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Finance Bill 2015 DirectTaxProvisions Analysis Banshi Mehta
Finance Bill 2015 DirectTaxProvisions Analysis Banshi Mehta
Finance Bill 2015 DirectTaxProvisions Analysis Banshi Mehta
INDEX
Chapter
Content
Page no.
Rates of Taxes
1-4
5-7
Business Trusts
8-12
13-14
18-20
21-25
26-33
Penalties
34-40
Other Provisions
41-56
10
Wealth Tax
57
LIST OF ABBREVIATIONS:
Abbreviations
Full Name
Act
AE
Associated Enterprise
AIF
ALP
A.O.
Assessing Officer
AOP
Association of Persons
A.Y.
Assessment Year
BOI
Body of Individuals
CBDT
CIT
Commissioner of Income-tax
CIT(A)
Cl
Clause
Companies Act
DDT
DTAA
EC
Education Cess
EPF
F.B.
F.Y.
Financial Year
FEMA
FII
GAAR
HC
High court
HUF
IIT
ITAT
LIC
MAT
MF
Mutual Fund
NR
Non-resident
PE
Permanent Establishment
PF
Provident Fund
P.Y.
Previous Year
SC
Supreme Court
SDT
SEBI
Sec.
Section
SHEC
SPV
STT
RBI
REIT
Rules
TCS
TDS
TP
Transfer Pricing
u/s
Under section
RATE OF TAX
Upto 2,50,000
Nil
2,50,001 to 5,00,000
10%
5,00,001 to Rs.10,00,000
20%
Above Rs.10,00,001
30%
b) For resident individual, aged 60 years but < 80 years, during P.Y.:
SLAB
RATE OF TAX
Upto Rs.3,00,000
Nil
3,00,001 to 5,00,000
10%
5,00,001 to 10,00,000
20%
Above 10,00,001
30%
RATE OF TAX
Nil
5,00,001 to 10,00,000
20%
Above 10,00,001
30%
RATE OF TAX
Upto 10,000
10%
10,000 to 20,000
20%
Above 20,001
30%
30%
40%
Rate of surcharge
Particulars
Proposed
Existing
< 1 Cr.
Nil
Nil
ii.
> 1 Cr.
12%
10%
7%
5%
ii.
> 10 Cr.
12%
10%
2%
2%
ii.
> 10 Cr.
5%
5%
Proposed
Existing
17.304%
16.995%
distribution
1.5. Section 115BBD: Tax on certain dividends received from foreign companies:
The concessional tax rate benefit on dividends from Foreign Companies u/s 115BBD has not
been proposed to be extended. Thus, the dividend received from foreign company would be
taxable @ 30%. The effective rate will be:
Particulars
Surcharge
Effective
Existing
Surcharge
Tax Rate
1. Domestic
Company
Effective
Tax Rate
having
total income:
i. more than rupees one crore, but
7%
33.063%
5%
16.2225%
12%
34.608%
10%
16.995%
Proposed
Surcharge
Effective
Existing
Surcharge
Tax Rate
Effective
Tax Rate
7%
20.389%
5%
20.008%
12%
21.342%
10%
20.961%
2.2. Tests for determining number of days stay in India, in case of a crew member of a foreign
bound ship who is a citizen of India, shall be laid down in rules to be prescribed. This is with
a view to avoid uncertainties as regards such determination. This amendment is retrospective
w.e.f. A.Y. 2015-16.
2.3. Provisions relating to taxation of transfer of shares of Indian Companies indirectly held by
foreign entities (through another foreign shareholding entity) that were introduced in the 2012
Budget are partially amended to clarify as to when such transfers would be taxable.
2.3.1. Taxability would arise only if the value of the Indian Companys shares held by the
foreign shareholding entity exceeds 10 Crore and such shares represent at least 50%
of the value of all assets owned by the foreign shareholding entity.
2.3.3. Where the shares of Indian Company are not the only assets held by the foreign
shareholding entity, the capital gains taxable in the hands of the transferor would be
determined based on some attribution methodology to be prescribed in Rules.
2.3.4. Such indirect transfers shall not be chargeable to tax in India if the transferor holds
less than 5% stake in the foreign shareholding entity and it does not have any rights
of management or control in the foreign shareholding entity.
2.3.5. If the shares in the foreign shareholding entity are transferred in an amalgamation or
a demerger taking place outside India, such transfer would enjoy exemption from
capital gains subject to certain conditions. Correspondingly, the cost of acquisition
in the hands of the amalgamated /resulting company shall be the cost of acquisition
of previous owner.
2.3.6. Indian entity in which assets are held by the foreign entity is obligated to furnish
details of offshore transactions modifying the ownership control or structure of the
Indian entity.
2.4. Section 9(1)(v) is amended to provide that if an Indian branch of a foreign bank pays interest
to its foreign head office or to any other foreign branch, such interest would be chargeable to
tax in India in the hands of the foreign bank. This is in addition to taxation of the branch profits
in India.
2.5. A foreign established investment fund, that employs a fund manager (not being an employee
of the fund) who is situated in India, shall not be taxed in India on its investment income merely
because the fund manager is situated in India. There are several conditions specified in this
behalf that need to be fulfilled by the fund and by the fund manager to enjoy this exemption.
The fund is required to comply with filing requirements that will be prescribed in Rules.
2.6. Tax on royalty and fees for technical services payable to a non-resident has been reduced from
the present rate of 25% to 10% on gross amount.
2.7. When an employee of the foreign subsidiary of an Indian company who has earned GDRs of
the Indian company under ESOPs, becomes a resident in India and earns dividend on those
GDRs or earns long term capital gains on sale thereof, he enjoys concessional tax treatment
under section 115ACA. This tax regime was introduced when the earlier GDR scheme was in
force, which permitted GDR issue only for listed shares. Under the new GDR scheme, GDRs
can be issued even for unlisted shares. The definition of GDR in section 115ACA is amended
to clarify that the concessional tax treatment will be available only for GDRs issued in respect
of listed shares.
