Corpus Donations; Tax Treatment of Dividend; Amendment to Sec.37 & Lots More!
Issue No. 254 / February 08th, 2021
Dear Professionals,
We are glad to present to you the 254th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
Taxsutra Database Budget Special
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.
Click here to read the article titled “Option to Treat Voluntary Contributions as Corpus Donations Sans Specific Direction from The Donors”
**************************
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."
Click here to read the article titled “Tax Treatment of Dividend Received from Company and the Implications of Budget 2022”
**********************
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”.
Click here to read the article titled "Amendment to Sec 37: The Bitter Pill for Pharma Industries"
**************************
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.
Click here to read the article titled, “Assessment in case of Successor-in-interest”
**************************
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."
Click here to read the article titled “Withdrawal of Concessional Rate of Tax on Foreign Sourced Dividends”
“Taxsutra Database”, a true Income-tax research tool, is an archive of over115700+ 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.
ADDITION U/S. 68 - ONUS TO PROVE?; TAXABILITY OF CAPITAL GAINS ON EXECUTION OF JDA.. AND LOTS MORE!
Issue No. 253 / January 20th, 2022
Dear Professionals,
We are glad to present to you the 253rd edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
Status of Journals Updated
ITR Vol No. 439 PART 5
Dated 27th Dec 2021
ITR- Trib Vol No. 92 Issue 6
Dated 27th Dec 2021
CTR Vol No. 323 Issue 48
Dated 17th Dec 2021
DTR Vol No 207 Issue 232
Dated 21st Dec 2021
TAXMAN Vol No. 283 Part 7
Dated 25th Dec 2021
ITD Vol No. 191 Issue 9
Dated 29th Dec 2021
TTJ Vol No. 214 Issue 49
Dated 21st Dec 2021
***********************
Key Takeaways from Handpicked Rulings
1) ITAT: Upholds taxability of capital gains on execution of JDA with transaction value therein as consideration - ITAT dismisses Assessee’s appeal, upholds CIT(A)’s order taxing capital gains on execution of the JDA; Assessee-Individual entered into a JDA for Rs.2.48 Cr, Revenue relying on SC ruling in Alapati Venkatramaiah and held transaction under JDA to be a transfer u/s 2(47) and also on Section 53A of Transfer of Property Act and held that Assessee is eligible to receive future profits on the day of execution of JDA, thus liable to capital gains for AY 2013-14, which was confirmed by the CIT(A); ITAT observes that Assessee’s contention was that the SRO value of the land portion surrendered to the builder is the consideration, whereas the Revenue considered the JDA value as consideration; ITAT takes note of CIT(A)’s reasoning that JDA was executed on mutual agreement between the builder and Assessee and that project value was taken into consideration for the purpose of stamp duty; Opines that……………….Click here to read and download ITAT Order
2) ITAT: Income on short term investment prior to business commencement, taxable as income from other sources - ITAT dismisses Assessee’s appeal, rules that interest on short term bank deposits from an independent source not directly related to the construction work taxable under ‘income from other sources’; Assessee-Company engaged in the business of construction, operation and maintenance of road Projects was subjected to scrutiny assessment, whereby an addition of Rs. 87.73 Lakhs towards interest income and disallowance of Rs.17.03 Lakhs on account of interest on late payments of TDS was made, which on appeal was upheld by the CIT(A); Revenue found Assessee had not commenced its operations and held that interest income from short term deposits should be taxable under “Income from Other Sources”; of Income" and further held that no income was offered during the year and restricted TDS credit to Rs. 2.96 lacs which was also confirmed by CIT(A); ITAT notes …………….. Click here to read and download ITAT Order
