Supreme Court in Madhur Housing and Development Co. on 05-10-2017 has held that loan/advance by closely held company to another company in which shareholder of closely held company having more than 10% voting power also had substantial interest in the borrowing company, although is taxable as deemed dividend income but the income is taxable in the hands of shareholder and not the borrowing company

Presumption underlying the deeming provision is that that the loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance. The legal fiction in s. 2(22)(e) enlarges the definition of dividend but does not extend to, or broaden the concept of, a “shareholder”.

ITAT Ahmedabad’s applaudable initiatives for paper less Court mandated with effect from 31-12-2017

1.    Copies of ITAT orders to be sent to DRs, CIT A and DRP to be sent through e mail

2.    Registery of ITAT not to accept paper-books containing copies of any of the documents, copies of which are statutorily required to be filed anyway along-with the appeal itself, e.g. assessment order, CIT(A)’s order, DRP order, form 35, form 35A, form 36, grounds of appeal etc. The inclusion of these documents in paper-books is a common practice but it results in wholly avoidable wastage of paper, and is, therefore, discouraged.

 

3.    The registry will also not accept any paper book containing copies of judicial precedents reported in recognized journals and databases. The parties, however, may file copies of such reported judicial precedents when bench concerned, at the time of hearing, may specifically permit or require so.

4.    Paper to be used on both sides. o the extent possible and practicable to do so. Any document or paper-book, wherein paper is used only on one side and wilfully left unused on the other side, will not ordinarily be accepted by the Registry.

5.    Any document specifically prepared for the use of the Tribunal, including any applications and any written submissions, to be filed in our office, shall use the paper on both the sides, will use the font size of no more than 12.5 and will have an internal spacing of no more than 1.5 lines. Any documents or paper books, in violation of these guidelines, will not ordinarily be accepted by the Registry

 

6.    In all the internal functioning of this office, including in the judicial orders, the use of paper will be minimized to the extent possible by, inter alia, ensuring (i) that paper will henceforth be used on both the sides, ordinarily with a maximum font size of 12.5 and internal spacing of no more than 1.5 line.; (ii) that internal guard files for the judicial orders will henceforth be maintained only in digital mode; and that (iii) that use of email is required to be made, through secure official email accounts, as much as possible in all official communications. These requirements, however, do not restrict any officer of the Tribunal from making such exceptions to these general rules, as, in his considered opinion, may be justified or warranted on a case to case basis

7.    The hard copies of constitution of benches and the cause lists shall only be used for limited internal communications. However, a soft copy of the constitution of benches and the cause lists, in addition to being placed on the official website https://www.itat.gov.in and, with effect from today, in the twitter handle at https://twitter.com/itat_amd

 

8.    A guidance note on paperless operation of Court to be issued on or before 15-12-2017

A proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole

R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC) The Division Bench of Delhi High Court followed the aforesaid decision in the case of CIT v. Rajinder Kumar [2014] 362 ITR 241/220 Taxman 3/[2013] 39 taxmann.com 126 (Delhi) and held that the amendment in the proviso to Section 40(a)(ia) of the Act is retrospective in nature.

Supreme Court Decisions on Income diverted at source before it accures to the assessee cannot be regarded as an income

1.    CIT v. Sitaldas Tirathdas [1961] 41 ITR 367 (SC),

2.       Provat Kumar Mitter v. CIT [1961] 41 ITR 624 (SC),

3.        Moti Lal Chhadami Lal Jain v. CIT [1991] 190 ITR 1/56 Taxman 49 (SC),

4.       CIT v. Sahara Investment India Ltd. [2004] 266 ITR 641/136 Taxman 61 (SC),

5.       CIT v. Chamanlal Mangaldas & Co. [1960] 39 ITR 8 (SC),

6.       Dalmia Cement Ltd. v. CIT [1999] 237 ITR 617/104 Taxman 97 (SC),

CIT v. Sunil J. Kinariwala [2003] 259 ITR 10/126 Taxman 161 (SC)

Renting out of counters to counter holders executing the sale and purchase of goods and provision of cash collection counters, staff facility is business Income

Renting out of counters to counter holders executing the sale and purchase of goods and provided facility of collection counter of sales proceeds manned by its own staff, packaging and delivery facility using its own staff, further counters were furnished by assesse, is  not a case of exploiting the property simpliciter, but a case where the objective of earning profits by conducting of the department store was merely facilitated by the use of the property. Hence assessable as business income and not income from house property.

Asiatic Stores & Soda Fountain[2017] 86 taxmann.com 211 (Mumbai – Trib.) SEPTEMBER  27, 2017

Mere fact that one donation received by it may be bogus would not establish that activities of trust were not genuine or that activities were not being carried out in accordance with objects of trust, just as one swallow does not make the summer

However, if there were multiple bogus transactions of similar kind, it would lead to conclusion that activities of trust were not genuine and, in such a case, registration granted to it could be cancelled under section 12AA(3)

 

Jagannath Gupta Family Trust[2017] 86 taxmann.com 104 (Calcutta) SEPTEMBER  18, 2017

Deduction under section 54B is allowable on purchase of agricultural lands not through registered sale deed and another through an agreement to sell

Anil Bishnoi[2017] 86 taxmann.com 217 (Chandigarh – Trib.) SEPTEMBER  27, 2017

If someone has sold a property, consequently the other person has purchased the said property. If the transfer of property is complete as per the definition of transfer u/s 2(47) of the Act, the assessee is made labile to pay tax on the capital gains earned by him, on the same analogy, the transfer is also complete in favour of the purchaser also. The provisions cannot be interpreted in a manner to say that transfer vis-a-vis selling is complete but vis-a-vis purchase is not complete in respect of same transaction. In view of this, the word ‘Purchase’ cannot be interpreted and detached from the definition of word ‘transfer’ as given u/s 2(47) of the Act. When the transfer takes effect as per the provisions of section 2(47) of the Act, if a liability to pay tax arise in the case of the seller, the consequent right to get deduction on the purchase of property accrues in favour of the purchaser, if he otherwise is so eligible to claim it as per the relevant provisions of the Act.

For the claim of deduction u/s 54 of the Act, the registration of sale deed is not necessary. It is enough if the assessee has paid the consideration, acquired the possession with full rights and has fulfilled other requirements of the provisions of the Act:-

1. Sh. Sanjeev Lal etc. v. CIT 269 CTR 001(SC) 2014
2. CIT v. T.N. Aravinda Reddy [1979] 12 CTR 0423 (SC)
3. CIT v. K. Jelani Basha [2002] 256 ITR 0282 (Madras)
4. CIT v. Ram Gopal [2015] 372 ITR 498 (Delhi)
5. Balraj v. CIT [2002] 254 ITR 22 (Delhi)
6. CIT v. R.L. Sood [2000] 245 ITR 727 (Delhi)
7. CIT v. Dr Laxmichand Narpal Nagda, [1995] 211 ITR 804 (Bom.)
8. CIT v Mrs. Shahzada Begum, [1988]73 CTR 0229 (A.P.)
9. S. Dabir Singh, Jalandhar v. Department of Income TaxITA No. 27 (Asr.)/2015

Where assessee-trust’s hospital availed services of some doctors, since there did not exist employer-employee relationship between parties, assessee was justified in deducting tax at source under section 194J while making payments of professional fee to doctors

Dr. Balabhai Nanavati Hospital[2017] 86 taxmann.com 107 (Mumbai – Trib.) SEPTEMBER  8, 2017

Chandigarh ITAT in the case of IVY Health Life Sciences where the facts are almost identical to the case of the appellant, in that case also, the professional doctors were paid on the basis of fees received from the patients. Their remuneration was not fixed and they were also free to render services to the patients as they considered appropriate in terms of time or duration. Such professional doctors were also not entitled to PF, ESI, LTC and any other perquisites or retirement benefits. In these circumstances therefore, it was held by Hon’ble Chandigarh ITAT that there was no employer and employee relationship between the assessee and the professional doctors. Hence the assessee had rightly deducted tax at source under section 194J from the payments made to the professional doctors

Where assessee hospital had sold old medical equipments, under buyback arrangement, to its vendors against purchase of new machinery, such sale could not be categorized as ‘scrap sale’; therefore, no TDS was to be deducted under section 206C

The word ‘scrap’ itself in ordinary parlance presupposes manufacture, processing or industrial activity.

In running a medical hospital question of generation of scrap is inconceivable. Therefore provisions of s.206C of the Act, ‘Prima Facie’ are not applicable to the assessee.

 

Dr. Balabhai Nanavati Hospital[2017] 86 taxmann.com 107 (Mumbai – Trib.) SEPTEMBER  8, 2017

TDS for Maintenance Contracts for technical equipments is covered by S.194C and not 194J

Dr. Balabhai Nanavati Hospital[2017] 86 taxmann.com 107 (Mumbai – Trib.) SEPTEMBER  8, 2017

AMC was necessary to keep medical equipments and other hospital equipments in good working condition and this process was normally carried out by skilled mechanics and not any qualified technician. Through these AMCs, the assessee was carrying out routine normal maintenance which was covered by the provisions of section 195C and these were not technical services covered under section 194J.

 

As per Q. No. 29 of CBDT Circular No 7 dated 8-8-1995, Routine, normal maintenance contracts which includes supply o spares will be covered tinder Section 194C. However, where technical services are rendered, the provision of Section 1 94J will apply in regard to the deduction at source.

 

Held in  Ultra Entertainment Solutions Ltd  where in the election was regarding the nature of payments made by the assessee to another person ,  who was engaged by the assessee is to carry out all operations connected with the selling of online lottery tickets on behalf of the assesse, that tax is deductible u/s 194J

 

ITAT, Ahmedabad in the case of Gujarat State Electricity Corporation Ltd. vs. ITO, 3 SOT 468 (Ahd), wherein it was held that the payments made by the assessee company to Gujarat Electricity Board for entire operation and maintenance 6r’Power plant under a comprehensive contract could not be treated as payment “fees for professional services as contemplated in section 194J but were covered by section 194C of the Act”.

 

 

Decision dated 30.09.2011 in ITA Nos. 3059 to 3061 & 3081/Ahd./2009 of Ahmedabad Tribunal in the case of Nuclear Power Corporation Ltd, it has been held that repairs and annual maintenance of computers do not involve services of technical nature so as to be assessable as “fees for technical services” u/s 9(1)(vii) of the Act and hence the assessee was required to deduct TDS under Section 194C of the Act and not under Section 194J of the Act.

 

 

Hon’ble Madras High Court in the case of Skycell Communications Ltd. 251 ITR 53 (where it was held that the installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment does not result in the provision of technical service to the customer for a fee)

 

Similar decisions by the Bench of Mumbai Tribunal in the case of Dy. CIT v. Asian Heart Institute & Research Centre (P.) Ltd. [2017] 82 taxmann.com 250

Deemed Exports declared u/s 147 of CGST by Notification 48/2017 dated 18-10-2017

Deemed Exports declared u/s 147 of CGST by Notification 48/2017 dated 18-10-2017

  • Supply of goods by a registered person against Advance Authorisation
  • Supply of capital goods by a registered person against Export Promotion Capital Goods Authorization.
  • Supply of goods by a registered person to Export Oriented Unit
  • Supply of gold by a bank or Public Sector Undertaking specified in the notification No. 50/2017-Customs, dated the 30th June, 2017 (as amended) against Advance Authorisation.

Further as per Notification 47/2017-CT dated 18-10-2017, substituting the 3rd proviso to Rule 89,  application for refund in deemed exports can be filed by :

(a) the recipient of deemed export supplies; or

(b) the supplier of deemed export supplies in cases where the recipient does not avail of input tax credit on such supplies and furnishes an undertaking to the effect that the supplier may claim the refund”;

As per old rule application for refund could be filed by recipient only in case of deemed exports.

Unscrupulous elements conducting unauthorized/illegal searches: PRESS RELEASE, DATED 22-9-2017

The tax payers is well within his rights to seek & inspect the warrant of authorisation, confirm the identities of authorized Income Tax Authorities mentioned on the warrant. The assessee can seek the telephone numbers of immediate supervisory officers of the search/survey party for the purpose of verification of genuineness.

In case, any doubts still persists then the Income Tax Department can be contacted on the following number 9013850099 for the specified purpose of confirmation of identities of officers/officials working in the Delhi region.

1.25 CRORES “new return filers” targeted to be added during 2017-18 as per CBDT letter dated 27-09-2017

 

A ‘new return filer’ for this purpose is defined as a person who has not filed return in the previous three Financial Years (2014-15 to 2016-17) but has filed return in the current financial year.

Region wise targets are as under:

:

Region Target for new return filers for FY 2017-18 Region Target for new return filers for FY 2017-18
JAIPUR 580261
AHMEDABAD 941123 KANPUR 616725
BANGALORE 876846 KOCHI 362156
BHOPAL 620925 KOLKATA 697685
BHUBHNESWAR 234850 LUCKNOW 620651
CHANDIGARH 1041948 MUMBAI 740741
CHENNAI 1047702 NAGPUR 211922
DELHI 727367 PATNA 502132
GUWAHATI 254948 PUNE 1182532
HYDERABAD 1239486 Total 12500000

in cases where on receiving the intimation u/s 143(1l)(a)(vi) of the Act, the concerned assessee has already filed a revised return, such returns shall be treated as valid and handled accordingly

As per section 143(1)(a)  while processing return the total income or loss shall be computed after making the adjustments for

  • any arithmetical error in the return or [S.143(1)(a)(i)]
  • an incorrect claim, if such incorrect claim is apparent from any information in the return. [S.143(1)(a)(ii)] As per Explanation to 143(1) an incorrect claim apparent from any information in the return” shall mean a claim, on the basis of an entry, in the return
  1. of an item, which is inconsistent with another entry of the same or some other item in such return
  2. in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished;
  3. in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction

 

 

WEf AY 2017-18 Now adjustment u/s 143(1)(a) in return of income can also be made for

  1. disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139 [S.143(1)(a)(iii)]
  2. disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return[S.143(1)(a)(iv)]
  3. disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC,80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139 [S.143(1)(a)(v)]
  4. addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return [S.143(1)(a)(vi)]

 

Intimation of Adjustment to Assessee:

Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode:

 

Response of the assessee to be awaited for 30 days

 

Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made

As per Above Instructions No. 9/2017, In returns filed in ITR-1 Form, information about a particular head/item of income is only on net basis and thus, complete data/information may not be available therein which may enable comparison with the data/information as contained in the three Forms [F.16,16A and 26AS]  in a meaningful manner. Therefore, in exercise of its powers under section 119 of the Act, the Board hereby directs that provision of section 143(1)(a)(vi) of the Act would not be invoked to issue intimation proposing adjustment to the income/loss so filed in ITR-1 Form in such situations.

 

  • However, where any head/item of income has been altogether omitted to be included in the return of income filed in ITR-1 while the three Forms contain specific detail in this regard pertaining to that item/head of income, section 143(1)(a)(vi) of the Act shall continue to apply.

 

  • Further, for purpose of section 143(1)(a)(vi) of the Act, only the three Forms specified therein would be taken into consideration

 

  • The pending intimations proposing adjustments under section 143(1)(a)(vi) wherein the taxpayer has tendered an explanation without revising the return or has not tendered any response till now shall be dealt with in accordance with the above direction.

 

In cases where on receiving the intimation u/s 143(1l)(a)(vi) of the Act, the concerned assessee has already filed a revised return, such returns shall be treated as valid and handled accordingly

Mid year Any time Availment of Composition Scheme opened till 31-03-2018 vide Notification 45/2017 dtd 13-10-2017 vide Para 2(i)

The above availment of Composition Scheme is available from Ist day of the each month immediately succeeding the month in which intimation of opting for Composition Scheme is filed in GST CMP-02. This amendment has been brought by substituting Rule 3(3A).

 

Further the above,  option is available to :

  1. Persons who have been granted provisional registration for migration from existing law u/R 24 OR
  2. Persons who have been granted final certificate of registration GST REG-06 under Rule 10(1)

 

In old Rule 3(3A) inserted by Notification 34/2017 dated 15-09-2017, the option was available to :

  1. a) Persons who have been granted provisional registration for migration from existing law u/R 24 OR
  2. b) Persons who have applied for registration u/R 8(1) by declaring his Permanent Account Number, mobile number, e-mail address, State or Union territory in Part A of Form GST REG-01

 

Further in old Rule 3(3A) the mid year option was available only till 30-09-2017.

 

Hence now composition scheme can be availed by

Migrated Persons granted provisional registration u/R 24 could apply in

  1. GST CMP-01 till 21-07-2017 which was later extended to 16-08-2017 [Rule 3(1)]. Stock details in GST CMP-03 is required to filed in such cases as per R.3(4) in 60 days (extended to 90 days) from date of exercise of option. Even if CMP-01 is filed after appointed day i.e. 22-06-2017, still only bill of supply to be issued.
  2. Making fresh application of Registration in Part A of GST REG-01by declaring his Permanent Account Number, mobile number, e-mail address, State or Union territory [R.3(2)].
  3. Making of option before commencement of financial year[ R.3(3)]. Stock Detail in GST ITC-03 is required to be filed in such cases with in 60 days from the commencement of financial year i.e. till 31May.
  4. In the middle of the year till 31-03-2018 only effective from Ist day of month following the month of option [R.3(3A)] . Stock detail in GST CMP-03 to be filed in 90 days from day on which persons starts payment of tax in composition scheme.

 

After furnishing GST ITC-03, TRAN-01 is not permitted to be furnished.

 

 

Hence GST CMP-02 is applicable both for Rule 3(3) and Rule 3(3A) for which suitable amendment has been made in Form GST CMP-03 by Para 2(v) of NN 45/2017 dated 13-10-2017

Avail ment of ITC for pre registration period by filing GST ITC -01 extended till 31-10-2017 by Notification 44/2017 dated 13-10-2017

As per section 18(1), credit of inputs can be availed for pre transition period in following cases :

  1. Compulsory registration is applied with in 30 days from being liable
  2. Voluntary registration
  3. Exempted goods become taxable. Also entitled to credit for capital goods
  4. Swithcing from Composition to Normal Scheme. Also entitled to credit for capital goods

 

However the availment of credit is subject to filing GST ITC-01 providing the detail of inputs and capital with in 30 days from above transitions. However since GST-ITC-01 is not still available on the portal, the date for filing ITC-01 has been extended to 31-10-2017

Exemption to small suppliers of goods from monthly filing and tax by Notification 40/217 dated 13-10-2017

Section 148 of the CGST Act allows the government to notify certain classes of registered persons, and the special procedures to be followed by such persons including those with regard to registration, furnishing of return, payment of tax and administration of such persons.

 

The notification applies to :

  1. Registered person whose aggregate turnover in the preceding financial year did not exceed one crore and fifty lakh rupees

OR

  1. The registered person whose aggregate turnover in the year in which such person has obtained registration is likely to be less than one crore and fifty lakh rupees

AND

who did not opt for the composition levy under section 10 of the said Act

 

 

In pursuance of powers u/s 148, above suppliers have been required to file returns and make payment of tax on prescribed basis. The method of filing and tax payment has however not been prescribed as yet.

 

Note

  1. While the same notification deals both exemption from tax on advance payments and monthly filing and tax payment, the exemption form tax on advance payment is confined to outward supply of goods but exemption from monthly filing of return and tax shall apply to both small suppliers of goods as well as services.

 

  1. Further, turnover for 2016-17 being more than 1.5 crore can not debar, in the opinion of author from monthly filing and tax because the concept of aggregate turnover has been put into operation by GST law only. So, people having higher turnover but who have not yet crossed the 1.5 crore limit might empt to avail the exemption from monthly fling due to language of the notification.

 

  1. Further although composition dealers are not covered but they are already exempted from monthly filing and payment of tax u/s 39(2)

Exemption to small suppliers of goods from payment of tax on advance received against supply of goods by Notification 40/217 dated 13-10-2017

Section 148 of the CGST Act allows the government to notify certain classes of registered persons, and the special procedures to be followed by such persons including those with regard to registration, furnishing of return, payment of tax and administration of such persons.

 

The notification applies to :

  1. Registered person whose aggregate turnover in the preceding financial year did not exceed one crore and fifty lakh rupees

OR

  1. The registered person whose aggregate turnover in the year in which such person has obtained registration is likely to be less than one crore and fifty lakh rupees

AND

who did not opt for the composition levy under section 10 of the said Act

 

 

In pursuance of powers u/s 148, payment of tax for above class of persons has  been confined to outward supply of goods at the time of supply u/s 12(2)(a) i.e. the date of issue of invoice by the supplier or the last date on which he is required to issue the invoice with respect to the supply.

 

Section 12(2)(b) which declares the date on which the supplier receives the payment with respect to the Supply as time of supply, where date of receipt falls before the date of supply,  has been dispensed for small suppliers.

 

Note:

  1. Hence persons covered by composition levy shall continued to be taxed for advance payment against supply
  2. Further supplier of services shall also pay tax on advance payments .

Where turnover is likely to be lesser but actually exceeds 1.5 crore, whether such person is required to pay tax on advance payments after crossing 1.5 crore ?

State Tax officers authorized to sanction refunds of jurisdictional registered persons , except refund of integrated tax paid on export of goods by Notification 39/2017 dated 13-10-2017 and NN 11/2017-IGST dated 13-10-2017

Section 54 and 55 allows refund in following cases:

  • Refund of tax paid on zero-rated supplies of goods or services or both
  • Refund of tax paid on inputs or input services used in making such zero-rated supplies made without payment of tax
  • Refund of tax on the supply of goods regarded as deemed exports
  • Refund of unutilized input tax credit, where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies, except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council
  • Refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued, or where a refund voucher has been issued
  • Refund of tax paid under wrong head
  • The tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the incidence of such tax and interest to any other person
  • Refund of tax paid on supplies received by UN organizations

 

 

However the above notifications has specifically barred the State tax  officers to sanction the refunds covered by Rule 96 which covers the refund of integrated tax paid on export of goods.

Exemption from registration to Casual Taxable Person till threshold limit for supply handicraft goods expanded by Notification 38/2017 dtd 13-06-2017 and NN 9/2017-IGST dtd 13-10-2017

 

Exemption to Casual taxable person (CTP) from registration u/s 23(2) was allowed for supply of 28 items of handicraft goods till threshold exemption was allowed by Notification 32/2017 dated 15-9-2017 both for inter state and intra state transactions. These handicraft items as per said notifications are exempt when made  by the craftsmen predominantly by hand even though some machinery may also be used in the process.  Further  availability of PAN and generation of e-way bill was made compulsory,  The list of items covered by above notifications has been expanded for certain following further items:

 

  1. In Sl. No. 9, textile handloom products were exempt. Now Handmade shawls, stoles and scarves have been added.
  2. Further 5 items have been added to exemption list of registration for CTP

 

INTEREST ON MONEY BORROWED FOR HOUSE PROPERTY IS TO BE ALLOWED ONLY IN RESPECT OF FIRST OR SECOND LOAN AND NOT FOR ANY SUBSEQUENT LOAN

SATYA CO. LTD [1986] 19 ITD 596 (CAL.)

 

The words ‘such capital’ used in section 241)(vi) definitely refers to the borrowed capital and as such the section confines the benefit to the borrowed capital, i.e., original loan only. The language is not capable of being extended to any second or subsequent loan. No doubt, that the aforesaid Board’s circular refers to the second loan to which the provision of the section was extended by this Board’s circular. But it could not be extended to subsequent loans as contended by the assessees. Therefore, the Commissioner (Appeals) was incorrect in holding that the test laid down in section 24(1)(vi) was that the loan should have been taken to acquire the property and it did not say whether it was the first loan or second loan or subsequent loans.

For Computation of profit linked deductions under Chapter VI-A, depreciation has to be mandatorily reduced even for assessment years prior to Finance Act 2001 inserting Explanation 5 to Section 32

Supreme Court’s own judgment in Mahindra Mills 243 ITR 56 which was sought to be nullified by above amendment can not help assesse in escalating profits because

(Para 18)”………….. Mahendra Mills was rendered while construing the provisions of Section 32 of the Act, as it existed at the relevant time, whereas we are concerned with the provisions of Chapter VI-A of the Act. Marked distinction between the two Chapters, as already held by this Court in the judgments noted above, is that not only Section 80-IA is a code by itself, it contains the provision for special deduction which is linked to profits. In contrast, Chapter IV of the Act, which allows depreciation under Section 32 of the Act is linked to investment. This Court has also made it clear that Section 80-IA of the Act not only contains substantive but procedural provisions for computation of special deduction. Thus, any device adopted to reduce or inflate the profits of eligible business has to be rejected. The assessees/appellants want 100% deduction, without taking into consideration depreciation which they want to utilise in the subsequent years. This would be anathema to the scheme under Section 80-IA of the Act which is linked to profits and if the contention of the assessees is accepted, it would allow them to inflate the profits linked incentives provided under Section 80-IA of the Act which cannot be permitted………………”

Plastiblends India Ltd. [2017] 86 taxmann.com 137 (SC) 09-10-2017

Sale proceeds of agricultural land and conversion of land by cutting trees into housing plots, brought asset in as stock-in-trade attracts capital gain being transfer u/s 2(47)(iv) rws 45(2)

Synthite Industrial Ltd.[2017] 86 taxmann.com 138 (Kerala)

Where assessee whose business included real estate development purchased a rubber estate to utilize land for non-agricultural purpose and converted said land by cutting trees into housing plots, thus, brought asset in as stock-in-trade and sold those plots to several people for construction of villas, it was held that though property was once an agricultural land, its acquisition was for non-agricultural purposes, assessee did not carry on any agricultural activity in land and at relevant date, viz. date of sale, land had ceased to be an agricultural land, if that be so, assessee could not have claimed that income gained from sale of land was from sale of agricultural land entitling it to exemption from levy of capital gains

There can be no STCG u/50 if assesse is having balance in the block of assets

“……There is no dispute that even after the transfer of the said assets the assessee was still having balance in the block of assets of plant and machinery. Therefore the conditions as stipulated under Section 50 of the Act have not been satisfied so that any capital gain arising in the hand of the assessee can be deemed as per the provisions of Section 50 of the Act. ……….”

ITAT Banglore Bench in Makino India (P.) Ltd. [2017] 86 taxmann.com 139 (Bangalore – Trib.)

Amalgamation taking place retrospectively before transfer of assets to amalgamated company by amalgamating company, No capital gains u/s 50 arise in hands of amalgamating co.

Para 6“…………..though the transfer of block of assets by the erstwhile entity Makino Asia Pte Limited had resulted STCG in the hand of the said entity but it exists only so long there was no merger/amalgamation. Once the merger / amalgamation was effected from 1.4.2002 (vide High Court order dated 19-12-2003)ail the transactions thereafter would be treated as transactions of the new entity post amalgamation. Thus when there is no extinguishment of block of assets of plant and machinery in the hand of the assessee then the transfer of assets in question after 1.4.2002 would not result in deemed capital gain under Section 50 of IT Act. “

 

Hence with drawl of income offered for STCG pre amalgamation through revised return was held valid by ITAT Banglore Bench in Makino India (P.) Ltd. [2017] 86 taxmann.com 139 (Bangalore – Trib.)

Assessee following cash system of accounting had reflected tds as income u/s 198 is entitled to claim full credit of tds in the year of deduction itself although corresponding income not reflected in the year of deduction.

Issue of allowing TDS to assesses following cash system of accounting: As per section 198, sum deducted is deemed to be income received. Further Rule 37BA(3)(ii) allowing tds credit in the proportion of income assessable is applicable where income is received over number of years. However, if income is not received at all, Rule 37BA(3)(ii) shall not apply. Again Rule 37BA(i) allowing credit of TDS in the assessment year for which tax is assessable shall have effect of not at all allowing the credit of TDS if no amount is received. Hence Rule 37BA (3) is not applicable to cash system of accounting. Hence where assessee following cash system of accounting had reflected tds as income u/s 198 is entitled to claim full credit of tds in the year of deduction itself although corresponding income not reflected in the year of deduction. Held by ITAT Delhi in Chander Shekhar Aggarwal [2016] 67 taxmann.com 62 (Delhi – Trib.) pronounced on 11-01-2016 following Sadhbhav Engineering (Ahd Trib) and Vishakhapatnam Trib in Peddu Srinivasa Rao

Cases of Agriculture Income more than 1 crore to be probed [CBDT letter 10-03-2016]

CBDT instructs officers to verify cases of agriculture Income more than one crore in resposne a PIL matter pending before Hon’ble Patna High Court wherein concerns have been raised that a few assesses may be engaged in routing their unaccounted/illegal money in the garb of agricultural income thereby not only claiming exemptions on such income but also engaged in the money laundering activities. Also CBDT has advised that there may be data entry errors also resulting in income being reflected more than one crores. List of cases where agiculture income is more than one crore has been made available to officers. In Amritsar 26 cases have been reported [CBDT Letter dated 10-03-2016]

Monetary limits for filing appeals shall also apply to Cross Objections u/s 253(4), says CBDT

CBDT vide letter dated 08-03-2016 has clarified that the monetary limit of Rs. 10 lakhs imposed vide Circular No. 21/2015 dated 10-12-2015 for filing appeals before the ITAT would apply equally to cross objections under section 253(4) of the Act. Cross objections below this monetary limit, already filed, should be pursued for dismissal as withdrawn/not pressed. Filing of cross objections below the monetary limit may not be considered henceforth i.e. wef 08-03-2016

The issue of deductibility of Subsidies as profits derived from undertaking stands resolved by Supreme Court in its Landmark Judgment in Meghalya Steels on 09-03-2016

Exemption available under Chapter VI-A in respect of profits of industrial undertakings is available only in respect of income qualifying the litmus test of “profits or gain derived from undertaking”. The revenue and assessees have been locking their horns over the issue of Subsidies for years together as to whether or not they are covered by term ““profits or gain derived from undertaking”

In this article while an attempt has been made to construe real meaning of words “profit derived from”, it also deals with purpose test of subsidy and its relevance after recent amendments in Finance Act 2015 and Finance Bill 2016.

 

It will be relevant to look into the issue through a few court rulings:

  1. Cambay Electric Supply Industrial Company Limited v. Commissioner of Income Tax, Gujarat II, (1978) 2 SCC 644 (Supreme Court)

In this case Court had to construe Section 80-E of the Income Tax Act, which referred to “profits and gains attributable to the business” of generation or distribution of electricity. It was held that the expression “attributable to” is certainly wider in import than the expression “derived from”. Sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. Whenever the Legislature wanted to give a restricted meaning it has used the expression “derived from” to cover receipts from sources other than the actual conduct of the business.

  1. Commissioner Of Income Tax, Karnataka v. Sterling Foods, Mangalore, (1999) 4 SCC 98 (Supreme Court)

The issue is this case was whether income derived by the assessee undertaking engaged in export of processed sea food by sale of import entitlements was profit and gain derived from the industrial undertaking .This Court referred to its judgment in Cambay Electric Supply (supra) and emphasized the difference between the wider expression “attributable to” as contrasted with “derived from”. Supreme also stated the industrial undertaking itself had to be the source of the profit. The business of the industrial undertaking had directly to yield that profit. Hence the source of the import entitlements can not said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Govt. whereunder the export entitlements become available. There must be for the application of the words “derived from”, a direct nexus between the profits and gains and the industrial undertaking. In the instant case the nexus is not direct but only incidental. The assessee is entitled to import entitlements under export promotion scheme, which it can sell. The sale consideration therefrom cannot be held to constitute a profit and gain derived from the assessees’ industrial undertaking.

  1.  Pandian Chemicals Limited v. Commissioner of Income Tax, 262 ITR 278(Supreme Court)

The question before the Court was as to whether interest earned on a deposit made with the Electricity Board for the supply of electricity to the appellant’s industrial undertaking should be treated as income derived from the industrial undertaking. Supreme Court held that although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. The derivation of profits on the deposit made with the Electricity Board could not be said to flow directly from the industrial undertaking itself.

  1. Liberty India v. Commissioner of Income Tax, (2009) 9 SCC 328(Supreme Court)

The question was whether DEPB credit or Duty drawback receipt could be said to be in respect of profits and gains derived from an eligible business. Again Supreme Court first made the distinction between “attributable to” and “derived from” stating that the latter expression is narrower in connotation as compared to the former. The court further went on to state that by using the expression “derived from” Parliament intended to cover sources not beyond the first degree. DEPB is an incentive. It is given under Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEPB is to neutralize the incidence of customs duty payment on the import content of export product. This neutralization is provided for by credit to customs duty against export product. Under DEPB, an exporter may apply for credit as percentage of FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by DGFT for import of raw materials, components etc. DEPB credit under the Scheme has to be calculated by taking into account the deemed import content of the export product as per basic customs duty and special additional duty payable on such deemed imports. Therefore  DEPB/Duty Drawback are incentives which flow from the Schemes framed by Central Government or from S. 75 of the Customs Act, 1962, hence, incentives profits are not profits derived from the eligible business.

