Taxation of Virtual digital assets.

Finance Act 2022 introduced a tax on virtual digital assets (VDA).

Ø Section 2(47A) provided a definition of VDA.

A. An Asset satisfying all the below conditions

Key-highlights of GST Proposals in Finance Bill 2022

 1.    Time-limit to avail ITC u/s 16(4) extended till 30th November of next year from 30th September.

2.    Additional Condition for availment of ITC u/s 16(2)- ITC can be availed only if the same is not restricted in GSTR-2B.

3.    Composition Tax Payer’s Registration can be cancelled suo-moto if they have not filed their GSTR-4 return beyond 3 months from the due date.

4.    Credit Notes in respect of supply made in a financial year can be issued by 30th November of next financial year (currently allowed till 30th September)

5.    Any rectification of error in GSTR-1/ GSTR-3B is now permitted till 30th November of next financial year (currently allowed till 30th September).

6.    The two-way communication process in filing GST returns is scrapped.

7.    The due date for filing return by non-resident taxable person is prescribed as 13th day of next month

8.    Section 41 of the CGST Act is being substituted so as to do away with the concept of “claim” of ITC on a “provisional” basis.

9.    Section 47 of the CGST Act is being amended so as to provide for levy of late fee for delayed filing of TCS returns.

10.  Section 49 of the CGST Act is being amended so as to provide for restrictions for utilizing the amount available in the electronic credit ledger.

11.  Section 49 of the CGST Act is being amended so as to allow transfer of amount available in E- cash ledger of a registered person to the E- cash ledger of a distinct person;

12.  Section 49 of the CGST Act is being amended so as to provide for prescribing the maximum proportion of output tax liability which may be discharged through the electronic credit ledger

13.  Section 50(3) of the CGST Act is being substituted retrospectively, with effect from the 1st July, 2017, so as to provide for levy of interest on input tax credit wrongly availed and utilized. (Meaning  thereby Interest will not be levied if ITC is not utilized)

14.  Refund claim of any balance in the electronic cash ledger shall be made available.

15.  Rate of Interest u/s 50(3) prescribed as 18% in all cases. 

Budget 2022 - Tax Impact First Cut.

 01.   There is no change in the tax rates.

02.   In order to report any income which has not been offered to tax, a new updated tax return has been introduced which can be filed within 2 years from the end of the relevant assessment year subject to payment of an additional 25% of the total tax & interest liability.   

03.   When for a particular matter, which has been decided in favour of the assessee by the Tribunal or Jurisdictional high court and revenue has challenged the same in case of the same assessee or another assessee before the High Court or Supreme court, then revenue can defer filing of appeal before ITAT and High court in case of other taxpayers for same question of law subject to prior approval of PCIT.  (w.e.f. 1.4.22)  

04.   In order to remove doubts, it has been expressly stated that Cess is not allowable as business expenditure with retrospective effect from 2005.

05.   Rule 8D is applicable even in case when no exempt income is earned & hence disallowance u/s 14A is mandatory.

06.   Penalty for offences under foreign law is not allowable as deduction u/s 37(1).

07.   Conversion of interest liability into debenture is not an allowable expenditure u/s 43B.

08.   Extension of following dates. 

(i)                  Section 115BAB - New manufacturing unit - Date of commencement of operation extended from March 2023 to March 2024.

(ii)                Section 80-IAC - Registered start up unit - Date of Incorporation extended from March 2022 to March 2023.

09.   AMT on co-operative society reduced to 15% from 18.5%.

10.   Amount received from employer towards Covid treatment during FY 2020-21 & FY 2021-22 is not taxable as gift or perquisite.

11.   The definition of specified person has been amended to reduce the period of non-filing from 2 years to 1 year. Thus if vendor has not filed return for 1 year then TDS is to be deducted at double rate.

12.   Introduction of section 194R where TDS required to be deducted @ 10% on benefit or perquisite of a business or profession.

13.   Removal of concessional rate of tax on foreign dividend. It is taxable at normal rate now.

14.   Introduction of maintenance of books of accounts by Charitable Institution. Further, Penalty for passing on unreasonable benefit to Trustee or specified person.

