Four Imp Verdicts

PCIT vs. Maruti Suzuki India Limited (Supreme Court)

S. 170/ 292BB: A notice issued in the name of the amalgamating entity after amalgamation is void because the amalgamating entity ceases to exist. Participation in the proceedings by the assessee cannot operate as an estoppel against law. This is a substantive illegality and not a procedural violation of the nature adverted to in s. 292B. There is a value which the court must abide by in promoting the interest of certainty in tax litigation. Not doing so will only result in uncertainty and displacement of settled expectations. There is a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made in the expectation of consistency, uniformity and certainty. To detract from those principles is neither expedient nor desirable

PIB on last date to claim ITC to be the due date of GSTR-3B held illegal by the HC

We wish to update you in respect of the recent ruling by the Hon’ble High Court of Gujarat, which relates to legality and validity of Para 3 of the Press Release dated 18 October 2018, which clarified that the last date to avail Input Tax Credit (ITC) in relation to invoices issued during the period July 2017 to March 2018.   

Proposed TDS provisions in Budget 2019

1. Individuals and HUFs (not liable for tax audit) shall deduct tax from sum payable to resident contractor or professionals

[Applicable from September 1, 2019]

As per current provisions of Section 194C and Section 194J, an individual or HUF, who are not liable to tax audit under Section 44AB, shall not be required to deduct tax under these provisions. Thus, no tax is required to be deducted by an individual or HUF from payment made to contractor or professional in the following cases:

Decoding Budget 2019

Are Proposed Amendments in Finance (No. 2) Bill 2019 identify with a Satiated Elephant satisfied with few mounds of rice or an Insatiate Elephant trampling fields?

IND AS 115 and Real Estate.

The Ministry of Corporate Affairs (MCA) had notified Ind AS 115, "Revenue from Contracts with Customers," on 28 March, 2018, with effect from reporting periods beginning on or after 01 April, 2018. The new accounting standard has replaced the existing revenue recognition requirements.  

Time Limit for 264 revision.

Return filing has now become a technical exercise and knowledge of the legal provisions does not suffice to survive in tax practice. This is for the reason that the returns which are processed in CPC sometimes either bully the taxpayers or puzzle the tax counsels. There are numerous instances where the returns are stated as defective in one communication from CPC and after a week or so we get yet another communication saying that the defect was rectified perhaps suo motu by the CPC. All this is done in-house in CPC without any response from the taxpayer. This has become a perennial irritant for the tax counsels in the recent years.   

PE in India - Proposed Amendments in Rules

Introduction

1. With the view to bring greater clarity and predictability in the matter of profit attribution to Permanent Establishment ("PE") in India, the Central Board of Direct Taxes ("CBDT") has formed a Committee to examine the existing scheme of profit attribution and to recommend the amendments. The Committee has issued a report on 18^th April 2019 proposing the amendments to the rules for profit attribution open for public consultation.This Article discusses in details the various amendments proposed by the Committee, the objective behind the amendments and the critical analyses of the same.   

Possibility of TDS on E Commerce

Introduction

In the last few years, the online marketplaces are on the ascent and the organizations like Amazon, Flipkart, Zomato, Swiggy etc are the banner bearers of online business in India. E-commerce has brought a fundamental change in the way of doing business and the customer engagement across various sectors.   

Taxation of Derivatives

1. This article analyses the recent landmark decision of the Supreme Court in the case of Snowtex Investment Ltd. v. Pr. CIT [2019] 105 taxmann.com 282 (SC) – referred to as "taxpayer".

The actual issue before the Supreme Court was whether the profits earned by the taxpayer from F&O activities (derivatives business) can be set off against the loss on sale of shares? The issue¹ posed before the Supreme Court was "can the profits earned from derivative business be treated as "speculative business" within the meaning of Explanation to section 73 of the Act"?

We have analysed the aforesaid decision without going into a discussion or debate as to whether or not the provisions of the Explanation to section 73 of the Act are ultra-vires the provisions of section 43(5) of the Act?   