2.8. Income from transfer of securities (being long term capital asset) by Foreign Institutional
Investor (FII) is to be excluded from chargeability of MAT and corresponding expenses are
to be added to book profits u/s 115JB.
2.9. Section 195 is widened to require furnishing of prescribed information regarding foreign
payments irrespective of whether such payments are chargeable to tax or not.
c. Capital Gains:
Capital gains at the time of sale of assets by the Business Trust is taxable in the
hands of the trust under Section 115UA(2) at the applicable rates under Section
111A and 112.
d. Other Income:
Other income of Business Trust is taxed at Maximum Marginal Rate under Section
115UA(2).
payment of STT is not available. Accordingly, when a Unit holder sells his units,
he would be taxed @ 30% on STCG and 20% on LTCG.
3.2. Proposed Amendments:
3.2.1. Definition of Business Trust:
The Securities and Exchange Board of India (SEBI) has notified norms for
regulating;
a. Real Estate Investment trusts (REIT) under the SEBI (Real Estate
Investment Trusts) Regulations (REIT Regulations), 2014 on September 26,
2014;
b. Infrastructure Investment Trusts (InvIT) SEBI (Infrastructure Investment
Trusts) Regulations (InvIT Regulations), 2014 on September 26, 2014;
Before the notification of the aforesaid regulations, business trusts were governed
by SEBI (Alternative Investment Funds) Regulations, 2012.
10
3.3.1. Further, in case of a business trust, being REITs, the income is predominantly in the
nature of rental income. This rental income arises from the assets held directly by
REIT or held by it through an SPV. The rental income received at the level of SPV
gets passed through by way of interest or dividend to the REIT, the rental income
directly received by the REIT is taxable at REIT level and does not get pass through
benefit. Thus, the proposed amendment.
3.3.2. The deferral of capital gains provided to the sponsor of business trust places such a
sponsor at a disadvantageous tax position vis-a vis direct listing of the shares of the
SPV. In case the sponsor holding the shares of the SPV decides to exit through the
Initial Public Offer (IPO) route, then the benefit of concessional tax regime relating
to capital gains arising on transfer of shares subject to levy of STT is available to
him. The tax on short term capital gains (STCG) in such cases is levied @ 15% and
the long term capital gain (LTCG) is exempt under section 10(38) of the Act.
11
However, the benefit of concessional regime is not available to the sponsor at the
time it offloads units of business trust acquired in exchange of its shareholding in
the SPV through Initial offer at the time of listing of business trust on stock
exchange. The said sections are now amended to provide parity.
3.3.3. The lacuna in the provisions of the business trust is now filled in by the proposed
amendments.
12
a.
Income other than Profits and Gains from Business and Profession (PGBP) shall
be exempt in the hands of investment funds by virtue of section 10(23FBA).
b.
Loss under any head of income before giving effect to exemption provision [i.e.
10(23FBA)] shall be carried forward and set-off in accordance with Chapter VI
by the investment fund. Such loss shall be ignored in the hands of unit holders.
13
c.
ii.
d.
Provisions relating to dividend distribution tax (applicable to companies u/s 115O and funds u/s 115-R) shall not apply to income paid by investment fund.
4.2.2. Income in the hands of unit-holders (FB Cl. No.7 and 32)
a. Income accruing or arising to unit holder of investment fund being that proportion
which is in the nature of PGBP shall be exempt in the hands of unit holder by
virtue of section 10(23FBB).
Taxable income would mean Profits and Gains from Business and Profession since income chargeable under other
heads is taxed in the hands of unit holders.
Privileged & Confidential
For Private Circulation only
14
15
other body corporate. Similarly, investment by AIFs can be in entities which can be
a company, firm etc. Pooled investment vehicles (other than hedge funds) engaged
in making passive investments have been accorded pass through in certain tax
jurisdictions. In order to rationalize the taxation of Category-I and Category-II AIFs
(hereafter referred to as investment fund) it is proposed to provide a special tax
regime. The taxation of income of such investment fund and their investors shall be
in accordance with the proposed regime which is applicable to such funds
irrespective of whether they are set up as a trust, company, or limited liability firm
etc.
4.4.2. Under the old provisions, income of VCCs and VCFs from investment in venture
capital undertaking was exempt in the hands of the fund and taxable in the hands of
unit-holdeFurther, if income accruing or arising to the fund during a previous year
was not paid or credited to unit holders in that year, such income was deemed to be
credited to their accounts in the proportion of their entitlement. Therefore, any
distribution by VCC or VCF to unit-holders out of income of the earlier years would
not be taxable in the hands of unit-holders as it has already been taxed in the year of
accrual. Nevertheless, under the proposed provisions, income in the nature of PGBP
shall be exempt in the hands of unit-holders.
4.4.3. As mentioned earlier, under the old provisions, income from investment in venture
capital undertaking was exempt in the hands of VCC or VCF and taxed in the hands
16
17
5.1.1. The existing Section 32(1)(iia) provides that if any new plant or machinery is
acquired and installed by an assessee engaged in the business of manufacture or
production of article or thing, 20% of the actual cost of such machinery or plant shall
be allowed as deduction in addition to the allowable depreciation. Second Proviso to
Section 32(1) states that if the asset is acquired by the assessee in the previous year
and is put to use for the purpose of business or profession for a period less than 180
days in that year, the depreciation in respect of such assets will be restricted to 50%
of the amount of depreciation or such further allowance.