15.   Introduction of process of converting charitable institution to non-charitable.

Reduction of goodwill from books of accounts is deemed transfer

Tax Treatment of Club expenditure.

 Is one-time membership fees paid to be treated as revenue or capital expenditure?  

Answer -  Revenue expenditure.

 ITA NO.3017/MUM/2016 MUM-TRIB order dt. 27/04/2018
  

Is recurring club expenses paid for business purposes allowable as expenses u/s 37(1)? 

Answer  - Yes. 

ITA No. 798/Chd/2019 

Recent Indirect tax judgement.

 

·         Chennai CESTAT in the case of SAKSOFT held that there cannot be any service tax on IT services prior to 2008 by way of classification as manpower service.  However, Madras High court  have different view in the case of Talking Technology services (P) Limited.

 

Recent Income tax Judgement

 

·         Mumbai Tribunal allows tax holiday benefit to an amalgamated company with respect to eligible undertakings vested with it pursuant to an amalgamation post 1 April 2007

 

Treatment of Gain/Loss on Foreign Exchange Fluctuations - Income Tax Perspective

The increase in global trade and dependency on the foreign capital for the purposes of conduct of business in India has led to various transactions with the entities which are situated outside India. The business is conducted with such entities in the foreign currency unlike the Indian currency which is used for conduct of trade with entities located in India. As all are aware that since the rate of foreign currency is market driven, there may always be a difference in the value of foreign currency at which the transaction takes place and at which the transaction gets settled or closed for the purposes of accounting at the Indian entity. The difference arising from such value between the transaction date and settlement/closure date would give raises to gains or losses depending upon the rate of foreign currency on both such dates. The treatment of such foreign exchange (for brevity ‘forex’) gain/loss from the perspective of provisions of Income Tax Act, 1961 (for brevity ‘IT Act’) is the main object of this article. Let us proceed, to understand the treatment of forex gain/loss under the various provisions of IT Act.

IT Department issued format for sharing queries on helpdesk E-mail IDs

 

The Income Tax Department issued Format dated January 24, 2022 for sharing queries on helpdesk E-mail IDs.

 

Sr. No	Information	Details	Help
Details of the Person facing problem
1.	Grievance ID		Mention Grievance ID, if already raised at e-fling portal
2.	Name of the Person		Mention name of the person who can explain the issue, if contacted by helpdesk team
3.	Contact Number of the Person		Mention Contact number of the person who can explain the issue, if contacted by helpdesk team
4.	Email ID of the Person		Mention email ID of the person where the response can be sent
Details of Problem faced
5.	PAN of Taxpayer
6.	User ID at e-filing portal. Of Chartered Accountant	ARCA…….	CA Login ID of CA
7.	AY		Assessment Year or Financial Year. Mention AY or FY or General, if unrelated to Year
8.	Name of the Form	Form 3CA-3CD / Form 3CB-CD/ ITR Form No. (Online) or ITR Form No. (Offline)	Mention Form No. or ITR or functionality in which you are facing issue. ITR (Online) or ITR (Offline)
9.	Details of the Problem faced		Mention detailed descriptio n of the issue being faced by you in filling, filing Form /ITR or using that functionality
10.	Screenshot		Attach screenshots wherever you are facing errors containing error messages
11.	JSON	Attached/ Not Attached	Attach JSON, if relevant (For faster resolution it is advised to attach JSON)

Exemption for ITR filing for senior citizen (Section 194P)

 –

Exemption if:-

- senior citizen above the age of 75 years and resident in previous year;
- pension income and interest income only. Interest income accrued/ earned from the same specified bank in which he / she is receiving his pension;
- Specified Bank includes SBI and other nationalized banks;

Condition:-
Senior Citizen needs to file Form 12BBA to Bank which is a simplified form and they should take an acknowledgement copy for their records. For any deduction being taken under Chapter VI-A then evidence should also be furnished along with this declaration to Bank.