June Legal Update

• CCI imposes penalty on chemists and druggist associations in Madhya Pradesh and two pharmaceutical companies
• CCI approves amalgamation of GlaxoSmithKline into Hindustan Unilever Limited
• EC rejects merger between Tata Steel and ThyssenKrupp
• Supreme Court allows CCI appeal against JCB - permits material seized during dawn raid to be used as evidence
• Delhi High Court settles constitutional challenges to the Competition Act, 2002

Key Decisions of 35th GST Council Meeting

• Due date for filing form GSTR 9/ GSTR-9C has been extended from 30 June 2019 to 31 August 2019 for all assesses;
• E-invoicing – it has been decided by council to implement e-invoicing mechanism in a phased manner starting from January 2020 on voluntary basis;
• New-return mechanism – as proposed earlier, new return mechanism to be implemented from October 2019 onwards with filing of GST-ANX-1 form (for outward supplies) and from January 2020 returns in form RET-1 to be made compulsory;
• National anti-profiteering authority tenure has been proposed to be extended for 2 more years;
• Blocking of generation of e-way bills on non-filing of returns to be made effective from 21 August 2019.           

GST Council decision relating to changes in law and procedure

 

The 35th GST Council Meeting was held here today under the chairmanship of Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman. This was the first meeting of the Council after the swearing in of the new Government. The meeting was also attended by Union Minister of State for Finance & Corporate Affairs Shri Anurag Thakur besides Revenue Secretary Shri Ajay Bhushan Pandey and other senior officials of the Ministry of Finance. The GST Council recommended the following changes related to law and procedure:

Income Tax Notice - What steps to be taken ?

After receiving the tax returns, the tax authorities examines the returns filed and if due to any reason they believe that information submitted by an assesee is wrong or incomplete then the assesee is served with a notice demanding justifications/ penalty or any action as stated by the department in the notice so served.

Issues reported in filing Form GSTR 9/9C by the taxpayers: Steps to be taken

This mail is in reference to filing of Form GSTR 9/9C, by a normal taxpayer for financial year 2017-18, which is required to be filed by them on GST Portal latest by 30th June, 2019.  Taxpayers have reported some issues in filing their Form GSTR 9/9C, which are clarified below:

TAX DUE DATE- JUNE 2019

S. No	Due Date	Related to	Compliance to be made
1	07.06.2019	TDS/TCS (Income Tax)	Deposit TDS for payments of Salary, Interest, Commission or Brokerage, Rent, Professional fee, payment to Contractors, etc. during the month of May  2019 Deposit TDS from Salaries deducted during the month of May  2019 Deposit TCS for collections made under section 206C including sale of scrap during the month of May  2019, if any
2	11.06.2019	GSTR 1	Filing of GSTR-1 of May 2019
3	15.06.2019	Income tax	Payment of Advance tax for the Corporate assesses –Amount not less than 15% of advance tax.
4	20.06.2019	GST 3B	Payment of GST and filing of return for the Month of May 2019
5	30.06.2019	Equalisation levy annual return	Filing of equalisation levy annual return for 18-19

EXPECTATIONS OF TAXPAYER FROM FISCAL BUDGET 2019 V.2

Before every budget the taxpayer expects shortfall in their tax payments and accordingly recommend for the same.  However we feel there is  urgent need to improve the tax administration which help to reduce the tax terrorism  in the country.  Given below few pain-points of tax payers from Income tax department (ITD) and suggestions before the  government.

SN	Issue	Recommendation
1	For delay in filing Income tax return & E TDS return by tax payer there is mandatory fine. Also there is big list of penalty for any small error done by tax payer.  However no  such fine or penalty is applicable on ITD for any delay or mistake.	The ITD should be penallised for any delay or mistake.  This will bring equal justice in the law.
2	Tax payer receive 6% interest on any refund but require to pay more than 12% interest for any payment	The rate of interest should be same for all cases.  This will reduce discrimination in the law.
3	To match the tax collection target, ITD makes bogus additions and create fake demand and immediately collect 20% tax payment from tax payer.  This creates hardship among all the taxpayer.	The process of providing 100% stay on tax demand should be provided.  This will reduce the process of bogus addition.
4	There is a misuse of Prosecution provisions in the law .  Wherever there is a question of law, the ITD presume same as fraudulent and invoke penalty and prosecution.  Further ITD also given targets to initiate prosecution which again causing  hardship among all the taxpayer	The use of prosecution provisions should be use only when men’s rea confirmed by Court.
5	The appellate authorities fear to take decisions in the favour of tax payer resulting to accumulation of all issues before High Court.	Necessary directions to be given to appellate authority  to dispose the case in favour of tax payer when there is  question of law and not decided by HC and SC.
6	At present for a taxpayer there are multiple tax officer like PAN AO, TDS AO, TPO, Int. Tax officer and CPC Officer.	The taxpayer should only have one tax officer.
7	At present there are multiple tax portal like Incometaxindia.gov.in, Traces, reporting, tin-nsdl.com.  further  this portal are not user friendly.	There should be one user friendly portal for all need.
8	Other that ITR-1 all the Income tax forms are complex  resulting in errors.	All ITD forms should be such simple that can be filled by any layman.
9	Now a days grievances raised in E Nirvana and CPGRAM were closed without providing any resolution to the tax payer.	There should be a next level of escalation in the case tax payer not satisfied with the closure of his grievance.
10	The ITD AO cannot do anything in case there is a error done by CPC.  Further its very not possible to get any help from CPC which is a faceless department.	The ITD AO should be provided all access in case there is any error done by  CPC.