3) ITAT: Upholds addition u/s 68, mere belief not sufficient, clear finding on discharge of onus necessary - ITAT allows Revenue’s appeal, holds that since the main ingredients of Section 68 were not satisfied Revenue was correct in making an addition of Rs. 4.10 Cr.; Assessee-Company was subjected to scrutiny assessment whereby Revenue found that Assessee had received share application money amounting to Rs.4.1 Cr from two individuals and contending that identity, creditworthiness of the creditors and the genuineness of the transactions was not shown by Assessee, added the said amount, which on appeal was deleted by CIT(A); ITAT finds that during assessment Assessee submitted that out of Rs.4.10 Cr, cheques of Rs.40 lacs in Jimmy Patels account and Rs. 1.55 Cr in the account of Jayantilal Patel were received on Mar 3, 2012 but cancelled on Jun 26, 2012; It was submitted that Jimmy Patel Group is in real estate business and for a JV business with BMW had brought share application money for proposed joint venture but the negotiations failed; ITAT observes that CIT(A) held that Assessee had given adequate information in order to prove the genuineness of the transaction as well as identity of the creditors and had submitted bank statement as well as ITR of the creditors and discharged its onus sufficiently to prove their creditworthiness; ITAT notes that Section 68 does not speak about a mere belief of the Revenue in regard to the proof of the genuineness of the transaction as well as identity and creditworthiness of the creditors but must have a clear finding on this aspect; ITAT holds the ingredients of Section 68 have not been satisfied and quashes the CIT(A)’s order………….Click here to read and download ITAT Order
4) ITAT: Satisfying onus u/s 68 no shield against additions based on sham transactions - ITAT dismisses Assessee’s appeal, upholds addition u/s 68 made by treating the transactions as sham transactions and holds that Assessee does not get the benefit of satisfying onus u/ s 68; Assessee-Company engaged in the business of manufacturing of laminates sheets and for AY 2010-11 issued 102750 shares to different companies with face value of Rs. 10 and premium of Rs. 390, aggregating to Rs. 400 per share; Revenue observed that these companies were managed by Prakash Bagrecha who was also the director in all the companies and in his statement u/s 131 admitted to be engaged in providing entries; Revenue finds that on 28 May 2010, all these companies transferred the shares to one company - M/s Silicon Infrapanel Ltd. which recorded the value of the shares as investment at Rs.30 Cr. in its books and did not file its returns for AYs 2010-11 to 2013-14 as there was no activity undertaken by the company and that as per Balance Sheet of the Assessee for FY 2009-10, the FMV works out at Rs. 47 only whereas the shares have been issued at an exorbitant value of Rs. 400 per share; Revenue observed that shares issued for the year under consideration was at much higher value than the fair market value and in absence of any reply to clarify the same, Revenue treated share capital received by the Assessee as bogus and added the same to the total income of the Assessee u/s 68……….. Click here to read and download ITAT Order
5) ITAT: Holds Assessee eligible for registration u/s 12AA, where ancillary objects include construction, manufacturing etc. - ITAT allows Assessee’s appeal, holds Assessee eligible for registration u/s 12AA, since its main objectives were charitable in nature, holds that if at all certain objects are carried out, which are commercial in nature, it was for the AO to verify the same; Assessee-Company registered under Section 25 of the Companies Act, 1956 as a non-profit organization was incorporated with the main objective of conducting proactive research and investigative programmes to conserve, preserve, and enhance the integrity of the natural environment and biodiversity so as to derive sustainable benefits for the human kind from the mother nature, organise and establish Research Labs and Centres etc; Assessee applied for registration u/s 12AA, whereby CIT(E) found Assessee’s ancillary objects to be commercial in nature, such as construction of roads, manufacturing, building etc and further that Assessee intended to carry out its activities outside India, contrary to provisions of section 11(1)(a) for which it needs to obtain a general or special order from CBDT which was not obtained, and rejected the application; ITAT observes that concept of enquiry of the Commissioner while granting registration u/s. 12AA has been ……..Click here to read and download ITAT Order
“Taxsutra Database”, a true Income-tax research tool, is an archive of over115530+ 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.