5.1.2. FB proposes to amend the Second Proviso to Sec 32(1) so as to allow the balance
50% of the allowance (including further allowance) in the immediately succeeding
financial year. (FB Cl. 10)
5.1.3. Delhi Tribunal in case of DCIT v. Cosmo Films Ltd. [2012] (139 ITD 628) has held
that the extra depreciation allowable under section 32(1)(iia) is an extra incentive
which has been earned and calculated in the year of acquisition but restricted for that
year to 50% on account of usage in that year. The said earned incentive must be
made available in the subsequent year. Similar view was taken in Apollo Tyres Ltd
v. ACIT (64 SOT 203) (Cochin ITAT) and ACIT v. SIL Investment Ltd. (2012) (54
SOT 54) (Delhi ITAT). FB proposes to confirm this position and avoid the possible
deferment of investment to ensure availing the entire additional allowance.
5.1.4. At the time of separation of Telanagana from Andhra Pradesh, CG had undertaken
to support economic development of the regions in both the resulting states. FB
proposes to expand Sec 32(i)(iia) to allow higher additional depreciation @ 35%
(instead of 20%) in relation to acquisition and installation of new plant and
machinery for setting up of manufacturing units in notified backward area in the
State of Andhra Pradesh and Telangana. (FB Cl. 10)
18
5.2.1. New Section 32 AD provides for deduction of 15% of the actual cost of new assets
acquired and installed by an assessee for setting up an undertaking or enterprise on
or after April 1, 2015 but before April 1, 2020 in a notified backward area in Andhra
Pradesh and Telangana.
5.2.2. If the new plant or machinery in respect of which deduction is claimed is sold or
otherwise transferred (except in connection with the amalgamation or demerger or
re-organisation of business) within a period of 5 years from the date of installation,
the deduction allowed under this section will be taxable as income of the assessee
under the head profits and gains from business and profession in the previous year
in which such new asset is transferred and will be taxable in addition to gains arising
on such transfer.
5.2.3. If the new assets is sold or otherwise transferred in connection with the
amalgamation or demerger or re-organisation within a period of 5 years from the
date of installation, the successor, that is the amalgamated company or the resulting
company, as the case may be, will be entitled to claim the deduction.
5.2.4. The new asset means any new plant and machinery (other than ship or aircraft)
excluding the following:
a) Any plant or machinery which, before its installation by the assessee, was used
by any person either in India or outside India;
b) Any plant and machinery installed in any office premises or any residential
accommodation or guest house;
c) Any office appliances including computer or computer software;
d) Vehicles; and
19
e) Any plant or machinery whose actual cost is wholly allowed as deduction (by
way of depreciation or otherwise) in computing the income chargeable under
the head profits and gains of business and profession.
20
6.3. Section 80CCD - Deduction in respect of contribution made to pension scheme of CG.
6.3.2. Further, it is proposed to insert sub-section (1B), whereby over and above the
deduction under sub-section (1), an additional deduction upto 50,000 of the
amount deposited would be allowed.
6.3.3. The above amendments are illustrated here as under:
Particulars
Present ( in Lakh)
Proposed ( in Lakh)
Case I
Case II
Case III
Case I
15.00
15.00
15.00
15.00
15.00
15.00
-%
10%
12%
20%
10%
12%
20%
- Amount
1.50
1.80
3.00
1.50
1.80
3.00
Income
Case II
Case III
Paid / Deposited
Eligible Deduction
- 80CCD(1) r.w.s. (1A)
21
1.00
1.00
1.00
- 80CCD(1)
1.50
1.50
1.50
- 80CCD(1B)
0.30
0.50
Expense
Existing Proposed
Insurance
15,000
15,000
Senior Citizen
Insurance
20,000
30,000
Medical
30,000
Expense
Existing Proposed
Insurance
15,000
15,000
Senior Citizen
Insurance
20,000
30,000
Medical
30,000
Expense
Existing Proposed
Insurance
15,000
25,000
Senior Citizen
Insurance
20,000
30,000
Medical
30,000
6.4.3. Further, an Explanation has been inserted after sub-section (5), which defines the
term senior citizen and very senior citizen as follows:
a. senior citizen is an individual resident in India who is of the age of sixty
years or more at any time during the relevant previous year; and
b. very senior citizen is an individual resident in India who is of the age of
eighty years or more at any time during the relevant previous year.
22
6.4.4. As per the Budget Speech of the Finance Minister and the Explanatory
Memorandum to FB, the deduction in respect of Insurance premium paid for a
person not being a senior citizen is proposed to be increased to 25,000. However,
no amendment for the same has been made in the FB.
6.5. Section 80DD Deduction in respect of Maintenance including Medical Treatment
of a dependent who is the person with disability.
6.5.1. Presently, Section 80DD provides for a deduction of 50,000/- if the dependant is
suffering from disability and 1,00,000/- if the dependant is suffering from severe
disability (as defined under the said section).
6.5.2. Now, it is proposed to raise the above limit of deduction of 50,000 to 75,000
and of 1,00,000/- to 1,25,000/-.
6.6. Section 80DDB Deduction in respect of Medical Treatment.
6.6.2. It is proposed to provide that the assessee will be required to obtain a prescription
from a specialist doctor for the purpose of availing deduction. Earlier the assessee
was required to furnish a certificate from the doctor working in Government
Hospital for availing this deduction.
6.6.3. Further, it is also proposed to amend section 80DDB to provide for a higher limit
of deduction of upto eighty thousand rupees, for the expenditure incurred in respect
of the medical treatment of a very senior citizen, who is an individual resident in
India and aged eighty years or more at any time during the relevant previous year.
23
6.9.2. Also, it is proposed to substitute clause (a) of sub-section (2) by new clause (a)
wherein the assessee who has acquired the factory by way of transfer from any
other person or as a result of business reorganisation would not be eligible for
deduction. Earlier the deduction was deniable only to cases where the factory was
acquired under a scheme of amalgamation or demerger.
