• Due date for filing of Annual Return on Foreign Liabilities and Assets is extended till 14 Aug 2020.
• ECB 2 Returns for the month of July 2020 to be submitted with RBI on or before 7 Aug 2020.
Companies Act 2013 update
Scope of the CSR Activity has been increased and as per the amended clause (vi) of CSR Schedule VII of Companies Act, 2013, measures taken for the benefit of Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows are covered as specified ‘CSR Activity’.
Important Due Dates August 2020
CBDT grants certain exemptions opting for new tax regime, amends Rule 2BB and Rule 3
CBDT Notification No. 38 of 2020 dated 26 June 2020
CBDT clarifies that an assessee, opting for new tax regime u/s. 115BAC, can claim exemption u/s. 10(14) (subject to condition as mentioned) only in respect of –
• Tour /Transfer allowance
• Daily Travel allowance
• Conveyance allowance
• Transport allowance granted to an employee, who is blind [or deaf and dumb] or orthopedically handicapped with disability of lower extremities.
Further CBDT clarifies that while determining the value of perquisite, no exemption shall be available in respect of free food and non-alcoholic beverage provided by employer through a paid voucher.
CBDT grants exemption to investors receiving shares under Yes Bank Ltd. Reconstruction Scheme
CBDT Notification No. 40 of 2020 dated 29 June 2020
CBDT has amended Rules which prescribes class of persons to whom provisions of section 56(2)(x) shall not apply. The following two new class of persons have been added within the ambit exemption:
• Any movable property, being unquoted shares, of a company and its subsidiary and the subsidiary of such subsidiary received by a shareholder in case where a tribunal has suspended Board of Directors of Such Company & has nominated new directors. The shares received by the shareholders must have been in pursuant to resolution plan approved by tribunal.
• Any movable property, being equity shares, of the reconstructed bank, received by the investor/investor bank under the Yes Bank Limited Reconstruction Scheme, 2020. Share must be allotted at the price specified under Reconstruction Scheme.
Bangalore ITAT to conduct virtual hearings for all appeals Order dated 29 June 2020
In view of the current scenario of increasing number of COVID-19 cases in Bangalore and with a view to avoid physical appearance of all stakeholders, virtual hearings of all the appeals will take place w.e.f July 06, 2020.
Guidelines for virtual hearings are as followers:
• Paper book to be filed 1 week in advance either electronically or physically with a copy served to another party
• Synopsis to be filed 3 days in advance either electronically or physically with a copy served to another party
Sec. 50CA not applicable on transfer of shares through NCLT’s approved oppression & mismanagement resolution plan CBDT Notification No. 42 of 2020 dated 30 June 2020
Section 50CA of the Income-tax Act has provides that where consideration for transfer of share of a company (other than quoted share) is less than the Fair Market Value (FMV) of such share determined in accordance with the prescribed manner, the FMV shall be deemed to be the full value of consideration for the purposes of computing income under the head “Capital gains”.
It further provides that the provisions of this section shall not apply to such class of persons as may be prescribed.
Now, the CBDT has notified that section 50CA shall not apply to transfer of, unquoted shares, of a company and its subsidiary and the subsidiary of such subsidiary, by an assessee wherein NCLT has approved oppression and mismanagement resolution plan.
CBDT amends Rule 31A of the Income Tax Rules and prescribes amendment in Form 26Q and 27Q CBDT Notification No.43 of 2020 dated 03 July 2020
CBDT amends Rule 31A of the Income Rules, prescribes TDS rules and notifies amendments in TDS statement under Form 26Q/27Q (used for filing TDS Statement) with respect to newly inserted /amended Sections vide Finance Act, 2020 :
• Section 194-O: TDS on e-commerce transactions
• Sections 194/194LBA/194K: TDS on dividends distributed by companies, mutual funds, business trusts
• Section 194N: TDS on cash withdrawals
• Section 194J: TDS on professional fees
• Section 194A: TDS on interest
• Section 197A: No or lower TDS deduction
Annexures to Form 26Q and 27Q have been amended incorporate columns to give deductee wise breakup of TDS deduction under the newly inserted proviso to section 194N. Further, new codes have been added to give reasons for non-deduction or deduction of tax at source at the rates other than prescribed under respective sections.
Modification in Challan 285 to enable payment of new equalization levy Modified on 03 July 2020
Income Tax Department has modified Challan 285 which was initially applicable for payment of equalization levy 1.0 (payments for digital advertisement services received by non-resident companies without a permanent establishment).
In Budget 2020, Government widen the scope of equalization levy to include e- commerce companies.
CBDT has made an amendment to the payment challan 285 to include both equalization 1.0 by Indian resident deductors and equalization levy 2.0 by non-resident e-commerce companies.