  1. Calcutta High Court in Merino Ply & Chemicals Ltd. v. CIT, 209 ITR 508 [1994],

It was held that transport subsidies were inseparably connected with the business carried on by the assessee. Transport expenditure is an incidental expenditure of the assessee’s business and it is that expenditure which the subsidy recoups and that the purpose of the recoupment is to make up possible profit deficit for operating in a backward area. Therefore, it is beyond all manner of doubt that the subsidies were inseparably connected with the profitable conduct of the business

In CIT v. Andaman Timber Industries Ltd., 242 ITR 204 [2000], however Calcutta High Court arrived at an opposite conclusion in considering whether a deduction was allowable under in respect of transport subsidy without noticing its own judgment in Merino Plywood(supra). A Division Bench of the Calcutta High Court in C.I.T. v. Cement Manufacturing Company Limited, by a judgment dated 15.1.2015, distinguished the judgment in CIT v. Andaman Timber Industries Ltd. and followed the impugned judgment of the Gauhati High Court in Meghalya Steels which is  the subject matter of discussion in this Article.

  1. Sahney Steel and Press Works Ltd. v. Commissioner of Income Tax, A.P. – I, Hyderabad, (1997) 7 SCC 764 (Supreme Court)

It was held by the apex Court on power subsidy that  subsidy on power was confined to ‘power consumed for production’. In other words, if power is consumed for any other purpose like setting up the plant and machinery, the incentives will not be given.

On refund of sales tax it was held that  Refund of sales tax will also be in respect of taxes levied after commencement of production and up to a period of five years from the date of commencement of production. It is difficult to hold these subsidies as anything but operation subsidies. These subsidies were given to encourage setting up of industries in the State by making the business of production and sale of goods in the State more profitable

  1. Delhi High Court in Dharampal Prem Chand  317 ITR 353

It was held by Delhi High Court that refund of excise duty should not be excluded in arriving at the profit derived from business for the purpose of claiming deduction under Section 80-IB of the Act. SLP of the department against this decisions has been dismissed by Supreme Court.

  1. Contrary Judgements of Himachal Pradesh High Court in Kiran Enterprises (2010) 327 ITR 520 and Supriya Gill [ITA 27 & 28/2010 dtd 16-6-2010]

The question was whether the freight subsidy is income derived from the business of the industrial undertaking and can be included in the profit eligible for deduction under section 80-IA. The Court held that the source of transport subsidy is not the business of the assessee but the scheme framed by the Central Government. Held that the subsidy received by the assessee was not a profit derived from the business since it was not an operational profit and that the source of the subsidy is not the business of the assessee but the scheme of the Government

  1. Adverse Judgement of Punjab and Haryana High Court in H.M. Steels Ltd. [ITA 352/2013 dated 04-08-2015]

P&H High Court expressed agreement with view taken by Himachal High Court and also held that sales tax rebate  is not profit derived from eligible business and hence entitled for deduction.

  1. Purpose Test of Subsidy
  2. a)Ponni Sugars & Chemicals Ltd. [2008] 174 TAXMAN 87 (SC [16-09-2008](Supreme Court)

The assessee-company had received subsidy under the incentive subsidy scheme, 1980. The incentives conferred under the scheme were two fold; first, in nature of a higher free sale sugar quota and second, in allowing the manufacturer to collect excise duty on the sale price of the free sale sugar in excess of the normal quota, but to pay to the Government only the excise duty payable on the price of levy sugar. As per the scheme, the assessee was obliged to utilize the subsidy only for repayment of term loans undertaken by it for setting up new units/expansion of existing business.

Held by apex Court  that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases one has to apply the ‘purpose test’. The point of time when the subsidy is paid is not relevant. The source is immaterial; the form of subsidy is also immaterial. The main eligibility condition in the scheme in the instant case was that the incentive must be utilized for repayment of loans taken by the assessee for setting up of new units or for substantial expansion of its existing units. If the object of the subsidy scheme was to enable the assessee to run the business more profitably, then the receipt was on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand its existing units, then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant.

In the instant case also, receipt of the subsidy was capital in nature as the assessee was obliged to utilize the subsidy only for repayment of term loans undertaken by it for setting up of new units/expansion of its existing business.

  1. b)Jammu and Kashmir High Court in Shree Balaji Alloys

The assessee, pursuant to the New Industrial Policy announced for the State of J&K, received excise refund and interest subsidy, etc which it claimed to be a capital receipt. In the alternative, it was claimed that the same was eligible for deduction u/s 80-IB. The AO, CIT (A) and Tribunal rejected the claim and held the receipts to be revenue on the ground that the subsidy (i) was for established industry and not to set up a new one, (ii) it was available after commercial production, (iii) it was recurring in nature, (iv) it was not for purchasing capital assets and (v) it was for running the business profitably. On appeal by the assessee, HELD reversing the lower authorities:

 If the object of the subsidy scheme is to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the subsidy scheme is to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. It is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy.The form or the mechanism through which the subsidy is given is irrelevant; Since the object of the subsidy scheme was (a) to accelerate industrial development in J&K and (b) generate employment in J&K. Such incentives, designed to achieve a public purpose, cannot, by any stretch of reasoning, be construed as production or operational incentives for the benefit of assesses alone. It cannot be construed as mere production and trade IncentivesThe fact that the incentives were available only after commencement of commercial production cannot be viewed in isolation.

Question whether the subsidy receipts are eligible u/s 80-IB as being derived from industrial undertaking was not decided.

Purpose Test is no longer relevant

As per clause (xviii) inserted in section 2(24) by Finance Act 2015 wef AY 2016-17, definition of income includes:

assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee

other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43;

Finance Bill 2016 further excludes the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government from the scope of 2(24)(xviii)

Hence wef AY 2016-17, all subsidies except specifically excluded shall be revenue in nature and shall no longer retain capital character.

Hence the issue whether subsidy is derived from eligible business for determining its eligibility for deduction under Chapter VI-A becomes all the more important for assessee.

  1. Supreme Court in Meghalya Steels decided on 09-03-2016

In this case the issue before apex court was whether transport subsidy, interest subsidy and power subsidy can be said to be “ profits derived from industrial undertaking”

It was held by apex court confirming the decisions of Gauhati High Court that all these subsidies in the present case are revenue receipts which are reimbursed to the assessee for elements of cost relating to manufacture or sale of their products, there can certainly be said to be a direct nexus between profits and gains of the industrial undertaking or business, and reimbursement of such subsidies. However Revenue stressed   the fact that the immediate source of the subsidies was the fact that the Government gave them and that, therefore, the immediate source not being from the business of the assessee, the element of directness is missing.  However it was held by apex Court that So long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that the said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. The “profits and gains” spoken of by Sections 80-IB and 80-IC have reference to net profit. And net profit can only be calculated by deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Thus understood, it is clear that profits and gains are derived from the business of the assessee, namely profits arrived at after deducting manufacturing cost and selling costs reimbursed to the assessee by the Government concerned.

Head of Income for Subsidies also decided by Supreme Court in Meghalya Steels decided on 09-03-2016

It is also held by Supreme Court in Meghalya Steels that Section 28(iii)(b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head “profits and gains of business or profession”. If cash assistance received or receivable against exports schemes are included as being income under the head “profits and gains of business or profession”, it is obvious that subsidies which go to reimbursement of cost in the production of goods of a particular business would also have to be included under the head “profits and gains of business or profession”, and not under the head “income from other sources”.

Comments on Himachal Pradesh High Court Judgement [Supreme Court in Meghalya Steels decided on 09-03-2016]

The Himachal Pradesh High Court, having wrongly interpreted the judgments in Sterling Foods and Liberty India to arrive at the opposite conclusion, is held to be wrongly decided.

Comments on Delhi, Calcutta and Gauhati High Court Judgements:[Supreme Court in Meghalya Steels decided on 09-03-2016]

The Supreme Court in its concluding para has said that following judgements have correctly construed section 80-IB and Section 80-IC

  1. i)Delhi High Court in Dharam pal Prem Chand [Thus the isuue of excise subsidy also attains finality]
  2. ii)Calcutta High Court in Merino Ply and Chemicals [Transport Subsidy]

iii)              Gauhati High Court in Meghalya Steels [Interest, Power, Transport Subsidy]

 

Conclusion: The Judgment of Supreme Court shall put to rest the long drawn controversy over reletability of subsidies to profits derived from eligible business. Since Finance Act 2015 has defied the purpose test of subsidies wef AY 2016-17, the judgement in author’s view is shot in the arm  just before the commencement of AY 2016-17 before planning for last installment of AY 2016-17.

Issue of deduction of Housing Loan Interest in case of co-owners decided by Punjab and Haryana High Court in Priya Mahajan [ITA 384/2015 dtd 26-11-2015

Facts: Plot purchased in the name of four cowners. Also they were co-borrowers of housing loan for construction of house. The assessee solely repaid entire interest and principal since the date of borrowing. While assessee claimed 100% deduction on housing loan interest, the AO restricted it to 25% having regard to assessee’s share of ownership Section 45 of Transfer of Property Act 1882 on Joint transfer for consideration.— Where immoveable property is transferred for consideration to two or more persons and such consideration is paid out of a fund belonging to them in common, they are, in the absence of a contract to the contrary, respectively entitled to interests in such property identical, as nearly as may be, with the interests to which they were respectively entitled in the fund; and, where such consideration is paid out of separate funds belonging to them respectively, they are, in the absence of a contract to the contrary, respectively entitled to interests in such property in proportion to the shares of the consideration which they respectively advanced. In the absence of evidence as to the interests in the fund to which they were respectively entitled, or as to the shares which they respectively advanced, such persons shall be presumed to be equally interested in the property. Held that : In present case though assessee has claimed to have paid entire consideration for purchase of plot/construction, no evidence has been produced. In the sale deed since shares of individuals are not specified. Section 45 of Transfer of Property Act shall apply. In the case of Saiyed Abdullah v. Ahmad AIR 1929 All. 817, the Hon’ble Allahabad High Court held that ‘in the absence of specification of the shares purchased by two persons in the sale deed, it must be held that both purchased equal shares. In present case, since the individual shares were not specified in the sale deed, the logical conclusion is that everyone had equal share in the property. Hence allowance of 25% of Housing Loan to assessee borrower is correct even if the assessee solely repaid entire interest and principal since the date of borrowing.

Supreme Court in Kathiroor Service Cooperative Bank Ltd.[August 27, 2013.] on Scope of 133(6)

The appellant-assessee is a Service Co-operative Rural Bank. The Income Tax Officer to the assessee under Section 133(6) of the Act calling for general information regarding details of all persons (whether resident or non-resident) who have made (a) cash transactions (remittance, transfer, etc.) of Rs. 1,00,000/- and above in any account and/or (b) time deposits (FDs, RDs, TDs, etc.) of Rs. 1,00,000/- or above for the period of three years between 01.04.2005 and 31.03.2008, dated 02.02.2009. It was expressly stated therein that failure to furnish the aforesaid information would attract penal consequences. The assessee objected to the said notice on grounds, inter alia, that such notice seeking for information which is unrelated to any existing or pending proceeding against the assessee could not be issued under the provisions of the Act and requested for withdrawal of the said notice

Section 133 provides for the power of authorities under the Act to call for information for the purposes prescribed therein. Sub Section (6) of Section 133 of the Act, as it stood originally, had provided for calling for information in relation to such points or matters which would be useful for or relevant to any proceeding under the Act from any person including a banking company or any officer thereof. It was settled law that unless a proceeding is pending, the powers under Section 133(6) could not be exercised by the Assessing Authorities. In such circumstances, an amendment was made by the Finance Act, 1995 (Act 22 of 1995), with effect from 01.07.1995, inserting the words “enquiry or” before “proceeding” in Section 133(6) and the second proviso to the said provision

The addition of the word “enquiry” expanded the ambit of exercise of powers by the authorities under Section 133(6) to seek for information which would be useful for or relevant to any enquiry besides proceeding under the Act. The second proviso to Section 133(6), specified that the power in respect of an enquiry, in case where no proceeding is pending, shall not be exercised by any income tax authority below the rank of Director or Commissioner without the prior approval of the said authorities.

The effect of the amendments made by the Finance Act (Act 22 of 1995) was explained by the CBDT in the Circular No. 717, dated 14th Aug., 1995 (See Taxmann ’s Direct Taxes Circulars, Vol. 4, 2002 Ed., p. 2.1759, 2.1782) as follows :

At present the provisions of sub-section (6) of section 133 empower income-tax authorities to call for information which is useful for, or relevant to, any proceeding under the Act which means that these provisions can be invoked only in cases where the proceedings are pending and not otherwise. This acts as a limitation or a restraint on the capability of the Department to tackle evasion effectively. It is, therefore, thought necessary to have the power to gather information which after proper enquiry, will result in initiation of proceedings under the Act.

41.3 With a view to having a clear legal sanction, the existing provisions to call for information have been amended. Now the income-tax authorities have been empowered to requisition information which will be useful for or relevant to any enquiry or proceedings under the Income-tax Act in the case of any person. The Assessing Officer would, however, continue to have the power to requisition information in specific cases in respect of which any proceeding is pending as at present. However, an income-tax authority below the rank of Director or Commissioner can exercise this power in respect of an inquiry in a case where no proceeding is pending, only with the prior approval of the Director or the Commissioner.

Since the language of the Section 133(6) is wholly unambiguous and clear, reliance on interpretation of statutes would not be necessary. Before the introduction of amendment to Section 133(6) in 1995, the Act only provided for issuance of notice in case of pending proceedings. As a consequence of the said amendment, the scope of Section 133(6) was expanded to include issuance of notice for the purposes of enquiry. The object of the amendment of section 133(6) by the Finance Act, 1995 (Act 22 of 1995) as explained by the CBDT in its circular shows that the legislative intention was to give wide powers to the officers, of course with the permission of the CIT or the Director of Investigation to gather general particulars in the nature of survey and store those details in the computer so that the data so collected can be made use of for checking evasion of tax effectively. The assessing authorities are now empowered to issue such notice calling for general information for the purposes of any enquiry in both cases: (a) where a proceeding is pending and (b) where proceeding is not pending against the assessee. However in the latter case, the assessing authority must obtain the prior approval of the Director or Commissioner, as the case maybe before issuance of such notice. The word “enquiry” would thus connote a request for information or questions to gather information either before the initiation of proceedings or during the pendency of proceedings; such information being useful for or relevant to the proceeding under the Act

Powers u/s 131(1) can not be exercised without pendancy of proceedings

Powers regarding discovery, and production of evidence given to the IT authority under s. 131 are the same powers as vested in a Court under CPC while trying a suit—Existence of a suit or a proceeding is a sine qua non for exercise of such power under CPC—Therefore, power mentioned in sub-s. (1) of s. 131 can be exercised only if a proceeding is pending before the concerned officer and not otherwise—This interpretation is consistent with the scheme of the sub-s. (1A) of s. 131 according to which it is competent for Asstt. Director of Inspection to exercise powers under s. 131(1) under certain circumstances even in absence of any pending proceedings [JAMNADAS MADHAVJI & CO. & ANR. vs. J.B. PANCHAL, INCOME TAX OFFICER & ANR ) 162 ITR 0331 HIGH COURT OF BOMBAY]

Reimbursement of Expenses not a part of gross receipts of the assessee for audit purpose-ITAT Pune

Whether reimbursement of actual expenditure on which the payer has deducted TDS ought to be considered by the assessee as a gross receipts or the assessee was under a bona fide impression that reimbursement of expenditure does not involve element of income and not required to be considered as a part of gross turnover. After perusing various invoices raised by the assessee on its clients which are placed in the paper-book, we are of the view that the assessee remained under a bona fide impression that the expenditure incurred on behalf of its clients regarding payment of customs duty, transportation/freight charges, forklift charges, etc. were not required to be retained by the assesse [Aasita International-ITAT Pune 19-011-2015]

Scheme of Taxation for Provident Funds, Approved Super Annuation Funds and New Pension Fund revisited after amendments proposed in Finance Bill 2016

Feb 2016 witnessed a few important changes for salaried class assessee enjoying their provident fund bounties. While vide Government Notification dated 10-02-2016   withdrawl of employer contributions till 58 years of age was prohibited,  Finance Bill 2016 created mayhem over taxability on withdrawl of entire provident fund accumulations. The amendment  was made to move to the regime of EET (i.e. Exempt, Exempt, Tax) from present regime of (Exempt, Exempt and Exempt). Although Finance Minister has announced the retraction of its proposal to tax provident fund withdrawl, there are other large number of other amendments also with regard to employee benefits, which have gone unnoticed in this buzz.

 

In this article an attempt has been made to discuss the taxability of provident funds, approved superannuation funds and new pension scheme after taking into account the amendments proposed by Finance Bill 2016. The taxability of each of these employee benefit scheme has been discussed with regard to employee contributions, employer contributions and treatment on maturity/withdrawl.

  1. Recognized Provident Funds

What is Recognised Provident Fund ?

As per Section 2(38) “recognised provident fund” means a provident fund which has been and continues to be recognised by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees’ Provident Funds Act, 1952 (19 of 1952)

  1. a)Taxability of Employees Contribution to Recognized Provident Fund
  2. i)As per Rule 7 of Schedule IV-A

An employee participating in a recognised provident fund shall, in respect of his own contributions to his individual account in the fund in the previous year, be entitled to a deduction in the computation of his total income of an amount determined in accordance with section 80C

  1. ii)Under Section 80C(2)(vi), there is deduction for contribution by an employee to a recognised provident fund. Contributions by government employees under Provident Fund Act 1925 is eligible for deduction u/s 80C(2)(iv). Contribution to Public Provident Fund under PPF Act 1968 is eligible for deduction u/s 80C(2)(v) rws 80C(4) whether made in name of assessee or spouse or child. Deduction u/s 80C is available up to Rs. 150000. Hence no deduction for contributions exceeding Rs. 150000/-. No deduction u/s 80C is available for contribution to unrecognized provident fund.
  1. b)Taxability of Employer’s Contribution to Recognized Provident Fund
  2. i)As per Section 7 the annual accretion in the previous year to the balance at the credit of an employee participating in a recognised provident fund, to the extent provided in rule 6 of Part A of the Fourth Schedule  shall be deemed to be income received by employee
  3. ii)Extent of Employer’s annual contributions deemed to be income received by employee as per Rule 6 of Schedule IV-A

That portion of the annual accretion in any previous year to the balance at the credit of an employee participating in a recognised provident fund as consists of—

(a) contributions made by the employer in excess of  twelve per cent of the salary of the employee [or Rs. 1,50,000 whichever is less was proposed to be inserted Wef AY 2017-18 has been rolled back],

Note : Finance Bill 2016 therefore proposed to tax employer’s  contribution to recognized provident fund in excess of Rs. 1,50,000 . Hence employees whose salary exceeded Rs. 12,50,000 would have been effected by this amendment. [150000 x (12/100)=1250000]. However this proposal has also been rolled back .

(b) interest credited on the balance to the credit of the employee in so far as it is allowed at a rate exceeding such rate as may be fixed by the Central Government in this behalf by notification in the Official Gazette,

[Rate fixed is 9.5% w.e.f. 1-9-2010 – Notification No. SO 1046(E), dated 13-5-2011.]

shall be deemed to have been received by the employee in that previous year and shall be included in his total income for that previous year, and shall be liable to income-tax .

iii)        Head of Income for taxability of Employers’ Contribution

The annual accretion to the balance at the credit of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule shall be chargeable as salary as per Section 17(1)(vi)

  1. iv)In case of statutory provident funds and unrecognized provident funds, contribution of employer is not treated as income received.
  1. c)Taxability of Withdrawls of Accumulated Balance from Recognized Provident Fund
  2. i)As per section 10(12) the accumulated balance due and becoming payable to an employee participating in a recognized provident fund, to the extent provided in rule 8 of Part A of the Fourth Schedule  is exempt

Amendment Proposed in Finance Bill 2016 but dropped by Finance Minister

Provided that nothing contained in this clause shall apply in respect of any amount of accumulated balance, attributable to any contributions made on or after the 1st day of April, 2016 by an employee other than an excluded employee, exceeding forty per cent. of such accumulated balance due and payable in accordance with provisions of rule 8 of Part A of the Fourth Schedule.

Explanation.—For the purposes of this clause, the term “excluded employee” means an employee whose monthly salary does not exceed such amount, as may be prescribed;’;

  1. ii)Extent of Withdrawl from recognized provident fund  as per Rule 8 Schedule IV-A

The accumulated balance due and becoming payable to an employee participating in a recognized provident fund shall be excluded from the computation of his total income—

(i) if he has rendered continuous service with his employer for a period of five years or more, or
(ii) if, though he has not rendered such continuous service, the 63service has been terminated by reason of the employee’s ill-health, or by the contraction or discontinuance of the employer’s business or other cause beyond the control of the employee, 64[or]
64[(iii) if, on the cessation of his employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable to him is transferred to his individual account in any recognised provident fund maintained by such other employer.
iv) if the entire balance standing to the credit of the employee is transferred to his account under a pension scheme referred to in section 80CCD and notified by the Central Government (Inserted by Finance Bill wef AY 2017-18)

Explanation.—Where the accumulated balance due and becoming payable to an employee participating in a recognised provident fund maintained by his employer includes any amount transferred from his individual account in any other recognised provident fund or funds maintained by his former employer or employers, then, in computing the period of continuous service for the purposes of clause (i) or clause (ii) the period or periods for which such employee rendered continuous service under his former employer or employers aforesaid shall be included.]

iii) Calculation of Tax on premature withdrawl of accumulated balance.as per Rule 9 of Schedule IV-A

Where the accumulated balance due to an employee participating in a recognised provident fund is included in his total income owing to the provi-sions of rule 8 not being applicable, the Assessing Officer shallcalculate the total of the various sums of tax which would have been payable by the emp-loyee in respect of his total income for each of the years concerned if the fund had not been a recognised provident fund, and the amount by which such total exceeds the total of all sums paid by or on behalf of such employee by way of tax for such years shall be payable by the employee in addition to any other 66[tax] for which he may be liable for the previous year in which the accumulated balance due to him becomes payable.

Note: It means that tax shall be computed for respective years without giving effect to deduction for contribution to EPF under section 80C.

Iv )Deduction at source of tax payable on accumulated balance as per Rule 10 of Sch IV-A.

The trustees of a recognised provident fund, or any person authorised by the regulations of the fund to make payment of accumulated balances due to employees, shall, in cases where sub-rule (1) of rule 9 applies, at the time an accumulated balance due to an employee is paid, deduct therefrom the amount payable under that rule and all the provisions of Chapter XVII-B shall apply as if the accumulated balance were income chargeable under the head “Salaries”.

  1. v)TDS on Payment of accumulated balance due to an employee. As per Section 192A inserted wef 01-06-2015

Notwithstanding anything contained in this Act, the trustees of the Employees’ Provident Fund Scheme, 1952, framed under section 5 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952) or any person authorised under the scheme to make payment of accumulated balance due to employees, shall, in a case where the accumulated balance due to an employee participating in a recognised provident fund is includible in his total income owing to the provisions of rule 8 of Part A of the Fourth Schedule not being applicable, at the time of payment of the accumulated balance due to the employee, deduct income-tax thereon at the rate of ten per cent :

Provided that no deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payment to the payee is less than thirty thousand rupees:

Provided further that any person entitled to receive any amount on which tax is deductible under this section shall furnish his Permanent Account Number to the person responsible for deducting such tax, failing which tax shall be deducted at the maximum marginal rate.

  1. vi)Facility of Form 15G/15H

However wef 01-06-2015, the assessee can file form 15G if total income including premature withdrawl of PF abalance does not exceed exemption limit. Senior Citizens can file Form 15H where tax payable is NIL even after inclusion of premature withdrawl of PF balance

vii)       In case of Unrecognized provident Fund or WIthdrawl from provident fund  with in five years as per Section 17(3)

Section 17(3) is applicable to payments other than covered by S.10(12). Section 10(12) applies to accumulated balance due or payable to employee participating in recognized provident fund to the extent provided in Rule 8 of Schecule IV-A. Hence section 17(3) shall apply to following situations:

1)    Amount becoming due or payable from unrecognized provident fund

2)    Amount from recognized provident fund not covered by Rule 8 of SCh-IV-A

As per Section 17(3) profits in lieu of salary” includes any payment (other than any payment referred to in clause(12) of Section 10) due to or received by an assessee from an employer or a former employer or from a provident or other fund  to the extent to which it does not consist of contributions by the assessee or interest on such contributions

Note:

  1. On payment of employee’s own contribution, since it will be return of investment by employee without enjoying any deduction u/s 80C, there shall be no tax implication.
  2. Interest on employee’s contribution shall be taxable as Income from Other Sources.
  3. Employer’s Contribution as well as interest on employer’s contribution shall be taxable as profits in lieu of salary.

viii)     Withdrawl from Stautory Provident Fund for Government Employees or Public Provident Fund

As per Section 10(11) any payment from provident Fund to which provident Fund Act 1925 applies [It applies to Government Employees] or from any other provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette i.e. Public Provident Fund under PPF Scheme 1968 is exempt from tax.

  1. Approved Superannuation Fund

What is Approved Super Annuation Fund:?

As per section 2(6) “approved superannuation fund” means a superannuation fund or any part of a superannuation fund which has been and continues to be approved by the Principal Chief Commissioner or Chief Commissioner or  Principal Commissioner or Commissioner in accordance with the rules contained in Part B of the Fourth Schedule

  1. a)Contribution by an employee to an approved superannuation fund

U/s 80C(2)(vii) deduction up to Rs. 150000 is available for contribution to approved superannuation fund.

  1. b)Taxability of Employer’s Contribution to approved superannuation Fund

As per Section 17(2) The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees is chargeable as perquisites

The Limit being enhanced to Rs.1.50 lacs wef AY 2017-18 to bring parity with section 80C.

  1. c)Withdrawl from approved Superannuation Fund

Section 10(13) exempts

any payment from an approved superannuation fund made—
(i) on the death of a beneficiary ; or
(ii) to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement ; or
(iii) by way of refund of contributions on the death of a beneficiary ; or
(iv) by way of refund of contributions to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age or on his becoming incapacitated prior to such retirement, to the extent to which such payment does not exceed the contributions made prior to the commencement of this Act and any interest thereon

Amendment Proposed wef AY 2017-18

Section 10(13) further proposes to exempt  transfer to the account of the employee under a pension scheme referred to in section 80-CCD and notified by the Central Government

60% of Commuted annuity in respect contribution after 01-04-2016 made taxable by adding proviso

Provided that any payment in lieu of or in commutation of an annuitypurchased out of contributions made on or after the 1st day of April, 2016, where it exceeds forty per cent. of the annuity, shall be taken into account in computing the total income;

  1. New Pension Scheme u/s 80CCD:
  1. a)Employees Contribution

Section 80CCD(1)

Where an assessee, being an individual employed by the Central Government on or after the 1st day of January, 2004 or,

being an individual employed by any other employer,

or any other assessee, being an individual]

has in the previous year paid or deposited any amount in his account under a pension scheme notified or as may be notified  by the Central Government, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income, of the whole of the amount so paid or deposited as does not exceed,—

(a) in the case of an employee, ten per cent of his salary in the previous year; and
(b) in any other case, ten per cent of his gross total income in the previous year.]

[(1A) The amount of deduction under sub-section (1) shall not exceed one hundred thousand rupees.]Omitted by Finance Act 2015

Following sub-section (1B) has been inserted after sub-section (1A) of section 80CCD by the Finance Act, 2015, w.e.f. 1-4-2016 :

(1B) An assessee referred to in sub-section (1), shall be allowed a deduction in computation of his total income, [whether or not any deduction is allowed under sub-section (1)], of the whole of the amount paid or deposited in the previous year in his account under a pension scheme notified or as may be notified by the Central Government, which shall not exceed fifty thousand rupees:

Provided that no deduction under this sub-section shall be allowed in respect of the amount on which a deduction has been claimed and allowed under sub-section (1).

  1. b)Employer’s Contribution

80CCD(2) Where, in the case of an assessee referred to in sub-section (1), the Central Government or any other employer makes any contribution to his account referred to in that sub-section, the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government or any other employer as does not exceed ten per cent of his salary in the previous year.

Note: As per Section 7(iii) the contribution made, by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD is deemed to be income received Further As per Section 17(1)(viii) salary includes the contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD;

Hence Contributions by employer in excess of 10% shall become taxable.

  1. c) Taxability of Withdrawl/Maturity

80CCD(3) Where any amount standing to the credit of the assessee in his account referred to in sub-section (1) or sub-section (1B), in respect of which a deduction has been allowed under that sub-section or sub-section (2), together with the amount accrued thereon, if any, is received by the assessee or his nominee, in whole or in part, in any previous year,—

(a) on account of closure or his opting out of the pension scheme referred to in sub-section (1) or sub-section (1B); or
(b) as pension received from the annuity plan purchased or taken on such closure or opting out,

the whole of the amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee or his nominee, as the case may be, in the previous year in which such amount is received, and shall accordingly be charged to tax as income of that previous year.

Following proviso proposed to be inserted wef AY 2017-18

Provided that the amount received by the nominee, on the death of the assessee, under the circumstances referred to in clause (a), shall not be deemed to be the income of the nominee

Conversion into Annuity Plan

(5) For the purposes of this section, the assessee shall be deemed not to have received any amount in the previous year if such amount is used for purchasing an annuity plan in the same previous year.

40% Receipts from New Pension Scheme Exempted by inserting clause 10(12A)  wef AY 2017-18 as under:

(12A) any payment from the National Pension System Trust to an employeeon closure of his account or on his opting out of the pension scheme referred to in section 80CCD, to the extent it does not exceed forty per cent. of the total amount payable to him at the time of such closure or his opting out of the scheme;”;

Explanation.—For the purposes of this section, “salary” includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.

Conclusion: 60% of Withdrawl from recognized provident fund sought to be taxed by Finance Bill 2016 has been dropped and hence shall continue to enjoy tax exempt status. Employer’s contribution to recognized fund in excess of Rs. 150000 was also proposed to be taxed has also been rolled back. Employer’s Contribution to approved superannuation fund has been exempted till Rs. 150000 to bring it in parity with deduction for employees contribution.  In investment in New Pension Scheme also still there is no cap for exemption in absolute terms of monetary limit except percentage limit of 10%. While conversion from new pension scheme to annuity was already tax exempt, the conversion from recognized provident fund and approved superannuation fund to new pension scheme has also been exempted. 40% of amount receivable under new pension scheme and commuted annuity is also proposed to be exempted from tax. Amount received by nominee under new pension scheme on death of the contributor has been provided albeit exemption. Contributors of New Pension scheme already enjoys the benefit of additional deduction of Rs. 50,000/- u/s 80CCD(1B) over  and above normal aggregate deduction of Rs. 150000 u/s 80C  and 80CCD(1).

Conversion of bonds or debentures, debenture-stock or deposit certificates into shares

Any transfer by way of conversion of bonds or debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company is not regarded as transfer u/s 47(x). As per Rule 8AA inserted vide Notification dated 17-03-2016 , In the case of a capital asset, being a share or debenture of a company, which becomes the property of the assessee in the circumstances mentioned in clause (x) of section 47 of the Act, there shall be included the period for which the bond, debenture, debenture-stock or deposit certificate, as the case may be, was held by the assessee prior to the conversion.

MES Contractor be assesses at 7.5% says Jodhpur Tribunal

Assessee was engaged in business of contract work of military engineering services – Assessing Officer having found that assessee disclosed lower gross profit rate 7.20 per cent in relevant year, in comparison to 10.25 per cent in immediately preceding year despite three fold increase in gross receipt and assessee had not maintained salary register, payment register etc., rejected books of account of assessee and estimated income of assessee by applying net profit rate of 12.5 per cent – Whether since explanations of assessee that gross receipts had substantially increased by three times for which assessee had to reduce margin, and that contract works were executed in military and air force areas where working hours were lesser in comparison to normal civil work and that cost of various expenses and material had also been increased, was not rebutted by revenue, gross profit rate applied by Assessing Officer could not be sustained – Held, yes – Whether on facts, it would be fair and reasonable if net profit rate of 7.50 per cent was applied subject to interest to third parties, depreciation, interest to partners and salary to partners – Held, yes-Shri Ram Traders [2013] 37 taxmann.com 427 (Jodhpur – Trib.)