24
25
7.1.1. Presently, Section 192(2B) read with Rule 26B of the Income Tax Rules, 1962
permits an employee to furnish the details of income chargeable under other heads
of income (including only loss under the head Income from House Property) and
TDS on such income to the employer. The employer is permitted to consider such
other income and TDS thereon while computing the estimated Salary of the
employee for a FY subject to the condition that except in case of loss under the
head Income from House Property, the total amount of tax deducted is not less
than the tax deductible from income from salaries only. However, the employer is
allowed to rely on the declaration and details furnished by the employee and is not
necessarily required to obtain external evidences, as far as he exercises due
diligence.
7.1.2. Sub-section (2D) is proposed to be inserted to provide that for the purpose of
estimating Salary of the employees, or computing TDS therefrom under subsection (1), the employer should obtain from his employees evidences or proof or
particulars of prescribed claims (including claim for set off of loss) under the Act
in the prescribed manner and form.
7.1.3. With the proposed provision, the employer has a highly onerous task in as much as
he has to obtain actual evidences/proofs to allow claims of his employees while
computing the estimated salary. Especially, for large corporates having multilocation based employees, it will be cumbersome not just to collect such evidences
apart from there being no surety of their authenticity or completeness.
7.1.4. In a case where the employer is not adequately equipped to handle huge
information and data resulting from the foregoing additional requirement, he may
take a conservative view and the employees could suffer higher TDS.
26
7.1.5. The proposed provision attempts to overrule settled legal position that u/s 192 that
an employer is expected to make a fair and honest estimate of the salary of his
employees and if he has done so, if such estimate was incorrect, that alone cannot
be the basis to treat him as an assessee in default u/s 201. See, e.g.:
a. Gwalior Rayon Silk Co. Ltd. vs. CIT 140 ITR 832 (MP);
b. Indian Airlines Ltd. vs. CIT 59 ITD 353 (TMum);
c. Mahindra & Mahindra Ltd. vs. ITO 55 TTJ 174 (TMum);
d. Nestle India Ltd. vs. ACIT 61 ITD 444 (Del) (TDel)
e. CIT vs. Nestle Ltd. 243 ITR 345 (Del);
f. CIT vs .Maruti Udyog Ltd. 350 ITR 81 (Del) [Departments SLP dismissed]
7.1.6. More recently, in CIT vs. Larsen & Toubro Ltd. 313 ITR 1 (SC), it has been held
that the employer is not under any statutory obligation under the income-tax law or
rule books to check that the employee had actually utilized the amount paid towards
travel concession conveyance. Honble SC endorsed the view of Honble
Karnataka HC that the employer is not expected to collect and examine the
supporting evidence to the declaration to be submitted by the employee. The ratio
of Larsen & Toubro stands overruled by the proposed amendment.
7.1.7. Further, Form 12C was the notified form under Rule 26B which was omitted from
October 1, 2003. One needs to see in what form the new form to be prescribed
under sub-section (2D), will be issued.
7.2.
7.2.1. The proposed applies to the Trustees of the Employees Provident Fund Scheme
(EPFS) framed u/s. 5 of the Employees Provident Funds and Miscellaneous
Provisions Act, 1952 (EPFA). Under this provision, such Trustees will now be
obliged to deduct tax at source at 10% or where the deductee does not furnish his
27
PAN, at the MMR, from the accumulated balance due to an employee, at the time
of payment of such balance if the conditions in Rule 8 of Part A of the Fourth
Schedule to the Act are not satisfied.
7.2.2. Rule 8 of Part A of the Fourth Schedule to the Act specifies the conditions under
which the accumulated balance due to and payable to an employee participating in
a Recognised Provident Fund (RPF) would be excluded from the total income of
such an employee. In case, either of these conditions are not satisfied, the trustees
of the RPF are required to deduct tax at source under Rule 9 r.w. Rule 10 of Part A
of the Fourth Schedule. . The term RPF is defined u/s 2(38) of the Act to include
the provident fund established under the scheme framed under the EPFA.
Therefore, Rule 8 applies even to the Fund under the EPFA.
7.2.3. EM justifies the flat rate of 10%/ MMR on the ground that under the RPF of private
employers, it is possible for the trustees to get the details of tax liability under rule
9 which may not be possible for the trustees of EPFO.
7.2.4. EM further clarifies that some of the employees may be subject to the higher rate
of 20%/30%. For such employees furnishing of PAN is mandatory so as to come
out of section 206AA. Therefore, MMR is specified for TDS where the valid PAN
is not furnished by the employee.
7.2.5. Small cases involving payment of less than 30,000/- are, however, excluded.
7.3.
7.3.2. Form 15G and Form 15H are the prescribed forms under sub-sections (1A) and
(1C) respectively. These forms are self-declarations by the payee to the effect that
28
the tax on his estimated total income for the previous year in which income covered
by the specified sections is nil. Thus, u/s 197A if tax on the total accumulated
payment due under the EPFS is nil, no tax is to be deducted at source on furnishing
Form 15G/15H.The new provision in section 192A gives exemption from TDS
only till 30,000/-.
7.4.
7.4.2. Now, the second proviso to section 194A(1) is proposed to be introduced to provide
that the limit of 10,000/- for interest on time deposit with a bank would be
computed with regard to the total interest paid or credited to the account of the
payee, where such bank follows Core Banking Solutions. Thus, the threshold,
which was earlier available qua each branch, will now be single limit at the level
of the bank. Hence, this provision would bring more cases and higher interest a
mounts under the TDS.
