Category: Income Tax

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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]

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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.

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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]

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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

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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

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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.)

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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)

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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