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
***********************
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”
**************************
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”
**************************
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!”
**************************
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"
**************************
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”
***********************
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 115700+ 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.
Copyright © TAXSUTRA. All Rights Reserved
|
|
|
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."
|
|
|
|
|
|
|
|
|
Mr. Mahesh Chhajed (Senior Partner, M.S. Chhajed & Co.) and Mr. Hem Chhajed (Partner) in their article analyse the aforesaid ruling and discuss its implications which in all probability could set a disturbing trend. They discuss the well-established principle of law enshrined in legal maxim audi alteram partem and its essential ingredients. They highlight that the principles of natural justice are not embodied rules but are evolved under common law and they check the arbitrary exercise of power by the state or its functionaries.