• As has been the practice every year, the CBDT notifies annual circular for TDS on salaries for FY 2020-21
• Under the circular, CBDT clarifies procedure and gives examples for the computation of tax deducted at sources on salary under section 192.
• CBDT’s second set of 34 FAQs on Vivad se Vishwas Scheme further clears air on:
• The scope/eligibility (20 FAQs), • Computation (4 FAQs), • Consequences (8 FAQs) and • procedure (2 FAQs);
• Clarifies on availability of the Scheme where appeal / arbitration was pending as on the specified date (i.e., Jan 31st, 2020), but was subsequently disposed off before filing of declaration;
• Further, clarifies that where the application for condonation is filed before the date of issue of this circular, and appeal is admitted before the date of filing of the declaration, “such appeal will be deemed to be pending as on 31st Jan 2020.”;
• Also, issues clarification on Scheme entitlement in respect of cases before AAR and cases where MAP is invoked, states that “in a case where MAP resolution is pending or the assessee has not accepted MAP decision, the related appeal shall be eligible for VsVS.”;
• However, makes it clear that appeal against Trust’s registration denial is not eligible for VsVS;
• Reiterates that UDIN is mandatory for uploading audit report and CA certificates on the e-filing portal.
• Clarifies that uploading various documents is possible without generating UDIN, however, UDIN generated for the form should be updated to avoid the form uploaded being treated as invalid within 15 calendar days of uploading.
• Appraises procedure for correction of errors in a form where UDIN has already been updated.
Clarifies on the impact of revoking UDIN after the form is accepted by the taxpayer.
• As on 14/12/2020- a One-time relaxation to update UDIN has been enabled to update the UDIN of audit report/certificates before 31st December, 2020 to avoid invalidation.
• As a One-time condonation scheme, to regularize the non-generation of UDIN, the ICAI has now allowed CAs to generate UDINs missed for the documents signed between 1st February, 2019 to 31st December, 2020. The scheme will be made available from 1st January, 2021 till 31st January, 2021.
• Pursuant to Delhi HC Order in matter of Yamuna Expressway Industrial Development Authority (YEIDA) dated 23rd August 2020.
• In exercise of the power conferred by section 10(46) of the Income-tax Act, 1961, YEIDA (PAN AAALT0341D) is notified as an authority constituted by the UP State Government, in respect of the specified income arising to that Authority, namely grants, money from the disposal of properties, rentals, interest earned and penalties received various movable or immovable properties.
• In order to cater to the needs of its users/taxpayers, the Income-tax Department releases instructions to download and use the Java utility for generation of XMLs and calculation of tax more accurately.
• With the continuous up gradation brought out in the version of Microsoft Office, Income-tax Department also felt the need to solve the problems faced by users to generate XMLs for filing their return of income in the absence of Microsoft Office 2010 or its later version.
• The IT Department has released a 13-step instruction guide to download the Java utility, then generate the XML and upload the same on the income tax portal.
• Karnataka HC upholds ITAT order; holds that payment made by assessee-company (Abbey India) during AY 2005-06 to its UK Group Company (ANP) towards reimbursement of hotel and travelling expenses incurred on seconded employees is not FTS and thus, not liable for TDS u/s 195;
• ANP entered into a secondment agreement with assessee to facilitate the outsourcing agreement between ANP and a third-party service provider in India and deducted TDS on salary reimbursed exclusive of the hotel and travelling expenditure; Stating that the employees of ANP seconded to India were highly skilled technical personnel, Revenue held that the entire payment made was in the nature of FTS u/s 9(1)(vii) and also under Art. 13 of India-UK DTAA;
• Observes that under the agreement, the seconded employees have to work at such place as the assessee may instruct and function under the control, direction and supervision of the assessee in accordance with the policies, rules and guidelines applicable to the employees of the assessee;
• Remarks that “the assessee for all practical purposes has to be treated as the employer of the seconded employees.”; Opines that there is no obligation in law for deduction of tax at source on payments made for reimbursement of costs incurred by a non-resident enterprise and therefore the amount paid by the assessee was not amenable to withholding u/s 195;
• Holds that the expenses reimbursed to the seconded employees by the assessee is not liable to TDS as not covered under FTS; Distinguishes Delhi HC ruling in Centrica India and states that “the issue of permanent establishment is not involved. Therefore, the aforesaid decision is not applicable to the fact situation of the case.”