Exemption from income-tax to disability pension, i.e., “disability element” and “service element” of a disabled officer of the Indian Armed Forces

  1. Reference have been received in the Board regarding exemption from income-tax to disability pension, i.e. “disability element” and “service element” of a disabled officer of the Indian Armed Forces.
  2. It appears that field formations in certain cases are not uniformly allowing disability, pension in spite of Board’s Instruction No.136 dated 14th January, 1970 [F. No. 34/3/68-IT(A-I)].
  3. The matter has been re-examined in the Board and it has been decided to reiterate that the entire disability pension, i.e.“disability element” and “service element” of  a disabled officer of the Indian Armed Forces continues to be exempt from income-tax.

Instruction : No. 2, dated 2-7-2001.

Important Changes in ITR Forms wef AY 2016-17

Where total Income of assessee is more than 50 lacs, the Individual/ HUF  assessee is required to disclose cost of Immovable Assets viz. Land and Building and Movable Assets viz. Cash in Hand, Jewellery Bullion etc., Vehicle, Yatches, Boats and Aircrafts and also Liability in relation to Immovable and Movable assets in case amounts not disclosed in Balance Sheet. Earlier assesses having total Income exceeding 25 lacs were required to disclose this information. In ITR-3 and ITR-4.

Provision  for  availing TCS credit by the buyer for cash purchase of jewellery and bullion exceeding Rs. 5 lacs and Rs. 2 lacs respectively.[Introduced since Finance Bill 2012]

Partnerships firms going for presumptive Income can now file 4S instead of ITR-5. They can also claim deduction of interest and salary to partner.

Provision made in ITRsfor availing additional deduction of Rs. 50,000/- in respect of New Pension Scheme u/s 80CCD(1B) introduced by Finance Act 2015.

Disclosure of exempt share income of partner from firm/AOP/BOI done away.

Impact of ICDS to be disclosed.

Trusts to disclose percentage of commercial recipts visa vis total receipts, because as per Finance Act 2015, if commercial receipts exceed 20% OF TOTAL RECEIPTS of trust advancing objects of general public utility, it shall not be charitable and shall lose exemption u/s 11 and 12.

The Finance Act, 2015 has amended the provisions of Section 139 to provide that  universities or educational institutions, hospitals or other institutions which are wholly or substantially financed by the Government, shall be mandatorily required to file their returns of income. Now such universities, hospitals, educational institutions, etc., have to disclose their name and annual receipts in new ITR 7. Further, they are also required to disclose the amount eligible for exemption in ITR 7.

In new ITR forms there is a separate row for disclosure of following details if taxpayer is liable for audit under any Act [other than the Income Tax Act]:  1) Act and Section under which taxpayer is liable for audit   2) Date of furnishing of Audit Report.

 

Finance Act 2015 extended the benefit of section 80JJAA for 30% of additional wages to new and regular workmen for three asstt years to non corporate assessee also. Hence ITRs 4 and ITR-5 amended to extend benefit to non corporate assesses.

“Require” before you aspire the assessee to afford the facility for conducting survey says ITAT Amritsar

ITAT Amritsar Bench in an interesting decision of Smt. Kailash Devi ITA 347/ASR/ 2015 pronounced on 05-04-2016 on conduct of survey had an occasion to ponder over the obligations cast upon Income Tax Authorities under the law. Often assessee and income tax authorities are at logger-heads for assessee not acting as “required” but before authorities allege the assessee for not doing his part of obligation,  a line has to be drawn from where assesse’s  part of obligations  commence, because it is easy to tell a person how best to carry his pack  until the burden is on one’s own back.

Facts of the case:

A survey was conducted on the assessee and stock of cotton was found in excess by 155.39 quintals. The stock was valued at Rs. 6,85,270/- after allowing 10% relief for non weighment by scale.

Plea of the assess:

Since the stock has not been weighed on the standardized scale , no addition for excess stock can be made.

Argument of the department and CIT A

It is obligation cast by law on the assessee to afford necessary facility for checking of stock and hence assessee has failed to provide weighment facility for checking of the stock of cotton. Had the survey team stubbornly refused to take inventory of stock by standardized scale provided by asseessee , only then the stand of the assessee had been tenable.

Judgement of the Court

Relevant Extract of Section 133A

As per Section 133A (1) “ ……an income authority may enter any place……at which a business or profession is carried on, ……………………………, and require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession……………….to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein

As per Section 133(6)” If a person under this section is required to afford facility to the income-tax authority to inspect books of account or other documents or to check or verify any cash, stock or other valuable article or thing or to furnish any information or to have his statement recorded either refuses or evades to do so, the income-tax authority shall have all the powers under sub-section (1) of section 131 for enforcing compliance with the requirement made

Weighment has to be done as per Standards of Weighment and Measurement Act

The ITAT in para 6 of its Judgement has mentioned that it is not in dispute that weighment has to be done in accordance with provisions of Standards of Weights and Measurement Act 1976 (Now Legal Metrology Act 2009). As per section 3 of the said Act, its provisions override the provisions of any other law.

What is Mandate of section 133A

The Hon’ble Court also noted that provisions of section 133A are marked times and again by words “require” , “is required”. Thus the mandate of section 133A is that it is the surveying authority who is to “require” the person attending the business to afford necessary facility to check or verify the stock. It is only on such requirement having been expressed by the surveying authority that the said authority shall essentially be afforded such facility for checking or verification of the stock found in the survey. Hence it was obligatory on surveying authority to “require” assessee to make available standardized scales for weighment . The assessee is not obliged to provide what he is not “required”

Section 133A is based on principles of Natural Justice

The Hon’ble bench of ITAT Amritsar also elaborated that use of word “require” in the section is clearly based on natural justice principle that nobody , muchless a person as referred to in the section can be presumed to know the law. Rather, in such a situation like one at hand, the person needs must be aware, by statutory authority i.e. Income tax authority, that the stock found in the survey is to be weighed as per provisions of Standards of Weights and Measurement Act 1976 for which necessary facility is to be provided by the person to the authority.

The Bench also held that it is also trite that Income tax authority must help the assessee.  The authority can not withhold such legal requirement from the assessee prejudicially and then on the contrary hold the assesssee liable for not making good such legal requirement.

This it is amply clear that it is “first” for the surveying authority to “require” the person attending the premises to afford the necessary facility.

 

Conclusion:  A closed mouthed frog can not catch any flies. Hence the income tax authorities must “first “ require assessee to provide standardized scales under the law before they aspire or expect the assesee to provide necessary facility to check or verify stock. The Judgement also casts duty on the knowledgeable one to enlighten the ignorant ones. In this case survey team abstained from requiring and educating the assessee about need to provide standard weighment scales inspite of express provisions of Standards of Weights and Measuresment Act, 1976.  And the Judgment propounds that law can forgive a child who is afraid of dark but not the men afraid of light.

Loss from assigning the amount recoverable from Indian entity is short term capital loss which can be set off against capital gain Income of the assessee non resident company

Amount recoverable from wholly owned Indian subsidiary was assigned to another company by non resident company assessee for loss. Held by ITAT Mumbai that even though an advance, a debt or a recoverable amount is a ‘current asset’ from an accountant’s perspective, as long as such an advance, debt or recoverable amount satisfies the requirements of Section 2(14), it will have to be treated as a ‘capital asset’ for the purposes of computation of capital gain. The concept of ‘current asset’ is alien to the law on taxation of capital gains, or, for that purpose, to the law on taxation of income. Further as per Section 9(1)(i) any income, “through the capital asset situated in India” is deemed to accrue or arise in India, the debt being recoverable from company in India is a capital assets in India. As a corollary to this taxability of income, the loss through the capital asset situated in India is also required to be taken into account. Also the transaction satisfies the definition of term “transfer” u/s 2(47) as it is sale of debt. The sale of trade debts, or even loans, is a part of day to day trade and commerce. Hence loss from assigning the amount recoverable from Indian entity is short term capital loss which can be set off against capital gain Income of the assessee non resident company

Siemens Nixdorf Informationssysteme GmbH [2016] 68 taxmann.com 113 (Mumbai – Trib.)MARCH  31, 2016

Hotel providing accomodation on daily basis is assessable under Business Income and not Income from House property merely because tds is deducted u/s 194-I

TDS of the assessee is deducted u/s 194-I for providing accommodation on daily basis. However assessee’s memorandum of association indicates that main object of the company is to carry on the business of hotels, resorts, boarding, lodges, guest houses, etc. However no property was let out and assessee received only rentals for occupation of the premises on a daily basis. Assessing Officer’s contention that income has to be assessed under ‘house property’ because TDS is deducted u/s 194-I is not correct because Even if machinery was leased, the consequent rent comes under the definition of rent u/s 194-I. But machinery lease cannot be considered under ‘income from house property’. That indicates that just because TDS was made under section 194-I, it cannot be treated as ‘house property income’ as the rent definition includes lease of equipment, lease of furniture, fittings which cannot be considered as ‘house property Moreover, even if assessee has let out property but when the memorandum of association permits the business of letting out of properties as such, the income cannot be brought to tax as ‘income from house property’ as held in the case of Chennai Properties & Investments Ltd. 373 ITR 673. It was held by Supreme Court that where in terms of Memorandum of Association, main object of the assessee-company was to acquire properties and earn income by letting out the same, the said income is to be brought to tax as ‘income’ from business and not as ‘income from house property’ ITAT Hyderabad in Heritage Hospitality Limited [2016] 68 taxmann.com 150 (Hyderabad – Trib.) JANUARY 22, 2016

Reduction in the Loans and Advances or Debtors on the asset side of it’s Balance Sheet to the extent of the provision for bad debt would be sufficient to constitute a write off: Held by SC in Vijaya Bank

Whether it is imperative for the assessee-Bank to close the individual account of each of it’s debtors in it’s books or a mere reduction in the Loans and Advances or Debtors on the asset side of it’s Balance Sheet to the extent of the provision for bad debt would be sufficient to constitute a write off

SC in the case of Vijya Bank vs. CIT 323 ITR 168 has held that

What is being insisted upon by the Assessing Officer is that mere reduction of the amount of loans and advances or the debtors at the year-end would not suffice and, in the interest of transparency, it would be desirable for the assessee-Bank to close each and every individual account of loans and advances or debtors as a pre-condition for claiming deduction under Section 36(1)(vii) of 1961 Act……..because the Assessing Officer apprehended that the assessee-Bank might be taking the benefit of deduction under Section 36(1)(vii) of 1961 Act, twice over.

In this context, it may be noted that there is no finding of the Assessing Officer that the assessee had unauthorisedly claimed the benefit of deduction under Section 36(1)(vii), twice over. The Order of the Assessing Officer is based on an apprehension that, if the assessee fails to close each and every individual account of it’s debtor, it may result in assessee claiming deduction twice over. In this case, we are concerned with the interpretation of Section 36(1)(vii) of 1961 Act. We cannot decide the matter on the basis of apprehensions/desirability. It is always open to the Assessing Officer to call for details of individual debtor’s account if the Assessing Officer has reasonable grounds to believe that assessee has claimed deduction, twice over. In fact, that exercise has been undertaken in subsequent years.

There is also a flipside to the argument of the Department. Assessee has instituted recovery suits in Courts against it’s debtors. If individual accounts are to be closed, then the Debtor/Defendant in each of those suits would rely upon the Bank statement and contend that no amount is due and payable in which event the suit would be dismissed.

Further Held by Supreme Court that if amount is recovered subsequently and it is more than difference between debt and amount so allowed , the balance can be taxed u/s 41(4).

How to Write off a debt as per provisions of Section 36(1)(vii)

Held by Supreme Court in Southern Technologies Ltd. [320 ITR 577]

If an assessee debits an amount of doubtful debt to the profit and loss account and credits the asset account like sundry debtor’s account, it would constitute a write off of an actual debt.

However, if an assessee debits `provision for doubtful debt’ to the profit and loss account and makes a corresponding credit to the `current liabilities and provisions’ on the liabilities side of the balance-sheet, then it would constitute a provision for doubtful debt. In the latter case, the assessee would not be entitled to deduction

Held by Supreme Court in Vijya Bank 323 ITR 168 

upholding the order of Tribunal and reversing the decision of High Court that besides debiting the Profit and Loss Account and creating a provision for bad and doubtful debt, the assessee-Bank had correspondingly/simultaneously obliterated the said provision from it’s accounts by reducing the corresponding amount from Loans and Advances/debtors on the asset side of the Balance Sheet and, consequently, at the end of the year, the figure in the loans and advances or the debtors on the asset side of the Balance Sheet was shown as net of the provision “for impugned bad debt”.

 

In the circumstances, we hold, on the first question, that the assessee was entitled to the benefit of deduction under Section 36(1)(vii) of 1961 Act as there was an actual write off by the assessee in it’s Books, as indicated above

Where assessee has not concealed any material fact or any factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty u/s. 271(1)(c), even if claim made by him is unsustainable in law

Delhi High Court judgment in the case of CIT vs. Zoom Communication (P) Ltd. 191 Taxman 179 (Del.). The Delhi High Court has held as under:- “It was held that so long as assessee has not concealed any material fact or any factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty u/s. 271(1)(c), even if claim made by him is unsustainable in law, provided that he either substantiate explanation offered by him or explanation, even if not substantiated, is found to be bona fide.

Taxability of Damages for breach of contract received by the buyer of Immovable property discussed by ITAT Amritsar

The law under section 51 and 56(2)(ix) provides for the taxability of forfeiture of advance money received in the hands of seller. Till AY 2014-15, the forfeited sum was deductible from the cost and even the excess of forfeited money over cost was capital receipt not taxable by virtue of Supreme Court Judgment in Travoncore Rubbers. In the hands of buyer the forfeiture of amount by reason of failure on the part of buyer was not treated as capital loss by virtue of Bombay High Court Judgement in Sterling Investment Corporation 123 ITR 441. However wef AY 2015-16, the forfeited amount is taxable in the hands of seller as Income from other Sources and no reduction from cost of the asset has to be made.

 

However Income tax law is silent about the treatment of compensation received by the buyer of immovable property for breach of contract by the seller. ITAT Amritsar has in a recent decision in Rajesh Mayor ITA 571/ASR/2014 pronounced on 04-05-2016 has revisited the law on the subject:

Facts of the case: The assessee entered into agreement with proposed seller for the purchase of a house for 4.04crores. Biana of 50 lacs was paid by the buyer. The seller however backed out of the agreement. The buyer filed a suit in civil court. The Court ordered return of biana of 50 lacs to buyer and also ordered to pay 54 lacs as compensation to the buyer. By way of two cheques of 27 lacs each. While payment against one of cheques was honored, other cheque got bounced and the buyer could recover the amount only by filing suit u/s 138 of Negotiable Instrument Act. The AO assessed the receipt of 54 lacs as capital gains. CIT A dismissed the assessee’s appeal.

The development of the law on the subject may be discussed as under:

  1. Tata Services Limited  [1979] 1 Taxman 427 (Bom.)It was held by Bombay High Court that:

“………..Under an agreement to purchase a plot of land, assessee paid Rs. 90,000 as earnest money. Vendor failed to obtain requisite permission within stipulated time. Assessee, however, obtained permission and parties agreed to register the plot on a specified date. Parties thereafter came to an arrangement under which assessee received the earnest money of Rs. five lakhs and assigned right, title and interest under the agreement to third party. Held that assessee owned a capital asset under the agreement and Rs. five lakhs was liable for capital gains tax…..”

  1. Delhi High Court in J. Dalmia (1984)149 ITR 215 : It was held by Delhi High Court :

9.…………………..There was a breach of contract and the assessee received damages in satisfaction thereof. He had a mere right to sue for damages. Assuming the same to be ‘property’ this could not be transferred under s. 6(e) of the Transfer of Property Act. The relevant provision may be reproduced:

“6. Property of any kind may be transferred, except as otherwise provided by this Act or by any other law for the time being in force:…..

(e) A mere right to sue cannot be transferred.”

We do not find any exception under the IT Act though the word ‘transfer’ in relation to capital asset has been defined in s. 2(47) of the Act which includes ‘sale, exchange or relinquishment of the asset or the extinguishment of any right therein’. The damages which were received by the assessee cannot be said to be on account of relinquishment of any of his assets or on account of extinguishment of his right of specific performance under the contract for sale.

  1. Under s. 5 of the Transfer of Property Act, ‘transfer of property’ means an act by which a person conveys property to another and ‘to transfer property’ is to perform such act. A mere right to sue may or may not be property but it certainly cannot be transferred. There cannot be any dispute with the proposition that in order that a receipt or accrual of income may attract the charge of tax on capital gains the sine qua non is that the receipt or accrual must have originated in a ‘transfer’ within the meaning of s. 45 r/w s. 2(47) of the Act. Since there could not be any transfer in the instant case, it has to be held that the amount of Rs. 1,02,500 received by the assessee as damages was not assessable as capital gains.”

In above case, the decision of Tata teleservices(supra) was distinguished on the facts that the right to specific performance had been specifically given up by the assessee J. Dalmia and what was left was a mere right to sue for damages. While in Tata Teleservices, the buyer had assigned his rights to purchase the property to third party.

Hon’ble Supreme Court has dismissed the SLP of the department against the Delhi High Court decision in J.Dalmia(supra) in 189 ITR 22(ST.)

  1. Vijay Flexible Containers (1990) 186 ITR 693 (Bom) & Laxmi Devi Rattani (296 ITR 363)(MP)

In this case the buyer was constrained to file suit for specific performance/ damages for breach due to seller’s failure to comply agreement. Consent terms were arrived at in the suit and a decree was passed in favour of the assessee for the sum of Rs. 1,17,500 and interest.Dissenting J. Dalmia (supra) held by Mumbai High Court that :

“………..Having regard to the statutory provisions and the authorities which we have cited above, we cannot, with respect, agree that the right acquired under an agreement to purchase immovable property is a mere right to sue. The assessee acquired under the said agreement for sale the right to have the immovable property conveyed to him. He was, under the law, entitled to exercise that right not only against his vendors but also against a transferee with notice or a gratuitous transferee. He could assign that right. What he acquired under the said agreement for sale was, therefore, property within the meaning of the IT Act and, consequently, a capital asset. When he filed the suit in this Court against the vendors he claimed specific performance of the said agreement for sale by conveyance to him of the immovable property and, only in the alternative, damages for breach of the agreement. A settlement was arrived at when the suit reached hearing, at which point of time the assessee gave up his right to claim specific performance and took only damages. His giving up of the right to claim specific performance by conveyance to him immovable property was a relinquishment of the capital asset. There was, therefore, a transfer of a capital asset within the meaning of the IT Act………….”

In Laxmi Devi Ratani, facts were found similar to Vijay Flexible Containers(supra) and hence decision was given accordingly.

  1. K.R. Sri Nath  (Madras) 268 ITR 436:

Held that

“……………10. As seen already, the assessee had a right to insist on specific performance, gave up the right readily and received a sum referred to supra. There can be no doubt that by termination of the earlier agreement and by allowing the vendor to sell the said property to any person at any price, the assessee had given up or relinquished his right of specific performance and as consideration for relinquishing that right, the assessee was paid a sum of Rs. 6,00,000. The right, title and interest acquired under the agreement of sale clearly fall within the definition of capital asset [s. 2(14)]. Instead of assigning the right to third party/parties, the assessee relinquished those rights. We have already seen that the definition of transfer in s. 2(47) is wide enough to include relinquishment of an asset.

  1. With regard to the contention that there was no cost of acquisition incurred by the assessee for obtaining the rights under the agreement dt. 3rd April, 1986, and consequently there could be no capital gains assessable, it is to be noted that at the time of agreement of sale the assessee paid Rs. 40,000. That payment was made pursuant to the agreement. Only by paying the said amount the assessee acquired the right to get the sale deed executed in his favour. At this juncture, we may refer to the observation in the decision of the Bombay High Court in CIT vs. Tata Services Ltd. (supra), where it is observed as under :

“The assessee had paid at the time of the execution of the agreement of sale Rs. 90,000. He had then acquired a right to obtain a sale deed. When he gave up that right or assigned it in favour of M/s Advani and Batra, he received Rs. 5,90,000 and Rs. 90,000 was treated as refund of consideration. Therefore, actual cost to the assessee of the right to obtain the sale deed on the date of the agreement of sale was Rs. 90,000.”

Even in the other case referred to in CIT vs. Vijay Flexible Containers(supra), the Bombay High Court held that the capital asset had been acquired at a cost of Rs. 17,500 paid as and by way of earnest money. In that case also the Court observed as follows :

“We may, at this stage, also deal with the further argument that there was no consideration for the acquisition of the capital asset. In our view, this Court was right in the view that it took that the payment of earnest money under the agreement for sale was the cost of acquisition of the capital asset.”

  1. Now that we have come to the conclusion that the assessee incurred Rs. 40,000 for acquiring the right to acquire the sale deed, the contention of learned counsel for the assessee that there is no cost of acquisition and so there could be no assessment of capital gain on the transfer of the capital asset falls to the ground.
  2. It has been held by Supreme Court in Saurashtra Cement Ltd 325 ITR 422 that compensation received for delay in procurement of capital asset is capital receipt not chargeable tax.
  1. Mumbai High Court in Kumarpal MohanLal Jain 41 Taxmann.com 55 held that compensation of Rs. 15000/- awarded for failure of builder to hand over possession to the buyer is tax exempt.

Two Views Theory :It has been held by Supreme Court in  :

  1. a) CIT v. Poddar Cement (P.) Ltd. [1997] 226 ITR 625 (SC) –

Where there are two possible interpretations of a particular section which is akin to a charging section, the interpretation which is favourable to the assessee should be preferred while construing that particular provision. Reiterating the same view, in the case of CIT v. Shaan Finance (P.) Ltd. [1998] 231 ITR 308 (SC) it has been held that in interpreting a fiscal statute, the Court cannot proceed to make good the deficiencies if there be any. The Court must interpret the statute as it stands and in case of doubt, in a manner favorable to the taxpayer.

(b)        CIT v. Vegetable Products Ltd [1973] 88 ITR 192 –

It has been held that if the Court finds that the language of taxing provision is ambiguous or capable of more meaning than one, then the Court has to adopt the interpretation which favours the assessee.

ITAT Amritsar after consideration of the law on the subject

held that compensation received by the buyer of property for breach of agreement is not taxable in the hands of buyer.

 

Conclusion: The dispute on the issue in centered around the issue whether breach of contract by seller gives buyer a right to sue or something more. The issue whether giving up of right of specific performance in lieu of compensation for breach in itself constitutes transfer under section 2(47). Till the legislature comes out with some solution, following a view favorable to the assesee seems to be the only rational solution.

Non consideration of certain arguments before SC does not make its judgement lesser binding

The binding effect of a decision of Supreme Court does not depend upon whether. a particular argument was considered therein or not, provided that the point with reference to which an argument was subsequently advanced was actually decided.

SmtSomavanti v. State of Punjab [1963] 2 SCR 774 and T. Govindraja Mudaliar v. State of Tamil Nadu [1973] 3 SCR 222.

Comprehansive Analysis of Income Computation and Disclosure Standads

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time for filing E-Appeals till 15-05-2016 before CIT A extended to 15-06-2016

E-appeals which were due to be filed by 15-5-2016 can be filed up to 15-6-2016. All e-appeals filed within this extended period would be treated as appeals filed in time. Taxpayers who could not successfully e-file their appeal and had filed paper appeals are required to file an e-appeal in accordance with Rule 45 before the extended period i.e. 15-6-2016. [CIRCULAR NO.20/2016 dtd 26-05-2016]

No frivolous cancellations of Trust registrations, says CBDT Circular dtd 27-05-2016

CBDT has clarified that the process for cancellation of registration is to be initiated strictly in accordance with section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions. CBDT has also cautioned that since cancellation of registration of trust shall invite accereted income tax as per Finance Act 2016, authorities are, therefore, advised not to cancel the registration of a charitable institution granted u/s 12AA just because the proviso to section 2(15) comes into play. CBDT has sternly forbidden to cancel registration merely on the ground that the cut-off specified in the proviso to section 2(15) of the Act is exceeded in a particular year without there being any change in the nature of activities of the institution [Circular 21/2016, Dated: May 27, 2016]

Analysis of TCS provisions regarding Sale of Goods and Provisions of Service effective from 01-06-2016

TCS provisions have been made applicable to all the goods and services wef 01-06-2016. While the provisions are intended to frame a system of reporting high value transactions to curb black money, the law framed by the parliament in this regard is plagued by number of doubts and issues which can clog the very implementation of provisions. The author has made a humble attempt to consolidate the issues involved in this taxation as under:

 

Relevant TCS provisions

As per Section 206C(1D) amended wef  01-06-2016,

Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery or any other goods (other than bullion or jewellery or providing any service, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax, if such consideration,—

(i)                for bullion, exceeds two hundred thousand rupees; or

(ii)             for jewellery, exceeds five hundred thousand rupees;or

(iii)           for any goods, other than those referred to in clauses (i) and (ii), or any service, exceeds two hundred thousand rupees

Provided that no tax shall be collected at source under this sub-section on any amount on which tax has been deducted by the payer under Chapter XVII-B

(1E)   Nothing contained in sub-section (1D) in relation to sale of any goods (other than bullion or jewellery) or providing any service shall apply to such class of buyers who fulfil such conditions, as may be prescribed

Explanation.—For the purposes of this section-

(aa) buyer” with respect to—

(i)                 sub-section (1) means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the Table in sub-section (1) or the right to receive any such goods but does not include,—

(A)   a public sector company, the Central Government, a State Government, and an embassy, a High Commission, legation, commission, consulate and the trade representation, of a foreign State and a club; or

(B)   a buyer in the retail sale of such goods purchased by him for personal consumption;

(ii)               sub-section (1D) or sub-section (1F) means a person who obtains in any sale, goods of the nature specified in the said sub-section;

(c )    seller” means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society and also includes an individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) or sub-section (1D)] are sold or services referred to in sub-section (1D) are provided

Analysis

Persons who are required to collect TCS as “Seller” are:

  1. a)Central Government,
  2. b) a State Government or
  3. c) any local authority or
  4. d)corporation or authority established by or under a Central, State or Provincial Act, or
  5. e) any company or
  6. f)firm or
  7. g)co-operative society and also includes
  8. h)An individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year

Persons not covered:

  1. a)Individual carrying on business whose  turnover u/s 44AB(a) is less than or equal to One crore for immediately preceding financial year or
  2. b)Individual carrying on profession whose turnover u/s 44AB(b)
  3. i)For the purpose of Financial year 2016-17, whose gross receipts is less than or equal to 25 lacs for immediately preceding financial year 2015-16
  4. ii) For Financial Year 2017-18 and onwards, whose gross receipts is less than or equal to 50 lacs for immediately preceding financial year 2016-17 and onwards
  5. c)HUF carrying on business whose  turnover u/s 44AB(a) is less than or equal to One crore for immediately preceding financial year or
  6. d)HUF carrying on profession whose turnover u/s 44AB(b)
  7. i)For the purpose of Financial year 2016-17, whose gross receipts is less than or equal to 25 lacs for immediately preceding financial year 2015-16
  8. ii) For Financial Year 2017-18 and onwards, whose gross receipts is less than or equal to 50 lacs for immediately preceding financial year 2016-17 and onwards
  9. e)AOP, whether incorporated or not
  10. f)Body of Individuals, whether incorporated or not
  11. g)Society registered under Societies registration Act. Wholly for charitable or religious purposes even if carrying on business which is incidental to the objects of the Society
  12. h)Trust,  not being section 25 company, Wholly for charitable or religious purposes even if carrying on business which is incidental to the objects of the trust
  13. i)Association or Institution entitled to exemption u/s 10.
  14. j)Club

Scope of Transactions Covered

As per S.206C(ID) TCS is applicable to Seller who receives any amount in cash as consideration for :

  1. a)Sale of Goods or
  2. b)Provision of Service

Issues Involved:

  1. Whether TCS applicable to full Sale Consideration or Consideration received in cash for Sale of Goods or Provisions of Service

The Principal issue involved is whether TCS is to be collected on:

  1. a) The amount of cash received only or
  2. b)The full amount of sale consideration where any amount is received in cash as consideration for Sale

Opinion:

Finance Minister’s Budget Speech (para 149 of the Budget Speech)

  1. I alsopropose to collect tax at source at the rate of 1%on purchase of luxury cars exceeding value of Rs.ten lakh and purchase of goods and services in cash exceeding Rs.two lakh. For compliant tax payers with resources, this levy not only advances collection of tax when the expenditure is incurred, but it provides data to the tax authorities to identify the persons who incur such expenditure, but may be missing from the tax base. Farmers and notified class of persons will have an option of giving a form by which TCS will not be charged.

Memorandum Explaining the provisions of Finance Bill 2016

The existing provision of section 206C of the Act, inter alia, provides that the seller shall collect tax at source at specified rate from the buyer at the time of sale of specified items such as alcoholic liquor for human consumption, tendu leaves, scrap, mineral being coal or lignite or iron ore, bullion etc. in cash exceeding two lakh rupees.

In order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system and to bring high value transactions within the tax net, it is proposed to amend the aforesaid section to provide that the seller shall collect the tax at the rate of one per cent from the purchaser on sale of motor vehicle of the value exceeding ten lakh rupees and sale in cash of any goods (other than bullion and jewellery), or providing of any services (other than payments on which tax is deducted at source under Chapter XVII-B) exceeding two lakh rupees.

It is also proposed to provide that the sub-section (1D) relating to TCS in relation to sale of any goods (other than bullion and jewellery) or services shall not apply to certain class of buyers who fulfil such conditions as may be prescribed.

This amendment will take effect from 1st June, 2016.

Section 206C(1D)

Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery or any other goods (other than bullion or jewellery or providing any service, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration

Hence

  1. a)As per Memorandum explaining provision of Finance bill 2016, TCS @1% is applicable to sale in cash of any goods exceeding two lakh rupees.
  1. b)However as per express provisions of S.206C (1D), TCS is collected @ 1% of Sale Consideration for receipt of any amount in cash as consideration for sale of goods.

So, there appears to be a contradiction with in the provisions of law and memorandum explaining provisions of finance bill. While as per Memorandum explaining finance bill and FM’s Speech, TCS is applicable only on cash sale of goods for sum exceeding Rs. 2 lacs, the express provisions provide that even if a paltry amount against sale exceeding Rs. 2 lacs is received in cash, the entire sale consideration to be brought under TCS net and not to be restrained to the amount of cash receipt.

 

  1. Whether TCS is applicable to sale or provision of services made before 01-06-2015

The point of taxation for TCS on sale of goods or provision of service is

the time of receipt of such amount in cash” and not Sale of Goods

Hence ,If sale consideration amount is outstanding on 31-05-2016, and any amount is received there after in cash , the assessee is liable to pay tax on the amout recived after 31-05-2016 in respect of transactions executed before 31-05-2016. However, another incidental issue involved is :

  1. a)Whether only the amount received in cash after 31-05-2016 out of outstanding balance on 31-05-2016 shall be exigible to TCS or
  2. b)Whether the entire amount of consideration excluding the amount received before 01-06-2015  become exigible to TCS

Opinion

As per Section 206C(ID):

“Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery or any other goods (other than bullion or jewellery or providing any service, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax”

TCS to be collected on 1% of sale consideration and not amount in cash as consideration for sale of goods. Hence, TCS might apply on entire sum reducing the amount received before 01-06-2016.

  1. Whether TCS is applicable where both sale of goods andprovision of service is involved i.e. in the case of works contract

As per Section 206C(ID), TCS is applicable on sale of goods orprovision of service. However, where both sale of goods andprovision of service is involved, an issue arises that whether  TCS provisions u/s 206C(ID) shall become applicable.

Opinion

As per Article 366(29A), transfer of property in goods in case of works contract is deemed as sale. Further as per Section 66E(b) and 66E(h), service portion is declared service in case of works contract. Hence TCS shall become applicable to works contract also. However the matter needs clarification by legislature.

4    Whether 1% TCS to be collected on the amount of Vat and Excise Duty Charged.

Opinion

The word sale consideration is not defined under Income Tax Law but as per Section 145A,
“…….the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head “Profits and gains of business or profession” shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation

………..”