Along with this modification, CBDT has also cleared the clouds on requirement of PAN by making it a mandatory tab in the Challan.
The first installment due to make the payment under equalization levy 2.0 was July 7, 2020.
Refund issued to taxpayers Press Release date 03 July 2020
In pursuance to the Government’s decision vide Press Note dated April 8th, 2020 to issue pending income tax refunds in order to help taxpayers in a COVID-19 pandemic situation, the Income Tax Department has issued tax refunds at a speed of 76 cases per minute from 8th April to 30th June 2020. During this period of just 56 weekdays, the CBDT has issued refunds in more than 20.44 lakh cases amounting to more than Rs. 62,361 crore.
Refunds of this magnitude and numbers have been issued completely electronically and have been directly deposited into the bank accounts of the taxpayers.
CBDT reiterated that taxpayers should provide immediate response to emails of the Department so that refunds in their cases too could be processed and issued right away. Such emails of I-T Department seek taxpayers to confirm their outstanding demand, their bank account number and reconciliation of defect/mismatch prior to issue of refund. In all such cases, quick responses from the taxpayers would enable the I-T Department to process their refunds expeditiously.
Scope of Infrastructure widen for the purpose of exemption u/s 10(23FE) Refund issued to taxpayers Notification No.44 2020 dated 06 July 2020 & circular no.15 of 2020 dated 22 July 2020
Section 10 (23FE) provides for exemption to specified income of notified sovereign wealth fund (SWF) or Pension Fund (PF) from investment in specified infrastructure sectors in India.
CBDT widens the definition of infrastructure to align it with Harmonised Master List of Infrastructure notified by Department of Economic Affairs [DEA] in August 2018.
This notification shall come into force from the 1st day of April 2021 and shall be applicable for AY 2021-22 and subsequent assessment years.
Further, in order to facilitate the process of notification of the SWF, the Board has specified that the SWF shall file the application in Form I . The Form I shall be filed with the member (Legislation), CBDT, Department of Revenue, Ministry of Finance, North Block, New Delhi during the financial year 2020-21 and thereafter to the Members, CBDT having supervision and control over the work of Foreign Tax and Tax Research Division.
Furthermore, SWF shall be required to file return of income along with audit report. SWF shall also be required to file a quarterly statement within one month from the end of the quarter electronically in the prescribed Form II in circular no. 15/2020
CBDT notifies NPS Tier II scheme as tax-saving investment option u/s 80C for Government employees Notification No 45 of 2020 dated 07 July 2020
Finance Act (No.2) 2019 inserted clause (xxv) to Section 80C(2) to include contribution made by an employee of the Central Government to a specified account of the National pension scheme for a fixed period of not less than three years and which is in accordance with the scheme as may be notified by the Central Government in the Official Gazette as a specified tax saving investment u/s.80C.
The CBDT has now notified NPS Tier II Scheme for the purpose of Section 80C(2)(xxv). The features of the scheme are as below:
• a Central Government employee can make contributions under the Scheme
• minimum amount of contribution for activation of account shall be Rs.1000 and Rs.250 for subsequent contributions
• contributions shall have a lock in period of 3 years from the date of credit of amount
• Contributed amount shall not be permitted to be assigned, pledged or hypothecated during such lock-in-period.
Memorandum of understanding signed between CBDT and SEBI Press Release dated 08 July 2020
A formal Memorandum of Understanding (MOU) is signed between the Central Board of Direct Taxes (CBDT) and the Securities and Exchange Board of India (SEBI) for data exchange between the two organizations.
This will facilitate the sharing of data and information between SEBI and CBDT on an automatic and regular basis. In addition to regular exchange of data, SEBI and CBDT will also exchange with each other, on request and suo moto basis, any information available in their respective databases, for the purpose of carrying out their functions under various laws.
A Data Exchange Steering Group has also been constituted for the initiative, which will meet periodically to review the data exchange status and take steps to further improve the effectiveness of the data sharing mechanism. The MoU marks the beginning of a new era of cooperation and synergy between SEBI and CBDT.
Functionality to determine TDS rate u/s 194N enabled in e-filing Portal Enabled on 01 July 2020 Press Release dated 12 July 2020
TDS u/s 194N is to be deducted by Banks, co- operative society and post office in case of cash withdrawals of more than the limits specified in the section during a financial year.
A functionality to determine TDS rate u/s 194N has been enabled in e-Filing portal for Banks, co- operative society and post office for the same.