Year End Review 2021 - Selected 15 Rulings on Recovery Proceedings
Issue No. 252 / December 31st, 2021
Dear Professionals,
We are glad to present to you the 252nd edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
As we end an exceptional year with its ups and down, we look back at the experiences we earned and events that we witnessed. Taxwise, we always have a lot to learn and still look forward to with each passing year. The year 2021 gave us clarity on several legally vexed issues.
We take this opportunity to emphasise on varied rulings surrounding the recovery of tax. The provisions dealing with recovery of tax have several interesting facets as they are the last resort available with the Revenue to exact tax dues. With the development of law and complexity of businesses the recovery provisions have only got more complicated, especially, due to interplay with other laws that also provide for attachment of properties.
The writ jurisdiction of the High Courts has a crucial role to play in the development of law, particularly, where taxpayers' rights are at stake. The High Court’s play an extremely difficult role of striking a balance between the sovereign's powers and taxpayers' legal and fundamental rights. The rulings analysed in the year-end edition of the Newsletter shall make you abreast of various factors that weigh-in in the minds of the judges to decide the tax recovery case in one way or the other.
We wish you a happy, peaceful and prosperous new year.
“Taxsutra Database”, a true Income-tax research tool, is an archive of over115320+ 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.
Rulings on Sec.153A assessments; Period of limitation u/s 263; Society's eligibility for benefit u/s 10(23C) & Lots More!
Issue No. 251 / December 13th, 2021
Dear Professionals,
We are glad to present to you the 251st edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
Status of Journals Updated
ITR Vol - 438 PART 6
Dated 22nd Nov 2021
ITR Trib - 92 Issue 2
Dated 29th Nov 2021
CTR Vol. 322 Issue 43
Dated 12th Nov 2021
DTR Vol 207 Issue 212
Dated 23rd Nov 2021
TAXMAN Vol. 283 Part 2
Dated 20th Nov 2021
ITD VOL.191 Issue 5
Dated 1st Dec 2021
TTJ VOL. 213 Issue 45
Dated 23rd Nov 2021
***********************
Key Takeaways from Handpicked Rulings
1) HC: Period of limitation u/s 263 to be reckoned from original assessment order - HC dismisses Revenue’s appeal, upholds ITAT’s holding that the period of imitation has to be considered from the date of the order passed u/s 143(3)r.w. Section 263 when MAT Credit was originally allowed and not from the date of the order passed u/s 143(3) r.w.Sections 263 &251 when it was only increased; Revenue allowed MAT Credit as per Section 115JAA originally in assessment u/s 143(3) r/w Section 263; CIT(A) had decided the issue of whether the MAT Credit allowed should include surcharge amount and education cess in Assessee’s favour and accordingly the MAT Credit originally allowed was only increased by the amount of surcharge and education cess; ITAT held the error in allowing the MAT Credit was there in the AO’s order u/s 143(3) r.w.Section 263 whereby the MAT Credit was originally allowed and was only increased by the amount of surcharge and education cess while giving effect to the appellate order.………………..Click here to read and download HC Judgment
2) ITAT: No addition u/s 68 for completed assessments sans any incriminating material - ITAT follows SC order in Meeta Gutgutia, holds no addition u/s 68 can be made in case of search, in absence of incriminating material for completed assessments; Assessee was subjected to a search and his case was reopened u/s 153A wherein certain additions were made, which were deleted by CIT(A) who held that since the assessments in these cases stood completed, any additions could be made only on the basis of incriminating material; ITAT finds that addition has not been made on the basis of any incriminating material but has been made on the basis of entries in the books of account; Observes that entries were not unsupported as argued by the Revenue but are duly and properly supported by documentary evidences and holds that; ITAT observes that the case of Raj Kumar Arora which was based on Anil Kumarruling which was also followed in Kabul Chawla ruling wherein issue was decided in favour of Assessee by holding that in case of completed assessments, the additions can only be made on the basis of incriminating material; ITAT notes that the CIT(A) held that there was a difference between a statement recorded u/s 133A and that recorded u/s 132(4) whereas statements which have been relied by Revenue were recorded u/s 133A and not u/s 132(4); ITAT observes that ……………..Click here to read and download ITAT Order