Caution:-
Senior Citizens should obtain Form 16 from the Banks after the year end and within the due date of ITR filing. Kindly note, one should not get confused between Form 16 and Form 16A, if TDS is deducted u/s 194P then Banks should provide Form 16 and not Form 16A.

References:-
Section 194P of Income Tax Act, Notification 98/2021 & Notification 99/2921

Supreme Court further extends the period of limitation in respect of all judicial or quasi­ judicial proceedings

 

The Supreme Court (SC) had taken suo motu cognisance of the challenges faced by litigants due to the COVID-19 pandemic across the country in filing their petitions/applications/suits/appeals/all other proceedings within the period of limitation prescribed under the general law of limitation or under Special Laws (both central and/or state). Therefore, the apex court had ordered that the period of limitation in all proceedings shall stand extended, with effect from 15 March 2020, till further orders, irrespective of the limitation prescribed under any law.

Understand advantages of having Holding/Parent Company abroad

Ø  Asset Protection- One of the most important benefit of creating holding company is to protect your business assets. In today’s world, every business operates in an uncertain environment. There is no surety about the success of business, particularly in start-ups. So, it is beneficial if company create a holding company and carve out assets of the group in such holding company so that in case of bankruptcy like situation, creditors can’t claim on the assets of your holding company. Placing operating companies and the assets they use in separate entities provides a liability shield. The debts of each subsidiary belong to that subsidiary. A creditor of the subsidiary cannot reach the assets of the holding company or another subsidiary.

 

ITAT EMPOWERED TO EXTEND STAY WITHOUT MANDATING PAYMENT

 

 

 

 Recent amendments in Section 254 (2A) of the Income tax Act, 1961 (‘the Act’) by the Finance Act, 2020 seeking to dilute the powers of the ITAT to grant stay of demand by mandating payment of 20% of tax demand, have been subject matter of substantial debate and anxiety amongst the taxpayers, more particularly taxpayers in whose cases ITAT had granted stay prior to the amendment.

In a recent landmark decision, Delhi ITAT vide order dated 15^th February, 2021 in the case of Maruti Suzuki India Limited (‘MSIL’) held that amendments shall only apply to cases where stay is sought and granted for the first time on or after 01.04.2020; in other words, the amendments do not apply qua extension of stay sought after 01.04.2020, where stay was originally granted prior to that date.

Background:

Section 254(2A) of Act statutorily recognizes inherent powers of the ITAT to grant stay against the recovery of outstanding demand arising for a period not exceeding one hundred and eighty days (180 days). In the event that the appeal is not disposed within the period of stay granted, the Tribunal may, on application made by assessee and on being satisfied that the delay in disposal of the appeal is not attributable to the assessee, extend the stay for a further period or periods as it may deem fit, so, however, that the aggregate period of stay originally allowed and the period or periods so extended or allowed do not in any case exceed three hundred and sixty five days (365 days).

Third proviso to section 254(2A) of the Act further provides that if the appeal is not disposed within 365 days, the ITAT is not empowered to grant any further stay even if the delay in disposal of the appeal is not attributable to the assessee. The said third proviso has, however, been read down by the Courts in various cases to hold that ITAT may extend stay granted beyond 365 days, if delay in disposal of the appeal is not attributable to the assessee. (The issue is sub judice before the Supreme Court and likely to be heard soon).

The Finance Act, 2020 with effect from 01.04.2020 amended the first proviso and substituted the existing second proviso to section 254(2A) of the Act to dilute the powers of the ITAT to grant stay. First proviso as amended provides that the ITAT may grant stay subject to the condition that the assessee deposits not less than twenty per cent of the amount of tax, interest, fee, penalty, or any other sum payable or furnishes security of equal amount in respect thereof. The amended second proviso further provides that the ITAT shall not extend stay unless the assessee makes an application and has complied with the conditions referred to in the first proviso and the ITAT is satisfied that delay in disposal of the appeal is not attributable to the assessee.