Further, CBDT issued a press release on ‘Verification of applicability u/s 194N’ functionality in e-filing portal. CBDT provided a Utility to ascertain TDS applicability rates on cash withdrawals. Now the Bank/Post Office has to only enter the PAN of the person who is withdrawing cash for ascertaining the applicable rate of TDS. On entering PAN, a message will be instantly displayed on the departmental utility:
“TDS is deductible at the rate of 2% if cash withdrawal exceeds Rs. 1 crore”- if the person withdrawing cash is a filer of ITR
“TDS is deductible at the rate 2% if cash withdrawal exceeds Rs. 20 lakh and at the rate of 5% if it exceeds Rs. 1 crore”- if the person withdrawing cash is a non-filer of ITR.
Data on cash withdrawal indicated that huge amount of cash is being withdrawn by the persons who have never filed Income Tax Returns. To ensure filing of return by these persons and to keep track on cash withdrawals by the non-filers, and to curb black money, the Finance Act, 2020 w.e.f. 1st July 2020 amended Income-tax Act, 1961 to lower the threshold of cash withdrawal to Rs. 20 lakh for the applicability of this TDS for non-filers and mandated TDS at a higher rate of 5% on cash withdrawal exceeding Rs. 1 crore by the non-filers.
Relaxation in verification of Income Tax returns Circular dated 13 July 2020
In case where Income Tax Return (ITR) is filed without digital signature, taxpayer was required to verify it within 120 days from date of uploading the ITR through one of below mentioned modes:
2.Logging into e-filing account through net banking
3.EVC though Bank account number/Demat Account number/Bank ATM
4.Sending a duly signed physical copy of ITR –V through post to CPC, Bengaluru
But there were many ITR’s pending with Department for want of receipt of a valid ITR-V form. To resolve the grievances of taxpayers for non-filing of ITR-V, CBDT has provided relaxation to the taxpayers where their returns for Assessment year 2015-16, 2017-18, 2018-19 & 2019-20 were uploaded electronically within due date specified u/s 139(1) & which have remained incomplete due to non submission of ITR-V for verification.
Such verification can be completed by sending duly signed physical copy of ITR V to CPC, Bengaluru through speed post or through EVC/OTP modes as listed above and such process must be mandatorily completed by 30.09.2020.
This shall not apply to in those cases where Department has already processed any other measure as specified in the Act for ensuring verification of ITR in the intervening period.
CBDT also relaxes timeframe for issuing intimation u/s 143(1). Also, such returns will be processed by 31.12.2020.
If the returns are not verified till 30.09.2020, necessary consequences as non filing of return may follow.
CBDT & Ministry of MSME sign MoU for sharing income-tax return related information Order dated 14 July 2020
The CBDT order directs that, the Principal Director General of Income-tax (Systems), New Delhi shall be the specified authority for furnishing information to Additional Secretary and Development Commissioner, Ministry of Micro Small and Medium Enterprises.
The following information shall be furnished :
1.Schedule DPM related to Depreciation on Plant and Machinery as reported in ITR3, 5 and 6
2.Sales/Gross receipts of business as reported inITR-3,5 and 6
3.Gross Turnover/Gross Receipts as reported in ITR-4.
This information shared will enable Ministry of Micro Small and Medium Enterprises to check and classify enterprises in Micro, Small and Medium categories as per the criteria notified in the Notification No. S.O. 2119(E) dated 26/06/2020. Both the organizations will appoint Nodal Officer and Alternate Nodal Officers to facilitate the process of data exchange.
Exemptions to the Authorities for the purpose of section 10(46) Notification Dated 17 July 2020 & 21 July 2020
Section 10(46) of the Act exempts income earned by certain authorities established under any act or by central, state government.
Central government vide its power has extended the exemption to the following two authorities;
• Real Estate Regulatory Authority (RERA), Bihar
• Tamil Nadu e-Governance Agency
Subject to certain conditions as specified in the notification.
CBDT to start 11-days 'Voluntary Compliance’ e-campaign on filing time-barring belated/ revised returns for AY 2019-20 CBDT Press Release dated 18 July 2020
CBDT through its data analysis has identified certain taxpayers with high value transactions who have not filed returns for AY 2019-20 (relevant to FY 2018-19). In addition to the non-filers, another set of return filers have also been identified wherein the high value transactions do not appear to be in line with their Income Tax Return.
The objective of the e-campaign is to facilitate taxpayers to validate online their tax/financial transaction information available with the I-T Department, especially for the assesses for FY 2018-19 and promote voluntary compliance, so that they do not get into notice and scrutiny process etc.
Under the e-campaign the taxpayers will be able to access details of their high value transaction related information on the designated portal and submit online response by selecting among any of these options:
(i)Information is correct
(ii)Information is not fully correct,
(iii)Information related to other person/year,
(iv)Information is duplicate/included in other displayed information, and
(v)Information is denied.