7.4.3. Upto A.Y. 2015-16, the exemption from the requirement of TD, in 194A(3)(v)
referred to co-operative societies. There were instances where certain co-operative
societies which were carrying on banking business claimed exemption under the
said clause in respect of interest paid to its members and their appeals were allowed
by Honble ITAT. See, for eg:
a. ACIT vs. Vishakhapatnam Co-operative Bank Ltd. 47 SOT 295
(Vishakhapatnam);
b. Bagalkot District Co-operative Bank vs. JCIT 48 taxmann.com 117 (Bg);
c. ACIT vs. Ozer Merchant Co-operative Bank Ltd. 41 taxmann.com 110 (Pune).
29
7.4.5. It is further proposed to insert an Explanation to clause (v) (supra) to the effect that
co-operative bank shall have the meaning under Part V of the Banking
Regulations Act , 1949.
7.4.6. Upto A.Y. 2015-16, clause (ix) of sub-section (3) to section 194A provided an
exemption from TDS in respect of interest paid or credited on the compensation
amount awarded by the Motor Accident Claims Tribunal where the amount of
income paid or credited did not exceed 50,000/- in a financial year.
7.4.7. It is now proposed to substitute new clauses (ix) and (ixa) in place of the existing
clause (ix), the effect of which is that the threshold of 50,000/- is to be computed
only with reference to the interest paid.
7.4.8. The EM states that the proposed amendment is to bring the provision in line with
section 145A(b) under which, regardless of the method of accounting employed by
an assessee, any interest on compensation or enhanced compensation is to be taxed
on receipt basis.
7.5.
7.5.1. Upto Assessment `Year 2015-16, there was an exemption from the requirement of
TDS from payments/credits to any contractor during the course of his business of
plying, hiring or leasing of goods or carriages if such contractor furnishes his PAN
to the payer.
7.5.2. It is now proposed to restrict the aforesaid exemption only in cases where the
contractor owns less than ten goods carriages at any time during the previous year
and furnishes a self -declaration to this effect to the payer. Since the requirement is
30
to own the carriages, it would not apply if the contractor only leases the carriages
instead of owning them.
7.5.3. It is to be noted that for section 192, the employer is required to obtain
evidences/proof for claims of employees whilst in the proposed amendment, the
payer has to specifically rely on self-declarations.
7.6.
7.6.1. This provision prescribes the rate of 5% on interest paid on rupee denominated
bonds and Government Security with the sun set clause for payment of interest as
June 1, 2015.
7.6.2. The proposed amendment extend the foregoing sun set clause to July 1, 2017.
7.7.
7.7.1. Upto Assessment Year 2015-16, sub-section (6) required the payer to furnish Form
15CA (electronically) and obtain Form 15CB (Chartered Accountants certificate)
under rule 37BB of the Rules.
7.7.2. Rule 37BB exempted the payer from filing Form 15CA and obtaining Form 15CB
in respect of certain remittances such as investments abroad, travel for educational
purposes including fees, travel for medical purposes, etc.
7.7.3. Further, due to the language of sub-section (6), the payers were not required to
obtain Form 15CA and 15CB where payments/credits were not chargeable to tax
under the Act.
31
7.7.4. It is proposed to substitute the existing sub-section (6) by a new provision as per
which the payer would be required to submit the information relating to such
payment whether or not the sums are chargeable to tax.
7.7.5. The EM provides the rationale behind the amendment as the need to collect
information even on foreign remittances on which tax was deductible but was not
deducted. However, the proposal would increase the burden of reporting on the
payer.
7.7.6. Under the proposed amendment, even personal payments, credit card payments
abroad, remittances made to say a relative living abroad, etc, would be covered.
Similarly, all imports would be required to be reported, though they are not
chargeable to tax in India.
7.8.
7.8.2. It is now proposed that the fee for late filing the statement of TDS, which is payable
u/s 234E of the Act would be adjusted in computing the final demand or refund due
to the deductor on account of TDS.
32
7.8.3. The proposed amendment is in line with the decision of Honble Bombay High
Court in Rashmikant Kundalia and other vs. Union Of India (Writ Petition No. 771
of 2014), delivered recently, which upheld the constitutional validity of section
234E.
7.9.
7.9.1. The proposed insertion of sub-section (3) give power to the Central Government to
notify persons to whom the said provisions would not apply.
7.9.2. The EM explains the purpose behind such insertion as the need to reduce the
compliance burden on individuals and HUFs who are not subject to tax audit u/s
44AB. It further states the purpose can also be achieved by obtaining PAN of such
individuals and HUFs.
7.10.1. This is a new provision proposed to be inserted on the lines of section 200A in
respect of TCS.
33
CHAPTER 8 PENALTIES
8.1.
8.1.1. In the course of any proceedings under the Act, if the AO or CIT(A) or PC or
Commissioner is satisfied that any person has concealed the particulars of income
or furnished inaccurate particulars of income, then, penalty at least equal to the
amount but not more than three times of tax sought to be evaded, can be imposed.
As per existing Explanation 4 to Section 271(1)(i) of the Act, tax sought to be
evaded in a case, is interpreted to be:
(a)
(b)
(c)
in any other case, difference between the tax on total income assessed and
tax on returned income.
34
It has been provided that where the amount of income in respect of which
particulars have been concealed or inaccurate particulars have bene furnished on
any issue which has been considered under the general provisions and u/s. 115JB
or 115JC, then such amount shall not be reduced from the total income assessed
while determining the amount under item D. It has been further provided that if
provisions of Section 115JB or 115JC are not applicable, the item (C-D) shall be
ignored.
(FB Cl. 68)
8.1.3. Problems have arisen in the computation of tax sought to be evaded where the
concealment of income or furnishing inaccurate particulars of income occurs in the
computation of income u/s. 115JB or 115JC and also under the normal provisions.