3) HC: Revision u/s 263 of assessment based on one of the two possible views, invalid - HC refuses to admit the appeals preferred by PCIT invoking revisional powers under Section 263 of the Act; Remarks that the revisional powers u/s 263 were illegally invoked by the Principal Commissioner and upheld the decision of ITAT setting aside PCIT’s order; Assessee, engaged in gold and jewellery business was subjected to search whereby excess stock of Rs. 6.12 Cr was found, and Assessee filed the revised return admitting the income; Assessees admitted to the undisclosed income discovered during the search and seizure procedure and in reply to the show cause notice as to why the said income should not be charged u/s 69 as ‘Undisclosed Investment’ and u/s 115BBE of the Act, explanations had been given with regard to the additional income, which were considered and duly accepted by the Assessing Officer………………..Click here to read and download HC Judgment
4) HC : Society eligible for benefit u/s 10(23C)(iiiad) for fees, interest from FDRs - HC holds Assessee eligible for benefit u/s 10(23C)(iiiad) for interest from FDR and fees received by it; Assessee-Society, registered under the Societies Registration Act had established an educational institute and received receipts in fees and interest on FDRs for which it claimed the benefit u/s 10(23C)(iiiad), which was disallowed by the Revenue since the aggregate of fee receipts of the institution and the receipts of the Society breached the prescribed upper limit of Rs.1 Cr, which was upheld by the CIT(A); ITAT also denied Assessee the benefit u/s 10(23C)(iiiad) on the further reasoning that there was no evidence that the donations had been received by the Society with any specific direction that they will form part of the corpus of the Institution; HC holds that there would be no clubbing of the receipts of the Institution with the other income of the Society; Observes that the impugned additions made on the ground that the aggregate of the fee receipts of the Institute run by the Assessee-Society breached the prescribed upper limit of Rs.1 Cr under Rule 2BC of the IT Rules is incorrect, on the ground that ………………..Click here to read and download HC Judgment
5) HC: Transfer of depreciable assets, without liabilities, covered by Sec.50; Not taxable as slump sale - Calcutta HC dismisses Revenue’s appeal, upholds the ITAT’s order affirming sale of certain assets could not be regarded as a slump sale u/s 2(42C); Assessee-Company, engaged in the business of manufacturing and sale of chemicals, castings, steels, wagons sold its chemical unit whereas Revenue held it to be a transaction of slump sale; On appeal, both the CIT(A) and ITAT held the transaction was not in the nature of slump sale; HC observes that the unit itself was never sold and/or transferred as a going concern in totality but only assets of the unit was sold and transferred to the purchaser on a pre-determined and agreed price for each type of assets being sold and transferred and the consideration fixed for all the assets were not in lump sum; HC notes that none of the liabilities were transferred to the purchaser and the same continued to be a liability of the assessee and to be discharged by the Assessee; Relies on the coordinate bench ruling in Kwality Ice Cream (India) Ltd and holds that Section 50 will override all other provisions and for depreciable assets, the value has to be determined in accordance with the principles of block of assets;HC confirms ITAT’s approach and states that it was not the case thatITAT did not determine the issue of fact nor can it be said that the issue has been determined wrongly by reason of any illegality or omission or error………………..Click here to read and download HC Judgment
***********************
Expert Column
The Courts are usually flooded with writ petitions against statutory authorities over non-adherence to the principles of natural justice which has led to evolution of the principles in various dimensions. Recently, the Madras High Court thought it fit to dispose of an income-tax appeal preferred by the Revenue without extending an opportunity of being heard to the Assesee since the issue was fully covered.
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.