The above recommendations also applicable for GST wherever applicable.

TDS on Internet

Payment for utilization of bandwidth charges was royalty and TDS was required to be deducted under section 195 and on failure to deduct TDS, the disallowance under section 40(a)(i) was rightly made.

Statement of Financial Transaction (SFT) – Filing Nil statement is mandatory or optional ?

Under Section 285BA of the Income Tax requires specified reporting persons to furnish statement of financial transaction. Rule 114E of the Income Tax Rules, 1962 specifies that the statement of financial transaction required to be furnished under sub-section (1) of section 285BA of the Act shall be furnished in Form No. 61A. SFT has to be filed onlinein Form No. 61A with digital signature on or before 31st of May, immediately following the financial year in which the transaction is registered or recorded.  

General Updates

 
1 Cross Border Updates
a China releases the corporate income tax treatment on perpetual bonds
  China’s Ministry of Finance (MOF) and State Taxation Administration (STA) jointly released MOF/STA PN [2019] No. 64 (PN 64)1 to clarify the corporate income tax (CIT) treatment on perpetual bonds. PN 64 becomes retroactively effective on 1 January 2019

FAQ on Section 195.

Tax Deducted at Source (TDS) is the first way of collection of any taxes. Under Income tax also TDS is the very important tax collection method. TDS under income tax varies based on the nature of transaction and payment by different sections, such as section.194A, 194B, 194C, 194I etc. Out of different TDS sections, section 195 is the very important section which covers the TDS on Non resident payments. Under globalisation scenario the business boundaries are not restricted with one country; it spread over all over the world. Accordingly tax laws are also differing. In our country the TDS on Non resident under section 195 is the unique section to identify the tax rates and deductions on our business transaction with non resident day to day basis. In this article I would like to discuss about the Frequently Asked Questions (FAQ) on TDS on Non resident payments under section 195 of Income tax act.

Q.1 What is the meaning of Non resident?

Ans : To decide the residential status of person under income tax, we need to check the basic and additional conditions and other criteria prescribed under section.6 of the Income tax act, 1961. Only Non resident covered under this section, Resident but not ordinary resident ( RNOR) not covered this section.

Q.2 Who is the Payer under section.195?

Ans: Under section.195 all the payers are covered irrespective of their status like Individual, HUF, and Firm & Corporate etc. So all the payers are responsible to deduct TDS under this section if they are making payment to non resident as per prescribed conditions.

Q.3 Who is the payee under section 195?

Ans: Under this section all the payees are covered whether Individual or Corporate or any other status. So making payment to non resident, not being company or to a foreign company covered under payee if they meet the non resident status under section.6 of the Income tax act.

Q.4 Which payments & expenses are covered under sec.195?

Ans:  As per this section any interest (not being interest referred to in section 194LB or section 194LC or section 194LD) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head “Salaries”).

So following payment not required TDS deduction under this section

a. Interest referred under sections.195LB/LC/LD

b. Salary payment

c.  Dividend payment u/s.115-O

Above payments are exclude under this section from TDS deduction and all other payments are covered under this section. But payment against import is not comes under purview of TDS.

Q.5 What about the Salary & Dividend payment to Non resident?

Ans: Section.195 specifically excludes Salary and dividend payment, Salary payment to non resident covered u/s.192 not under section.195.  Dividend not taxable in the hands of recipient since the dividend distribution tax paid by the declaring company.

Q.6 When to deduct the TDS?

Ans: TDS has to be deducted at the time of credit or payment whichever is earlier. Crediting which means even crediting in suspense account or any other name called considered as deemed to be credited, accordingly the TDS will apply.

Q.7 What is the threshold limit for deduction of TDS?

Ans: Under this section, there is no threshold limit is prescribed, TDS need to be deducted the entire amount without any threshold limit.

Q.8. What is the TDS rate as per section.195?

Ans: Relevant rate in force as per chapter XVIIB.  Incase payee not having valid PAN, then TDS rate  as per rate prescribed chapter XVIIB or 20% whichever is higher will apply. While calculating TDS rates we need to consider the provisions under Double Taxation Avoidance Agreement (DTAA) for the relevant country if any. In case payee fulfilling all the conditions as prescribed in the DTAA then rates as per DTAA will apply. Generally rates under DTAA will be lower than normal TDS rates.