Further, Courts have held that penalty u/s. 271(1)(c) cannot be levied in cases
where the concealment of income occurs under the income computed under normal
provisions and the tax is paid u/s. 115JB or 115JC. Tax paid u/s. 115JB or 115JC
over and above the tax liability arising under general provisions is available as
credit for set off against future tax liability. Understatement of income and the tax
liability thereon under general provisions results in larger amount of such credit
becoming available to the assessee for set off in future yeaTherefore, where
concealment of income, as computed under the normal provisions, has taken place,
penalty u/s. 271(1)(c) is considered leviable even if the tax liability has been
determined u/s. 115JB or 115JC.
35
General Provisions
Book Profit
Returned Income
1,50,000
1,00,000
Addition / Disallowance
1,00,000
1,00,000
Assessed Income
2,50,000
2,00,000
B:
45,000
(A-B)
30,000
Since, Income assessed under general provisions is higher than the book profits,
therefore, assessment would be made on general income. Accordingly, in view
of the proposed proviso to Explanation 4, (C-D) would not be computed.
Therefore, penalty as per proposed amendments would be 30,000.
36
Normal Provisions
Book Profit
Returned Income
1,00,000
2,00,000
Addition / Disallowance
1,00,000
50,000
Assessed Income
2,00,000
2,50,000
60,000
30,000
(A-B)
30,000
46,250
37,000
(C-D)
9,250
39,250
Normal Provisions
Book Profit
Returned Income
1,00,000
2,00,000
Addition / Disallowance
1,00,000
1,00,000
Assessed Income
2,00,000
3,00,000
B:
30,000
30,000
C:
55,500
D:
Nil
30,000
37
The Computation under Scenario (b) & (c) suggests that as per the proposed
amendments, the Assessee would be liable to pay more penalty even if the
assessment is finally made u/s. 115JB or 115JC. Explanation proposed to be
substituted would override several judgements wherein it was held that penalty
u/s. 271(1)(c) was not to be imposed where income was assessed u/s. 115JB.
Following decisions would also be overridden:
(a) Nalwa Sons Investments Ltd. (2010) 327 ITR 543 (Delhi) (SLP
Dismissed)
(b) Unisons Hotels Ltd. (2013) (40 taxmann.com 237) (Delhi),
(c) Gujarat State Fertilizers & Chemicals Ltd. (2013) 36 taxmann.com 533
(Guj.),
(d) CIT v. Aleo Manali Hydro Power P. Ltd. 38 taxmann.com 288 (All.),
(e) CIT v. Jindal Polyester & Steel Ltd. 365 ITR 225 (All.),
(f) BSEL Infrastructure Realty Ltd. v. ACIT 137 ITD 61 (Mumbai Tribunal).
8.1.5. Proposed Explanation 4 would apply only to the offences committed after
April 01, 2016.
8.2. Penalty u/s. 271FAB For Failure to furnish statement or information u/s. 9A(5)
8.2.1. The proposed regime provides that in the case of an eligible investment fund, the
fund management activity carried out through an eligible fund manager acting on
behalf of such fund shall not constitute business connection in India of the said
fund.
38
8.2.2. The FB has proposed certain conditions for a person to an eligible fund manager
The FB has also proposed that every eligible investment fund shall, in respect of
its activities in a financial year, furnish within ninety days from the end of the FY,
a statement in the prescribed form to the prescribed income-tax authority,
containing information relating to the fulfilment of the conditions or any
information or document which may be prescribed. However, if any eligible
investment fund fails to furnish statement / information / documents, as required
u/s. 9A(5), within the prescribed time period, the prescribed income tax-authority
may impose a penalty of 50,00,00/-. (FB Cl. 71)
8.3. Penalty u/s. 271GA For Failure to Furnish Information or document u/s. 285A
8.3.1. If any Indian Concern fails to furnish any information or document as required u/s.
285A, the prescribed income-tax authority u/s. 285A may direct such Indian
Concern to pay penalty of:
8.3.2. The FB has cast a reporting obligation on Indian concern through or in which the
Indian assets are held by the foreign company or the entity. The Indian entity shall
be obligated to furnish information relating to the off-shore transaction having the
effect of directly or indirectly modifying the ownership structure or control of the
Indian company or entity. To avoid non-compliance of such reporting
requirements, imposition of penalty has been proposed.
39
8.4. Penalty u/s. 271-I For Failure to Furnish information u/s. 195
8.4.1. The proposed amendment in Section 195(6) requires that the person responsible
for paying to a non-resident (not being a company), or to a foreign company, any
sum whether or not chargeable under the Act, shall in respect of such sum, furnish
such information as may be prescribed.
8.4.2. If the information as required u/s. 195(6) are not furnished or inaccurate
information is furnished, the AO may impose a penalty of 1,00,000. (FB Cl. 73)
8.4.3. These amendments will be effective from June 01, 2015.
40
9.1.1
9.1.2
9.1.3
9.2.
9.2.4. Further investments made up to March 31, 2017 are proposed to be protected from
the applicability of GAAR
41
9.3.
b.
FB proposes to amend Sec. 115JB such that the share of member of AOP in
income of AOP which is non-taxable as per section 86 shall be excluded while
computing MAT for member. Expenditure in relation to such income shall be
added back while computing MAT. (FB Cl. 29)
c.
42
d.
9.3.3.
The Finance (No. 2) Act, 2014 amended Section 2(14) of the Act to include
the securities held by FII's as capital asset. Consequently, the income arising
to FII's from transactions in securities would thus be in the nature of capital
gains. Such an amendment was beneficial for FII's as sale of listed securities
is free from levy of Capital Gains Tax. However, FII's which are subjected to
MAT under provisions of the Act have to pay MAT even on capital gains
arising out sale of securities, as such income is not excluded while computing
the MAT liability. (Though arguably, one may contend that as FIIs are not
required to maintain financial statements in accordance with the provisions of
the Companies Act, 2013 as they do not have offices / branches in India, they
are not subject to MAT).
b.
c.