In the aforesaid background, the issue that has been bothering the taxpayers is whether the amendments shall also cover cases of extension of stay without requiring such payment, where stay was originally granted prior to 1.04.2020?

 

 

 

Facts of MSIL

 

In case of MSIL, stay had been granted in appeals for assessment years 2010-11 to 2015-16, which was also extended from time to time on being satisfied that delay in disposal was not attributable to MSIL. Application was filed for extension of stay, wherein the Revenue, relying upon the above amendments contended that MSIL should be directed to pay 20% of the demand, notwithstanding that the stay originally granted for each of the years did not mandate such a condition.

MSIL’s arguments:

 

On behalf of MSIL, it was argued that amendments made to Section 254(2A) of the Act are applicable only to stay(s) granted for the first time on or after 01.04.2020 and not to mere extension for stay granted before the said date. It was alternatively argued that substantial amount of outstanding demand pertained to issues which stood covered in its favour by orders passed for earlier year(s) and therefore, the same could not, in any case, be recovered² even as per the amended law.

Department’s arguments:

The Department, inter alia, contended that the amendments in the first and second proviso to section 254(2A) of the Act are independent of each other and are applicable even to extension of stay being granted on or after 01.04.2020. It was argued that the law providing for payment of 20% of the demand or furnishing adequate security comes into force at the time of passing order for extension of stay and cannot, therefore, be said to be not applicable, only for the reason that stay was originally granted under the unamended law.

ITAT Decision:

The ITAT held that since majority of the demand was arising on account of issues covered in favour of the assessee, it would be unfair to direct payment thereagainst.

In respect of fresh issues, the ITAT held that the amended provisions are applicable only to stay sought and granted for the first time on or after 01.04.2020 and cannot be applied qua mere extension of stay granted post that date in respect of stay originally granted before 01.04.2020. In coming to the said conclusion, the ITAT agreed with MSIL’s contention that the second proviso requiring compliance of condition for payment of 20% of demand mandated in the first proviso, only applies where stay had originally been sought and granted under the first proviso.

Comments:

The aforesaid decision of Delhi ITAT now brings clarity on the prospective applicability of the amended provisions to stay sought and granted for the first time and not to extension(s) of stay granted before 01.04.2020.  Lot of clarity is, however, still awaited from the judiciary on applicability of amended provisions to fresh stays sought on or after 01.04.2020, viz., whether the amended provisions are mandatory or directory; what kind of security is contemplated by the amended provisions and so on.

Mumbai Tribunal allows tax holiday benefit to an amalgamated company with respect to eligible undertakings vested with it pursuant to an amalgamation post 1 April 2007

 

This Tax Alert summarizes a Mumbai Tribunal decision in the case of Ultratech Cement Ltd.^[1] (Taxpayer) v. DCIT, wherein one of the issues that arose was whether Taxpayer being amalgamated company is entitled to claim tax holiday in respect of profits earned from eligible undertakings which vested with the Taxpayer pursuant to the scheme of amalgamation for residual tax holiday period. If yes, whether the eligibility of the amalgamated company to claim tax holiday was dependent on the specific enabling provision^[2] contained in the Income-tax Act, 1961 (ITL) and consequently whether the withdrawal of such enabling provisions in respect of amalgamation undertaken post 1 April 2007, would result in denial of tax holiday to the amalgamated company.

The Tribunal held that the preponderant judicial view prior to the enabling provision was that the tax holiday benefit was linked to the eligible undertaking and not to the owner. Basis this, the tax holiday benefit was available to the amalgamating company up to the date of amalgamation and to the amalgamated company post the date of amalgamation. The Tribunal, therefore, held that the enabling provision merely clarified what was otherwise implicit in the statute albeit in an explicit manner. Further, the Tribunal held that the enabling provision in fact restricted the eligibility of the amalgamating company to claim tax holiday in the year of amalgamation, but it did not restrict the right of the amalgamated company to claim tax holiday benefit. Hence, the withdrawal of the enabling provision also did not result in denial of tax holiday benefit to the amalgamated company, but it merely restored the position that existed prior to inclusion of the enabling provisions. Hence, the Tribunal held that the Taxpayer being amalgamated company is eligible to claim tax holiday benefit on profits from eligible undertaking taken over under the scheme of amalgamation for the residual period

Changes in GST with effect from January 1, 2022.