Q.9 What will be the exchange rate for TDS on non resident?

Ans: Exchange rate of Reserve Bank of India ( RBI) on the day which TDS required to be deducted has to be considered

Q. 10 What is DTAA?

Ans: Double Taxation Avoidance Agreement (DTAA) is the agreement between two countries with an objective to avoid taxation on same income in both countries. Presently India has the comprehensive DTAAs with more than 80 countries.

Q.11 What is the conditions & procedure to avail DTAA benefit by NR?

Ans: The Non Resident Deductee has to submit the following documents with deductor to avail the TDS rates as per DTAA

a.      Tax Residency Certificate (TRC)

b.      PAN card copy

c.       Self  declaration

d.     Passport copy & Visa copy (if any)

The above documents need to submit with deductor annual basis every year.

Q.12 What is Tax residency certificate and how & where to get that?

Ans: Tax Residency certificate (TRC) is the certificate duly verified and issued by the Government of the country of which NR claims to be a resident for the purpose of tax.  The TRC certificate can be obtained from the Government or Tax authorities of the particular country of NR.

Q.13  What are the details should contains in TRC?

Ans: A TRC should contain the following details

a.      Name of the assessee

b.      Status of the assessee (Individual, Firm, Company Etc.)

c.       Nationality

d.     Country

e.      Assessee Tax Identification or Unique Identification number of the relevant Country

f.        Residential status for the purpose of tax

g.      Validity Period of the certificate

h.      Address of the applicant

Q. 14 What is the procedure to deduct the TDS u/s.195?

Ans: Remitter as per section.195(6) & rule 37BB need to obtain the form 15CB from a Chartered Accountant while remitting the payment to non resident and need to file the form 15CA ( undertaking by remitter)  in online in the income tax website through their PAN login. After online preparation of form 15CA need to take print out and sign and submit along with form 15CB to their banker/AD to remit the payment. For every remittance, remitter need to above procedure to remit the payment.

Q.15 What details are required to obtain form 15CB certificate from a CA?

Ans: The following details need to be produced with CA for getting form 15 CB

Ø  Agreement and Invoices;

Ø  Payment details

Ø  Correspondences

Ø  Technical Advice – prove bonafides

Ø  Proof of services being rendered in case of Group Company transactions

Ø  E-mails etc regarding pricing in case of Group Company transactions

Ø  Remitting bank details

Ø  Rate of conversion of foreign currency

.16  Whether Non resident eligible for getting Nil deduction certificate?

Ans: Yes.  As per section.195 (3) & Rule 29B, a non resident can make the application to income tax department if he fulfils the following conditions

a.      Assessee has been regularly assessed to tax and has filed all returns of income due as on date of filling of application

b.      Not in default in respect of any tax, interest, penalty or any other sum

c.       Not subject to penalty u/s.271(1)(iii)

d.     Carrying on business in India continuously for at least 5 years and the value of the fixed assets in India exceeds Rs.50 Lakhs

Q.17  What is the validity of the certificate issued for Nil deduction?

Ans: Nil deduction certificate issued under section.195 (3) shall remain in force till the expiary of the certificate or cancel by the A. O whichever is earlier.

Q.18 Whether reimbursement of actual expenses covered u/s.195?

Ans: Since there is no income element in the reimbursement of expenses actually incurred by a non resident or foreign company not covered u/s.195. However the nature of transactions and payments depends upon the situation because different contradictory citations are available to justify for both the applicability and non applicability.

Q.19 What is the status of TDS deducted if after deduction the contract or work is cancelled?

Ans: There is cases that after making advance payment to Non resident or making partial payment to non resident the contract or work is cancelled by both parties. Such as case if any TDS deduction made while making payments, the same can be claimed from the department CIRCULAR NO. 7/2007 DATED 23-10-2007

Q.20 What will be the consequences of non complying of section.195?

Ans: following will be the consequences for non compliance of section 195

a. Disallowance of the particular expenses u/s.40a(i) if the TDS not at all deducted

b. If the TDS is deducted but not paid within time lime then interest @ 1.50 per month or part of the month from the date of deduction to date of deposit (Sec.201 (1A)

c. If the TDS deducted and not paid – Penalty equivalent to the TDS amount  Sec.221

d. TDS deducted short – Penalty equivalent to difference between actual deductible and deducted amount Sec.271C .