9.4.
43
9.4.2. The research facility is approved by the DSIR and a report is sent to DGIT (E) by
DSIR.
9.4.3. The Company is required to maintain separate books of accounts for approved
R&D facility and is required to get the accounts audited and file the same with
DSIR.
9.4.4. Now, it is proposed that the Company would have to maintain book of account in
the manner as may be prescribed and audit report would also be required to be
furnished. (FB Cl. 12)
9.5.
9.6.
9.6.2. Further, if notice u/s. 148 of the Act is issued after the expiry of the four years,
then, in such case, such notice shall not be issued unless the Principal Chief
Commissioner (PCC) / Chief Commissioner (CC)/ Principal Commissioner
(PC) / Commissioner is satisfied, on the reasons recorded by the AO, that it is a
fit case for issue of such notice.
9.6.3. In any other case, notice of reopening u/s. 148, after expiry of four years, shall be
issued by the AO who is below the rank of JC unless the JC is satisfied, on the
reasons recorded by such AO, that it is a fit case for the issue of such notice.
44
9.6.4. To bring simplicity, it is proposed to provide that no notice u/s. 148 shall be issued
by an AO upto four years from the end of relevant assessment year without the
approval of JC and beyond four years from the end of relevant assessment year
without the approval of the PCC or CC or PC or Commissioner (FB Cl. 35).
9.6.5. Now, reopening of an intimation issued u/s. 143(1), within four years, by an AO
who is below the rank of JC, would require satisfaction from JC that it is a fit case
for issue of such notice.
9.6.6. These amendment will be effective from June 1, 2015.
9.7.
9.7.2. Now, it has been proposed that notwithstanding anything contained in section 139
/ 147, / 148 / 149 / 151 / 153, where the AO is satisfied that any money, bullion,
jewellery or other valuable article or thing, seized or requisitioned, belongs to, or
any books of account or documents, seized or requisitioned, pertains or pertain to,
or any information contained therein, relates to, any person, other than the person
referred to in section 153A, then the books of account or documents or assets seized
or requisitioned shall be handed over to the AO having jurisdiction over such other
person. (FB Cl. 36)
9.7.3. The above amendment in Section 153C has been proposed to avoid the disputes
that have arisen as to the interpretation of the words belongs to in respect of a
45
document as for instance when a given document seized from a person is a copy of
the original document.
9.7.4. In the existing provision of Section 153C, the word belongs or belong to has a
very narrower meaning. This word came up for consideration in the case of CWT
v. Bishwanath Chatterjee and Others (1976) 103 ITR 536 (SC) wherein dealing
with an issue relating to wealth tax, it was held that mere possession, or joint
possession, unaccompanied by the right to, or ownership of property would
therefore not bring the property within the definition of net wealth for it would
not then be an asset belonging to the assessee.
However, now it has been proposed to replace the word belongs or belong to
with pertains or pertains to in case any books of account or documents are seized
or requisitioned, and relates to in case any information contained in such seized
or requisitioned books of accounts or documents. The word pertaining to /
relates to is an expression of expansion. As per Oxford Dictionary, the word
pertain means relate or have reference to, belong as a part, and the word relate
means bring into relation, establish a connection between, have reference to.
Therefore, now it has been proposed to expand the scope of Section 153C with the
insertion of pertains / pertain to / or relates to any person, other than the
searched person.
9.7.5. The proposed amendments will overrule the ruling of the Honble Delhi High Court
in the case of Pepsico India Holdings (P.) Ltd. v. ACIT (2014) 270 CTR 467 (Del.).
46
before the HC or SC for another A.Y. and if the A.O. or any appellate authority
agrees to apply the final decision on the question of law in that earlier year to the
present year, he will not agitate the same question of law once again for the present
year before higher appellate authorities. The A.O. or any appellate authority before
whom his case is pending can admit the claim of the assessee and as and when the
decision on the question of law becomes final, they will apply the ratio of the
decision of the HC or SC for that earlier case to the relevant years cases also.
9.8.2. There is presently no parallel provision for revenue to file appeal for subsequent
years where the Department is in appeal on the same questions of law for an earlier
yeaNow it is proposed that if in the opinion of Commissioner or PC, in case of an
assessee, any question of law arising for any A.Y. is identical with question of law
arising for another A.Y. and the same is pending before SC, then, Commissioner
or PC may direct the AO to apply to the Tribunal in the prescribed form within 60
days from the receipt of the order of CIT(A), provided that acceptance in this regard
has been received from the Assessee. In case no acceptance is received, the
Commissioner or PC shall proceed according to the normal route of litigation. (FB
Cl. 39)
9.8.3. These amendments will be effective from June 01, 2015.
9.9.
9.9.2. Now, Explanation 2 to Section 263 is proposed to be inserted w.e.f. June 01, 2015
according to which an order passed by AO shall be deemed to be erroneous in so
far as it is prejudicial to the interests of the revenue, if, in the opinion of
Commissioner of PC-
47
9.9.6. Whether amendment by way of Explanation 2 in Section 263 would apply to the
orders passed prior to June 01, 2015 or after that date, could be litigative.
9.9.7. Further, in cases where assessee has made a claim on the basis of a favourable
decision of the Jurisdictional HC in spite of there being an unfavourable decision
of the same HC and such claim has been accepted by the AO, then in such cases,
the Commissioner may invoke powers in the garb of Explanation 2(d) to Section
263. This would lead to uncertainty and as a result, it would lead to more litigation.
9.9.8. These amendments will be effective from June 01, 2015.
48
9.10.