Hence TCS to be charged on full amount of sale consideration. Taxes, Duties, Cess or fee can not be segregated. The word  “Sale Consideration” can not be equated with “Gross Turnover” u/s 44AB , where in refundable taxes are required to be excluded.

  1. Whether TCS is applicable to amount of advance received in cash:

The Definition of buyer under Explanation to Section 206C, specifically  includes “right to receive” for the purposes of 206C(1), however for 206C(1D), it is missing. So, when advance is paid by the buyer towards right to receive the goods, whether TCS provisions can be applied

Opinion:

The matter requires clarification. If such a version is adopted, the assesses might resort to the policy of receiving entire sum as advance in cash. There by defeating the purpose of introducing the provisions.

  1. Whether TCS is applicable where payment is made through bearer cheque.

Opinion: Since TCS is applicable only to receipt of cash as consideration for sale, TCS provisions u/s 206C(1D) shall not apply where payment is received through bearer cheque

  1. Whether TCS is applicable where goods are exchanged under Barter System [say Jewellery is exchanged for bullion]

Opinion: Since TCS is applicable only to receipt of cash as consideration for sale, TCS provisions u/s 206C(1D) shall not apply where payment is received through exchange of goods.

  1. Whether TCS provisions under section 206C(1D) also cover the goods or services covered by other provisions.

As per Section 206C(1) for alcoholic liquor for human consumption, tendu leaves, timber, forest products, scrap, coal, lignite or iron ore,

and as per S.206C(1C), for parking lot, toll plaza and mining and quarrying,  TCS is applicable at the time of debit of amount to the account of  buyer or receipt of amount in cash or cheque or draft or any other mode, which ever is earlier.

At the same time 206C(1D) is applicable to receipt of any amount in cash as consideration for sale of goods or provision of service.

The issue that arises is that whether 206C(ID) can result in Duplication of levy in respect of goods or services covered by other provisions.

Opinion

One may follow the Latin Maxim Generalia Specialibus Non Derogant i.e. the provisions of a general statute must yield to those of a special one. But the matter should have been clarified by the legislature instead of leaving the taxpayer to the mercy of tax officials.

  1. Whether TCS is applicable where buyer or seller or both are non residents

Opinion: Section 206C does not put any embargo upon transactions with non residents.

But in case of import of goods, where seller is non resident, the provisions of the Act can not be extended beyond India. Further, it the seller who is liable to collect tax and not the resident buyer.

In case of export of goods, where buyer is non resident, enforcing deposit of tax on behalf of buyer who has no income chargeable to tax in India can not be sustained in the Court of law, because TCS is tax collected  and paid on behalf of buyer. Further as per Section 9, where operations of non resident are confined to procurement of goods in India, no Income can be deemed to have accrued or arisen in India.

  1. Whether TCS is applicable to transactions between two residents where Sale of Goods is in Course of Import i.e. High Sea Sales.

Opinion

High Sea Sales take place before the goods cross the Custom Frontiers of India. Although the Income Tax Act does not extend beyond India and the word “India” is defined u/s 2(25A) as India” means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and subsoil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976), and the air space above its territory and territorial waters

However Section 206C(ID) does not place any embargo upon such transactions and hence shall be covered by TCS

 

Conclusion: Section 206C(ID) as introduced by Finance Act 2016 and to be implemented from 01-06-2016 requires clarification on number of issues discussed here in above. The better sense of wisdom demands that issues which can pest the large number of tax payers be resolved before  launching the avalanche of enigma.

Analysis of Direct Tax Amendments in Finance Act 2016 passed on 14-05-2016 (including changes made in Finance Bill)

Finance Bill 2016 comprised 12 Chapters, 238 Clauses and 15 Schedules spread over 221 pages. It brought in Krishi Kalyan Cess, Infrastructure Cess, Equalization Levy, The Income Declaration Scheme, Direct and Indirect Tax Dispute Resolution Schemes and amendments previous Finance Acts ranging from Finance Act 2001 to 2015 . The Journey of Change did not end here and In Lok Sabha 47 further amendments were brought in Finance Bill on 29-04-2016 including insertion of 3 more clauses there by increasing total clauses to 241.

Out of this first 115 clauses, Introduction of Equalization Levy under

Chapter VIII, The Income Declaration Scheme under Chapter IX and Direct Tax Dispute Resolution Scheme under Chapter X and Schedule I on  tax rates deal with the Changes made in Direct Taxes.

 

  1. Tax Rates:

For AY 2017-18, In case of domestic companies where its total turnover or the gross receipt in the previous year 2014-15 does not exceed five crore rupees tax shall be charged @ 29%.

Comments:

Tax rate for financial year 2016-17 has been determined on the basis of FY year 2014-15, because companies have already filed their return for 2014-15. Hence so that companies may not under state their turnover for 2016-17, to avail 1% tax benefit, the base year of 2014-15 instead of 2015-16 has been taken. At the same time if turnover of the company for 2014-15 is merely 50 lacs and turnover for 2015-16 is 500 crores, still rate of 29% shall apply for AY 2017-18

In case of companies not in existence in 2014-15, whether turnover can be assumed lesser than 5 crore is a moot point not answered in Finance Act.

  1. Gold Monetization and Gold Bonds Scheme

Brief Discussion on Schemes

  1. a) Gold Monetization Scheme:The scheme comprises purity verification , opening of gold saving account accounts with banks, transfer of gold to refiners, utilization of deposited gold, lending of gold to jewelers. Interest rate on saving account to be deposited by banks. Principal and Interest to be paid in gold. Option for redemption in cash or gold.The deposits under the revamped scheme can be made for a short-term period of 1-3 years (with a roll out in multiples of one year); a medium-term period of 5-7 years and a long-term period of 12-15 years (as decided from time to time). Like a fixed deposit, breaking of lock-in period will be allowed in either of the options and there would be a penalty on premature redemption (including part withdrawal) The jewellers, on the basis of the terms and conditions of the banks, will get a gold Loan Account opened at the bank. When a gold loan is sanctioned, the jewellers will receive physical delivery of gold from the refiners. The banks will in turn make the requisite entry in the jewellers’ gold Loan Account
  2. b) Gold Bond Scheme

As per Soverign Gold Bonds Scheme, physical form of gold is converted  into form of Soveriegn Gold Bonds (SGB). Investors are assured of market value of gold at the time of maturity plus periodical interest @ 2.75% payable semi annually. The tenure of bonds is 8 years with exit option at 5th , 6thand 7th year. Bonds can be used as collaterals for loan[Loan to value (LTV) to be decided by RBI. Bonds can also be traded on exchange thus providing an option to make early exit. Bonds carry soverign guarantee against capital invested and interest. Only resident Individuals, HUFs, trusts, universities and charitable institutions are eligible to invest. Joint holding in Gold Bonds is allowed and minors can also hold the bonds provided application is made by guardian of the minor. Bonds are issued in denomination of gram and and minimum investment in SGB is 2 gms and maximum investment in a financial year is 500 gms. The issue price of SGB is previous week (Mon-Friday) simple average of closing price of gold of 999 purity published by Indian Bullion and Jewellers Association Ltd. (IBJA). The redemption price is also similarly worked out. In case of joint holding limit applies to first holder. The bonds are sold through banks, stock holding corporation and designated post offices and their commission is 1% of subscription amountand receiving offices shall share at least 50% of the commission so received with the agents or sub agents for the business procured through them.

Tax Benefits Imparted for Gold Monetization and Gold Bond Schemes

  1. a)Deposit certificates issued under the Gold Monetisation Scheme, 2015 have been excluded from definition of capital asset u/s 2(14)(vi) from AY 2016-17. Hence there shall be no capital gains tax.
  2. b)Income on deposit certificates issued under the Gold Monetisation Scheme, 2015 has  been exempted u/s 10(15) from AY 2016-17
  3. c)any transfer of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015, by way of redemption, by an assessee being an individual has been excluded from transfer for purposes of capital gain by virtue of section 47(viic) from AY 2017-18
  4. d)As per 3rd proviso to section 48, benefit of indexation is not available for bonds and debentures. However, Benefit of indexation shall be available on Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015: Section 48 amended for the purpose from AY 2017-18

Comments : Interest on Gold Bond Scheme has not been exempted. Also redemption under gold bonds scheme has been exempted, however, transfer has not been exempted. However transfer has been imparted indexation benefit.

  1. Electronic Hearing

Clause 2(23C) inserted to provide that “hearing” includes communication of data and documents through electronic mode

As per Section 282A inserted by the Finance Act, 2008, w.e.f. 1-6-2008.

On Authentication of notices and other documents.

282A. (1) Where this Act requires a notice or other document to be issuedby any income-tax authority, such notice or other document shall be signed in manuscript by that authority.

(2) Every notice or other document to be issued, served or given for the purposes of this Act by any income-tax authority, shall be deemed to be authenticated if the name and office of a designated income-tax authority is printed, stamped or otherwise written thereon.

(3) For the purposes of this section, a designated income-tax authority shall mean any income-tax authority authorised by the Board to issue, serve or give such notice or other document after authentication in the manner as provided in sub-section (2)

Section 282A(1) has been amended wef 01-06-2016 to provide that Where this Act requires a notice or other document to be issued by any income-tax authority, such notice or other document shall be signed in manuscript by that authority signed and       by that authority in accordance with such procedure as may be prescribed

Comments: While section 282A(1) deals with manner of issuing documents   by Income Tax Authority , Section 282 deals with stage subsequent to issuing of documents i.e. manner of service of a notice or summon or requisition or order or any other communication under this Act. Section 282 requires delivery or transmission by post or approved Courier or in the manner provided in Code of Civil Procedure or in form of electronic record under Information Technology Act, to an address as specified in Rule 127 [ R.127  inserted w.e.f. 02-12-2015] in order to effectuate service under the law.

  1. Central Government Subsidy to Central/ State  Govt Trusts excluded from definition of Income wef AY 2017-18

The Finance Act, 2015 had amended the definition of income under clause (24) of section 2 of the Act so as to provide that the income shall include assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43 of the Income-tax Act.

As a result grant or cash assistance or subsidy etc. provided by the Central Government for budgetary support of a trust or any other entity formed specifically for operational zing certain government schemes will be taxed in the hands of trust or any other entity. Therefore, it is proposed to amend section 2(24) to provide that subsidy or grant by the Central Governmentfor the purpose of the corpus of a trust or institution established by the Central Government or State government shall not form part of income.

  1. POEM based residence test of foreign companies deferred till AY 2017-18 and relaxation from provisions of the Income Tax law provided to foreign Companies wef AY 2017-18

Provisions of section 6(3) earlier amended by Finance Act 2015  and reiterated in Finance Bill 2016

A company is said to be resident in India in any previous year, if,—
(i) it is an Indian company; or
(ii) its place of effective management, in that year, is in India.
Explanation.—For the purposes of this clause “place of effective management” means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made.

The amended provisions of Section 6(3) were to come into effect from Assessment Year 2016-17. The Finance Bill, 2016 proposes to defer the implementation of POEM as test of residency by one year to apply from Assessment Year 2017-18 onwards. The Finance Minister in his speech stated that “The determination of residency of foreign company on the basis of Place of Effective Management (POEM) is proposed to be deferred by one year.”

This is to be achieved by omitting clause (ii) of Section 4 of

the Finance Act 2015 with effect from 1-4-2016. The amendment to Finance Act 2015 is to be carried out vide Part XV of the Finance Bill 2016. Thus, for assessment year 2016-17, the test of residency for foreign companies continues to be on the touch stone of “control and management’’ of its affairs

In the context of implementation of POEM based residence

rule, certain issues, relating to the applicability of current provisions of the Act to a company which is incorporated outside India and has not earlier been assessed to tax in India, have arisen. In particular, the issues relate to applicability of specific provisions of the Act relating to Advance tax payment, applicability of TDS provisions, computation of total income, set off of losses and manner of application of transfer pricing regime. These provisions have compliance requirements which would not have been undertaken by the company at relevant time due to absence of any such requirement under tax laws of country of incorporation of such company. Similarly, issues of computation of depreciation also arise when in earlier years it has not been subject to computation under the Act.

Problems highlighted also arise due to the fact that a

company may be claiming to be a foreign company not resident in India but in the course of assessment, it is held to be resident based on POEM being in fact in India. This determination would be well after closure of the previous year and it may not be possible for company to undertake many of procedural requirements. Representations have also been made by stakeholders that the implementation of POEM be deferred by a year, by which time clarity regarding guidelines and applicability of other provisions of the Act would be in place

Chapter XII-BC introduced in Income Tax Act 1961

115JH(1) Where a foreign company is said to be resident in India in any previous year and such foreign company has not been resident in India in any of the previous years preceding the said previous year, then, notwithstanding anything contained in this Act and subject to the conditions as may be notified by the Central Government in this behalf, the provisions of this Act relating to the computation of total income, treatment of unabsorbed depreciation, set off or carry forward and set off of losses, collection and recovery and special provisions relating to avoidance of taxshall apply with such exceptions, modifications and adaptations as may be specified in that notification for the said previous year:

Provided that where the determination regarding foreign company to be resident in India has been made in the assessment proceedings relevant to any previous year, then, the provisions of this sub-section shall also apply in respect of any other previous year, succeeding such previous year, if the foreign company is resident in India in that previous year and the previous year ends on or before the date on which such assessment proceeding is completed.

(2) Where, in a previous year, any benefit, exemption or relief has been claimed and granted to the foreign company in accordance with the provisions of sub-section (1), and, subsequently, there is failure to comply with any of the conditions specified in the notification issued under sub-section (1), then,—

(i) such benefit, exemption or relief shall be deemed to have been wrongly allowed;

(ii) the Assessing Officer may, notwithstanding anything contained in this Act, re-compute the total income of the assessee for the said previous year and make the necessary amendment as if the exceptions, modifications and adaptations referred to in sub-section (1) did not apply; and

(iii) the provisions of section 154 shall, so far as may be, apply thereto and the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the failure to comply with the condition referred to in sub-section (1) takes place.

(3) Every notification issued under this section shall be laid before each House of Parliament.

Comments

For Example during assessment for AY 2017-18 completed on 24-12-2020, it comes to notice of AO that POEM of foreign company is in India. So, exceptions u/s 115JH shall not only apply to PY 17-18,18-19 also i.e. relevant to AY 18-19 and AY 19-20 But not w.r.t. AY 2020-21 relevant to previous year 2019-20.

However other assesses are not provided any relief from procedural requirement for ignorance about their tax liability.

  1. Exemption to Foreign Mining Companies from business   of uncut and unasserted diamond in Special Zone notified by Central Government  [Effective from AY 2016-17]

A “Special Notified Zone” (SNZ) had been created to facilitate shifting of operations by foreign mining companies (FMC) to India and to permit the trading of rough diamonds in India by the leading diamond mining companies of the world. The activity of FMC of mere display of rough diamonds even with no actual sale taking place in India may lead to creation of business connection in India of the FMC. This potential tax exposure has been an area of concern for the mining companies willing to undertake these activities in India. In order to facilitate the FMCs to undertake activity of display of uncut diamond (without any sorting or sale) in the special notified zone, it is proposed to amend section 9 of the Act wef AY 2016-17 by inserting clause (e) in Expl 1 to S.9(i) as under:

“ In the case of a foreign company engaged in the business of mining of diamonds, no income shall be deemed to accrue or arise in India to it through or from the activities which are confined to the display of uncut and unassorted diamond in any special zone notified by the Central Government in the Official Gazette in this behalf”

  1. Off Shore Funds u/s 9A

In Finance Act 2015, section 9A was inserted in backdrop of the fact thatunder the existing provisions, the presence of a fund manager in India may create sufficient nexus of the off-shore fund with India and may constitute a business connection in India even though the fund manager may be an independent person. Also due to nexus with India, activity in respect of investments outside India for an off-shore fund, the profits made by the fund from such investments may be liable to tax in India . Section 9A was inserted to promote promotion of off shore funds in India subject to fulfilment of certain conditions

Howeverconditions u/s 9A(3)(k) that the fund shall not carry on or

control and manage, directly or indirectly, any business in India or from India is being modified to state that the fund shall not carry on or control  and manage, directly or indirectly, any business in India. The condition of not carrying on or controlling and managing business from India abolished

One of the other conditions is that fund must be resident of country with which DTAA or TIEA subsists. However in case of some off shore funds like large pension funds or mutual funds from USA or SICAVs (open ended collective investment schemes) from Luxembourg are not resident as per tax laws of other country but still information may be gathered about these as DTAA and TIEA also applies to persons not resident as per tax laws of that country. Hence condition u/s 9A(3)(b) being amended to cover the off shore funds incorporated outside India which are covered by DTAA or TIEA.

 

  1. Equalization Levy:[Chapter VIII of Finance Act 2016]

Internet advertising is rapidly growing both in terms of revenue and share in the total advertising market. The volume of internet advertising reached USD 135.4 billion in 2014. The market for internet advertising is projected to grow at a rate of 12.1% per year during the period 2014 to 2019. As the stakes started rocketing, taxing such virtual transactions attained prominence. The existing provisions of the income-tax statute were unable to tie the noose around these transactions. Perhaps the reason is Indian income-tax legislation is still governed physical presence test. Hence the concept of Equalization levy introduced.

Equalization Levy:

Ø Applicable from  date to be notified by Central Government

Ø It extends to whole of India except the state of J&K

Ø Introduced vide Chapter VIII of Finance Bill 2016. Vide S. 160 to S.177 of Finance Bill 2016

Ø Rate @6% as per S.162(1) of Finance Bill

Ø Services covered by Equalization Levy:

  1. a)Online Advertisement
  2. b)any provision for digital advertising space
  3. c)any other facility or service for the purpose of online advertisement
  4. d)and includes any other service as may be notified by the Central Government in this behalf

Ø Charge of tax is on amount of consideration received or receivable by Non Resident from:

(i) a person resident in India and carrying on business or    profession; or

(ii) a non-resident having a permanent establishment in India.

Ø Amount chargeable to equalization levy has been exempted u/s 10(50).

Ø Equalization levy shall not apply where

  1. a)Where service recipient is non resident having PE in India and service is effectively connected with such PE.
  2. b)Consideration does not exceed Rs. One lakh.
  3. c)Payment is not for the purpose of business or profession

Ø Equalization Levy shall operate like TDS and shall be deducted from payment to non resident and to be deposited by 7th of following calendar month [Word calendar month specifically mentioned . Hence whether Arvind Mills (Karnatka High Court ) shall apply for other provisions and lunar month shall apply ?] [S. 163]

Ø 1% Interest for delayed payment u/s 167.

Ø Even if equalization levy not deducted, it shall be deposited by service recipient out of his own pocket. S. 163(3) [Whether on gross basis ?]

Ø Disallowance u/s 40(a)(ib) shall be attracted for failure to deduct levy or deposit after deducting till due date of return on amount paid or payable to non resident. [Here words “paid” also used to resolve the controversy of Merilyn Shipping]. Allowance of expenditure only in the year of deposit. [S. 163(3) situation not dealt here where amount deposited without  deducting]

Ø Statements to be filed with in prescribed time after end of financial year. Belated/Rectified statements may be filed with in 2 years from end of financial year [Here no requirement to file revised  return only if original filed in time]. AO may also give notice to file the return. [S.164] Penalty for belated return @ Rs. 100/- per day u/s 169

Ø Intimation and processing of intimation with in one year from the end of financial year in which statement is filed. [However u/s 143(1) it is one  year from the end of assessment year.]

Ø Rectification of intimation by AO/assessee with in one year from end of financial year in which intimation issued.[Not served]S.166

Ø Penalty for failure to deduct = Equal to equalization levy [Even if paid u/s 163(3) out of own pocket ?]

Ø Penalty for failure to deposit= Rs. 1000/- per day Max. Equalization levy.

Ø Penalty is subject to pleading reasonable cause and after providing opportunity of being heard[S. 170]

Ø Appeal to CIT A u/s 171; ITAT u/s 172; Prosecution for false statement u/s 173; Applicability of certain provisions regarding summons u/s 131; survey u/s 133A etc

Ø Rule making power is u/s 176 and power to remove difficulties u/s 177

Constitutonal Validity of Equalization levy:

As per S. 161(d) equalization levy means tax leviable on consideration received or receivable for any specified service under the provisions of this Chapter.

The word “tax” has not been defined in Chapter VIII of Finace Bill 2016. As per Clause (j) to Section 161 provides that words or expressions used but not defined in the said Chapter and which are specifically defined in the Income-tax Act; shall have the meanings respectively assigned to them in the Income-tax Act. Section 2(43) of the Income-tax Act defines tax as under:

“”Tax” in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date and in relation to the assessment year commencing on the 1st day of April, 2006, and any subsequent assessment year includes the fringe benefit tax payable under Section 115WA”

Accordingly, the term ‘tax’ in Chapter VIII of the Finance Bill should mean ‘income-tax’.

Also in order to avoid double taxation of income tax equalization levy has been exempted u/s 10(50). Further if equalization levy had not been tax on income it would have found place in section 43B like other taxes and not 40(a)(ib).

The legislative intention of the proposed Equalisation Levy can be gathered from the budget speech of the Hon’ble Finance Minister (while presenting Finance Bill 2016). At para 151 of his speech he said:

“151. In order to tap tax on income accruing to foreign e-commerce companies from India, it is proposed that a person making payment to a non-resident, who does not have a permanent establishment, exceeding in aggregate 1 lakh in a year, as consideration for online advertisement, will withhold tax at 6% of gross amount paid, as Equalisation Levy. The Levy will only apply to B2B transactions.

The Mumbai Tribunal in the case of ADIT v. Chiron Behring GmbH & Co (2008) 24 SOT 278 (Mum) had an occasion to examine the applicability of India-Germany Double Taxation Avoidance Agreement. In the said case, the assessee was liable to pay ‘trade tax’ under the German domestic tax provisions. The Revenue authorities argued that such tax is not covered within the tax treaty. The Mumbai Tribunal rejected this argument by observing that Article 6 of the German Trade Tax Act states ‘The basis of taxation for Trade Tax is the income from the business’. From this finding, it concluded that the trade tax is not a turnover tax, but only is tax on the income from business. Such tax was thus held to be eligible for tax treaty purposes.

Hence equalization levy is a tax on income.

  1. Taxation of Dividend for High End assesses
  2. 115BBDA inserted w.e.f. AY 2017-18, where Total Income of following types of resident assesses i.e,
  3. a) Individual
  4. b) HUF
  5. c) Firm

includes dividends of a domestic company > Rs. 10,00,000, then amount exceeding Rs 10 lacs shall be chargeable to tax  @10% .

  1. Balance Income reduced by dividends shall be taxable at normal rates
  2. No expenditure or deduction is allowable against dividend income.
  3. Here dividend u/s 2(22)(e) is not covered.
  4. Section 10(34) also amended to provide that dividend taxable u/s 115BBDDA shall not be exempt.
  5. Dividend received from foreign companies is not taxable.
  6. Generally firms are not eligible as shareholders but LLPs shall get covered.
  7. Also, corporate assessee, AOP,BOIs, artificial juridical persons, local authorities shall remain tax exemp

An amendment has been made in Finance Act 2016  as passed by Loksabha providing that for the purpose of calculating limit of 10 lacs income in aggregate by way of dividends to be taken and 10% tax to be computed on aggregate amount of dividends  in excess of 10 lacs. Thus individual dividends of domestic company can not be segregated to apply the tax u/s 115BBDA.

  1. TCS on luxury cars and transactions exceeding Rs. two lacs
  1. U/s 206C, TCS on Alcohlic liquor is 1%, on Tendu leaves @ 5%, Timber and other forest products @2.5%, scrap and minerals @1% . Sellers under category of Central government, state govt, company , fim, co-operative societies and Individual/HUF  having turnover exceeding audit limit are covered and can collect the same only from buyer not using and certifying that goods are for manufacturing. [S.206C(1)]
  2. U/s 206C(IC) parking lots, toll plazas, mining are taxable @ 2%.[S.206C(1C)]
  3. Also at present, cash sale of bullion for amount exceeding Rs. Two lacs and cash sale of jewellery exceeding Rs. Five lacs is chargeable to TCS @ 1%.[S.206C(1D)]
  4. CBDT vide notification dated 30-12-2015, mandated compulsory furnishing of PAN for all sales/ purchases of motor vehicle and also for all transactions of cash sale/purchase of goods or services exceeding Rs. Two lacs. This limit made applicable to jewelery transactions also. It took effect from 01-01-2016. Further  AIR Information regarding receipt of cash payment exceeding two lakh rupees for sale, by any person, of goods or services of any nature to be furnished by any person who is liable for audit under section 44AB of the Act made effective from 01-04-2016.
  5. Persons who are required to collect TCS as “Seller” are:
  6. a)Central Government,
  7. b) a State Government or
  8. c) any local authority or
  9. d)corporation or authority established by or under a Central, State or Provincial Act, or
  10. e) any company or
  11. f)firm or
  12. g)co-operative society and also includes
  13. h)An individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year

Persons not covered:

  1. a)Individual carrying on business whose  turnover u/s 44AB(a) is less than or equal to One crore for immediately preceding financial year or
  2. b)Individual carrying on profession whose turnover u/s 44AB(b)
  3. i)For the purpose of Financial year 2016-17, whose gross receipts is less than or equal to 25 lacs for immediately preceding financial year 2015-16
  4. ii) For Financial Year 2017-18 and onwards, whose gross receipts is less than or equal to 50 lacs for immediately preceding financial year 2016-17 and onwards
  5. c)HUF carrying on business whose  turnover u/s 44AB(a) is less than or equal to One crore for immediately preceding financial year or
  6. d)HUF carrying on profession whose turnover u/s 44AB(b)
  7. i)For the purpose of Financial year 2016-17, whose gross receipts is less than or equal to 25 lacs for immediately preceding financial year 2015-16
  8. ii) For Financial Year 2017-18 and onwards, whose gross receipts is less than or equal to 50 lacs for immediately preceding financial year 2016-17 and onwards
  9. e)AOP, whether incorporated or not
  10. f)Body of Individuals, whether incorporated or not
  11. g)Society registered under Societies registration Act. Wholly for charitable or religious purposes even if carrying on business which is incidental to the objects of the Society
  12. h)Trust,  not being section 25 company, Wholly for charitable or religious purposes even if carrying on business which is incidental to the objects of the trust
  13. i)Association or Institution entitled to exemption u/s 10.
  14. j)Club
  1. TCS on motor vehicles for value exceeding Rs. 10 lacs and on sale of goods or provision of services exceeding two lacs is applicable even if motor vehicle or goods or services for personal consumption.
  1. a)TCS on Luxury Cars
  1. i)In Finance Bill 2016, w.e.f 01-06-2016, TCS was imposed on transactions of sale of motor vehicles for value exceeding Rs. 10 lacs @1% u/s 206C(1)
  2. ii)In S.206C(1) exemption from TCS could be claimed by manufacturer if declaration regarding use in manufacturing is provided by the buyer in Form 27C. Since motor vehicles are not raw material, the placement of motor vehicles u/s 206C(1) was actually a misfit.

iii)              The legislature realized the anomaly and Motor Vehicle for value exceeding Rs. 10 lacs were planted to specifically enacted Sub-section 206C(1F). As per Section 206C(1F)

Every person, being a seller, who receives any amount as consideration for sale of a motor vehicle of the value exceeding ten lakh rupees, shall, at the time of receipt of such amount, collect from the buyer, a sum equal to one per cent of the sale consideration as income-tax.

The definition of buyer also extended to include the person who  obtains in any sale, goods of the nature specified in the said sub-section (i.e. Motor Vehicle for value exceeding Rs. 10 lacs)

Comments :

  1. TCS is applicable on full amount of consideration on receipt of any amount of consideration which may be a paltry sum  also.
  2. In case 1% exceeds the amount received, the collection from the buyer shall become difficult and only the sum received can be deposited and not the 1% of full consideration.
  3. As per definition of the buyer in case of 206C(1F), right to receive is not covered, hence no TCS should be applied on payment for advance booking.
  4. 206C(1F) is not applicable to luxury cars only as is normally propagated but applicable to all the motor vehicles.
  5. TCS on motor vehicles for value exceeding Rs. 10 lacs to be collected even if there is no cash receipt.
  6. Where value of motor vehicle is lesser than 10 lacs, 206C(1D) might apply in case any amount is received in cash.
  1. b)TCS provisions regarding Sale of Goods and Provisions of Service

Relevant TCS provisions

As per Section 206C(1D) amended wef  01-06-2016,

Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery or any other goods (other than bullion or jewellery or providing any service, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax, if such consideration,—

(i)                for bullion, exceeds two hundred thousand rupees; or

(ii)             for jewellery, exceeds five hundred thousand rupees;or

(iii)           for any goods, other than those referred to in clauses (i) and (ii), or any service, exceeds two hundred thousand rupees

Provided that no tax shall be collected at source under this sub-section on any amount on which tax has been deducted by the payer under Chapter XVII-B

(1E)   Nothing contained in sub-section (1D) in relation to sale of any goods (other than bullion or jewellery) or providing any service shall apply to such class of buyers who fulfil such conditions, as may be prescribed

Explanation.—For the purposes of this section-

(aa) buyer” with respect to—

(i)                 sub-section (1) means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the Table in sub-section (1) or the right to receive any such goods but does not include,—

(A)   a public sector company, the Central Government, a State Government, and an embassy, a High Commission, legation, commission, consulate and the trade representation, of a foreign State and a club; or

(B)   a buyer in the retail sale of such goods purchased by him for personal consumption;

(ii)               sub-section (1D) or sub-section (1F) means a person who obtains in any sale, goods of the nature specified in the said sub-section;

(c )    seller” means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society and also includes an individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) or sub-section (1D)] are sold or services referred to in sub-section (1D) are provided

Analysis

Scope of Transactions Covered

As per S.206C(ID) TCS is applicable to Seller who receives any amount in cash as consideration for :

  1. a)Sale of Goods or
  2. b)Provision of Service

Issues Involved:

  1. i)Whether TCS applicable to full Sale Consideration or Consideration received in cash for Sale of Goods or Provisions of Service

The Principal issue involved is whether TCS is to be collected on:

  1. a) The amount of cash received only or
  2. b)The full amount of sale consideration where any amount is received in cash as consideration for Sale

Opinion:

Finance Minister’s Budget Speech (para 149 of the Budget Speech)

  1. I alsopropose to collect tax at source at the rate of 1%on purchase of luxury cars exceeding value of Rs.ten lakh and purchase of goods and services in cash exceeding Rs.two lakh. For compliant tax payers with resources, this levy not only advances collection of tax when the expenditure is incurred, but it provides data to the tax authorities to identify the persons who incur such expenditure, but may be missing from the tax base. Farmers and notified class of persons will have an option of giving a form by which TCS will not be charged.

Memorandum Explaining the provisions of Finance Bill 2016

The existing provision of section 206C of the Act, inter alia, provides that the seller shall collect tax at source at specified rate from the buyer at the time of sale of specified items such as alcoholic liquor for human consumption, tendu leaves, scrap, mineral being coal or lignite or iron ore, bullion etc. in cash exceeding two lakh rupees.

In order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system and to bring high value transactions within the tax net, it is proposed to amend the aforesaid section to provide that the seller shall collect the tax at the rate of one per cent from the purchaser on sale of motor vehicle of the value exceeding ten lakh rupees and sale in cash of any goods (other than bullion and jewellery), or providing of any services (other than payments on which tax is deducted at source under Chapter XVII-B) exceeding two lakh rupees.

It is also proposed to provide that the sub-section (1D) relating to TCS in relation to sale of any goods (other than bullion and jewellery) or services shall not apply to certain class of buyers who fulfil such conditions as may be prescribed.

This amendment will take effect from 1st June, 2016.

Section 206C(1D)

Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery or any other goods (other than bullion or jewellery or providing any service, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration

Hence

  1. a)As per Memorandum explaining provision of Finance bill 2016, TCS @1% is applicable to sale in cash of any goods exceeding two lakh rupees.
  1. b)However as per express provisions of S.206C (1D), TCS is collected @ 1% of Sale Consideration for receipt of any amount in cash as consideration for sale of goods.

So, there appears to be a contradiction with in the provisions of law and memorandum explaining provisions of finance bill. While as per Memorandum explaining finance bill and FM’s Speech, TCS is applicable only on cash sale of goods for sum exceeding Rs. 2 lacs, the express provisions provide that even if a paltry amount against sale exceeding Rs. 2 lacs is received in cash, the entire sale consideration to be brought under TCS net and not to be restrained to the amount of cash receipt.