The authors emphasise on the importance of natural justice by referring to the provisions of the Code of Civil Procedure as well as the observations of the Apex Court in several rulings and opine that Madras High Court's order appear contrary to Article 14 of the Constitution which could lead to situation where assessees would be required to file caveats after every favourable order of ITAT. They conclude with the remark, “In the changing times of E-assessments, E-Appeals and perhaps even E-tribunals, if there is anything that needs a champion, it is the Principles of Natural Justice.”
Click here to read"Departure from Principles of Natural Justice - Questions Galore!"
“Taxsutra Database”, a true Income-tax research tool, is an archive of over114985+ 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.
HC rulings on faceless orders; Tax Litigation – Need for Consistency; SC ruling on Interest u/s 234B & Lots More!
Issue No. 249 / November 1st, 2021
Dear Professionals,
We are glad to present to you the 249th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
Status of Journals Updated
Journals
Dated
ITR Volume No. 437 – Part 5
22nd Oct 2021
ITR- Trib Volume No. 91 - Issue 2
11th Oct 2021
CTR Volume No. 322- Issue 37
1st Oct 2021
DTR Volume No. 206- Issue 181
1st Oct 2021
TAXMAN Volume No. - 282 Part 2
9th Oct 2021
ITD Volume No.190- Issue 6
6th Oct 2021
TTJ Volume No. 213 - Issue 39
12th Oct 2021
***********************
Expert Column
The Taxation Laws in India are litigation prone, and even though Indian Judiciary is internationally recognised for its detailed and unbiased verdicts on controversial issues, it lags behind when it comes to the time involved in closing an assessment.
CA Sachin Kumar BP (Chief Strategic Partner, Manohar Chowdhry & Associates) and CA Urvi Asher in this article highlights the issue of lack of consistency in tax litigation and suggest ways to step in the direction of adopting a consistent approach. The authors refer to certain recent judicial precedents and state that for the principle of consistency to apply, it is the taxpayers’ responsibility to ensure there is no change in the fact pattern.
They further touch upon recent amendments in reassessment proceedings and opine that “need for consistency in assessment orders from year to year may also draw support from judicial precedents where reassessment proceedings have been quashed on a mere ‘change of opinion’ or without having ‘reasons to believe”. They aver that there are numerous benefits of adopting a consistent approach in tax litigation and suggest some ways in which the consistent approach can be maintained.
Click here to read an article titled, “Tax Litigation – Need for Consistency”
Recently, the SC hearing a batch of appeals filed before it, held that for chargeability of interest u/s 234B prior to FY 2013-14, the amount of income-tax deductible or collectible at source can be reduced while computing the advance tax liability.
Ashwath Pai and Sudeep Das (Chartered Accountant) in their article discuss the implications of the SC ruling and highlight that in the light of amended provisions of Section 209, the ruling is a relief to many, and will settle a long battle fought between the taxpayers and the Revenue. They briefly capture the arguments advanced by the Revenue and the Taxpayers and the various judicial precedents relied thereon. Apart from granting relief to taxpayers presently litigating the issue at lower levels, another interesting takeaway from the ruling is the principle reiterated by the SC that while interpreting any provisions of the Income-tax Act, subsequent legislations/ amendments to the provisions can be considered, in case the earlier provisions were ambiguous or led to multiple interpretations.