• Mumbai ITAT ‘in principle’ upholds assessee’s (an advertisement agency in India) plea that its payments to Facebook Ireland Ltd. during AY 2015-16 towards the cost of advertisements, for its clients cannot be subjected to disallowance u/s. 40(a)(i) for TDS default “when the related expenditure is not claimed as deduction…”;
• ITAT remits the matter for the limited purpose of factual verification of whether “the assessee has indeed accounted for the agency commission on these advertisement revenues, rather than taking entire billing revenues as billing revenues of the assessee and claiming a deduction for the advertisement paid to Facebook Ireland Limited in its profit and loss account.”;
• ITAT takes note of assessee’s claim that it receives and accounts for agency commission of 15% on net billings as revenue with no simultaneous claim of deduction on amount paid to Facebook.
• ITAT adjudicates on TP-adjustment in respect of interest on loan advanced to the AE by assessee for AY 2012-13
• In respect of interest on loan, ITAT notes that assessee advanced money to its sister concern after availing loan from SBI which charged interest at 8.28% and charged the same interest to its AE
• Observes that, however, TPO charged interest at 14.47% and made TP adjustment at Rs.1.50 crores;
• Noting assessee’s submission that the interest rate of 8.28% p.a. is more than LIBOR, ITAT remits the issue back to AO/TPO by stating that “AO has to examine LIBOR rate in the specific transaction under consideration and if it is more than 8.28%, the same is to be charged otherwise the rate at which assessee advanced should be applied”
• Holds share application money transferred along with the equity and preference shares within the group in corporate restructuring as a capital asset;
• Assessee incurred short term and long-term capital loss on the transfer of shares and the right to apply for shares (share application money);
• CIT(A) granted relief to the assessee but limited the set-off of capital loss only to shares and held that share application money was not capital asset u/s 2(14);
• ITAT follows HC ruling and remarks that ‘capital asset’ means property of any kind with the specific exclusion of stock-in-trade, consumables or raw materials held for business purposes. Held ‘property’ has the widest import;
• Holds that share application as transferred/assigned would constitute “advances till the time the shares are allotted and share application money is converted into share capital” and hence capital asset u/s 2(14).
• Assessee was Managing Director of a Company which had taken 2 keyman insurance policies (KIP) on his life. Out of these policies, one policy was assigned in favour of assessee on which he offered surrender value of such policy to tax as perquisite in the year of the assignment itself.
• Subsequently, he encashed the policy at a price higher than the surrendered value. AO made additions for the differential amount to the income of assessee.
• Assessee contended that sum received on encashment of policy was not taxable as it was an ordinary life insurance claim received by assessee which was exempted under Section 10(10D).
• On appeal, the Delhi HC held that the character of Insurance policy does not change after its assignment. Assessee himself had never paid any premium on the said KIP from his resources. Therefore, even if the assignment is endorsed by the Insurance Company, the character of the Policy does not convert into an ordinary Life Insurance Policy in the hands of Assessee.
• Further, based on Section 10(10D) with its Explanation 1, the clear position of law which emerges is that the character of the KIP does not get converted into ordinary Life Insurance Policy despite its assignment and therefore, any benefit accruing to the employee upon its surrender or encashment will be taxable in the hands of the Employee as perquisite.
• Bangalore ITAT allows the deduction of interest u/s 24(b) on loan taken to repay another loan utilised for the construction of a commercial building; Follows CBDT Circular No. 28 dated 20-08-1969 to hold that proviso to Sec. 24(b) only refer to ‘property’.
• Assessee, a developer and builder, declared income from house property after claiming a deduction on interest paid on capital borrowed from Mrs. Kaveri Bai utilised to repay the loan taken from Corporation Bank in the construction business
• ITAT observes that Revenue disallowed interest relying on the third proviso to section 24(b) which provides that furnishing of a certificate from the lender specifying details of interest and capital borrowed is required to grant deduction; ITAT acknowledges Assessee’s contention that the Circular permitting deduction of interest paid on loan taken to repay another loan for computing income from house property issued for erstwhile Sec. 24(1)(vi) holds good under the current provisions
• Sets aside CIT(A) order upholding disallowance made by Revenue on the premise that the Circular was not applicable as it was issued for provisions applicable before 1.4.2002; Extends applicability of the Circular to the current day provisions,
• ITAT highlights that the deduction of interest is allowable irrespective of whether the property under question is residential or commercial; Holds that “The proviso only carves out an exception to section 24(b) of the Act, in so far as it relates to property used for residential purposes and does not deal with or curtail the right of an assessee to get a deduction on interest paid on loans borrowed for the purpose of constructing commercial property”
• Delhi ITAT holds that gift of shares, held as stock-in-trade, by assessee (O.P. Jindal Group Co.) to its sister concern cannot be charged to tax as business income in the absence of any consideration.
