AA. He analyses the amendments from the perspective of computation of taxable income, maintenance of books, audit, penalty, cancellation of registration, specific violations, furnishing of return, etc. He also points out inconsistent provisions between two regimes which are not addressed by the proposed amendments. Discussing the proposed procedure for re-registration of existing trusts, he highlights that the PCIT/CIT imposed as many as 18 conditions in Form 10AC as conditions subject to which registration was granted, which were not there in Sections 10 and 11 to 13. He illustrates the impact of non-compliance of any of the conditions by a Trust in a flow chart and exclaims, “The consequences of failure are devastating…”. He finds the proposed amendments to be whimsical, confiscatory and unconstitutional.
Click here to read the article titled, “No Trust on Trusts”
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Mr. Dindayal Dhandaria (Chartered Accountant) in this article, analyses the proposed amendment for taxability of contributions received as corpus donations and challenges in execution of the same. The author explains that Section 11(1)(d) of the Act provides that a voluntary contribution would be treated as a corpus donation if there is a specific direction to this effect from the donor. The author observes that it may be difficult to execute due to various factors such as unspecific instructions or no-instructions, anonymity of the donors and in the absence of evidence, the intention of the donor loses its importance and such corpus donations are treated as non-corpus donations by the Revenue, resulting in inability of the trust or an institution to claim the exemption available under section 11(1)(d) in respect of corpus donations. The author points to the example of Ram Mandir and states that, "Shri Ram Janmbhoomi Teerth Kshetra is receiving voluntary contributions from all over the country and abroad in such large sums that cannot be applied in the year of receipt. There is no doubt that such donations are meant for construction of a temple which is bound to take a few years for completion. But, the Trust cannot prove such contributions as corpus donations as it cannot obtain confirmations to this effect in writing." The author states that in order to tackle the technical and practical difficulty, the Finance Bill, 2022 proposes to grant an option to the trusts or institutions referred to in section 10(23C)(v) and 11 to treat the voluntary contributions as corpus donations subject to the prescribed conditions. The author highlights that the proposed amendments are meant to do away with the necessity of having a specific direction from the donor for the purpose of proving a voluntary contribution as a corpus donation and this relaxation is only for notified places of worship and other trusts or institutions will have to produce evidence in the form of specific direction from a donor in respect of voluntary contributions which they claim as corpus. 
Dividend income has been subject to the various amendments over the course of years. The author, Mr. A. Sekar (Chartered Accountant), delves into the taxability of dividend received from a company and implications of proposed amendment by insertion of sub-section (4) to Section 115BBD. The author explains that vide Finance Act, 2020 the Dividend Distribution Tax was abolished and dividends are to be taxed in the hands of the investors. The Finance Bill, 2022 seeks to withdraw the concessional rate of 15% on taxation of dividend income from foreign entities under Section 115BBD, and the same shall be subject to tax at the applicable corporate tax rate including surcharge and cess. The author opines, "withdrawal of the concessional rate of tax at 15% as provided under the existing Section 115BBD would hamper the expansion of global companies, as the same would result in increased tax liability for Indian companies and compel some companies to move their headquarters." Further highlights that the same would, "impact companies across sectors with profitable foreign operations. It may drive up the tax cost of repatriation of the funds back to India unless the dividend so received are further distributed to its shareholders within the specified timelines." The author further remarks that, "This may have commercial implications on the overall structure for Indian Companies of start-up going global as well as encouraging spinning of their existing structures."
Mr. S. Ramanujam (Chartered Accountant), in his article, analyses the proposed amendment to section 37 and predicts the possible effects of the same on the Pharma Companies. The budget Bill 2022 proposes to insert another explanation under sec 37(1) that will be Explanation No.3 to include the expenditure incurred by an assessee (i) for any purpose which is an offence or (ii) to provide any benefit or perquisite which is in violation of any law or rule or regulation or guideline or (iii) to compound an offence, in the the expression “expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law” under Explanation 1. The author highlights that, “ The entire amendment in the clause (ii) is to overcome many ITAT judgments relating to pharma Industry trade practice , where freebies given to doctors , and inducing them to prescribe the products belonging to a particular company – like reimbursements of travel costs , gifts etc were held allowable”. The author points out that the companies are being penalised from getting its expenditure allowed for marginal faults, if any, of their own. The Author remarks that “a pragmatic business approach can result in prosperity for all rather than pinpointing compliance deficiencies all the time and penalising, both under the respective statutes as well as under the IT Act”.
The Finance Bill, 2022 proposed to amend Section 170(2A) to clarify on the validity of proceedings in case of business reorganization. The section provides that the assessment or other proceedings pending or completed on the predecessor in the event of a business reorganization, shall be deemed to have been made on the successor. In this regard, Mr. RAMPRASAD T (Chartered Accountant) outlines the existing provisions u/s 170 and outlines the intention of the legislation in introducing the said amendment. The author touches upon SC ruling in Maruti Suzuki and recent Bangalore ITAT ruling in Serendipity Infolabs and opines that the said amendment in Section 170 is intended to bring in clarity and uniformity on assessment/reassessment made pending approvals in case of amalgamation/demerger. Likewise, the author discusses the new section 170A which provides for filing of modified return by the successor company prior to the date of order by the High Court/Tribunal/Adjudicating authority.
The Finance Bill 2022 proposes to remove the concessional tax rate of 15% plus applicable surcharge and cess under Section 115BBD of the Act, applicable on dividends received by Indian companies from specified foreign subsidiaries, with effect from Apr 1, 2023. The proposed amendment entails subjecting the dividend received by an Indian company from foreign companies to be taxed at normal rates applicable to corporates. The authors, Ms. Swetha Prasad A (Senior Manager, M2K Advisors LLP) and Ms. Varsha N (Associate M2K Advisors LLP), in their article, analyze the probable implications of the proposed amendment. The authors point out that vide Finance Act, 2020 the applicability of dividend distribution tax on dividend distributed by Indian Companies was removed and deduction under Section 80M of the Act was introduced. They observe that "Section 80M of the IT Act provides that where the gross total income of a domestic company includes dividend income from any domestic / foreign company, a deduction to the extent of dividend distributed by the Indian Company to its shareholders shall be available. In order to avail deduction under 80M, the domestic company has to distribute the dividend one month prior to the date of furnishing the return of income under Section 139(1) of the IT Act for the relevant year. Thus companies claiming Section 80M deduction would not be impacted by the amendment to the extent of dividends distributed to their shareholders before the said due date." The authors highlight that "Given that Section 115BBD is proposed to be inoperative from AY 2023-24, if the foreign sourced dividend is taxable under business income, eligible expenses can be claimed as a deduction and if it is taxable under income from other sources, interest expenditure up to 20% of such dividend income can be claimed as a deduction. The authors explain that the ambiguity on whether Section 80M deduction is an “allowance” and whether it can be claimed if dividend income is taxed under Section 115BBD would no longer exist."