Click here to read an article titled, “Interest u/s 234B - Mitsubishi Corporation Ruling – Way Forward”
***********************
Key Takeaways from Handpicked Rulings
1) HC: Dismisses writ petition against faceless assessment order, regards statutory form over writ remedy - HC dismisses Assessee's writ petition against the faceless assessment order, on the grounds that the statutory remedy of appeal against the assessment order was available with the Assessee; Assessee before the HC submitted that proper opportunity of hearing has not been provided by the assessing authority prior to passing the assessment order; HC refers to coordinate bench rulings and holds that “when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation.” .................Click here to read and download HC Order
2) HC: Citing alternative efficacious remedy, dismisses Assessee's writ petition against faceless assessment order - HC dismisses writ petition against the faceless assessment order passed without granting personal hearing; Notes that assessee had already approached the Appellate Authority against the assessment order and issuance of demand notice by way of filing an appeal u/s 246(A) of the Act; The Appellate Authority has powers to set aside the assessment order if found to be contrary to mandatory provisions under the Act and u/s 251 and that the Appellate Authority is having all the powers to consider the grounds raised by the petitioner in appeal; HC relies on SC ruling in case of Satya Pal Anand wherein exception to the rule of alternative remedy has been recognized..........Click here to read and download HC Order
3) HC: Quashes Faceless Assessment order passed contrary to the procedure in Section 144B - HC: Quashes faceless assessment order passed along with notice of demand as well as show-cause notice issued u/s 274 r.w.s 271AAC(1). HC allows assessee’s writ petition and directs revenue to issue a draft Assessment Order to the Assessee and give an opportunity to file its objections along with documentary evidence and thereafter pass such order as it deems fit by also giving a personal hearing as per rules; Accepts Assessee’s statement to withdraw the Appeal filed before appellate authorities against the Assessment Order which had been filed to save the Appeal from getting time-barred, within 2 weeks from today; Notes that revenue does not say why the request of Petitioner to issue summons to the third-party lenders could not be issued or will not be issued and straight away goes ahead and passes the Assessment order making addition u/s 68 with regard to a party who was not even referred to in any of the show-cause notices..............Click here to read and download HC Order
4) ITAT: Western Union has no Fixed Place PE or DAPE in India under India-USA DTAA - Delhi ITAT dismisses Revenue’s appeal by following ITAT’s conclusions for AY 2001-02 which have thereafter been followed in AYs 2002-03, 2003-04, 2004-05, 2005-06, 2007-08, 2008-09, 2009-10 and 2010- 11, holding that Assessee did not constitute any Permanent Establishment (PE) in India; Assessee, a non-resident company, registered in USA and engaged in the business of rendering money transfer services including transfer of money across international borders; Revenue contended that the Assessee company has a Fixed Place PE in India under Article 5 of India-US DTAA due to usage of software developed and owned by the Assessee in India; Further Revenue claimed existence of Agency PE on account of agents working in India; ITAT considers the orders passed in earlier years for AYs 2001-02 to 2010-11 wherein it was concluded that though the Assessee had a business connection in India, it neither had fixed placed PE nor agency PE in India and in absence of any PE in India the profits, if any, attributable to India operations could not be assessed as business profits under Article 7 of the India-US DTAA; It was also held that Assessee were independent agents under Article-5(4) of the India US-DTAA; Therefore, being the facts similar to that of earlier years, ITAT views that a consistent view taken by the ITAT should not be disturbed and hence, dismissed Revenue’s grounds............Click here to read and download ITAT Order
5)HC: Quashes reassessment, directs Revenue to pass speaking order on Assessee’s objections within two weeks - HC quashes reassessment order and order rejecting objections, directs Revenue to pass a speaking order rejecting options within two weeks; Assessee-Company was issued a notice u/s 148 for AY 2013-14 and objections filed by the Assessee were rejected by the Revenue after a year of filing the same, and Assessee preferred a writ petition against the impugned notice and the order passed rejecting the objections; Assessee submitted that there being no independent application of mind by the Revenue, the reasons recorded suffered a serious statutory illegality; Assessee also contended that information received from ADIT, Kolkata that it is a beneficiary for an amount of Rs. 1 Cr. was baseless since the amount received was in the nature of loan, and the transaction being genuine there could not be any addition of any income; Assessee relied on the SC ruling in GKN Driveshafts and submitted that the order rejecting the objections was not a speaking order; HC finds that in the instant case there was no order u/s 143(3) and return of income was processed u/s 143 and..........Click here to read and download HC Judgment