 

  1. ii)Whether TCS is applicable to sale or provision of services made before 01-06-2015

The point of taxation for TCS on sale of goods or provision of service is

the time of receipt of such amount in cash” and not Sale of Goods

Hence ,If sale consideration amount is outstanding on 31-05-2016, and any amount is received there after in cash , the assessee is liable to pay tax on the amout recived after 31-05-2016 in respect of transactions executed before 31-05-2016. However, another incidental issue involved is :

  1. a)Whether only the amount received in cash after 31-05-2016 out of outstanding balance on 31-05-2016 shall be exigible to TCS or
  2. b)Whether the entire amount of consideration excluding the amount received before 01-06-2015  become exigible to TCS

Opinion

As per Section 206C(ID):

“Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery or any other goods (other than bullion or jewellery or providing any service, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax”

TCS to be collected on 1% of sale consideration and not amount in cash as consideration for sale of goods. Hence, TCS might apply on entire sum reducing the amount received before 01-06-2016.

iii)        Whether TCS is applicable where both sale of goods andprovision of service is involved i.e. in the case of works contract

As per Section 206C(ID), TCS is applicable on sale of goods orprovision of service. However, where both sale of goods andprovision of service is involved, an issue arises that whether  TCS provisions u/s 206C(ID) shall become applicable.

Opinion

As per Article 366(29A), transfer of property in goods in case of works contract is deemed as sale. Further as per Section 66E(b) and 66E(h), service portion is declared service in case of works contract. Hence TCS shall become applicable to works contract also. However the matter needs clarification by legislature.

  1. iv)Whether 1% TCS to be collected on the amount of Vat and Excise Duty Charged.

Opinion

The word sale consideration is not defined under Income Tax Law but as per Section 145A,
“…….the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head “Profits and gains of business or profession” shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation

………..”

Hence TCS to be charged on full amount of sale consideration. Taxes, Duties, Cess or fee can not be segregated. The word  “Sale Consideration” can not be equated with “Gross Turnover” u/s 44AB , where in refundable taxes are required to be excluded.

  1. v)Whether TCS is applicable to amount of advance received in cash:

The Definition of buyer under Explanation to Section 206C, specifically  includes “right to receive” for the purposes of 206C(1), however for 206C(1D), it is missing. So, when advance is paid by the buyer towards right to receive the goods, whether TCS provisions can be applied

Opinion:

The matter requires clarification. If such a version is adopted, the assesses might resort to the policy of receiving entire sum as advance in cash. There by defeating the purpose of introducing the provisions.

  1. vi)Whether TCS is applicable where payment is made through bearer cheque.

Opinion: Since TCS is applicable only to receipt of cash as consideration for sale, TCS provisions u/s 206C(1D) shall not apply where payment is received through bearer cheque

vii)       Whether TCS is applicable where goods are exchanged under Barter System [say Jewellery is exchanged for bullion]

Opinion: Since TCS is applicable only to receipt of cash as consideration for sale, TCS provisions u/s 206C(1D) shall not apply where payment is received through exchange of goods.

viii)     Whether TCS provisions under section 206C(1D) also cover the goods or services covered by other provisions.

As per Section 206C(1) for alcoholic liquor for human consumption, tendu leaves, timber, forest products, scrap, coal, lignite or iron ore,

and as per S.206C(1C), for parking lot, toll plaza and mining and quarrying,  TCS is applicable at the time of debit of amount to the account of  buyer or receipt of amount in cash or cheque or draft or any other mode, which ever is earlier.

At the same time 206C(1D) is applicable to receipt of any amount in cash as consideration for sale of goods or provision of service.

The issue that arises is that whether 206C(ID) can result in Duplication of levy in respect of goods or services covered by other provisions.

Opinion

One may follow the Latin Maxim Generalia Specialibus Non Derogant i.e. the provisions of a general statute must yield to those of a special one. But the matter should have been clarified by the legislature instead of leaving the taxpayer to the mercy of tax officials.

  1. ix)Whether TCS is applicable where buyer or seller or both are non residents

Opinion: Section 206C does not put any embargo upon transactions with non residents.

But in case of import of goods, where seller is non resident, the provisions of the Act can not be extended beyond India. Further, it the seller who is liable to collect tax and not the resident buyer.

In case of export of goods, where buyer is non resident, enforcing deposit of tax on behalf of buyer who has no income chargeable to tax in India can not be sustained in the Court of law, because TCS is tax collected  and paid on behalf of buyer. Further as per Section 9, where operations of non resident are confined to procurement of goods in India, no Income can be deemed to have accrued or arisen in India.

  1. x)Whether TCS is applicable to transactions between two residents where Sale of Goods is in Course of Import i.e. High Sea Sales.

Opinion

High Sea Sales take place before the goods cross the Custom Frontiers of India. Although the Income Tax Act does not extend beyond India and the word “India” is defined u/s 2(25A) as

India” means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and subsoil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976), and the air space above its territory and territorial waters

However Section 206C(ID) does not place any embargo upon such transactions and hence shall be covered by TCS

  1. xi)Provision of Services
  2. i)In case of provision of service, the TDS is normally deductible u/s 194C or 194Hor 194J. Hence the seller need not report or pay tax where tax has been deducted by recipient of services. However, the transactions where TDS was deductible but has not actually been deducted, the service provider shall become liable to report and pay TCS, where any amount is received in cash.
  3. ii)In respect of amounts below threshold limits u/s 194C/H/J, no TCS required because threshold limit for TCS is more than threshold limit for TDS

iii)              Litigation may arise because of services not defined under Income Tax law. In case of rent and interest, although TDS is applicable but where tax is not deducted and TCS is also not collected, the authorities might allege that rent is declared service u/s 66E of Service Tax law and interest is in form of financial services.

xii)      Personal Consumption

There is no exemption for payment of TCS in respect of goods or services for personal consumption like S.206C(1)

  1. Accreted Income (Exit) Tax for Charitable Institutions
  2. Introduced by way of Chapter XII-EB to Income Tax Act comprising of sections 115TD , 115TE, IITF. W.e.f. 01-06-2016
  3. Accereted Income tax is the tax at MMR applied to Aggregate FMV of total assets – Total Liabilities (computed as per prescribed valuation method) on
  4. i)Date of cancellation of registration of trust or
  5. ii)Date of modification/adoption to  ineligible objects by trust or

iii)              Date of merger with trust not registered u/s 12AA or not having similar objects

  1. iv)Date of dissolution of trust.
  2. In case of dissolution of firm section 45(4) is applicable and tax is charged on market value of assets on the date of dissolution from the firm. In case of liquidation of company, section 46 is applicable and tax is charged in hands of shareholders on market value of distributed assets on the date of dissolution
  3. These provisions have overriding effect over all other provisions .because S.115TD commences with words “Notwithstanding any thing contained in this Act.
  4. This chapter is applicable to Trust registered u/s 12AA and not institutions u/s 10(23C). This is also not applicable to registered trust in respect of periods prior to registration. This Chapter is also not applicable to Trust which is unregistered and continues to remain unregistered.
  5. This Chapter applies in three circumstances
  6. First: S.115TD (a) :Trust registered/s 12AA converted into any form which is not eligible for grant of registration under section 12AA.

Further as per S.115TD(3), a trust or an institution shall be deemed to have been converted into any form not eligible for registration under section 12AA in a previous year, if,—

(i)                            the registration granted to it under section 12AA has beencancelled. Accereted  Income tax to be paid with in 14 days from date on which order of cancellation of registration is received [as per 115TD(5)(i)].

However 115TD(5)(i) was amended by the Parliament in Loksabha to extend the period of payment of accereted income tax. As per amednded provisions, in case of cancellation of registration , where appeal before ITAT is not filed against the order of cancellation, accereted Income tax to be paid with in 14 days from the date of expiry of period of filing appeal.

However,  where appeal has been filed but ITAT has confirmed the order of cancellation, accereted Income tax to be paid with in 14 days from the date of receipt of order of cancellation.

; or

(ii) it has adopted or undertaken modification of its objects which do not conform to the conditions of registration and it,—

(a) has not applied for fresh registration under section 12AA in the said previous year. Accereted Income tax to be paid with in 14 days from the end of previous year in which objects are modified[S.115TD(5)(ii)]; or

(b) has filed application for fresh registration under section 12AA but the said application has been rejected. Accereted Income tax to be paid with in 14 days from date of rejection [115TD(5)(iii)] However 115TD(5)(iii) was amended by the Parliament in Loksabha to extend the period of payment of accereted income tax. As per amednded provisions, in case of cancellation of registration , where appeal before ITAT is not filed against the order of rejection, accereted Income tax to be paid with in 14 days from the date of expiry of period of filing appeal.

However,  where appeal has been filed but ITAT has confirmed the order of cancellation, accereted Income tax to be paid with in 14 days from the date of receipt of order of rejection.

Comments:  As per Section 12AA(3) and 12AA(4), registration of trust can be cancelled in following circumstances:

  1. a) activities of such trust or institution are not genuine
  2. b)Activities not being carried out in accordance with the objects of the trust or institution
  3. c)Due to operation of sub-section (1) of section 13, i.e.
  4. i) income of trust for private religious purposes ;
  5. ii) trust for the benefit of particular religious community or cast

iii) income under rules enures for benefit of trustee etc or any part of income or property used applied for benefit of trustee

iv)Funds not invested as per 11(5).

Hence technical breaches like application of any part of income for benefit of trutee, violation of 11(5) etc.

CBDT has issued a Circular No. 21/2016 dated 27-05-2016, and has clarified that that the process for cancellation of registration is to be initiated strictly in accordance with section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions.

CBDT has also cautioned that since cancellation of registration of trust shall invite  accereted income tax as per Finance Act 2016, authorities are, therefore, advised not to cancel the registration of a charitable institution granted u/s 12AA just because the proviso to section 2(15) comes into play

  1. Second: Further accereted income tax under this chapter shall also become applicable if trust or institution registered u/s 12AA is merged with any entity other than an entity which is a trust or institution having objects similar to it and registered under section 12AA. Accereted Income tax to be paid with in 14 days from date of merger [115TD(5)(iv)]

Here it may be noted that mere merger with trust registered u/s 12AA is not sufficient. It should also have similar objects. Dissimilar objects of trust registered u/s 12AA shall also attract accereted income tax . Further merger with institutions covered by 10(23C) but not registered u/s 12AA might also invite accereted income tax.

  1. Third: Further as per 115TD(c) accereted income tax under this chapter shall also become applicable if trust or institution registered u/s 12AA failed to transfer upon dissolution all its assets to any other trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause ( iv) or

sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, within a period of twelve months from the end of the month in which the dissolution takes place Accereted Income tax as per S.115TD(5)(v) to be paid with in 14 days from the end of 12 month. The person to whom assets are transferred shall be liable to pay tax as assessee in default to the extent of assets received are capable of meeting liability as per S.115TF(2) and proviso to 115TF(2)

  1. For delayed payment of tax interest @1% is payable.
  2. An amendment has been made to Section 115TD by Loksabha while passing Finance Bill 2016 by inserting following provisos u/s 115TD(2) :

Provided that so much of the accreted income as is attributable to the following asset and liability, if any, related to such asset shall be ignored for the purposes of sub-section (1), namely:—

(i)                any asset which is established to have been directly acquired by the trust or institution out of its income of the nature referred to in clause (1) of section 10;

(ii)        any asset acquired by the trust or institution during the period beginning from the date of its creation or establishment and ending on the date from which the registration under section 12AA became effective, if the trust or institution has not been allowed any benefit of sections 11 and 12 during the said period:

Provided further that where due to the first proviso to sub-section (2) of section 12A, the benefit of sections 11 and 12 have been allowed to the trust or the institution in respect of any previous year or years beginning prior to the date from which the registration under section 12AA is effective, then, for the purposes of clause (ii) of the first proviso, the registration shall be deemed to have become effective from the first day of the earliest previous year:

  1. Additional Depreciation to power distribution concerns

Benefit of Additional depreciation @20% of actual cost u/s 32(1)(iia) which was earlier available to power sector concerns in generation or generation and distribution of power now also extended to power distribution or transmission concerns . Wef AY 2017-18

  1. Royalty income for Patent  of person resident in India who is true and first patentee made taxable at concessional rate of 10% wef AY 2017-18 by introducing S.115BBF . Income chargeable under capital gain for transfer of patent or Income from sale of patented products is not eligible for concessional taxation.

In Finance Bill following further provisions added by Loksabha while passing the bill

(3) The eligible assessee may exercise the option for taxation of income by way of royalty in respect of a patent developed and registered in India in accordance with the provisions of this section, in the prescribed manner, on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the relevant previous year.

(4) Where an eligible assessee opts for taxation of income by way of royalty in respect of a patent developed and registered in India for any previous year in accordance with the provisions of this section and the assessee offers the income for taxation for any of the five assessment years relevant to the previous year succeeding the previous year not in accordance with the provisions of sub-section (1), then, theassessee shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which such income has not been offered to tax in accordance with the provisions of sub-section (1).

[115BF(4) is similar to Section 44AD(4)]

  1. Profit Linked Deduction for Startups:
  2. a)Businesses involving :
  3. i)Technology or Intellectual property driven processes or services or
  4. ii)Innovation, Development, Deployment or commercialization of new products
  5. b)Incorporated as company  from 01-04-16 to 31-03-2019.The benefit extended to LLP also by introducing amendment in Finance Bill 2016 in Loksabha
  6. c)Turnover not exceeding Rs. 25 crores in any previous year from 01-04-2016 to 31-03-2021
  7. d)Holding certificate of eligible business from Inter Ministerial Board

are eligible for 100% deduction of profits and gains  under newly introduced section 80IAC wef AY 2017-18 for any three consecutive assessment years out of five years beginning from the year in which the eligible start-up is incorporated.

Other conditions of not formed by splitting up or reconstruction of existing business; transfer of old machinery and applicability of 80IA (7) to 80IA(11) are also applicable

Note: What if deduction in first three years is claimed and fourth year turnover exceeds 25 crores ? Whether income shall be recomputed? Section is silent.

  1. Capital gain exemption for Investment in fund to finance startups u/s 54EE up to 50 lacs made in six months from date of transfer of Long term capital assets in one or two financial years on the line of S.54EC. NO transfer of investment in three years and no loan to be subscribed  in three years on security of investment.[Effective from AY 2017-18]
  2. Exemption u/s 54GB available to Individual/HUF assessee against sale of residential house for investment in 50% or more share capital of manufacturing  Company in MSME sector up to 31-03-2017 extended to start up company u/s 80-IAC and that too for extended period  up to 31-03-2019 [Effective from AY 2017-18] While in case of company in MSME sector investment in computer or computer software does not qualify for investment by MSME company , an exception has been drawn for startup company and investment in computer and computer software shall also qualify as investment by startup company.
  1. 100% Profit Linked Deduction for Affordable Housing Projects u/s 80IBA wef AY 2017-18

Conditions:

  1. Approval :
  2. a)Project is approved by competent authority e. authority empowered by Central Government.  

Amendments introduced in Finance Bill

As per bill introduced, the competent authority was required to approved as per prescribed guideline, however, in Finance Act, the requirement of approval with separate prescribed guidelines has been done away. Since approval for building plan is generally granted by local bodies, hence requirement of Competent authority being empowered by Central Government has also been done away at the time passing bill in Lok Sabha. Rather now competent authority means the authority empowered to approve the building plan by or under any law for the time being in force

  1. b)Where project is approved more than once, the project shall be deemed to have been approved on the date on which the project was first building plan of the housing project was first [Finance Bill amended in Loksabha] approved by the competent authority;
  1. Completion
  2. a)Project is completed with in 3 years from date of approval by competent authority
  3. b)the project shall be deemed to have been completed when a certificate of completion of project as a whole is obtained in writing from the competent authority
  4. c)If project is not completed in three years, deduction already claimed shall be deemed to be PGBP income of the previous years in which period of completion expires.
  5. Area
  6. a)Built up area of shops and other commercial establishments does not exceed 3% of aggregate built up area
  7. b)Project on Land situated with in Chhenai, Delhi, KOlkatta, Mumbai or in 25Kms measured aerially [Change Inroduced by Loksabha in Finance Bill]  form municipal limits of these cities :
Min. plot area 1000 sq mts=10763 sq ft
Max residential unit area 30 sq mts i.e. 322.91 sq ft
Utilization of permissible Floor Area ratio Min. 90%
  1. c)Project on land in other cities :
Min. plot area 2000 sq mts=21527 sq ft
Max residential unit area 60 sq mts i.e. 645 .83sq ft
Utilization of permissible Floor Area ratio Min. 80%
  1. Separate Books of Accounts of Housing Project are maintained
  • Deduction u/s 80IBA is not available to works contractor to whom the work is awarded by any person.
  • Also no deduction for such profits under any other section
  1. The deduction u/s 80-IBA is not available to assessee who is works contractor of such housing project.

Note : For Affordable Housing Project there is also a deducation u/s 35AD for capital expenditure @ 150% which has been brought down to 100% wef AY 2018-19

  1. Additional Deduction on Housing Loan Interest u/s 80EE:
  2. As per section 24(b), if self occupied property is acquired or constructed with borrowed capital with in three years from the end of financial year in which capital is borrowed, deduction of Rs. 2 lacs is allowed [Enhanced from 1.5 lacs wef AY 2015-16].
  3. Further in respect of loan sanction from 01-04-2013 to 31-03-2014, additional cumulative deduction of Rs. One lakh for interest on loan for assessment year 2014-15 and 2015-16 was available to Individual whodoes not own any residential house property on the date of sanction of the loan for loan up to Rs 25 lacs in respect of house valuing up to Rs40 lacs.
  4. Deduction u/s 80EE is not available for AY 2016-17
  5. Now wef AY 2017-18 and subsequent assessment years for loan sanctioned from 01-04-2016 to 31-03-2017 additonal deduction of Rs. 50000 per annum shall be allowed to such Individual for loan up to Rs. 35 lacs in respect of house valuing up to Rs 50 lacs. u/s 80EE.
  6. If this deduction is to be aligned with deduction u/s 80-IA, the period of sanction of loan should be extended to 31-03-2019 at least.
  1. Extended period of Acquisition/Construction allowed for Housing Loan Interest

Enhanced deduction of Rs. 2 lacs for interest on housing loan on construction or acquisition for self occupied house is granted subject to condition that acquisition or construction is completed with in three year from the end of financial year in which the capital is borrowed. Limit of three years enhanced to five years wef AY 2017-18

Comments: If a person subscribes loan during 2011-12, he is required to complete construction till 31-03-2015, however, if construction is not completed till 31-03-2015 but in financial year 2015-16, the assessee is not entitled for deduction of enhanced amount of Rs. 2 lacs for AY 2016-17. However for AY 2017-18, the same assessee might become eligible for deduction of interest up to Rs. 2 lacs.

On the other hand, another assessee, who completes the construction in the year 2016-17 only, shall be entitled to enhanced deduction of Rs. 2 lacs from the very first year of completion.

So, a person who completes the house early also does not stand to gain.

  1. Incentive for Employment Generation:
  2. As per existing provisions of 80JJAA, manufacturing company enjoys  deduction of 30% of additional wages paid to new regular workmen in excess of 100 employees and employed for at least 300 days in a previous year , if increase in number of employees is at least 10% of number on last day of preceeding year in case of existing factory.
  3. Provisions of section 80JJAA have now been revamped w.e.f AY 2017-18: as under:
  4. a)Benefit of 30% on additional employee cost shall now be available for a period of three years [ Whether it means 90% cumulative deduction for additional employee cost? And what if employee leaves after one year]
  5. b)Additional Employee Cost:
  6. i)Means additional emoluments paid or payable to additional employees employed during the previous years.
  7. ii)Additional Employee does not include an employee
  8. a)whose total emoluments are more than Rs. 25000 per month
  9. b)An employee whose contribution paid by  govt under EPF Act 1952
  10. c)An employee employed for less than 240 days in previous year.
  11. d)An employee not participating in RPF

iii)              Additional Emoluments do not include:

  1. a)Contribution by employer to PF, EPF any other fund for benefit of employee under the law
  2. b)Lump sum payments paid / payable on termination, superannuation or voluntary retirement, like gratuity, leave encashment, VRS, severance pay, commuted pension and like
  3. iv)Additional employee cost shall be NIL if
  4. a)No increase in number of employees from number on last day of preceding year
  5. b)Emoluments paid in cash
  • For new business, employee cost of first year shall be additional employee cost eligible for deduction .
  • 80JJAA is applicable to assesses covered by 44AB i.e. all assessee including those getting accounts audited because of provisions of presumptive taxation.
  • Requirement of company assessee or manufacturing unit done away.
  • Also condition of at l00 employee and increase in number being more than 10% done away.
  • Condition of being employed for 300 days lowered to 240 days.
  1. House Rent deduction

In case of assessee,

  1. a)Not having HRA Income
  2. b)Not owning any residential accommodation by themselves or by  spouse or minor child or HUF
  3. c)Neither owning any self occupied residence  nor owning house not self occupied due to business, employment at some other place.

Least of the Following deduction is allowed u/s 80GG:

  1. i)Rent paid – 10% of total income (before allowing deduction u/s 80GG)
  2. ii)25% of total income (before allowing deduction u/s 80GG)

iii)              Rs. 2000 per month

Limit of Rs. 2000 pm enhanced to Rs. 5000 pm from AY 2017-18

  1. Taxability of Shares received by Individual/HUF under amalgamation or demerger

When shares of private company are received by firm or company u/s 56(2)(viia) , transactions not regarded as transfers like receipt of shares in amalgamation or demerger are excluded, However there is no corresponding exception when shares are received by Individual / HUF u/s 56(2)(vii). Hence exception to this effect also incorporated in 56(2)(vii)

  1. Rebate u/s 87A in respect of individual resident in India whose total income does not exceed five hundred thousand rupees, up to Rs. 2000 increased to Rs. 5000 wef Ay 2017-18.
  1. Section 25A, 25AA and 25B on unrealized rent and rent arrearsconsolidated into S.25A to provide that unrealized rent or arrears of rent shall be chargeable to tax as income of the assesee under Income from House property in which arrears or unrealized rent is received, whether in the year of receipt assessee is owner of the property or not. Further 30% deduction against such sum shall be allowed.
  1. Presumptive taxation for Business

Comparative Positions of older and proposed provisions of 44AD(1) to 44AD(5) is reproduced below:

44AD(1)  (1) Notwithstanding anything to the contrary contained in sections 28to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”. No Change
44AD(2) (2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed No Change
44AD(2) Proviso Provided that where the eligible assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40. Omitted
44AD(3) The written down value of any asset of an eligible business shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years. No Change
44AD(4) The provisions of Chapter XVII-C shall not apply to an eligible assessee in so far as they relate to the eligible business. Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and

he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1)

44AD(5)  Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AAand get them audited and furnish a report of such audit as required undersection 44AB. Notwithstanding anything contained in the foregoing provisions of this section,

an eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax ,

shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.

Section 44AD(4) as proposed to be amended by Finance Bill 2016

Ø Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and

Ø  he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1),

Ø he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the

previous year in which the profit has not been declared in accordance with the provisions of sub-section (1)

Now let us analyse the benefits available u/s 44AD

Benefits u/s 44AD(1)

8% of total turnover or higher sum is deemed to be income of eligible business, overriding the provisions of section 28 to 43C [but not 44AA and 44AB].

Benefit u/s 44AD(2)

Deduction u/s 33 to 38 is deemed to have been allowed. Hence there is no actual benefit but rather benefit if any, is taken away in lieu of 8% or higher sum deemed to be income of the assessee

Benfit u/s 44AD(3)

WDV of business is calculated as if depreciation has been allowed

Hence benefit, if any is there in section 44AD(1) and not in any other provision. However section 44AD(1) does not talk about books or audit, which are separately dealt in 44AA and 44AB

Section 44AD(5) as proposed to be amended by Finance Bill 2016

Ø Notwithstanding anything contained in the foregoing provisions of this section,

Ø an eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax ,

Ø shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and

Ø get them audited and furnish a report of such audit as required under section 44AB.

Section 44AA(2)(iv)

Every assessee carrying on business shall

…………………………

Where the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year

Keep and maintain such books of accounts and other documents as may enable the assessing officer to compute his total income in accordance with the provisions of this Act

Section 44AB(e)

Every person

carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year

get his accounts of such previous audited……..

Hence S.44AA(2)(iv) and 44AB(e) are just corollary to what is said in 44AD(5)

Now the issue is when is section 44AD(4) applicable

Section 44AD(4) has two parts one is the applicability (or operative part )and other is substantive  part. Section 44AD(5) is also speaks of consequences of applicability of 44AD(4)

Applicability (Or operative) part

Ø Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and

Ø  he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1),

Consequence Part in 44AD(4)

Ø he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the

previous year in which the profit has not been declared in accordance with the provisions of sub-section (1)

Implications

The assessee shall forego the benefit once the profit of six consecutive years is not shown at 8%, hence  actual profit shall be computed for next five years.

This consequence shall also apply even if income is computed at lower than exemption limit and assessee can not reflect higher income to convert his undisclosed income into disclosed income

Consequence part in  44AD(5)

Eligible assessee to whom 44AD(4) applies and income is more than exemption limit

Ø shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and

Ø get them audited and furnish a report of such audit as required under section 44AB.

  1. Situation where 44AD(4) is applicable and income is more than exemption limit

E.g. Year 1 profit is 8% or higher

Year 2 profit is less than 8%

Then section 44AD(5) states that for Year 3 to Year 7, if income is more than exemption limit, the assessee shall have to get the accounts prepared and get the audit done.

Now there can be following propositions:

  1. i)If in year 3 to years 7 income is lesser than 8% but higher than exemption limit, assessee shall prepare books and get the accounts audited. This was also the situation which existed before amendment of section 44AD(5) as reproduced above.
  1. ii)If in the year 3 to year 7 income more than 8% but lesser than exemption limit, then maintenance of prescribed books and audit not required. This was also the essence of section 44AD(5) before amendment as reproduced above

iii)              If in year 3 to year 7, income is more than 8% and also higher than exemption limit, whether still maintenance of prescribed books and audit required where turnover is lesser than two crores?

If the answer is yes, because it is as per amended provision, it defies the logic of presumptive income scheme itself.

If answer is no, then it is obliteration of express provisions of the law

  1. Situation where 44AD(4) is not applicable and income is more than exemption limit
  1. a)Reflecting 8% or higher income for six consecutive years. In such a situation if in Year 7 income is reflected lesser than 8% , still in year 8 benefit of 44AD can be availed.
  2. b)Never earlier reflected  8% or higher Income or it is first year of the assessee business , then in Year 1 after such years or in the Year 1 itself benefit of 44AD can be availed.

In the both the above situations, since 44AD(4) is not

applicable and as per 44AD(5) as well as 44AA(2)(iv) and 44AB(e), maintenance of books and audit is required only when 44AD(4) is applicable, books/ audit not required for Year 8 or Year 1 respectively in above propositions.

Although in such situation one might argue that books may be required to be maintained because of 44AA(2)(i)/(ii) but Memorandum explaining provisions of Finance Bill 2009 mentioned that  “An assessee opting for the above scheme shall be exempted from maintenance of books of accounts related to such business as required under section 44AA of the Income-tax Act”

  1. c)The year in which income is reflected lesser than 8%, 44AD(4) is again not applicable because 44AD(4) applies only to an an eligible assessee who declares profit for any previous year in accordance with the provisions of this section , hence normal provisions of law shall apply. Hence assessee shall be entitled to have benefit of deduction under section 30 to 38. Audit provisions shall apply if turnover is higher than one crore.

Another Interesting proposition of drafting 44AD(4) and 44AD(5) is that requirement of carrying out eligible business has also been dispensed with, while it is there in 44AD(5) in present form. Whether it is intentional or unintentional, only draftsmen know.

Retroactive application of Section 44AD(4) and 44AD(5)

The provisions have been amended wef AY 2017-18. However it is not clear that if, if assessee once covered by 44AD(1) has shown lesser than 8% income for period earlier that AY 2017-18, whether 44AD(4) and 44AD(5) shall become applicable wef AY 2017-18. It means that if operative part of 44AD(4) becomes applicable to the assessee for AY 2017-18, it might get covered by proposed provisions. Hence the amendment may have retroactive if not retrospective application.

Since section 44AD in present for came into existence wef AY 2011-12, let us take an example. Suppose for AY 2011-12, income was declared at 8% or higher sum but in any of five subsequent assessment year  i.e. AY 2012-13 to AY 2016-17, income is declared lesser than 8%, then section 44AD benefit shall not apply for AY 2017-18 as per proposed amendment in 44AD(4).

Impact of not enhancing audit limit for business u/s 44AD

By not amending section 44AB(a) in the Finance Bill , the situation has been made more perplexing. This implies that if assessee’s turnover is between one crore and two crore he needs to get his accounts audited u/s 44AB(a) inspite of being covered by presumptive taxation u/s 44AD up to two crores.

 

Special Allowance of partners’ salary and interest to firm abolished ; Implications

Following proviso to 44AD(2) is proposed to be omitted wef AY 2017-18:

“Provided that where the eligible assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40.”

Implications

As per Supreme Court in Munjal Sales Corporation 298 ITR 298, interest to partner is covered by 36(1)(iii) and section 40(b) only places a restriction. Similarly salary to partner is covered by Section 37 and Section 40(b) only places restriction upon the same.

By Omissions of proviso to section 44AD(2) the provisions of 44AD(2) shall come into play which says that deductions u/s 30 to section 38 shall be deemed to have been given full effect . Therefore full effect shall be deemed to have been given effect to partners salary and interest covered respectively by 36(1)(iii) and section 37.

Hence if partnership deed provides for salary and interest to partners, while no deduction shall be allowable for presumptive taxation u/s 44AD, it might become taxable in the hands of partner u/s 28(v)

One school of thought is that fiction is not to be extended beyond the purpose for which it is created (Supreme Court in Bengal Immunity). Hence deeming fiction that full effect is deemed to have been given to deductions u/s 30 to 38 for presumptive taxation of firm can not be  extended to tax interest and salary, deemed to have been allowed as deduction  for firm,   in the hands of the partner.

Another school of thought is that full effect must be given to the statutory fiction and it should be carried to its logical conclusion and to that end it would be proper and even necessary to assume all those facts on which alone the fiction can operate. By following this proposition, interest and salary shall become taxable in the hands of partner merely by virtue of provisions of partnership deed even though no separate deduction is allowed to the firm.

  1.  Presumptive Taxation for specified professions u/s 44ADA wef AY 2017-18. Specified professions are defined in 44AA(1). Hence legal, medical, engineering or architectural profession, the profession of accountancy , technical consultancy , interior decoration or any other notified  profession  is covered.
  2.  Limit for presumptive taxation for specified professions is 50 lacs.
  3. Rate of presumptive taxation is @50%
  4. Deductions u/s 30 to 38 including interest and salary to partners and depreciation shall be deemed to have been given effect and WDV shall be computed accordingly.
  5. If assessee claims lower income and income is more than exemption limit, 44AA and 44AB shall apply.
  6. Maximum Rate of Depreciation pegged at 40% w.e.f previous 2017-18   

i.e AY 2018-19:

Examples of a few following assets with currents rates of depreciation that shall be affected are:

  1. a)Buildings and Machinery for installing water treatment plant @ 100%
  2. b)Purely temporary erections such as wooden structures @ 100%
  3. c)Air Pollution, Water Pollution and Solid waste Control Equipment @ 100%
  4. d)Containers made of glass and plastic used as refills @ 50%
  5. e)Computers including computer software @ 60%
  6. f)Wooden parts used in artificial silk manufacturing machinery @ 100%
  7. g)Flour Mill Rollers @ 80%
  8. h)Iron and Steel Industry- Rolling Mill Rolls @ 100%
  9. i)Cinematograph films –bulbs of studio lights @ 100%
  10. j)Energy saving devices including renewal energy devices including solar energy devices, windmills, biogas plants, electrically operated vehicles @ 80%
  11. k)Books owned by assessee carrying on profession being annual publications @ 100%
  12. l)Other Books owned by assessee carrying on profession @ 60%
  13. m)Books owned by assesses carrying on business in running lending libraries @ 100%

Comments: Memorandum Explaining provisions of finance bill have mentioned about this change, however, the Finance Act 2016 is silent on this change. Law in this regard may be framed in times to come

  1. Weighted Deduction on Capital Expenditure u/s 35AD cut down

For following business deduction @ 150% was available by virtue of S. 35AD(1A)  which has been omitted wef AY 2018-19,

  1. a)setting up and operating a cold chain facility
  2. b)setting up and operating a warehousing facility for storage of agricultural produce;
  3. c)building and operating, anywhere in India, a 7[hospital] with at least one hundred beds for patients
  4. d)developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed
  5. e)production of fertilizer in India

Thus only 100% deduction shall be available for above Businesses

Note : For affordable housing 100% profit linked deduction also introduced by incorporating S. 80-IBA wef AY 2017-18

  1.   Loss of Specified Business u/s 35AD where capital expenditure is

allowed as deduction to be carried forward only if return is filed in time. Necessary amendments made in S.80 and Section 139(3)

  1. Deduction of NPA provisions also being allowed by NBFCs

At present u/s 36(1)(viia) , following deduction on account of provisioning for bad and doubtful debts is allowed:

a) Scheduled Banks (not being foreign banks) , non schedules banks, co-operative banks (Other than PACS, Agri cultural and Rural developments banks)

Optional Allowance for Scheduled and non Scheduled banks for assets classified by RBI as doubtful or loss assets in accordance with guidelines

7.5% of Income + 10% of Agg. Avg. Advances made by Rural branches

Max. 5% of such assets shown in the books of accounts of the bank on last day of previous year

b) Foreign Banks 5% of Income
c) Public Financial Institutions, State Financial Corporation or State Industrial Investment Corporation 5% of Income
Note : Income is computed before allowing deduction under Chapter VI-A and deduction under 36(1)(viia)

Since NBFCs are also engaged in lending to different sector similar deduction being allowed to NBFCs also up to 5% of Income  wef AY 2017-18.