• Revenue had held that the gift of shares for AY 2014-15 was a tax evasion scheme since the shares were held as stock in trade, taxed ₹219 Cr (excess of FMV over the cost of such shares) as business income.
• ITAT Observes that only real income can be taxed in the hands of the assessee and there is no scope for taxing any hypothetical income unless law mandates to do so;
• ITAT remarks that ‘As the assessee has gifted the share, there is no accrual of any revenue to the assessee’ viz. there is no cash inflow, receivables or other consideration to the assessee.
• Additional Chief Metropolitan Magistrate (Special Acts), Delhi (ACMM), discharges Pradip Burman of Dabur Group and Ashok Jaipuria (accused-assessees) of offences u/s 277 / 276C of Income-tax Act for allegation of stashing money in the foreign bank accounts made by relying on the base notes received from abroad could not pass the test of prosecutable evidence.
• Prima facie case of tax evasion was made out by Revenue against Mr. Burman and Mr. Jaipuria, using the information received by CBDT from the French and Liechtensteiner authorities, for being beneficiaries of bank accounts in HSBC Bank, Switzerland and LGT Bank, Liechtenstein, respectively.
• Reassessment notices for taxing the undisclosed foreign income and prosecution notices for offence punishable u/s 277 / 276C were issued simultaneously to the accused-assessees that resulted into complaints in which discharge applications were preferred by the accused-assessees.
• ACMM observes that ‘Perusal of the aforesaid documents…reveals that even a slight inference cannot be drawn to the effect that it was the accused who opened the said bank account or that he was having any knowledge that the said bank account is in existence.’
• On Revenue’s stand on the presumption of culpable mental state as per Sec. 278E, ACMM clarifies that ‘without first discharging the burden of establishing the foundational facts, the prosecution cannot take benefit of the statutory presumption of the culpable mental state against an accused.’
• Bangalore ITAT dismisses Revenue’s appeal for AY 2011-12, holds that withholding u/s 195 is not required where annual interest on compulsorily convertible debentures (CCD) was neither paid to the Cypriot investor by Coffee Day Enterprises Ltd. (assessee) and nor was it claimed as an expenditure;
• Rejects Revenue’s contention that interest was accrued on grounds that the Cypriot investor waived the interest; Holds that the term ‘paid’ in the India-Cyprus DTAA “is to be interpreted as intended to be taxed on a paid basis and not on an accrual basis”
• Holds that “the purpose of deduction of tax at source is not to collect a sum which is not a tax levied under the Act, it is to facilitate the collection of tax lawfully leviable under the Act”; Regarding limitation u/s 201, holds that order made after the expiry of seven years from the end of the relevant financial year was not made within a reasonable time.
• Revenue passed Sec. 201 order against assessee for failure to deduct tax at source; CIT(A) upheld Assessee’s appeal that TDS liability did not lie since no interest was paid in the relevant AY, no interest was claimed as expenditure but was deferred and eventually waived by the investor under an agreement.
• Delhi HC sets aside ITAT’s ex-parte order passed in Revenue’s favour and restores the appeal
• HC was satisfied that the assessee was prevented by sufficient cause from appearing before the ITAT when the appeal was taken up for hearing;
• Further holds that “We are also persuaded to allow the petition, in view of the undertaking given by the Petitioner that it would apply under the ‘Vivad Se Vishwas’ Scheme in the event the appeal is restored to its original number.”;
• ITAT dismissed questioning interest of the appellant since it sought adjournments;
• HC remarks that “The presumption of disinterest against the Petitioner is speculative”; and holds that where sufficient cause for nonappearance is shown later, ITAT is obligated to consider the same.