6) HC: Higher depreciation allowable for vehicle used for running on hire for own business - HC holds that the Assessee is entitled for higher rate of depreciation @ 30% for AY 2006-07 in respect of motor buses/lorries/taxi used in the Assessee's business of running them on hire; Follows SC ruling Radhasoami Satsang and identical issue decided by the ITAT in Assessee’s own case for AYs 1993-94 and 1995-96; Assessee, being a C & F agent involved in stevedoring, clearing and forwarding agency, custom house agency, steamer agency, rendering services in New Mangalore Port, was assessed at Rs. 87.66 lacs against Rs. 17.60 lacs pursuant to a search conducted on its premises u/s 132; Pr. CIT, exercising its power u/s 263, directed Revenue to pass a fresh assessment order regarding depreciation @30% on lorries, tippers, loaders, etc. which was negatived by the Revenue and appealed against before CIT(A) and allowed in Assessee’s favour; ITAT also decided in favour of the Assessee following coordinate bench’s ruling in Assessee’s own case for prior years; On Revenue’s appeal, HC refers to SC ruling Radhasoami Satsang wherein it was held “even though principles of res judicata do not apply to income tax proceedings, but where a fundamental aspect permeating through the different Assessment Years has been found as the fact one way or the other and the parties have allowed the position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in subsequent year”; Upholds the findings of CIT(A) and the ITAT by following earlier year’s judgment and rules in favour of Assessee............Click here to read and download HC Judgment
7) HC: Holds Assessee eligible under VsV where of filing of appeal before HC not expired on Jan 31, 2020 - HC sets aside the rejection of declaration under Direct Tax Vivad se Vishwas Act; Holds that u/s 260A, time for filing any appeal was still alive on Jan 30, 2020; Revenue had made additions to Petitioner’s income by assessment order dt. Mar 25, 2010 and an appeal was preferred before the CIT(A) which partly allowed Petitioner’s appeal leading to an appeal with the ITAT, again partly allowed on Oct 22, 2019; However, Petitioner submitted that the ITAT’s order copy was not served upon it for eleven months as a result of which communication was made to the Assistant Registrar of the ITAT and eventually received the order copy in the month of Dec 2020; Assessee submitted that the time limit of 120 days was further extended as per SC order by 90 more days from March 15, 2021 owing to the situation of COVID-19 and thus filed an appeal on Oct 30, 2020 even before receiving the certified copy of ITAT order and the declaration under VsV on Mar 17, 2021; Revenue challenged that the declaration should have been filed before January 31, 2020; HC analyses section 2 of the VsV Act and on observing the chronology of various events, remarks that the period of limitation would start running from the date of receipt of certified copy as per Section 260(A)(2)(a) and a period of..........Click here to read and download HC Judgment
“Taxsutra Database”, a true Income-tax research tool, is an archive of over114350+ 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.
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.
CA Sachin Kumar BP (Chief Strategic Partner, Manohar Chowdhry & Associates) and CA Urvi Asher in this article highlights the issue of lack of consistency in tax litigation and suggest ways to step in the direction of adopting a consistent approach. The authors refer to certain recent judicial precedents and state that for the principle of consistency to apply, it is the taxpayers’ responsibility to ensure there is no change in the fact pattern.
Ashwath Pai and Sudeep Das (Chartered Accountant) in their article discuss the implications of the SC ruling and highlight that in the light of amended provisions of Section 209, the ruling is a relief to many, and will settle a long battle fought between the taxpayers and the Revenue. They briefly capture the arguments advanced by the Revenue and the Taxpayers and the various judicial precedents relied thereon. Apart from granting relief to taxpayers presently litigating the issue at lower levels, another interesting takeaway from the ruling is the principle reiterated by the SC that while interpreting any provisions of the Income-tax Act, subsequent legislations/ amendments to the provisions can be considered, in case the earlier provisions were ambiguous or led to multiple interpretations.