  1. Non Residents exempted from application of section 206AA wef 01-06-2016

As per section 206AA which has overriding impact on the all other provisions of the Act, in case of failure to furnish PAN to the deductor, highest of the following rates shall apply:

  1. a)Rate specified in relevant provisions
  2. b)Rate or Rates in Force
  3. c)20%

In case of non resident, as per section 115A(b), rate of 10% is applicable for royalty and fee for technical services. However, if non resident is not having PAN, tax shall be deducted @ 20%.

Section 206AA(7) which provides relief to non residents from applicaton of 206AA in respect of TDS on long term infrastructure bonds has been extended to all other payments subject to complying prescribed conditions.

Comments           Here it may be noted that as per ITAT Pune Bench in Serum Institute pronounced on 30-03-2015, even in the absence of PAN payer not required to deduct TDS at 20% if case covered by DTAA.

  1. MAT for FII done away In view of undertaking given by Government to Supreme Court in Castleton Investment and various circulars issued by CBDT, MAT provisions for FIIs done away wef AY 2001-02
  1. Set off of Loss not to be allowed against Deemed Income u/s 68 etc.: Whether any Impact on P&H High Court ruling in Kim Pharma

As per Section 115BBE inserted wef AY 2013-14, tax rate  of 30% is to applied to income chargeable to tax u/s 68,69,69A,B,C,D Also no deduction for any expenditure or allowance is allowed in respect of income assessed under these sections.

Memorandum explaining provisions of Finance Bill says that there is uncertainty on the issue of set-off of losses against income referred in section 115BBE of the Act. The matter has been carried to judicial forums and courts in some cases has taken a view that losses shall not be allowed to be set-off against income referred to in section 115BBE. However, the current language of section 115BBE of the Act does not convey the desired intention and as a result the matter is litigated. In order to avoid unnecessary litigation, it is proposed to amend the provisions of the sub-section (2) of section 115BBE to expressly provide that no set off of any loss shall be allowable in respect of income under the sections 68 or section 69 or section 69A or section 69B or section 69C or section 69D. This amendment shall have effect from AY 2017-18.

Comments: Whether this leads to argument that Punjab and Haryana High Court ruling may not be applied for period preceding AY 2017-18 or amendment is clarificatory in nature. However depreciation and Unabsorbed depreciation already stands covered by word “allowance wef AY 2013-14”

  1. Consideration for Restrictive Covenants of Profession:

It was held by ITAT Delhi in Satya Sheel Khosla 63 taxmann.com 293 quoting para 28 on page 692 of Kanga and Palkhiwala that u/s 28(va) consideration received for restrictive covenants is taxable in case of business but not taxable in case of profession . Hence consideration received for restrictive covenants in profession also being made taxable wef AY 2017-18.

  1.  Sale of Goodwill of Profession also made taxable

It was held by ITAT Chennai in K. Prem Raj 41 taxmann.com 81 that sale of goodwill  of profession would not as such come within ambit of provisions of section 55(2)(a); same is not taxable as LTCG. Hence section 55 (2)(a)  being amended to provide that cost of acquisition of self generated goodwill of profession shall be  NIL, so that it also becomes taxable under Capital gain wef AY 2017-18 and supreme court decision in BC SreeNiwas Shetty no longer operates for self generated goodwill of profession.

  1.  Scope of S. 43 B extended to include any sum payable by assessee to Indian railways for use of railway assets to expedite recoveries of railaways wef AY 2017-18.
  1. 36. Application of S. 50C rationalized where date of agreement is much before date of registration of sale deed

Under the existing provisions contained in Section 50C, in case of transfer of a capital asset being land or building on both, the value adopted or assessed by the stamp valuation authority for the purpose of payment of stamp duty shall be taken as the full value of consideration for the purposes of computation of capital gains.

The Income Tax Simplification Committee (Easwar Committee) has in its first report, pointed out that this provision does not provide any relief where the seller has entered into an agreement to sell the property much before the actual date of transfer of the immovable property and the sale consideration is fixed in such agreement, whereas similar provision exists in section 43CA of the Act i.e. when an immovable property is sold as a stock-in-trade.

It is proposed to amend the provisions of section 50C so as to provide that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of computing the full value of consideration.

It is further proposed to provide that this provision shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, on or before the date of the agreement for the transfer of such immovable property.

  1. Unlisted shares held for 24 months or less would be treated as short-term capital asset

As per section 2(42A) of the Income-tax Act, any capital asset held by the taxpayer for a period of not more than 36 months immediately preceding the date of its transfer is treated as short-term capital asset.

The aforesaid period of 36 months is treated as 12 months in case of shares held in a company. However, an amendment was made by Finance Act (No. 2) Act, 2014 to provide that the said period of 12 months won’t be applicable in respect of shares not listed in recognized stock exchange. Hence, with effect from 01.04.2015, unlisted share is treated as short-term capital asset if it is held for not more than 36 months immediately preceding the date of its transfer.

The Finance Bill, 2016 as passed by the Lok Sabha inserted a new clause to provide that the period of 36 months would be substituted with period of 24 months in case of unlisted shares. In other words, unlisted shares of company would be treated as short-term capital asset if it is held for a period of 24 months or less immediately preceding the date of its transfer. This change is effective from AY 2017-18

  1. Filing of Return for Long Term capital  Gain from equity shares or equity oriented mutual funds  exempt u/s 10(38) wef AY 2017-18

By amending sixth proviso to S.139(1), return of filing made compulsory even if income of the assessee without claiming exemption exceeds maximum amount not chargeable to tax. However no such requirement for long term capital loss  covered by 10(38).

  1. Return shall not be defective merely because self assessment tax and interest not paid with return: wef AY 2017-18

Finance Act 2013 wef 01-06-2013 had inserted clause (aa) in section 139(9) to provide that  a return of income shall be regarded as defective unless the tax together with interest, if any, payable in accordance with the provisions of section 140A, has been paid on or before the date of furnishing of the return

Now clause(aa) has been removed, Hence return shall not be defective for non payment of tax and interest on or before date of furnishing return of income

  1.  wef AY 2017-18

Current Provisions

(4) Any person who has not furnished a return within the time allowed  to him under sub-section (1), or within the time allowed under a notice issued under sub-section (1) of section 142may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier

Amended Provisions

“(4) Any person who has not furnished a return within the time allowed to him under sub-section (1), may furnish the return for any previous year at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier

Implications: 1. Return not filed in response to notice u/s 142 can not be filed belatedly and to be filed with in time allowed u/s 142 or such further time as may be allowed by AO from time to time. [As per section 14 of General Clauses Act]

  1. Also belated return to be filed till end of assessment year
  1. Belated Return u/s 139(4) can also be revised u/s 139(5) wef AY 2017-18

Current Provisions

If any person, having furnished a return under sub-section (1), or in pursuance of a notice issued under sub-section (1) of section 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier

Amended Provisions

If any person, having furnished a return under sub-section (1) or sub-section (4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier

Implications

Belated return u/s 139(4) can also be rectified. Belated return u/s 142(1) can not be rectified.

However memorandum explaining provisions of Finance bill still mentions about return furnished in response to notice u/s 142 which is inconsistent with express amendment.

  1. Scope of adjustment in processing of return u/s 143(1) expanded wef AY 2017-18

As per section 143(1)(a)  while processing return the total income or loss shall be computed after making the adjustments for

(i)                 any arithmetical error in the return or

(ii)             an incorrect claim, if such incorrect claim is apparent from any information in the return. As per  Explanation to 143(1) an incorrect claim apparent from any information in the return” shall mean a claim, on the basis of an entry, in the return

  1. of an item, which is inconsistent with another entry of the same or some other item in such return
  2. in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished;
  3. in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction

WEf AY 2017-18 Now adjustment u/s 143(1)(a) in return of income can also be made for

  1. Disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139
  2. Disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return
  3. Disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC,80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139
  4. Addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return

Intimation of Adjustment to Assessee:

Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode:

Response of the assessee to be awaited for 30 days

Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made

Note: Audit qualification which is not quantified may not get covered in adjustment. Further adjustment for disallowances only shall be made for audit qualification and not for other additions like revenue receipt considered as capital receipt by assessee. Also, if income as per 26AS is taken, then corresponding TDS adjustment should also be made.

  1. . Return selected under scrutiny also to be processed before issue of order u/s 143(3)

Section 143(1D) provided that where a notice has been issued to a taxpayer under sub-section (2) of section 143 of the Act, it shall not be necessary to process the return in such a case.

However CBDT vide Instruction dated 1/2015 dated 13-01-2015 said that in cases where an unprocessed return is selected for scrutiny, the legislative intent is to prevent the issue of refund after processing as scrutiny proceedings may result in demand for taxes on finalization of the assessment subsequently.

Delhi  High Court in Tata Teleservices 69 taxmann.com 226 on 11-05-2016  has held that :

“……… 23. The real effect of the instruction is to curtail the discretion of the AO by ‘preventing’ him from processing the return, where notice has been issued to the Assessee under Section 143(2) of the Act. If the legislative intent was that the return would not be processed at all once a notice is issued under Section 143 (2) of the Act, then the legislature ought to have used express language and not the expression “shall not be necessary”. By the device of issuing an instruction in purported exercise of its power under Section 119 of the Act, the CBDT cannot proceed to interpret or instruct the income tax department to ‘prevent’ the issue of refund. In the event that a notice is issued to the Assessee under Section 143 (2) of the Act, it will be a matter the discretion of the concerned AO whether he should process the return.

  1. Consequently, the Court is of the view that the impugned Instruction No.1 of 2015 dated 13th January 2015 issued by the CBDT is unsustainable in law and it is hereby quashed. It is directed that the said instruction shall not hereafter be relied upon to deny refunds to the Assessees in whose cases notices might have been issued under Section 143(2) of the Act. The question whether such return should be processed will have to be decided by the AO concerned exercising his discretion in terms of Section 143 (1D) of the Act.

2nd Proviso to S.143(1)

Provided further that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the return is made.

However now in wake of detailed adjustments required to be made under 143(1)(a), the imbroglio over processing before assessment has been resolved by adding a proviso to 143(1D) as under “

\                 Notwithstanding anything contained in sub-section (1), the processing of a return shall not be necessary before the expiry of the period specified in the second proviso to sub-section (1), where a notice has been issued to the assessee under sub-section (2):

Provided that such return shall be processed before the issuance of an order under sub-section (3).

Comments

Hence now, where scrutiny notice u/s 143(2) is issued, it shall not be necessary to process the return with in one year from the end of financial year in which return is filed. However, every return shall necessarily be processed before order u/s 143(3) is passed. This shall also perhaps solve the problem of assesses waiting for their refunds even after completion of assessments.

  1. Notice for scrutiny of return u/s 143(2) can now also be issued by prescribed authority other than assessing officer wef 01-06-2016.
  1. 45.Jurisdiction of Assessing Officer u/s 124 not to questioned in serach cases after one month from notice u/s 153A [wef 01-06-2016]

Jurisdiction of an Assessing Officer u/s 153A in some cases have been called into question at the appellate stages. In order to remove any ambiguity in such cases 124(3) being amended to specifically provide that cases where search is initiated under section 132 or books of accounts, other documents or any assets are requisitioned under section 132A, no person shall be entitled to call into question the jurisdiction of an Assessing Officer after the expiry of one month from the date on which he was served with a notice under sub-section (1) of section 153A or sub-section (2) of section 153C or after the completion of the assessment, whichever is earlier.

  1. 46.  Legal Framework of Inquiry by prescribed authority u/s 133C strengthened by providing more teeth to Assessing Officers

Finance Act 2014 wef 01-10-2014 had introduced S.133C providing thatWith a view to enable prescribed income-tax authority to verify the information in its possession relating to any person, prescribed income-tax authority, may, issue a notice to such person requiring him, on or before a date to be therein specified, to furnish information or documents, verified in the manner specified therein which may be useful for, or relevant to, any enquiry or proceeding under this Act.

Prescribed Authority u/s 133C is Principal Director General or Director General or Principal Director or Director, as per Rule 12D

Now Section 133C(2) being introduced wef 01-06-2016 as under:

Where any information or document has been received in response to a notice issued under sub-section (1), the prescribed income-tax authority may process such information or document and make available the outcome of such processing to the Assessing Officer

Further Explanation 2 to section 147 amended to provide for reopening of cases by the AO on the basis of the information so received.

  1. Tax Incentive of 5% to new domestic manufacturing companies

The Finance Minister in last budget speech had promised to reduce corporate tax rate from 30% to 25% by phasing out various incentives.

A new section 115BA has been incorporated for domestic manufacturing companies set up and registered on or after 01-03-2016, where in income tax at the option of company [exercisable before due date u/s 139(1)]shall be computed @ 25% wef AY 2017-18 subject to foregoing of following incentives:

  1. Deduction u/s 10AA  i.e. Deduction for units in SEZ
  2. Deduction u/s 32(1)(iia) i.e. Additonal Depreciation @ 20%
  3. Deduction u/s 32AC for investment in new plant and machinery exceeding 100 crores/25 crores
  4. Deduction u/s 32AD for Investement in Plant and Machinery in notified areas in Bihar, Telangana, West Bengal
  5. Deduction u/s 33AB for Tea Development, Coffee Development etc
  6. Deduction u/s 35AD for capital expenditure in specified businesses
  7. Deduction u/s 35AC for expenditure on eligible projects
  8. Deduction u/s 35(2AA) and (2AB) for research and development
  9. Expenditure on agriculture extension projects u/s 35CCC
  10. Expenditure on skill development project u/s 35CCD
  11. Chapter VI-A Deductions other than deduction u/s 80JJAA for additional wages to employees
  12. Loss of earlier years attributable to above sections is not set off .

The Finance Bill, 2016 as passed by the Lok Sabha provides that benefit of concessional tax rate shall also be available to the companies engaged in research in relation to or distribution of article or thing manufactured or produced by it.

Finance Bill 2016, also amended by Lok Sabha to provide thatonce the option to avail of benefit of concessional tax rate has been exercised by the company for any previous year, it cannot subsequently withdraw the same or for any other previous year.

  1. Depreciation u/s 32 to be determined in prescribed manner

[Whether rates shall b different from rates in Rule 5 read with Appendix 1A]

  1. Advance Tax

WEf  01-06-2016 , Based on the recommendations of Expenditure Management Commission clubbed with the fact that most of the advance tax is now paid electronically it is proposed to rationalize schedule for advance tax payment and prescribe the same advance tax schedule for all assessees other than an eligible assessee in respect of eligible business as referred to in section 44AD. Advance Tax dates and rates applicable to Corporate assesses have also been adopted for non corporate assesses.

In case of eligible business u/s 44AD, advance tax to be paid by 15th march .However no similar provisions framed for presumptive taxation for professionals u/s 44ADA. Under Section 44ADA also there is no exemption from advance tax Chapter XVII-C. Hence whether advance tax by professional to be paid along other assesses.

  1. Application for Waiver of Interest u/s 220(2A) to be disposed off in time bound manner

U/s 220(2) assessee is required to pay Interest @ 1% on amount of default of tax not paid with in 30 days from demand notice u/s 156 from day after said 30 days till payment of tax. Further u/s 220(2A) CC/CIT may waive/reduce interest u/s 220(2) on application . However no time period for disposing off the application was mentioned . Now following provisos inserted u/s 220(2A)

Provided that the order accepting or rejecting the application of the assessee, either in full or in part, shall be passed within a period of twelve months from the end of the month in which the application is received:

Provided further that no order rejecting the application, either in full or in part, shall be passed unless the assessee has been given an opportunity of being heard:

Provided also that where any application is pending as on the 1st day of June, 2016, the order shall be passed on or before the 31st day of May, 2017

  1. 51. Interest u/s 234C [wef 01-06-2016]

Interest under section 234C shall not be chargeable in case of an assessee having income under the head “Profits and gains of business or profession” for the first time,

  1. Interest on Refund pegged with timely filing of refund as under wef 01-06-2016

where the refund is out of any tax collected at source under section 206Cor paid by way of advance tax or treated as paid under section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one-half per cent. for every month or part of a month comprised in the period,—

(i) from the 1st day of April of the assessment year to the date on which the refund is granted, if the return of income has been furnished on or before the due date specified under sub-section (1) of section 139; or

(iifrom the date of furnishing of return of income to the date on which the refund is granted, in a case not covered under sub-clause (i)

Comments: If return is filed timely with in due date, interest on refund shall run from Ist April, other wise it shall run from date of filing of return

  1. Dispute on Issue of Interest on Refund of Self Assessment tax resolvedwef 01-06-16

Bombay High Court in Stock Holding Corporation [17-11-2014] and Punjab and Haryana High Court in Punjab Chemical & Crop Protection Ltd [25-08-2014] have pronounced that interest on refund of self assessment tax is entitled u/s 244A(1)(b).

However Delhi High Court in Engineers India Ltd [2015] 55 taxmann.com 1 (Delhi) FEBRUARY  26, 2015 had held that no interest u/s 244A can be paid on refund of self assessment tax u/s 244A(1)(b)because Expl below 244A(1)(b) defines expression “date of payment of tax or penalty” means the date on and from which the amount of taxes or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand.” while self assessment tax is not paid in pursuance of notice u/s 156.

Then Madras High Court in Rajaratna Mills Ltd [2015] 64 taxmann.com 89 (Madras) AUGUST  18, 2015 resolving the issue of interpretation of Explanation to S. 244A(1) has held that Assessee is entitled to interest on refund of self assessment tax because of substantive part of sub-section (1) of section 244A.  The explanation to section 244A does not really talk about the entitlement or disentitlement.  It only defines expression “date of payment of tax or penalty” .The above explanation does not give room for an interpretation that if a person has paid money otherwise than by way of demand under section 156, he is not entitled to interest on refund under section 244A. The explanation cannot, really, curtail the method of computation prescribed in clause (b) or the substantive part of section 244A

Now provisions of refund recognizing the above dispute have incorporated S.244(1)(aa) as under :

where the refund is out of any tax paid under section 140A, such interest shall be calculated at the rate of one-half per cent. for every month or part of a month comprised in the period, from the date of furnishing of return of income or payment of tax, whichever is later, to the date on which the refund is granted:

  1. No Interest if  Refund lesser than 10% of determined tax [w.e.f. 01-06-2016]

No interest on refund arising out of TCS, TDS, advance tax or self assessment tax  shall be payable, if the amount of refund is less than ten per cent. of the tax as determined under sub-section (1) of section 143 or on regular assessment

  1. Additional 3% Interest for Appeal Effect delayed beyond 3 months w.e.f. 01-06-2016

As per Section 153(5) order appeal effect to be made with in 3 months from the end of month in which order is received.

Section 244A(1A) inserted wef 01-06-2016 to provide that In a case where a refund arises as a result of giving effect to an order under section 250 or section 254 or section 260 or section 262 or section 263 or section 264, wholly or partly,

otherwise than by making a fresh assessment or reassessment, the assessee shall be entitled to receive, in addition to the interest payable under sub-section 244A(1), an additional interest on such amount of refund calculated at the rate of three per cent. per annum, for the period beginning from the date following the date of expiry of the time allowed under sub-section (5) of section 153 to the date on which the refund is granted

  1. In ITAT post of Sr Vice President abolished w.e.f. 01-06-2016

In view of the fact that there are no extra-judicial or administrative duties or difference in the pay scale attached with the post of Senior Vice-president in the Tribunal visa viz Vice President, it is proposed to omit the reference of “Senior Vice-President [S.252]

  1. .Filing of appeal by the Assessing Officer against the order of the DRP abolished to remove litigation by omitting 253(3A) and amending 253(4)
  1. Rectification period of ITAT orders limited from 4 years to 6 months wef 01-06-2016

The existing provisions sub-section (2) of the section 254 of the Act, provide that the Appellate Tribunal may rectify any mistake apparent from the record in its order at any time within four years from the date of the order.

In order to bring certainty to the order of ITAT, it is proposed to amend sub-section (2) of section 254 to provide that the Appellate Tribunal may rectify any mistake apparent from the record in its order at any time within six months from the end of the month in which the order was passed

  1. Monetary limit for Hearing of appeal by SMC in ITAT raised from 15 lacs to 50 lacs u/s 255(3) w.e.f. 01-06-2016
  1. Scheme of taxation for Employees regarding provident funds, approved superannuation fund and pension fund revisited
  2.  Recognized Provident Funds

What is Recognised Provident Fund ?

As per Section 2(38) “recognised provident fund” means a provident fund which has been and continues to be recognised by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees’ Provident Funds Act, 1952 (19 of 1952)

  1. a)Taxability of Employees Contribution to Recognized Provident Fund
  2. i)As per Rule 7 of Schedule IV-A

An employee participating in a recognised provident fund shall, in respect of his own contributions to his individual account in the fund in the previous year, be entitled to a deduction in the computation of his total income of an amount determined in accordance with section 80C

  1. ii)Under Section 80C(2)(vi), there is deduction for contribution by an employee to a recognised provident fund. Contributions by government employees under Provident Fund Act 1925 is eligible for deduction u/s 80C(2)(iv). Contribution to Public Provident Fund under PPF Act 1968 is eligible for deduction u/s 80C(2)(v) rws 80C(4) whether made in name of assessee or spouse or child. Deduction u/s 80C is available up to Rs. 150000. Hence no deduction for contributions exceeding Rs. 150000/-. No deduction u/s 80C is available for contribution to unrecognized provident fund.
  1. b)Taxability of Employer’s Contribution to Recognized Provident Fund
  2. i)As per Section 7 the annual accretion in the previous year to the balance at the credit of an employee participating in a recognised provident fund, to the extent provided in rule 6 of Part A of the Fourth Schedule  shall be deemed to be income received by employee
  3. ii)Extent of Employer’s annual contributions deemed to be income received by employee as per Rule 6 of Schedule IV-A

That portion of the annual accretion in any previous year to the balance at the credit of an employee participating in a recognised provident fund as consists of—

(a) contributions made by the employer in excess of  twelve per cent of the salary of the employee [or Rs. 1,50,000 whichever is less was proposed to be inserted Wef AY 2017-18 has been rolled back],

Note : Finance Bill 2016 therefore proposed to tax employer’s  contribution to recognized provident fund in excess of Rs. 1,50,000 . Hence employees whose salary exceeded Rs. 12,50,000 would have been effected by this amendment. [150000 x (12/100)=1250000]. However this proposal has also been rolled back .

(b) interest credited on the balance to the credit of the employee in so far as it is allowed at a rate exceeding such rate as may be fixed by the Central Government in this behalf by notification in the Official Gazette,

[Rate fixed is 9.5% w.e.f. 1-9-2010 – Notification No. SO 1046(E), dated 13-5-2011.]

shall be deemed to have been received by the employee in that previous year and shall be included in his total income for that previous year, and shall be liable to income-tax .

iii)        Head of Income for taxability of Employers’ Contribution

The annual accretion to the balance at the credit of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule shall be chargeable as salary as per Section 17(1)(vi)

  1. iv)In case of statutory provident funds and unrecognized provident funds, contribution of employer is not treated as income received.
  1. c)Taxability of Withdrawls of Accumulated Balance from Recognized Provident Fund
  2. i)As per section 10(12) the accumulated balance due and becoming payable to an employee participating in a recognized provident fund, to the extent provided in rule 8 of Part A of the Fourth Schedule  is exempt

Amendment Proposed in Finance Bill 2016 but dropped by Finance Minister

Provided that nothing contained in this clause shall apply in respect of any amount of accumulated balance, attributable to any contributions made on or after the 1st day of April, 2016 by an employee other than an excluded employee, exceeding forty per cent. of such accumulated balance due and payable in accordance with provisions of rule 8 of Part A of the Fourth Schedule.

Explanation.—For the purposes of this clause, the term “excluded employee” means an employee whose monthly salary does not exceed such amount, as may be prescribed;’;

  1. ii)Extent of Withdrawl from recognized provident fund  as per Rule 8 Schedule IV-A

The accumulated balance due and becoming payable to an employee participating in a recognized provident fund shall be excluded from the computation of his total income—

(i) if he has rendered continuous service with his employer for a period of five years or more, or
(ii) if, though he has not rendered such continuous service, the 63service has been terminated by reason of the employee’s ill-health, or by the contraction or discontinuance of the employer’s business or other cause beyond the control of the employee, 64[or]
64[(iii) if, on the cessation of his employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable to him is transferred to his individual account in any recognised provident fund maintained by such other employer.
iv) if the entire balance standing to the credit of the employee is transferred to his account under a pension scheme referred to in section 80CCD and notified by the Central Government (Inserted by Finance Bill wef AY 2017-18)

Explanation.—Where the accumulated balance due and becoming payable to an employee participating in a recognised provident fund maintained by his employer includes any amount transferred from his individual account in any other recognised provident fund or funds maintained by his former employer or employers, then, in computing the period of continuous service for the purposes of clause (i) or clause (ii) the period or periods for which such employee rendered continuous service under his former employer or employers aforesaid shall be included.]

iii) Calculation of Tax on premature withdrawl of accumulated balance.as per Rule 9 of Schedule IV-A

Where the accumulated balance due to an employee participating in a recognised provident fund is included in his total income owing to the provi-sions of rule 8 not being applicable, the Assessing Officer shallcalculate the total of the various sums of tax which would have been payable by the emp-loyee in respect of his total income for each of the years concerned if the fund had not been a recognised provident fund, and the amount by which such total exceeds the total of all sums paid by or on behalf of such employee by way of tax for such years shall be payable by the employee in addition to any other 66[tax] for which he may be liable for the previous year in which the accumulated balance due to him becomes payable.

Note: It means that tax shall be computed for respective years without giving effect to deduction for contribution to EPF under section 80C.

Iv )Deduction at source of tax payable on accumulated balance as per Rule 10 of Sch IV-A.

The trustees of a recognised provident fund, or any person authorised by the regulations of the fund to make payment of accumulated balances due to employees, shall, in cases where sub-rule (1) of rule 9 applies, at the time an accumulated balance due to an employee is paid, deduct therefrom the amount payable under that rule and all the provisions of Chapter XVII-B shall apply as if the accumulated balance were income chargeable under the head “Salaries”.

  1. v)TDS on Payment of accumulated balance due to an employee. As per Section 192A inserted wef 01-06-2015

Notwithstanding anything contained in this Act, the trustees of the Employees’ Provident Fund Scheme, 1952, framed under section 5 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952) or any person authorised under the scheme to make payment of accumulated balance due to employees, shall, in a case where the accumulated balance due to an employee participating in a recognised provident fund is includible in his total income owing to the provisions of rule 8 of Part A of the Fourth Schedule not being applicable, at the time of payment of the accumulated balance due to the employee, deduct income-tax thereon at the rate of ten per cent :

Provided that no deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payment to the payee is less than thirty thousand rupees fifty thousands rupees [wef 01-06-2016]:

Provided further that any person entitled to receive any amount on which tax is deductible under this section shall furnish his Permanent Account Number to the person responsible for deducting such tax, failing which tax shall be deducted at the maximum marginal rate.

  1. vi)Facility of Form 15G/15H

However wef 01-06-2015, the assessee can file form 15G if total income including premature withdrawl of PF abalance does not exceed exemption limit. Senior Citizens can file Form 15H where tax payable is NIL even after inclusion of premature withdrawl of PF balance

vii)       In case of Unrecognized provident Fund or WIthdrawl from provident fund  with in five years as per Section 17(3)

Section 17(3) is applicable to payments other than covered by S.10(12). Section 10(12) applies to accumulated balance due or payable to employee participating in recognized provident fund to the extent provided in Rule 8 of Schecule IV-A. Hence section 17(3) shall apply to following situations:

1)    Amount becoming due or payable from unrecognized provident fund

2)    Amount from recognized provident fund not covered by Rule 8 of SCh-IV-A

As per Section 17(3) profits in lieu of salary” includes any payment (other than any payment referred to in clause(12) of Section 10) due to or received by an assessee from an employer or a former employer or from a provident or other fund  to the extent to which it does not consist of contributions by the assessee or interest on such contributions

Note:

  1. On payment of employee’s own contribution, since it will be return of investment by employee without enjoying any deduction u/s 80C, there shall be no tax implication.
  2. Interest on employee’s contribution shall be taxable as Income from Other Sources.
  3. Employer’s Contribution as well as interest on employer’s contribution shall be taxable as profits in lieu of salary.

viii)     Withdrawl from Stautory Provident Fund for Government Employees or Public Provident Fund

As per Section 10(11) any payment from provident Fund to which provident Fund Act 1925 applies [It applies to Government Employees] or from any other provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette i.e. Public Provident Fund under PPF Scheme 1968 is exempt from tax.

  1. Approved Superannuation Fund

What is Approved Super Annuation Fund:?

As per section 2(6) “approved superannuation fund” means a superannuation fund or any part of a superannuation fund which has been and continues to be approved by the Principal Chief Commissioner or Chief Commissioner or  Principal Commissioner or Commissioner in accordance with the rules contained in Part B of the Fourth Schedule

  1. a)Contribution by an employee to an approved superannuation fund

U/s 80C(2)(vii) deduction up to Rs. 150000 is available for contribution to approved superannuation fund.

  1. b)Taxability of Employer’s Contribution to approved superannuation Fund

As per Section 17(2) The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees is chargeable as perquisites

The Limit being enhanced to Rs.1.50 lacs wef AY 2017-18 to bring parity with section 80C.

  1. c)Withdrawl from approved Superannuation Fund

Section 10(13) exempts

any payment from an approved superannuation fund made—
(i) on the death of a beneficiary ; or
(ii) to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement ; or
(iii) by way of refund of contributions on the death of a beneficiary ; or
(iv) by way of refund of contributions to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age or on his becoming incapacitated prior to such retirement, to the extent to which such payment does not exceed the contributions made prior to the commencement of this Act and any interest thereon

Amendment Proposed wef AY 2017-18

Section 10(13) further proposes to exempt  transfer to the account of the employee under a pension scheme referred to in section 80-CCD and notified by the Central Government

60% of Commuted annuity in respect contribution after 01-04-2016 made taxable by adding proviso

Provided that any payment in lieu of or in commutation of an annuitypurchased out of contributions made on or after the 1st day of April, 2016, where it exceeds forty per cent. of the annuity, shall be taken into account in computing the total income;

  1. New Pension Scheme u/s 80CCD:
  1. a)Employees Contribution

Section 80CCD(1)

Where an assessee, being an individual employed by the Central Government on or after the 1st day of January, 2004 or,

being an individual employed by any other employer,

or any other assessee, being an individual]

has in the previous year paid or deposited any amount in his account under a pension scheme notified or as may be notified  by the Central Government, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income, of the whole of the amount so paid or deposited as does not exceed,—

(a) in the case of an employee, ten per cent of his salary in the previous year; and
(b) in any other case, ten per cent of his gross total income in the previous year.]