• Delhi HC quashes AO’s order u/s 197 refusing to grant a ‘Nil’ rate TDS certificate to assessee -petitioner (engaged in providing manpower related services), cites non-application of mind by AO;
• At the outset, HC rejects Revenue’s stand that the writ petition was not maintainable: Holds that since the impugned order was passed after approval from CIT on the TRACES portal, it cannot be challenged by way of a revision petition before CIT u/s 264;
• Also, holds that the decision-making process in the present case is contrary to law, cites Rule 28AA (which outlines the procedure for determining the TDS rate for Sec. 197 purposes) and, observes that the AO did not bring on record the computation of TDS rates under Rule 28AA; Remands matter to AO.
• In the interim directs providing the benefit of revised TDS rates along with 25% rebate on account of Covid crisis.
• Assessing Officer (AO) disallowed the assessee’s claim of deduction u/s 54EC and 54F on the view that the amount received was in the nature of compensation for vacating tenancy taxable as Business Income.
• The AO contended a) lack of proof of rent payments; b) loan provided to landlord for construction cannot be considered as the cost of acquisition; c) Even if held as Capital asset transfer, cost of acquisition would be ₹ 0.
• ITAT based its judgement referring the case of A. Gasper vs. CIT (Kol), affirmed by the SC, that the monthly tenancy of the assessee was a capital asset as defined u/s 2(14) of the Income Tax Act.
• Thus, the ITAT favoured the assessee, treating the transfer of tenancy rights as the transfer of capital assets and held loan given was the cost of acquisition of such rights.
• As per Reuters, Cairn Energy has won an international arbitration case against the Indian government over a tax dispute involving $1.6 billion;
• Cairn Energy Plc and its subsidiary Cairn UK Holdings Ltd. (Claimants) win international arbitration on tax dispute with India under India-UK BIPA;
• Arbitral Tribunal rules that India failed to uphold its obligation under the UK-India BIT and international law, and in particular, that it has failed to accord the Claimants’ investments fair and equitable treatment in violation of Article 3(2) of the Treaty;
• Arbitral Tribunal orders India to compensate the claimants for Rs. 8,842 crores due to the breach of treaty obligations.
• Decision was rendered by the permanent court of Arbitration, holding that issue was under its jurisdiction.
• India has challenged the arbitral award before Singapore Court which ruled that tax demand from Vodafone based on a retrospective legislation was in the “breach of the guarantee of fair and equitable treatment” guaranteed under India-Netherlands Bilateral Investment Treaties (BIT)
The income tax department started searches at 14 multiple locations of a group of 3 leading contractors of north eastern India.
Allegations:
• The group have taken accommodation entries in the form of non-genuine unsecured loans from Kolkata based shell companies, that exist only on paper and have no real business and creditworthiness.
• Also learned that one of the groups carries out as high as 50% of its hospitality business in cash and that some of the entities of the groups also engage in purchases of Jewellery in cash.
Findings:
• Unaccounted income of about ₹65 crores of the group was routed
• Jewellery worth ₹9.79 lakh has been seized with sources of over ₹2 crores still under verification
• Cash of Rs 2.95 crore has also been seized
• Overall, undisclosed income to the tune of approximately Rs. 100 crore has been unearthed so far during the Search and Survey operation. Further investigations are under progress
• CBDT introduced “jhatpat processing” for ITR-1 and ITR-4 in cases where there is no arrears, no income discrepancy, no TDS or Challan mismatch, ITR is verified and bank account is validated. Lead time mentioned is 2 days.
• ITAT announces transfer of 7 members with immediate effect on December 11, 2020
• Shri Chandra Poojari – From Cochin to Bangalore
• Shri Kul Bharat – From Indore to Delhi
• Shri Sanjay Garg – From Chandigarh to Kolkata
• Shri Satbeer Singh Godara – From Kolkata to Hyderabad
• Shri Laxmi Prasad Sahu – From Cuttack to Hyderabad
• Shri Ram Lal Negi – From Mumbai to Chandigarh
• Shri Narendra Kumar Choudhry – From Amritsar to Visakhapatnam
• CBDT issues refunds of over Rs 1,45,619 crore to more than 89.29 lakh taxpayers between 1st April 2020, to 08th December 2020.
• Supreme Court to decide the constitutional validity of ICAI’s cap on the number of tax audits a practising CA can conduct.
• OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes releases peer review report, reveals that satisfactory legal framework to implement automatic exchange of information (AEOI) have been put in place with a continuing effort to monitor processes to assess its effectiveness in 100 jurisdictions.