9.10.2. It is proposed to insert sub-section (2A) providing that where the interest is charged
u/s 206C (7) on the demand specified on the intimation u/s 206CB(1), then, no
interest shall be charged on the same amount for the same period under sub-section
(2) of this section. (FB Cl. 55)
9.10.3. As per the proposed provisions in sec. 206CB in respect of the processing of TCS
statement and consequent amendment in sec. 156, intimation generated u/s 206CB
shall be deemed as a notice of demand u/s 156. Sec. 220(2) may be invoked to
charge interest on failure to pay the tax in the specified period. However, since such
provisions for charging interest are present in section 206C(7), amendment in this
section is proposed.
a. The existing provisions of section 234B (3) provide that where the total income is
increased on reassessment u/s. 147 or 153A, the assessee shall be liable for interest
at the rate of 1 % on the tax on the increase in total income for the period
commencing from date of determination of total income u/s. 143(1) or on regular
assessment and ending on the date of reassessment u/s. 147 or 153A.
49
a. Presently, sub-section (4) of this section provides that where as a result of the order
of the Settlement Commission u/s 245D (4), the amount on which interest is
payable is increased or reduced, accordingly, interest shall be increased or reduced.
b. By inserting new sub-section (2A), w.e.f. June 1, 2015, tax on the additional
income declared in the Application made u/s 245C (1) before the Settlement
Commission will be liable to the charge of interest under this section from the 1st
day of the concerned assessment year to the date of Application made. The
provision for charging interest consequent to the order of the Settlement
Commission u/s 245D (4) has been modified inasmuch as the period for charging
the interest shall be from the date of Application made before the Settlement
Commission up to the date of the order u/s 245D (4). (FB Cl. 56)
50
9.13. ENABLING THE BOARD TO NOTIFY RULES FOR GIVING FOREIGN TAX
CREDIT [Section 295]
9.13.1. The current provisions u/s 91 (1) of the Act provides that an Indian resident is
entitled to a deduction from the Indian income-tax of a sum calculated on such
doubly taxed income, at the Indian rate of tax or the rate of tax of said country,
whichever is lower. However, the manner of granting credit of such taxes is not
provided.
9.13.2. It is proposed to amend section 295(2) so as to provide that CBDT may make rules
to provide for procedure for granting relief / deduction of any income-tax paid in
any country or specified territory outside India, u/s. 90 / 90A / 91, against the
income-tax payable under the Act. (FB Cl. 78)
51
a.
An assessee can file an application u/s. 254C (1) to the Settlement Commission
in relation to any case relating to him. The term case has been defined u/s.
245A (b) to mean any proceeding for assessment under the Act which may be
pending before an Assessing Officer on the date of making application to the
Settlement Commission. The Explanation to the said clause provides for
deemed commencement of proceedings in certain situations.
b.
c.
52
d.
Further, the scope for the residuary clause (iv) of the aforesaid Explanation is
proposed to be expanded. Earlier residual proceedings where deemed to have
commenced from the 1st day of the assessment year and concluded on the date
on which the assessment is made. It is proposed that such proceedings shall be
deemed to have commenced from the date on which a return of income is
furnished u/s. 139/142 and concluded on the date on which the assessment is
made and in cases where no assessment is made, on expiry of two years from
the end of relevant assessment year.
9.16.2. It is proposed to amend sub-section (1) of section 245H of the Income-tax Act so
as to provide that the Settlement Commission while granting immunity from
prosecution and penalty to any person shall record the reasons in writing in the
order passed by it.
9.16.3. Section 245HA provides for situations where the proceedings before the Settlement
Commission shall abate. It is now proposed that in cases where an order is passed
by the Settlement Commission without providing the terms of settlement, then such
proceedings shall be considered as abated before the Settlement Commission;
9.16.4. Section 245K provides for certain cases where an assessee has already made an
application to Settlement Commission then the assessee would be barred from
approaching Settlement Commission subsequently. The said restriction is now
proposed to be extended to any person related to the person who has already
approached the Settlement Commission once.
9.16.5. These amendment will be effective from June 01, 2015.
53
9.17. ACCOUNTANT
9.17.1. Presently, an accountant could be an authorized representative of the assessee and
audit reports or certificates under the various provisions of the Act are to be given
by an accountant, that is - a chartered accountant who is the member of the
Institute of Chartered Accountants of India (ICAI) and includes, in relation to
any State, any person who is entitled to be appointed under the Companies Act,
1956 to be an auditor of companies in that State.
9.17.2. Effective June 1, 2015, the definition of accountant in Explanation to Section
288(2) is proposed to be substituted with the new definition. Now, an accountant
should not only be the member of ICAI but should also hold the certificate of
practice in terms of the provisions of Section 6 of the Chartered Accountants Act,
1949.
9.17.3. Further, to ensure independence so as to protect the interests of the revenue, for
giving audit report and certificate under the various provisions of the Act,
disqualifications have been proposed. Such disqualifications are given below.
SR.
No.
1.
Type of assessee
Company
Disqualifications of person
Who is not eligible to be appointed as an auditor
of the said company as per Section 141(3) of the
Companies Act, 2013
2.
Individual
Himself
3.
Firm
Any partner
4.
AOP
Any member
5.
HUF
Any member
6.
Trust or institution
54
(6) above
of income
o Relative of persons specified in 2 to 7
8.
general
55
a.
b.
c.
d.
e.
f.
Spouse of a person referred to in clause (b), clause (c), clause (d) or clause
(e)
g.
9.17.5. Every assessee before appointing an accountant for the purpose of submitting any
report or certificate under the Act [such as u/s 44AB, 80IB, 115JB, 142(2A), etc.]
will have to ascertain whether the accountant attracts any disqualification. The
assessee may prepare a checklist and also get a certificate from an accountant for
eligibility of the appointment.
56
57