[(1A) The amount of deduction under sub-section (1) shall not exceed one hundred thousand rupees.]Omitted by Finance Act 2015

Following sub-section (1B) has been inserted after sub-section (1A) of section 80CCD by the Finance Act, 2015, w.e.f. 1-4-2016 :

(1B) An assessee referred to in sub-section (1), shall be allowed a deduction in computation of his total income, [whether or not any deduction is allowed under sub-section (1)], of the whole of the amount paid or deposited in the previous year in his account under a pension scheme notified or as may be notified by the Central Government, which shall not exceed fifty thousand rupees:

Provided that no deduction under this sub-section shall be allowed in respect of the amount on which a deduction has been claimed and allowed under sub-section (1).

  1. b)Employer’s Contribution

80CCD(2) Where, in the case of an assessee referred to in sub-section (1), the Central Government or any other employer makes any contribution to his account referred to in that sub-section, the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government or any other employer as does not exceed ten per cent of his salary in the previous year.

Note: As per Section 7(iii) the contribution made, by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD is deemed to be income received Further As per Section 17(1)(viii) salary includes the contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD;

Hence Contributions by employer in excess of 10% shall become taxable.

  1. c) Taxability of Withdrawl/Maturity

80CCD(3) Where any amount standing to the credit of the assessee in his account referred to in sub-section (1) or sub-section (1B), in respect of which a deduction has been allowed under that sub-section or sub-section (2), together with the amount accrued thereon, if any, is received by the assessee or his nominee, in whole or in part, in any previous year,—

(a) on account of closure or his opting out of the pension scheme referred to in sub-section (1) or sub-section (1B); or
(b) as pension received from the annuity plan purchased or taken on such closure or opting out,

the whole of the amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee or his nominee, as the case may be, in the previous year in which such amount is received, and shall accordingly be charged to tax as income of that previous year.

Following proviso proposed to be inserted wef AY 2017-18

Provided that the amount received by the nominee, on the death of the assessee, under the circumstances referred to in clause (a), shall not be deemed to be the income of the nominee

Conversion into Annuity Plan

(5) For the purposes of this section, the assessee shall be deemed not to have received any amount in the previous year if such amount is used for purchasing an annuity plan in the same previous year.

40% Receipts from New Pension Scheme Exempted by inserting clause 10(12A)  wef AY 2017-18 as under:

(12A) any payment from the National Pension System Trust to an employeeon closure of his account or on his opting out of the pension scheme referred to in section 80CCD, to the extent it does not exceed forty per cent. of the total amount payable to him at the time of such closure or his opting out of the scheme;”;

Explanation.—For the purposes of this section, “salary” includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.

Conclusion: 60% of Withdrawl from recognized provident fund sought to be taxed by Finance Bill 2016 has been dropped and hence shall continue to enjoy tax exempt status. Employer’s contribution to recognized fund in excess of Rs. 150000 was also proposed to be taxed has also been rolled back. Employer’s Contribution to approved superannuation fund has been exempted till Rs. 150000 to bring it in parity with deduction for employees contribution.  In investment in New Pension Scheme also still there is no cap for exemption in absolute terms of monetary limit except percentage limit of 10%. While conversion from new pension scheme to annuity was already tax exempt, the conversion from recognized provident fund and approved superannuation fund to new pension scheme has also been exempted. 40% of amount receivable under new pension scheme and commuted annuity is also proposed to be exempted from tax. Amount received by nominee under new pension scheme on death of the contributor has been provided albeit exemption. Contributors of New Pension scheme already enjoys the benefit of additional deduction of Rs. 50,000/- u/s 80CCD(1B) over  and above normal aggregate deduction of Rs. 150000 u/s 80C  and 80CCD(1).

  1. Time limit for completion of assessments and reassessments. New Section 153 substituted wef 01-06-2016
  2. Assessment u/s 143/144

No order of assessment shall be made under section 143 or section 144 at any time after the expiry of twenty-one months from the end of the assessment year in which the income was first assessable.

  1. Assessment u/s 147

No order of assessment, reassessment or recomputation shall be made under section 147 after the expiry of nine months from the end of the financialyear in which the notice under section 148 was served

  1. Fresh Assessment due to ITAT Order or CIT Order

Ø Notwithstanding anything contained in sub-sections (1) and (2),

Ø an order of fresh assessment in pursuance of an order under section 254 or section 263 or section 264, setting aside or cancelling an assessment,

Ø  may be made at any time before the expiry of nine months from the end of the financial year

Ø in which the order under section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be,

Ø the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner

  1. Assessment in case of Reference to TPO

Ø Notwithstanding anything contained in sub-sections (1), (2) and (3),

Ø where a reference under sub-section (1) of section 92CA is made during the course of the proceeding for the assessment or reassessment,

Ø the period available for completion of assessment or reassessment, as the case may be, under the said sub-sections (1), (2) and (3) shall be extended by twelve months

  1. Appeal Effect

Ø Where effect to an order under section 250 [CITA]or section 254 [ITAT]or section 260 [HC/SC]or section 262[SC] or section 263 or section 264 is to be given by the Assessing Officer, wholly or partly, otherwise than by making a fresh assessment or reassessment,

Ø such effect shall be given within a period of three months from the end of the month in which order under section 250 or section 254 or section 260 or section 262 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be, the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner:

Ø Provided that where it is not possible for the Assessing Officer to give effect to such order within the aforesaid period, for reasons beyond his control, the Principal Commissioner or Commissioner on receipt of such request in writing from the Assessing Officer, if satisfied, may allow an additional

period of six months to give effect to the order

  1. Consequential Assessment

Nothing contained in sub-sections (1) and (2) shall apply to the following classes of assessments, reassessments and recomputation which may, subject to the provisions of sub-sections (3) and (5), be completed

(i)                            where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 250, section 254, section 260, section 262, section 263, or section 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act,

on or before the expiry of twelve months from the end of the month in which such order is received or passed by the Principal Commissioner or Commissioner, as the case may be; or

(ii)                 where, in the case of a firm, an assessment is made on a partner of the firm in consequence of an assessment made on the firm under section 147, on or before the expiry of twelve months from the end of the month in which the assessment order in the case of the firm is passed

As per Explanation 2

Explanation 2.—For the purposes of this section, where, by an order referred to in clause (i) of sub-section (6),—

(a) any income is excluded from the total income of the assessee for an assessment year, then,an assessment of such income for another assessment year shall, for the purposes of section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order; or

(b) any income is excluded from the total income of one person and held to be the income of another person, then, an assessment of such income on such other person shall, for the purposes of section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order, if such other person was given an opportunity of being heard before the said order was passed.

Comments:

  1. i)Section 153(6)(i) may cover following two situations:
  2. a)Direction is given to exclude the income from total income of one person and to include the same income in the hands of some other person.
  3. b)Direction can be given to excude income from total income of assessee in one assessment year and to include the said income in the total income of another assessment year
  4. ii)If fresh assessment is made by order u/s 254, 263, 264, then 153(6) shall not apply and 153(3) shall apply and assessment shall have to be completed with in 9 months from the end of financial year in which order is made. Say if order u/s 254 resulting consequential fresh assessment of other person is received, say on 19th March 2017, while the assessment as per 153(6) can be completed till 31st March 2018 but it is subject to 153(3), hence consequential assessment to be completed till 31st December 2017.

iii)              However if fresh assessment is made due to

HC/SC order or order of any civil court, then assessment u/s

153(6) can be made with in 12 months from the end of month in which order is received.

  1. iv)          In cases where fresh assessment is not required, while 153(5) shall apply to case of assessee for the year subject matter of appeal and appeal effect shall be given in 3 months.  However section 153(6) shall apply to another assessment year of the same assessee or some other person and hence consequential assessment can be made with in 12 months from the end of month in which order is passed/received.
  2. v)                   Section 153(6)(ii) applies where income of the firm is reduced or enhanced resulting in consequential changed in income of partners say on account of section 40(b).
  3. vi)In Old section 153 no time limitation was prescribed for       appeal effect and consequential assessments
  1. Extended time period for Appeal Effect and Consequential Orders receieved /passed before 01-06-2016

Where effect to any order, finding or direction referred to in sub-section (5) or sub-section (6) is to be given by the Assessing Officer, within the time specified in the said sub-sections, and such order has been received or passed, as the case may be, by the income-tax authority specified therein before the 1st day of June, 2016, the Assessing Officer shall give effect to such order, finding or direction, or assess, reassess or recompute the income of the assessee, on or before the 31st day of March, 2017.

  1. Time limit for revived assessments u/s 153A

Notwithstanding anything contained in the foregoing provisions of this section, sub-section (2) of section 153A or sub-section (1) of section 153B, the order of assessment or reassessment, relating to any assessment year, which stands revived under sub-section (2) of section 153A, shall be made within a period of one year from the end of the month of such revival or within the period specified in this section or sub-section (1) of section 153B, whichever is later

  1. New provisions applicable only to orders made after 01-06-2016

The provisions of this section as they stood immediately before the commencement of the Finance Act, 2016, shall apply to and in relation to any order of assessment, reassessment or recomputation made before the 1st day of June, 2016.

Period to be Excluded for Computing Time Limitation for Assessment

As per Explanation 1 to Section 153

(i)                  Change in Jurisdiction

the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be re-heard under the proviso to section 129;

Comments As per Section 129 Whenever in respect of any proceeding under this Act an income-tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercises jurisdiction, the income-tax authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor :

Provided that the assessee concerned may demand that before the proceeding is so continued the previous proceeding or any part thereof be reopened or that before any order of assessment is passed against him, he be reheard.

(ii)                         Stay Order

the period during which the assessment proceeding is stayed by an order or injunction of any court;

(iii)              Cancellation of exemption u/s 10

the period commencing from the date on which the Assessing Officer intimates the Central Government or the prescribed authority, the contravention of the provisions of clause (21) or clause (22B) or clause (23A) or clause (23B) or sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, under clause (i) of the proviso to sub-section (3) of section 143 and ending with the date on which the copy of the order withdrawing the approval or rescinding the notification, as the case may be, under those clauses is received

by the Assessing Officer;

Comments: As per section 143(3) Proviso in case of above associations including hospital or educational institution having receipts more than one crore and approved by authority , contravening the provisions of section exemption u/s 10 shall be denied only if AO has intimated Central Govt/prescribed authority.

(ivSpecial Audit

the period commencing from the date on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and—

(a) ending with the last date on which the assessee is required to furnish a report of such audit under that sub-section; or

(b) where such direction is challenged before a court, ending with the date on which the order setting aside such direction is received by the Principal Commissioner or Commissioner; or

(vValuation

The period commencing from the date on which the Assessing Officer makes a reference to the Valuation Officer under sub-section (1) of section 142A and ending with the date on which the

report of the Valuation Officer is received by the Assessing Officer;

(vi)  Declration to avoid repetative appeal

The period (not exceeding sixty days) commencing from the date on which the Assessing Officer received the declaration under sub-section (1) of section 158A and ending with the date on which the order under sub-section (3) of that section is made by him.

(vii) Application to Settlement Commission

in a case where an application made before the Income-tax Settlement Commission is rejected by it or is not allowed to be proceeded with by it, the period commencing from the date on which an application is made before the Settlement Commission under section 245C and ending with the date on which the order under sub-section (1) of section 245D is received by the Principal

Commissioner or Commissioner under sub-section (2) of that section

(viii) Application for advance Ruling rejected

The period commencing from the date on which an application is made before the Authority for Advance Rulings under sub-section (1) of section 245Q and ending with the date on which the order rejecting the application is received by the Principal Commissioner or Commissioner under sub-section (3) of section 245R; or

(ixAdvance Ruling pronounced

the period commencing from the date on which an application is made before the Authority for Advance Rulings under sub-section (1) of section 245Q and ending with the date on which the advance ruling pronounced by it is received by the Principal Commissioner or Commissioner

under sub-section (7) of section 245R; or

(x)  Time taken for Tax Information Exchange

the period commencing from the date on which a reference or first of the references for exchange of information is made by an authority competent under an agreement referred to in section 90 or section 90A and ending with the date on which the information requested is last received by the Principal Commissioner or Commissioner or a period of one year, whichever is less

(xi) Impermissible Avoidance agreements

The period commencing from the date on which a reference for declaration of an arrangement to be an impermissible avoidance arrangement is received by the Principal Commissioner or Commissioner under sub-section (1) of section 144BA and ending on the date on which a direction under sub-section (3) or sub-section (6) or an order under sub-section (5) of the said section is received by the Assessing Officer

Where after exclusion less than 60 days are left for assessment

Provided that where immediately after the exclusion of the aforesaid period, the period of limitation referred to in sub-sections (1), (2), (3) and sub-section (8) available to the Assessing Officer for making an order of assessment, reassessment or recomputation, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly

For Example:

Return for financial year 2016-17 is filed on 30-09-2016. Notice u/s 143(2) issued on 23-08-2017. On 01-03-2019 special audit is directed.

On 21-05-2019 assessee challenges the direction for special audit and on 30-06-2019, Court quashing  the directin for special audit is received

Now period to be excluded is from 01-03-2019 to 30-06-2019 i.e. 121days . Hence assessment can be made till 30th July [31st March + 121 days] . Since period available for making assessment is 30 days, the assessment can be made till 29th August i.e. 30th June + 60 days

In case of application for Settlement abating u/s 245HA , the period of limitation shall get extended by one year, if the period after exclusion is less than one year.

  1. Increase in TDS Limits wef 01-06-2016:
  2. a)Limit of Rs. 5000/- for Winnings from Horse Races enhanced to Rs. 10,000/- Limit for winning from Lotteries u/s 194B was enhanced to Rs. 10,000/- wef 01-07-2010, hence corresponding increase made in winning from horse races
  3. b)Aggregate Annual Limit of Rs. 75000/- increased to Rs 100000/-. However if during 01-04-2016 to 31-05-2016 work done is more than Rs. 75000/- but less than Rs. 1,00,000/- during 01-04-16 to 31-03-2017, whether TDS required to be deducted ?
  4. c)Monetary Limit of Rs. 20,000/- for Insurance Commission u/s 194D reduced to Rs. 15000/-. TDS rate on Insurance Commission is 5% as per Part II of First Schedule.
  5. d)Monetary Limit for Commission u/s 194H enhanced from Rs. 5000/- to Rs. 15000/- and rate reduced from 10% to 5% to bring parity with Insurance Commission.
  6. e)Monetary Limit for Commission on Lottery Tickets u/s 194G  enhanced from Rs. 1000/- to Rs. 15000/- and rate reduced from 10% to 5% to bring parity with Insurance and other Commission.
  7. f)TDS rate on withdrawl of NSS Deposits reduced from 20% to 10% u/s 194EE.
  8. g)TDS on LIC Maturities exceeding Rs. 1,00,000/- not exempt u/s 10(10D) was charged @2% by Finance Act 2014 wef 01-10-2014 . TDS rate lowered to 1%.
  9. h)TDS @10% for compulsory acquisition of immovable property other than agriculture land where aggregate payments during financial year exceed Rs. 2 lacs now enhanced to Rs 2.50 lacs
  1. Form 15G/15H enabled for rental payments wef 01-06-2016

TDS limit for rent is 1,80,000/- But still there may be cases of assesses having income below exemption limit or having NIL tax. Hence such assesses can also now give declarations  15G/15H.

  1. Penalty Provisions effective from AY 2017-18

270A.

Penalty for Underreported Income

(1) The Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the Course of proceeding under this Act [Inserted by Amending Finance Bill 2016] , direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income.

Circumstances When Income considered to have been underreported

(2) A person shall be considered to have under-reported his income, if—

(a) the income assessed is greater than the income determined in the return processed under clause (a) of sub-section (1) of section 143;

(b) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished;

(c) the income reassessed is greater than the income assessed or reassessed immediately before such reassessment;

(d) the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income determined in the return processed under clause (a) of sub-section (1) of section 143;

(e) the amount of deemed total income assessed as per the provisions of section 115JB or section 115JC is greater than the maximum amount not chargeable to tax, where no return of income has been filed;

(f) Introduced in Loksabha: The amount of deemed total income reassessed u/s 115JB or 115JC is greater that deemed total income assessed or reassessed immediately before such reassessment.

(g) the income assessed or reassessed has the effect of reducing the loss or converting such loss into income.

Amount of Underreporting

(3) The amount of under-reported income shall be,—

First Time Assessment

(i) in a case where income has been assessed for the first time,—

(a) if return has been furnished, the difference between the amount of income assessed and the amount of income determined under clause (a) of sub-section (1) of section 143;

(b) in a case where no return has been furnished,—

(A) the amount of income assessed, in the case of a company, firm or local authority; and

(B) the difference between the amount of income assessed and the maximum amount not chargeable to tax, in a case not covered in item (A);

Reassessment

(iiin any other case, the difference between the amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order:

  1. Whether order side by ITAT u/s 254 shall result first time assessment or fall in any other case ?

MAT

Provided that where under-reported income arises out of determination of deemed total income in accordance with the provisions of section 115JB or section 115JC, the amount of total under-reported income shall be determined in accordance with the following formula—

(A — B) + (C — D)

where,

A = the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions);

B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of under-reported income;

C = the total income assessed as per the provisions contained in section 115JB or section 115JC;

D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of under-reported income:

Provided further that where the amount of under-reported income on any issue is considered both under the provisions contained in section 115JB or section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D.

Explanation.—For the purposes of this section,—

(a) “preceding order” means an order immediately preceding the order during the course of which the penalty under sub-section (1) has been initiated;

(b) in a case where an assessment or reassessment has the effect of reducing the loss declared in the return or converting that loss into income, the amount of under-reported income shall be the difference between the loss claimed and the income or loss, as the case may be, assessed or reassessed.

Intangible Addition

(4) Subject to the provisions of sub-section (6), where the source of any receipt, deposit or investment in any assessment year is claimed to be an amount added to income or deducted while computing loss, as the case may be, in the assessment of such person in any year prior to the assessment year in which such receipt, deposit or investment appears (hereinafter referred to as “preceding year”) and no penalty was levied for such preceding year, then, the under-reported

income shall include such amount as is sufficient to cover such receipt, deposit or investment.

(5) The amount referred to in sub-section (4) shall be deemed to be amount of income under-reported for the preceding year in the following order—

(a) the preceding year immediately before the year in which the receipt, deposit or investment appears, being the first preceding year; and

(b) where the amount added or deducted in the first preceding year is not sufficient to cover the receipt, deposit or investment, the year immediately preceding the first preceding year and so on.

Exclusions from Underreported Income

(6) The under-reported income, for the purposes of this section, shall not include the following, namely:—

(a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner or the Commissioner (Appeals), as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered;

(b) the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom;

(c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or  isallowance;

(d) the amount of under-reported income represented by any addition made in conformity with the arm’s length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and

(e) the amount of undisclosed income referred to in section 271AAB.

Quantum of Penalty

(7) The penalty referred to in sub-section (1) shall be a sum equal to fifty per cent. of the amount of tax payable on under-reported income.

Misreporting

(8) Notwithstanding anything contained in sub-section (6) or sub-section (7), where under-reported income is in consequence of any misreporting thereof by any person, the penalty referred to in sub-section (1) shall be equal to two hundred per cent. of the amount of tax payable on under-reported income.

Circumstances of Mis reportimng

(9) The cases of misreporting of income referred to in sub-section (8) shall be the following, namely:—

(a) misrepresentation or suppression of facts;

(b) failure to record investments in the books of account;

(c) claim of expenditure not substantiated by any evidence;

(d) recording of any false entry in the books of account;

(e) failure to record any receipt in books of account having a bearing on total income; and

(f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.

(10) The tax payable in respect of the under-reported income shall be the amount of tax calculated—

(a) on such income as if it were the total income, in the case of a company, firm or local authority; and

(b) at the rate of thirty per cent., of the amount of under-reported income, in any other case.

As per new section 270A(10) as amended in Finance Bill by Parliamnt

 The tax payable in respect of the under-reported income shall be—

(a) where no return of income has been furnished and the income has been assessed for the first time, the amount of tax calculated on the under-reported income as increased by the maximum amount not chargeable to tax as if it were the total income;
(b) where the total income determined under clause (a) of sub-section (1) of section 143 or assessed, reassessed or recomputed in a preceding order is a loss, the amount of tax calculated on the under-reported income as if it were the total income;
(c) in any other case determined in accordance with the formula—
(X-Y)
where,
X = the amount of tax calculated on the under-reported income as increased by the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order as if it were the total income; and
Y = the amount of tax calculated on the total income determined under clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order.

(11) No addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year.

(12) The penalty referred to in sub-section (1) shall be imposed, by an order in writing, by the Assessing Officer, the Commissioner or Principal Commissioner, or the Commissioner (Appeals), as the case may be.’.

  1. Immunity from Imposition of Penalty

 After section 270A of the Income-tax Act as so inserted, the following section shall be inserted with effect from the 1st day of April, 2017, namely:—

270AA.(1) An assessee may make an application to the Assessing Officerto grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or 276CC, if he fulfils the following conditions, namely:—

(athe tax and interest payable as per the order of assessment or reassessment under sub-section (3) of section 143 or section 147, as the case may be, has been paid within the period specified in such notice of demand; and

(b) no appeal against the order referred to in clause (a) has been filed.

(2) An application referred to in sub-section (1) shall be made within one month from the end of the month in which the order referred to in clause (a) of sub-section (1) has been received and shall be made in such form and verified in such manner as may be prescribed.

(3) The Assessing Officer shall, subject to fulfilment of the conditions specified in sub-section (1) and after the expiry of the period of filing the appeal as specified in clause (b) of sub-section (2) of section 249, grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C, where the proceedings for penalty under section 270A has not been initiated

under the circumstances referred to in sub-section (9) of the said section 270A.

Comments : It means immunity is not available for misreporting of Income. It is available only for underreporting.

(4) The Assessing Officer shall, within a period of one month from the end of the month in which the application under sub-section (1) is received, pass an order accepting or rejecting such application:

Provided that no order rejecting the application shall be passed unless the assessee has been given an opportunity of being heard.

(5) The order made under sub-section (4) shall be final.

Comments : It is not appealable order ?

(6) No appeal under section 246A or an application for revision under section 264 shall be admissible against the order of assessment or reassessment, referred to in clause (a) of sub-section (1), in a case where an order under sub-section (4) has been made accepting the application.”.

  1. The Direct Tax Dispute Resolution Scheme , 2016 applicable from 01-06-2016
  1. a)Introduced vide Chapter X of Finance Act 2016
  2. b)Comprises sections 200 to 211 of Finance Act 2016
  3. c)The Direct Tax Dispute Resolution Scheme Rules notified on 26-05-2016

Disputed Tax: As per section 201(1)(d) “disputed tax” means the tax determined under the Income-tax Act, or the Wealth-tax Act, which is disputed by the assessee or the declarant, as the case may be

“Tax arrear”  means, the amount of tax, interest or penalty determined under the Income-tax Act or the Wealth-tax Act, in respect of which appeal is pending before the Commissioner of Income-tax (Appeals) or the Commissioner of Wealth-tax (Appeals) as on the 29th day of February, 2016

  1. a)Amount Payable under The Scheme [Section 202]

Ø Subject to the provisions of this Scheme,

Ø where a declarant files, on or after the 1st day of June, 2016

Ø but on or before a date to be notified by the Central Government in the Official Gazette,[i.e. 31st December as N/N 34/2016 dated 26-05-2016]

Ø a declaration  to the designated authority [Form 1 in duplicate] in accordance with the provisions of section 203 in respect of

Ø tax arrear, or specified tax,

Ø then, notwithstanding anything contained in the Income-tax Act or the Wealth-tax Act or any other provision of any law for the time being in force,

Ø the amount payable under this Scheme by the declarant shall be as under, namely:––

(I) in case of pending appeal related to tax arrear being––

(a) tax and interest,—

(i) in a case where the disputed tax does not exceed ten lakh rupees, the whole of the disputed tax and the interest on disputed tax till the date of assessment or reassessment, as the case may be; or

(ii) in any other case, the whole of disputed tax, twenty-five per cent. of

the minimum penalty leviable and the interest on disputed tax till the date of

assessment or reassessment, as the case may be;

(b) penalty, twenty-five per cent. of the minimum penalty leviable and the tax and interest payable on the total income finally determined.

Comments :

Disputed Tax <=10 lacs Disputed Tax +

Interest on Disputed Tax up to date of Assessment

Disputed Tax> 10 lacs Disputed Tax +

25% of Minimum penalty leviable

Interest on Disputed Tax up to date of Assessment

[Comments: If AO imposes 200% or 300% penalty u/s 271(1)©, Amount payable as penalty is 25% of 100% only]

Penalty Twenty-five per cent. of the minimum penalty leviable and the tax and interest payable on the total income finally determined.

[Comments : Here interest up date of assessment not mentioned, so, full interest up to date of payment to be paid]

In case of specified tax

Specified Tax means a tax

(i) the determination of which is in consequence of or validated by any

amendment made to the Income-tax Act or the Wealth-tax Act with retrospective effect and relates to a period prior to the date on which the Act amending the Income-tax Act or the Wealth-tax Act, as the case may be, received the assent of the President; and

(ii) a dispute in respect of such tax is pending as on the 29th day of February, 2016;

the amount of such tax so determined

As per Section 206 if Any amount paid in pursuance of a declaration made under section 202 shall not be refundable under any circumstances

  1. b)To Whom Declaration to be made

As per Section 203(1) ,A declaration under section 202 shall be made to the designated authority in such form and verified in such manner as may be prescribed. [ Form 1 in duplicate]

As per S.201(1)(b), designated authority” means an officer not below the rank of a Commissioner of Income-tax and notified by the Principal Chief Commissioner for the purposes of this Scheme;

As per Rule 3(4) of Rules  The designated authority on receipt of declaration shall issue a receipt in acknowledgement thereof.

  1. c)Deemed Withdrawl of appeal before CIT A

As per Section 203(2), Where the declaration is in respect of tax arrear, consequent to such declaration, appeal in respect of the disputed income, disputed wealth and tax arrear pending before the Commissioner of Income-tax (Appeals) or the Commissioner of Wealth-tax (Appeals), as the case may be, shall be deemed to have been withdrawn

  1. d)Determination of Amount payable by Designated Authority S.204(1)

The designated authority shall, within a period of sixty days from the date of

receipt of the declaration, determine the amount payable by the declarant in accordance with the provisions of this Scheme and grant a certificate in such form as may be prescribed, to the declarant setting forth therein the particulars of the tax arrear or the specified tax, as the case may be, and the sum payable after such determination

As per Rule 4, The designated authority shall issue a certificate referred to in sub-section (1) of section 204 in Form-3.

  1. e) Payment of Determined Amount, Intimation and Order

S.204(2)

  • The declarant shall pay the sum determined by the designated authority as per the certificate granted under clause (a) of sub-section (1) within thirty days of the date of receipt of the certificate and
  • intimate the fact of such payment to the designated authority along with proof thereof and
  • The designated authority shall thereupon pass an order stating that the declarant has paid the sum.

As per Rule 5, The detail of payments alongwith proof thereof, made pursuant to the certificate issued by the designated authority shall be furnished by the declarant to the designated authority in Form-4.

As per Rule 6, The order by the designated authority under sub-section (2) of section 204 in respect of tax arrear shall be in Form-5 and in respect of specified tax shall be in Form-6

  1. f) Order is conclusive

S.204(3) Every order passed under sub-section (2), determining the sum payable under this Scheme, shall be conclusive as to the matters stated therein and no matter covered by such order shall be re-opened in any other proceeding under the Income-tax Act or the Wealth-tax Act or under any other law for the time being in force, or as the case may be, under any agreement,  whether for protection of investment or otherwise, entered into by India with any other country or territory outside India

  1. g)Immunity [S.205]
1 Immunity from instituting any proceedings in respect of an offence under the Income-tax Act or the Wealth-tax Act, as the case may be
2 Immunity from imposition or waiver, as the case may be, of penalty under the Income-tax Act or the Wealth-tax Act, as the case may be, in respect of specified tax covered in the declaration under section 202

tax arrear covered in the declaration to the extent the penalty exceeds

the amount of penalty referred to in sub-clause (b) of clause (I) of section 202

3 waiver of interest under the Income-tax Act or the Wealth-tax Act, as the case may be, in respect of specified tax covered in the declaration under the section 202 or tax arrear covered in the declaration to the extent the interest exceeds the amount of interest referred to in sub-clause (a) of clause (I) of section 202
  1. h)Non Application of the Scheme [S.208]

The Dispure Resolution Scheme shall not apply :

1 Relating to an assessment year in respect of which an assessment has been

made under section 153A or 153C of the Income-tax Act or assessment or reassessment for any of the assessment years, in consequence of a search initiated under section 37A or requisition made under section 37B of the Wealth-tax Act if it relates to any tax arrear

2 Relating to an assessment or reassessment in respect of which a survey

conducted under section 133A of the Income-tax Act or section 38A of the Wealth tax Act, has a bearing if it relates to any tax arrear

3 Relating to an assessment year in respect of which prosecution has been

instituted on or before the date of filing of declaration under section 202

4 Relating to any undisclosed income from a source located outside India

or undisclosed asset located outside India;

5 Relating to an assessment or reassessment made on the basis of information received under an agreement referred to in section 90 or section 90A of the Incometax Act, if it relates to any tax arrear
6 Any person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act,1974:[COFEPOSA]

However, if order of detention has been revoked under COFEPOSA or has been set aside by Court of Competent Jurisdiction, the person can avail t8he benefit of this Scheme.

7 In relation to prosecution for any offence punishable under Chapter IX or Chapter XVII of the Indian Penal Code
8 In relation to prosecution for any offence punishable under the Narcotic Drugs and Psychotropic Substances Act, 1985 [NDPS]
9 In relation to prosecution for any offence punishable under Unlawful Activities (Prevention) Act, 1967
10 In relation to prosecution for any offence punishable under Prevention of Corruption Act, 1988;
11 To any person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992;

Conclusion : By Introducing large number of changes in the Income Tax law, the law has been ballooned to an extent that assesses to whom the law applies find it arduous to comply the law. Compliance without understanding of the law often lands assesses and Counsels into soup and then Courts are clogged with Litigation. This article is an attempt to enhance the understanding about changes to held implementation of law.

It is not open to the assessee in appeal to withdraw and/or the CIT(A) to dismiss the appeal on account of non-prosecution of the appeal by the assessee.

Just as it is not open to the Assessing Officer to not complete the assessment by allowing the assessee to withdraw its return of income, it is not open to the assessee in appeal to withdraw and/or the CIT(A) to dismiss the appeal on account of non-prosecution of the appeal by the assessee. – Bombay High Court there fore concluded in Premkumar Arjundas Luthra (HUF) [2016] 69 taxmann.com 407 (Bombay) dtd 25-04-2016

  1. As per Section 250(4), CITA is obliged  to make such further inquiry that he thinks fit or direct the Assessing Officer to make further inquiry and report the result of the same to him
  1. Further Section 250(6) of the Act obliges the CIT(A) to dispose of an appeal in writing after stating the points for determination and then render a decision on each of the points which arise for consideration with reasons in support.
  1. Section 251(1)(a) and (b) of the Act provide that while disposing of appeal the CIT(A) would have the power to confirm, reduce, enhance or annul an assessment and/or penalty.
  1.  Explanation to sub-section (2) of Section 251 of the Act also makes it clear that while considering the appeal, the CIT(A) would be entitled to consider and decide any issue arising in the proceedings before him in appeal filed for its consideration, even if the issue is not raised by the appellant in its appeal before the CIT(A).

The Bombay High Court there fore concluded in Premkumar Arjundas Luthra (HUF) [2016] 69 taxmann.com 407 (Bombay) dtd 25-04-2016 that:

  1. Thus once an assessee files an appeal under Section 246A of the Act, it is not open to him as of right to withdraw or not press the appeal .In fact the CIT(A) is obliged to dispose of the appeal on merits.
  1. In fact with effect from 1st June, 2001 the power of the CIT(A) to set aside the order of the Assessing Officer and restore it to the Assessing Officer for passing a fresh order stands withdrawn. Therefore, it would be noticed that the powers of the CIT(A) is co-terminus with that of the Assessing Officer i.e. he can do all that Assessing Officer could do.
  1. Therefore just as it is not open to the Assessing Officer to not complete the assessment by allowing the assessee to withdraw its return of income, it is not open to the assessee in appeal to withdraw and/or the CIT(A) to dismiss the appeal on account of non-prosecution of the appeal by the assessee.