Given below  summarizes recent Notifications issued by the Central Board of Indirect Taxes and Customs (CBIC).

Vide Finance Act, 2021, Government had proposed various amendments in the Central Goods and Services Tax Act, 2017 (CGST Act). The amendments relating to following shall be made effective from 1 January 2022:

2B become mandatory.

 

The Govt. decides to give an unwelcome surprise to the industry in terms of increasing the compliance for availing of Credit. With the introduction of Rule 36(4), Govt. restricted availment of credit to the extent of 20% of the Credit reflecting in 2A.

From 01st Jan 2020- 20 became 10
From 01st Jan 2021 - 10 became 5
From 01st Jan 2022 - 5 becomes 0 ?

The amendment proposed vide Section 16(2)(aa) is now being notified w.e.f 01 Jan 2022. The principle of matching will now become a part of the Act itself and there may be changes/amendment in a Rules to bring it on par with the Act. From such time, credit may be restricted only to the extent of what is reflected in GSTR 2A/2B

OECD releases Model Rules on the Pillar Two Global Minimum Tax: First impressions

 The Organisation for Economic Co-operation and Development (OECD) released the Model Rules on the Pillar Two Global Minimum Tax, as approved by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). The Model Rules cover the scope and mechanics of the Income Inclusion Rule and the Undertaxed Payments Rule, collectively referred to as the Global Anti-Base Erosion (GloBE) rules.

Together with the Model Rules, the OECD also released a summary of the rules, an overview of the key operating provisions of the GloBE rules and a Frequently Asked Questions document.

The OECD press release indicates that it expects to release the Commentary relating to the Model Rules and to address the interaction with the United States (US) Global Intangible Low-Taxed Income (GILTI) rules in early 2022. In addition, the Inclusive Framework is developing the model treaty provision for the Subject to Tax Rule, which is the third element of the Pillar Two global minimum tax framework, and a multilateral instrument for its implementation, which the OECD expects to release in the early part of 2022 with a public consultation event on it to be held in March 2022. Finally, the OECD notes the work to be done on development of an implementation framework addressing administration, compliance and coordination matters related to Pillar Two and announces that a public consultation event on the implementation framework will be held in February 2022.

New Labour law

 

The highlights look like this :

1) Minimum Floor Wage is being relooked at. Every State as of now has its own figure but nothing across the country. The MFW was not a mandate earlier which is why it was left to State and Employer to settle but under the new law will be prescribed.

CBIC clarifies on supply of restaurant services through e-commerce operators under GST

 

This Tax Alert summarizes a recent Circular ^[1] issued by the Central Board of Indirect Taxes and Customs (CBIC). The Circular addresses various issues relating to the liability of E-commerce operator (ECO) to pay GST on supply of restaurant services made through it w.e.f. 1 January 2022.

The key clarifications are:

• As ECOs are already registered as supplier of goods or services, there is no requirement to obtain separate registration for payment of tax on restaurant service.
• ECO will be liable to issue invoice and pay GST on any restaurant service supplied through it including by an unregistered person.
• Aggregate turnover of restaurant will include value of supply made through ECO for threshold consideration or any other purpose.
• ECO is not required to reverse input tax credit on account of restaurant services on which it pays tax. Further, the tax liability needs to be discharged in cash only.
• On any supply other than restaurant service, the liability to pay GST continues on the supplier and ECO shall continue to collect tax at source on such supplies.
• ECO may also furnish the details of restaurant supplies in Table 4A (registered customers) or Table 7A(1) (unregistered customers) of GSTR-1.

On the other hand, restaurant will report such supplies in Table 8 of GSTR-1 and Table 3.1(c) of GSTR-3B, for the time being. The said tables deal with nil rated and exempt supply.

^[1] Circular No. 167/23/2021-GST dated 17 December 2021