Determination of Point and Place of Sale in case of Motor Vehicle

[(Tata Engineering and Locomotive (1970) 1 SCC 622] and KTC Automobile 54 PHT 1 (SC)

Manufacturer to Dealer Delivery Order is addressed by Sale office to Stock Yard in incharge

  1. Delivery of motor vehicle from stock yards of automobile manufacturer prior to the issue of allocation letter to the dealer is not appropriation to the contract of sale
  2. It  is when the stock yard incharge  appropriates the requisite number of vehicles to contract of sale out of available stock  by putting down the engine and chasis number in delivery challan, that the goods are appropriated. Till such appropriation it is always open  to the company to allot any vehicle to any dealer or to transfer the vehicle from the stock yard in one state to a stock yard in another state
  3. Dealer is exempted from requirement of registration even though he is in possession o motor vehicle, if he obtains a trade certificate from registering authority of the area. In the trade certificate only class of motor vehicle is mentioned and not the specific particulars of vehicle such as engine number or chasis number. It is permissible for dealer to use motor vehicle covered by trade certificate to use a vehicle for test, repair etc. including proceeding to and from the place of registration.
  1. If the motor vehicle duly covered by insurance and trade certificate of the dealer gets destroyed  during transit from manufacturer to consumer, the liability to pay compensation falls on insurer of buyer who had issued the cover note for insurance [Bombay High Court in Clancy Arcanjia Dias]

Dealer to Customer

  1. Clearly, mere mentioning of engine number and chassis number of motor vehicle in the invoice of sale does not entitle the intending purchaser to appropriate all the goods i.e. the motor vehicle till its possession is or can be lawfully handed over to him by the dealer without violating the statutory provisions governing the motor vehicles.
  2.  Such transfer of possession can take place only when the vehicle reaches the place where the registering authority will be obliged to inspect for the purpose of finding out whether it is roadworthy and register- able motor vehicle and whether its identification marks tally with those given in the sale invoice and Application for registration. The possession can lawfully be handed over to the purchaser at this juncture because law requires the purchaser as an ‘’owner “ to make application registration but at the same time the law prohibits the use of motor vehicle by the owner until it is duly registered by the Registering Authority. Hence, in order to satisfy the requirements of law noticed above, the dealer can deliver the possession and owner can take the possession and present the vehicle for registration only when it reaches the office of Registering Authority
  1. With the handing over of  the possession of a specific motor vehicle just prior to registration, the dealer completes the agreement of sale rendering it a perfected sale. The purchaser as an ‘’ owner’’ under the Motor Vehicles Act is thereafter obliged to obtain certificate of registration which alone entitles him to enjoy the possession of the vehicle in practical terms by enjoying the right to use the vehicle at public places, after meeting the other statutory obligations of the insurance etc.
  2. Hence, technically though the registration of motor vehicle is a post- sale event, the event of sale is closely linked in time with the event of registration.
  1.  Neither the manufacture nor the dealer of a motor vehicle can permit the intended purchaser having an agreement of sale to use the motor vehicle even for taking to it to the registration office in the purview of statutory provisions already noticed. Hence the lawful possession with the right of use is permissible to be given to the intended owner only after reaching the vehicle to the office of registering Authority. Thus seen , in practical terms though sale preceeds the event of registration, in normal circumstances and as the law stands, it is co-terminus with the registration of new motor vehicle.
  1. Article 286(2) of the constitution empowers the parliament to formulate by making law, the principles for determining when a sale or purchase of goods take place in the context of clause (1). As per section 4(2) of the Central Sales Tax Act, in the case of specific or ascertained goods the sale or purchase is deemed to having taking place inside the state where the goods happened to be at the time of making the contract of sale. However, in the case of unascertained or future goods, the sale or purchase shall be deemed to be taken place in the State where the goods happened to be at the time of their appropriation by the seller or buyer, as the case may be.
  1. There can be no difficulty in holding that motor vehicle remains in the category unascertained or future goods till its appropriation to the contract of sale is occasioned by handing over its possession at or near the office of registration authority in deliverable or registrable state.

Hence from manufacturer to dealer, sale takes place when motor vehicle’s engine and chasis number is mentioned on the delivery challan and in case of dealer to consumer sale takes place at or near the ofiice of registration authority where goods in deliverable and registrable state are handed over by dealer to consumer.

 

On the basis of above legal position, it was held in KTC Automobile(supra) that sale takes place in the  state where registration, temporary or permanent,  of vehicle is done and not from where the vehicles are released.

CBDT has confirmed the decision of Supreme Court in TRF Ltd., which says that it is not necessary for assesseeto establish that debt has become irrecoverabie and it is enough if bad debt is written off as irrecoverable in the books of accounts of the assessee.

To mitigate litigation on baddebts, CBDT has asked officials not to file or pursue appeal s on the issue of failure of the assessee to establish that debt has become irrecoverable. CBDT has confirmed the decision of Supreme Court in TRF Ltd., which says that it is not necessary for assesseeto establish that debt has become irrecoverabie and it is enough if bad debt is written off as irrecoverable in the books of accounts of the assessee. [Circular No. 12/2016 dated 30-05-2016]

Rule 31A further amended vide Notification 39/2016 dated 31-05-2016 to provide that for the purpose of TDS on Immovable property Statement cum Challan 26QB to be filed with in 30 days from the end of month in which TDS deducted.

Earlier Rule 31A was  amended vide N/N 30/2012 dated 29-04-2016  w.e.f. 01-06-2016 for TDS return for June to be filed by 31st May, for Sep by 31st October, for December by 31st January, for March by 31st May.

Further  Rule 30 was amended to extend the time period of TDS deposit on transaction of immovable property exceeding Rs 50 lacs from 7 days from the end of month to 30 days from end of month

Now Rule 31A further amended vide Notification 39/2016 dated 31-05-2016 to provide that for the purpose of TDS on Immovable property Statement cum Challan 26QB to be filed with in 30 days from the end of month in which TDS deducted.  Hence period extended from 7 days from the end of month to 30 days from the end of month.

Inordinate delay in release of Judgment

1.     As per Supreme Court in Kanwar Singh vs. Thakur Ji Maharaj , in ordinate delay in itself is sufficient  to set aside the judgment without going into the merits of the case.

  1. Supreme Court in Bhagwan Das Fateh  Chand Baswani held that long delay in releasing the judgment gives rise to unnecessary speculations.  The Court added that :”the party whose appeal is ultimately dismissed may justifiable fear that the arguments raised at the Bar may not have been reflected upon or appreciated by the Court at the time of dictating the Judgment”. Hence the apex Court dismissed the Madras Court Judgments kept reserved for five years.
  2. Supreme Court in Anil Rai vs. State of Bihar (2001) 7 SCC 348 laid down certain guidelines to be observed by High Court and Others
  3. Apex Court in Suheli Leasing and Industry Ltd (2010) 36 PHT 267 held that after the arguments are concluded, an endevour should be made to pronounce the Judgment at earliest and in any case not beyond a period of three months. Keeping it pending for long time sends a wrong signal to the litigants and the society.
  4. In Shiv Sagar Veg Restaurant 176 Taxman 260(Bom) order of ITAT was set aside because there was in ordinate delay of 4 months
  5. Haryana Tax Tribunal in Punj Llods 48 PHT 89(HTT) taking a serious note of inordinate delay set aside the impugned order.

Comments

  1. As per Rule 34(5) of ITAT Rules

 The pronouncement may be in any of the following manners :—

          (a)  The Bench may pronounce the order immediately upon the conclusion of the hearing.

          (b)  In case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date for pronouncement.

          (c)  In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not practicable so to do on the ground of exceptional and extraordinary circumstances of the case, the Bench shall fix a future day for pronouncement of the order, and such date shall not ordinarily be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the notice board.

Observations of ITAT Mumbai in Times Guaranty Ltd.(ITA 1681/M/2007) dtd 15-04-2015 on

Exception and Extraordinary Circumstances “of the case”

“…………..the inference that can be drawn that the relevant factors such as complexity of the matter, number of issues involved, lengthy arguments and discussions involved or the issue being of such importance that it requires more time and efforts, difference of opinion between the adjudicating members on some issue which require more discussion etc. can be safely said to be ‘exceptional and extraordinarily circumstances of the case.’ The factors/ circumstances such as one or both the concerned Member being on leave or his/their non availability for some reason for a particular period , his occupation in some other work of equal importance as may be entrusted by the Hon’ble President of the ITAT or due to the reason that the concerned Member/Members could not spare time because of hearing or in making decision in any other factually lengthy or involving complicated issue or of the nature which require a lot of time to get to the conclusion of the matter would also fall within the purview of the above stated phrase. It cannot be assumed that such exceptional and extraordinarily circumstances of the case would mean happening of any event which is never heard or seen or which is rarely seen to happen

………………………………………….

………………………………………….

Even, if the pronouncement of the order, for certain reasons, could not be done within the period of 90 days, there is a convention to seek the permission of the Hon’ble President for pronouncement of the same even after the period of 90 days. The above said conventions are being followed not under any statutory rules or regulations but because of the own devised procedure/convention of the Tribunal for the sake of quick disposal of the cases.

We may further point out that it is also the practice/convention that if the pronouncement of the matter is delayed for certain reasons for a considerable period, the matter is refixed for clarification so that the relevant points be refreshed in the memory and if so required matter can be heard afresh. This all depends upon the satisfaction of the Bench itself as to whether it is in a position to pronounce the order or that some clarifications are required or that a fresh hearing is required.

Further the word ‘ordinarily’ as mentioned in clause (c) of rule 34(5) is sufficient to explain that the period of further 30 days beyond the period of 60 days from the date of hearing, is not the end point and in special circumstances, order can be pronounced beyond the such further period of 30 days also. Reliance in this respect can be placed on the another decision of the Tribunal in the case of “Gift Holding (P.) Ltd. vs. Income-tax Officer” [2012] 18 taxmann.com 103 (Mum.),

“………..It is pertinent to note that in the case in hand, there are certain developments with respect to the long leave and transfer of one of the Member constitution the Bench who have heard the appeal. It is transpired from the record that one of the Members Shri D.K. Shrivastava, AM, seating in the Beach who heard the appeal of the assessee was transferred from Mumbai Benches to Ahmedabad Benches of this Tribunal. Therefore, it appears that due to transfer of one of the Members of the Bench who have heard the appeal, there exists some extra ordinary circumstances which lead to the delay in pronouncement of the order. In the absence of any tangible material, glaring facts and circumstances of the case to show that by the reason of delay in pronouncement of the order, the Bench has ignored or failed to consider material facts or legal point of argument of the assessee. Merely because, there is a delay due to some exceptional circumstances, would not render the decision of the Tribunal as illegal or void. Therefore, in our view when the assessee has not brought on record anything to establish prima facie that any material fact or contention was left without considering by the Tribunal while passing the impugned order. Accordingly, we do not agree with the contentions of the learned counsel for the assessee on this point, the same is rejected.

[Excerpt from Article Published in 54PHT(J) 1] and Comments added from Angle of ITAT Rules]

Method of calculation under Rule 8D regarding computation of exempt expenditure against exempt Income changed vide Notification dated and effective from 02-06-2016

Method of calculation under Rule 8D regarding computation of exempt expenditure against exempt Income changed vide Notification dated and effective from 02-06-2016. As per Old Rule 8D, the disallowance of exempt expenditure was required to be made for i) Directly relatable expenditure  +   ii) Interest x [Avg Investments yelding exempt Income/ Avg Total Assets] + ½% of Avg. Investments yielding exempt Income

However as per New Rule 8D, the disallowance of exempt expenditure is required to be made for i) Directly relatable expenditure  +   1%  of Avg. Investments yielding exempt Income [Here Avg Investments = Annual Avg of Monthly Avgs of Opg, and Clg. Balances]

Also disallowance shall not exceed the total expenditure claimed by the assessee.

Changes Made

a) Hence  no, disallowance now required for not directly relatable interest.

b) Further the rate of ½% on Avg Investments increased to 1%.

c) Method of Calculating Average Investment changed

d) Disallowance not to exceed the total expenditure claimed by the assessee.

The above change is in consonance with Para 167 in the Budget Speech of FM which said that:

“Another issue which has led to considerable number of disputes is quantification of disallowance of expenditure relatable to exempt income in terms of Section 14A of the Income Tax Act. I propose to rationalize the formula in Rule 8D governing such quantification. The said Rule is being amended to provide that disallowance will be limited to 1% of the average monthly value of investments yielding exempt income, but not exceeding the actual expenditure claimed

CBDT releases FAQ on TCS vide Circular No. 22/2016 dtd 08-06-2016

1.     TCS on Motor Vehicles exceeding 10 lacs is applicable to retail sale to customers only .

  1. TCS on motor vehicles exceeding 10 lacs is not applicable to transactions between manufacturer to dealer/distributors
  2. TCS @1% is not limited to luxury cars and includes all motor vehicles
  3. Sale to Government, UN Instituions, Foreign Embassies etc. are not exigible to TCS
  4. TCS on motor vehicle is applicable on single transactions exceeding ten lacs and aggregate of transactions not to be done for the purpose of threshold limit of 10 lacs.
  5. TCS to be collected on the booking/advance also @ 1%.
  6. If Motor Vehicle for Rs. 20 lacs is sold and booking advance is taken at Rs. 5 lacs and later Rs. 15 lacs is taken, then first collect 1% on 5 lacs and later 1% on 15 lacs.
  7. An Individual who is liable to Audit u/s 44AB in immediately preceeding financial year is liable for collection of TCS [As per S.206C Explanation ©, An individual or HUF covered by 44AB(a)/(b) is only liable for TCS , which means that if in the case of Individual or HUF turnover is lesser than one crore in case of business or Rs 25 lacs in case of profession, TCS is not applicable]
  8. TCS on motor vehicle is independent of the mode of payment i.e. TCS is applicable whether payment is made in cash or cheque.

If Motor vehicle is sold for more than 10 lacs, then TCS is applicable u/s 206C(1F), but if motor vehicle is sold for lesser than 10 lacs, and payment is received in cash then TCS shall be applicable u/s 206C(1D). Section 206C(1F) and S.206C(1D) can not apply simultaneously

Inter Trust Charity between sister societies where both societies exchanged donation

Comments:

  1. 13(3)(b) covers a person whose total contribution up to end of financial year is more than 50,000/-. Since both trusts exchanged more than Rs. 50,000/-, both stood covered by 13(3)(b). Further as per S.13(1)(c), if any part of income or property of the trust is used or applied for the benefit of person covered by 13(3), exemption u/s 11 is not available . Further as per 12AA(4) introduced by Finance Act 2014, registration may be cancelled and as per S.115TD introduced by Finance Act 2016, tax on MMR is payable on aggregate market value of assets less liabilities.

Held by ITAT that:

  1. Explanation below Section 11(2) only prohibits inter trust charity out of income accumulated u/s 11(2) and not out of current income
  2. As per 2nd proviso to S.11(3A), payment or credit of money to trust registered u/s 12AA or Institution u/s 10(23C)(iv),(v),(vi),(via) is permitted in case of dissolution of the trust in the year in which trust or institution is dissolved.
  3. There is no apparent bar on payment or credit to such other organizations out of previous year’s income subject to the provisions of section
  4. When the donation given by one trust to another trust out of current year’s income is permitted in section 11 of the Act as an application of income, the same cannot be curtailed by another provision of the Act (i.e section 13(1)(c ) (ii) read with section 13(3) of the Act) as it would defeat the very purpose of such provision.
  5. It is not the case of the revenue that the funds of the trust have been applied /diverted for the private benefit of the trustees, settlors or any individuals /relatives. This is what is the true intention of section 13(1)(c ) of the Act.
  6. In the instant case, it is a case of simple donation by one public charitable trust to another public charitable trust, wherein no individual could hold any substantial interest.
  7. In view of the above findings, we hold that the payment of donation by assessee trust to another registered public charitable trust is not in violation of section 13(1)(c) of the Act as the said payment is not made for the benefit of any person either directly or indirectly referred to in section 13(3) of the Act.

[St. Joseph’s Convent Chandannagar Educational Society [2016] 70 taxmann.com 21 (Kolkata – Trib.)

TDS on salary to Nuns surrendering their salary to Church

1.     A  circular was issued by the Government in Circular No.1 of 1944 V.No.26(43)-IT/43, dated 24.01.1944 in which the liability to tax on the fees received by the missionaries and subsequently made over to the society had been considered.

  1. This Circular has been considered subsequently by the Central Board of Direct Taxes in the year 1977 in their proceedings dated 5th December, 1977. In that instructions, the question for consideration was whether the fees or other earnings when the same is made over to the Congregation to which they belong under the rules thereof is liable to be taxed. The Central Board of Taxes, has concluded as follows:

The Board have examined this issue and have decided that since the fees received by the missionaries are to be made over to the congregation concerned there is an over-riding title to the fees which would entitle the missionaries to exemption from payment of tax. Hence such fees of earning are not taxable in their hands.

  1. When the Act came into force in 1971 as early as in 1963, the Government of India in a communication issued by the Commissioner of Income Tax, Bombay City in reference No.Dat/284 (287)/60, which is addressed to one of the Solicitors in Bombay, it has considered the claim made by the Rev. Fr. Valeria Godinho regarding exemption from payment of income tax for the Priests of the Archdiocese, Bombay. In that letter, it has been stated as follows:

It has been decided in the case of Rev.Fr.Valeria Godinho that the Departmental appeals  filed be withdrawn. Incase where amount received by Priests as salary are subject to an overriding title by their conditions and rules of service, to be passed over to the Church authorities (whose income is exempt from tax) such amounts will not be liable to be taxed.

  1. Commissioner of Income Tax, Madras, in his proceedings in R.C.No.230..11(75), dated 30.01.1969 addressed to the Secretary, Madras Catholic Educational Council on the representation of the council for exemption of the emoluments drown by the Priests or Nuns employed in the religious educational institutions has categorically stated as follows:

It has been stated that in cases where the amount received by Priests and

Religious as salary are subject to an overriding title by their conditions, and

rules and service to be passed over to the chruch authorities (whose income

is exempted from tax) such amounts will not be liable to be taxed.

Madras High Court therefore Concluded that no TDS is required to be deducted on salary paid to Nuns and Priests subject to their providing affidavit that entire salary as a teacher/non teaching staff or in any other capacity has to be paid by the Government directly to the Congregation or Diocese, to which he belong. Also state that also state that all the payment made by the Government directly to the Congregation or Diocese is in full satisfaction of their salary as claimed by the schools and they will not have any further claim insofar as the payment of salary to them as it is directly made to the Congregation or Diocese. As according to them, it is the ultimate, final beneficiary which is receiving the salary

Madras High Court in Correspondent  v.Central Board of Direct Taxes 03-03-2016 [2016] 70 taxmann.com 85 (Madras)

Power to arrest wilfull defaulter to be used sparingly: CBDT 21-06-2016

Clarified by CBDT vide press release dated 21-06-2016 that no statement regarding arrest of willful defaulters has been issued. CBDT also expressed that though the provisions for arrest and detention by the Tax Recovery Officers in respect of the non-compliant tax defaulters are contained in the Income-tax Act, these are used extremely sparingly

Lokpal inquiry into corruption complaint where Central Govt grant is more than 1 crore: Notification dtd 20-06-2016

Under Lok pal and Lokayaukta Act 2013, as per section 14(1)(g) the Lokpal shall inquire any allegation of corruption made in a complaint in respect of any person who is or has been a director, manager, secretary or other officer of every other society or association of persons or trust (whether registered under any law for the time being in force or not), by whatever name called, wholly or partly financed by the Government and the annual income of which exceeds such amount as the Central Government may, by notification, specify;

It has been notified vide Notification dated 20-06-2016 issued by Ministry of Personnel, Public Grievances and Pensions that inquiry into allegations of corruption in above cases to be made only where grants or financial assistance given by the Central Government exceeds Rs. 1 crores. Income other than Central Government Grants not to be considered for conducting such inquiry. Even state government grant not covered.

The moot point is whether Invocation of section 13(1)(c) of Income Tax Act i.e. use or application of any part of income or assets of the trust for the benefit of trustee etc. might invite such enquiry

Circular dated 24-06-2016 sets at Knot speculations on TCS

Yet another circular on TCS [23/2016 dtd 24-06-2016] sets at Knot all speculations regarding TCS 1. Goods Sold for Rs. 5 lac. Cheque Received Rs. 4 lacs. Cash Received Rs. 1 lakh. Since cash received lesser than 2 lacs, no TCS applicable 2. Goods Sold for Rs. 5 lac. Cheque Received Rs.2 lacs. Cash Received Rs.3 lakh. TCS shall apply on Rs. 3 lacs only and not whole of consideration of Rs. 5 lacs

Seperate dates for furnishing of Form 15G/15H: Notification dtd 09-06-2016

Separate date for furnishing 15G/15H announced by CBDT vide Notification dated 09-06-2016

Earlier, TDS return for June was required to be filed by 31st July, for Sep by 31st October, for December by 31st January, for March by 31st May as per N/N 30/2012 dtd. 29-04-2016.
No separate date was prescribed for 15G/15H.However now, separate dates for uploading 15G/15H have been provided vide Notification dated 09-06-2016.
Due Date for QE 30 June shall be 15th July, for 30th Sep shall be 15th October, for 31st December shall be 15th January and for 31st March it shall be 30th April
It means for first three quarters 15G/15H to be filed 16 days ahead of due date for TDS return and for last quarter a month ahead for TDS return, thus maintaining a time distance between the TDS return and 15G/15H so that information regarding 15G/15H may be timely submitted in TDS return.
Further in respect of 15G/15H for 3rd and 4th Quarter of 2015-16 not filed electronically can be so e-filed up to 30-06-2016

Rule 128 for foreign Tax Credit inserted on 27-06-2016

Rule for tax credit of foreign taxes. Rule 128 inserted vide Notification dated 27-06-2016

  1. Rule is applicable to resident assesses only.
  2. Credit to be allowed for foreign taxes.
  3. Credit of only those foreign taxes are allowed which are paid in country with which India has DTAA or TIEA.
  4. Credit of Foreign taxes to be allowed only if they have been paid whether  by way of tax deduction or otherwise
  5. Credit to be allowed by converting foreign tax into Indian Currency  at TT buying rate on last day of month immediately preceeding the month in which tax has been paid or deducted.
  6. Credit shall be allowed to the extent of Income corresponding to tax is offered to tax in India
  7. Where income on which foreign taxes are paid is reflected in multiple years, credit of taxes shall be allowed proportionately.
  8. Credit of foreign taxes can be adjusted against tax , surcharge and cess payable under the Act
  9. Credit of foreign taxes can not be adjusted against interest, fee or penalty.
  10. Where the levy of foreign tax is disputed by the assessee, no credit of foreign taxes to be allowed
  11. a) Where dispute is finally setteled, credit of foreign tax can be allowed if With in six months from the end of month in which dispute is finally settled:
  12. b) Assessee furnishes evidence of settlement of dispute and
  13. c) Assessee also furnishes evidence that liability for payment of foreign taxes has been discharged by him  and
  14. d) Assessee furnishes an undertaking that no refund directly or indirectly has been claimed or shall be claimed in respect of such amount
  15. Credit of tax to be computed by aggregating taxes paid for each source of income from a particular country.
  16. Credit shall be allowed at lower of the tax payable under the Act and foreign tax
  17. Where foreign tax paid is more than payable under DTAA or tax relief, then excess shall be ignored.
  18. Where income of resident assessee is computed under special provisions u/s 115JB or S.115JC, credit of foreign tax shall be allowed against MAT /AMT as it allowable against tax payable under  normal provisions.
  19. Following document to be furnished for availing credit of foreign taxes:
  20. a) Statement in F. 67 specifying detail of income from foreign country and foreign taxes claimed
  21. b) Certificate from tax authority of foreign country specifying the nature of income and tax deducted/paid  OR  Such certificate from deductor or Self Signed Certificate [In case of self signed certificate , the certificate to accompany an acknowledgement of online payment or bank counter foil or challan for payment of tax, where payment has been made the assessee  and proof of tax deduction]
  22. Documents/Certificate regarding foreign taxes to be furnished before due date of furnishing of return u/s 139(1).

Relaxation to Non residents not havig PAN from 20% TDS u/s 206AA:Rule 37BC NN dtd24-06-2016

Finance Act 2016 had amended Section 206AA(7) to provide that higher rate of TDS u/s 206AA shall not apply to payments made to non residents not having PAN  subject to certain conditions

The Conditions have now been specified by incorporating Rule 37BC which provides as under:

  1. Relaxation u/s 206AA(7) to apply to  payments in the nature of interest, royalty, fees for technical services and payments on transfer of any capital asset
  2. Deductee to file following details/documents
  3. a) Name, Email id, Contact No.
  4. b) address in the country or specified territory outside India of which the deductee is a resident
  5. c) Tax Residency Certificate from foreign government, if the laws of that government provide for issuance of such certificate
  6. d) Tax Identificaton Number (TIN)of resident foreign country or if TIN is not available, Unique ID No. of resident foreign country

Procedure for online submission of TDS return through incometaxindiaefiling.gov.in provided by CBDT vide N/N 11/2016 dated 22-06-2016

  1. Get registered with your TAN on the site
  2. FVU file to be uploaded as zip file.
  3. Statement can be filed through DSC using DSC Management Utility or can be filed using EVC
  4. Submit TDS return by logging in through TAN. Then Go to TDS-Upload TDS. Then upload Zip file along with signature file discussed above
  5. On being uploaded the status shall be shown as “uploaded”. Uploaded file shall be accepted or rejected in 24 hours. Staus can be checked at TDS- View filed TDS. Rejection reasons shall be provided along rejected file

It is not open to the tribunal itself to raise a ground or permit the party who has not appealed to raise a ground, which will work adversely to the appellant

Old and Gold Rule of Law reiterated by Calcutta High Court in Sheo Kumar Mishra [2016] 70 taxmann.com 375 (Calcutta) FEBRUARY 26, 2016 that In the absence of an appeal or cross-objections by the department against the order in dispute, the Appellate Tribunal will have no jurisdiction or power to enhance the assessment. Under Section 251, CIT A has power to enhance the assessment but u/s 253 Tribunal does not have the power to enhance the enhancement. it is not open to the Tribunal itself to raise a ground or permit the party, who has not appealed, to raise a ground, which will work adversely to the appellant

 

Facts and Decision

The AO had treated  excess claim of certain transportation expense  amounting to Rs2.02 crores  as undisclosed Income of the assesse. He also opined that the assessee had shown bogus expenditures and bogus creditors, the peak credit whereof was Rs. 1.59 crores. He, however, did not treat said amount as undisclosed income on ground that said amount was less than the amount of excess claim of transportation charges and, therefore, no separate addition was made on this account. CIT A upheld order of AO

The Tribunal reversed addition of Rs. 2.02 crores on ground that said charges were already accounted for by the assessee in its account books and, therefore, could not be taxed. The Tribunal, however, confirmed addition of Rs. 1.59 crores on account of bogus expenditures

  Held by High Court that :It was not open to the Tribunal to confirm the addition of the sum of Rs. 1.59 crores because no such addition was made. In the absence of any such addition, there was no basis for the Tribunal to confirm the same. This addition was made by the Tribunal for the first time which the Tribunal could not have done.

The assessee did not raise the issue before the Tribunal of any addition of a sum of Rs. 1.59 crores because there was no addition of the sum of Rs. 1.59 crores or any part thereof. The assessee attempted to demonstrate the fallacy in the finding arrived at by the Assessing Officer by holding at one place that there was an undisclosed income of Rs. 2.02 crores and at another place by holding that there was an undisclosed income of Rs. 1.59 crores. When the Assessing Officer had not made the addition of Rs. 1.59 crores, the assessee had no occasion to challenge the same. When the assessee carried the matter to the Commissioner (Appeals), the latter, without anything more, could have enhanced the addition. But the Commissioner (Appeals) did not do so. He merely confirmed the order of the Assessing Officer. Therefore, the subject matter of challenge before the Tribunal was the addition of Rs. 2.02 crores. The Tribunal could either have upheld the same or could have set aside the same. The Tribunal chose to set aside that addition. The matter should therefore have come to an end in the absence of any cross objection by the revenue.

References:

  1. State of Kerala v. Vijaya Stores [1979] 116 ITR 15 (SC)
  2. Motor Union Insurance Co. Ltd. v. CIT [1945] 13 ITR 272,(Bom)
  3. New India Life Assurance Co. Ltd. v. CIT [1957] 31 ITR 844 (Bom)

Division Bench judgment of the Bombay High Court in the case of Motor Union Insurance Co. Ltd. v. CIT [1945] 13 ITR 272, wherein the following views were expressed:

‘Apart from statute, it is elementary that if a party appeals, he is the party who comes before the Appellate Tribunal to redress a grievance alleged by him. If the other side has any grievance, he has a right to file a cross-appeal or cross-objections. But if no such thing is done, the other party, in law, is deemed to be satisfied with the decision. He is, of course, entitled to support the judgment of the first Officer on any ground open to him, but he is not entitled to raise a ground so as to work adversely to the appellant and in his favour. Apart from that, the section, in our opinion, does not permit the course adopted by the Tribunal in this case. Under S. 31, when the Legislature thought of giving power to the Appellate Assistant Commissioner to enhance the assessment, it has in terms enacted that. In our opinion, that fact is against the contention that the words of S. 33(4) are wide enough to include a power of enhancement, without an appeal by the Commissioner. The, word “thereon” used in S. 33(4) only means “on the appeal,” which must mean on the grounds raised in the appeal. Read in that way, the sub-section only gives power to the Appellate Tribunal to give its decision and pass orders in respect of all grounds urged (which must be on behalf of the appellant) in respect of the decision, appealed against. In deciding those grounds it can pass appropriate orders. But, in our opinion, it is not open to the Tribunal itself to raise a ground or permit the party, who has not appealed, to raise a ground, which will work adversely to the appellant.’

The judicial principle pressed into service by the Division Bench of the Bombay High Court was later followed by another Division Bench of the Bombay High Court in the case of New India Life Assurance Co. Ltd. v. CIT [1957] 31 ITR 844, and the same view was also endorsed by the Apex Court in the case of State of Kerala v. Vijaya Stores [1979] 116 ITR 15. Their Lordships were considering the question in connection with the powers of the Sales Tax Appellate Tribunal which was similar to the provisions of section 33 of the Income Tax Act of 1922 and this is what Their Lordships observed:

‘The normal rule that a party not appealing from a decision must be deemed to be satisfied with the decision, must be taken to have acquiesced therein and be bound by it, and, therefore, cannot seek relief against a rival party in an appeal preferred by the latter, has not been deviated from in sub-s. (4)(a)(i) above. In other words, in the absence of an appeal or cross-objections by the department against the AAC’s order the Appellate Tribunal will have no jurisdiction or power to enhance the assessment. Further, to accept the construction placed by the counsel for the appellant on sub-s. (4)(a)(i) would be really rendering sub-s. (2) of s. 39 otiose, for if in an appeal preferred by the assessee against the AAC’s order, the Tribunal would have the power to enhance the assessment, a provision for cross-objections by the department was really unnecessary. Having regard to the entire scheme of s. 39, therefore, it is clear that on a true and proper construction of sub-s. (4)(a)(i) of s. 39 the Tribunal has no jurisdiction or power to enhance the assessment in the absence of an appeal or cross-objections by the department. It is true that the two Bombay decisions reported in[1945] 13 ITR 272 and [1957] 31 ITR 844, on which the High Court has relied, have been rendered in relation to s.33(4)of the Indian I.T. Act, 1922, but, in our View, the said provision of I.T. Act is in pari malaria with the provision of s. 39(4) of the Kerala General Sales Tax Act, 1963. Moreover, the Bombay High Court has pointed out in those decisions that s. 33(4) merely enacted what was the elementary principle to be found in the Civil Procedure Code that the respondent who has neither preferred his own appeal nor filed cross-objections in the appeal preferred by the appellant, must be deemed to be satisfied with the decision of the lower authority and he will not be entitled to seek relief against a rival party in an appeal preferred by the latter. In the first mentioned case, the elementary principle is stated at page 282 of the report thus:

 

“Apart from statute, it is elementary that if a party appeals, he is the party who comes before the Appellate Tribunal to redress a grievance alleged by him. If the other side has any grievance, he has a right to file a cross-appeal or cross-objections. But, if no such thing is done, the other party, in law, is deemed to be satisfied with the decision. He is, of course, entitled to support the judgment of the first officer on any ground open to him, but he is not entitled to raise a ground so as to work adversely to the appellant and in his favour.”‘