Landmark Judgement - Amendment to Sec. 40(a)(ia) restricting disallowance to 30% of expenditure has retro-effect Muradul Haque v. ITO
ITA No.114/Del/2019(Delhi - Trib.) dated 18 June 2020
The coordinate bench of Tribunal in case of R.H. International v. ITO ITA No. 6724/Del/2018 dated 20-3-2019 held that disallowance under section 40(a)(ia) be restricted to 30% of the expenses paid as against 100% because amended provision is curative in nature and the provision should be applied retrospectively
Ahmedabad ITAT : Web-hosting charges not FIS under Indo-US DTAA Esm Sys Pvt. Ltd [TS-347-ITAT-2020(Ahd)] dated 9 July 2020
The clause 4(b) of Article 12 of India-USA DTAA defines Fees for included services as consideration for any technical or consultancy services if such services make available technical knowledge, experience, skill know-how or processes, or consist of the development or transfer of a technical plan or technical design.
The consideration in the current case was in reference to payment towards web promotion, social media management, provided with help of techniques such as web content development, search engine optimization on internet through virtual servers. Such server was located worldwide & outside control of payer and was used for domain hosting and advertisement on the worldwide server.
Assessee stated that there was no sharing of technical knowledge, experience, skill know-how or processes or any technology during the provision of the above web hosting services.
Thus, the ITAT held that web hosting services did not fall under the scope of Article 12(4) of the India –USA DTAA and thus TDS was not deductible on the same under section 195 of the Income Tax Act,1961. Thus the disallowance u/s 40(a)(i) in the respect of the same for AY 2013-14 was deleted.
Mumbai ITAT- Grants 35D deduction to Yes Bank ITA No. 3497/MUM/2018 dated 14 July 2020
Sec. 35D provides for amortization of preliminary expenses incurred before commencement of business or in connection with the extension of undertaking or setting up a new unit. Section 35D(2)(c)(iv) allows amortization for preliminary expenses incurred in connection with the issue of its shares for public subscription.
CIT(A) had denied deduction claimed by Yes Bank u/s 35D holding that issue of shares to QIB does not tantamount to public subscription as mandated u/s.35D
Mumbai ITAT holds that issue of shares to Qualified Institutional Buyers (QIB) constitutes ‘offer made to public’ for the purpose of Sec.35D, grants deduction for expenses incurred in connection with such issue to Yes Bank (Assessee) for AY 2010-11.
The ruling was delivered by ITAT bench comprising of Shri C.N. Prasad and Shri N.K. Pradhan.
Samsung’s PO in India not a Fixed Place PE rules Supreme Court Appeal No. 12183 of 2016 dated 22 July 2020
Taxability of Income attributable to a permanent establishment set up in a fixed place in India.
The Apex Authority holds that Project Office (PO) established by Samsung Heavy Industries (a Korean company) for executing the ONGC Contract does not constitute a ‘fixed place’ Permanent Establishment (PE) in India. The key points that were stressed in the ruling were-
• Article 5(1) of India-Korea DTAA requires ‘core business’ of the assessee being carried out through the said PO which was absent in the case hence Revenue’s appeal is dismissed.
• Article 5(1) of the OECD Model Convention provides that PE means a fixed place of business “through which the business of an enterprise is wholly or partly carried on”.
• The Mumbai office of the Korean company was set up only as a Project Office, meant to act as a liaison office between the assessee and ONGC. Further, there were only 2 employees working and neither of them were qualified to perform any core activity of the Assessee.
This being the case, it is clear that no permanent establishment has been setup and the Mumbai project office cannot be said to be fixed place in order to tax the business profits.
News / Gossip
• Government relaxes rules to enable work from home for IT and ITeS companies till December 31st 2020.
• Ministry of Finance ruled out issuing any clarification or frequently asked questions (FAQs) on Equalization Levy, also known as “Google Tax” on non-resident e-commerce companies.
• Financial watchdog – National Financial Reporting Authority (NFRA) debars CA Udayan Sen, former CEO of Delloite India for seven years. Also, a penalty of Rs. 25 lakhs was charged for professional misconduct as Engagement partner which falls under the prohibition categories of Section 144 of Companies Act,2013
India- First nation to adopt randomized faceless assessment Economic times article dated 20 July 2020
CBDT has started a faceless, randomized and completely electronic assessment scheme, eliminating all human interfaces.
India will perhaps be the first country to implement such a system, CBDT chairman PC Mody told Economic Times (ET), adding that it will reduce litigation and unnecessary irritants to taxpayers, while allowing both taxpayers and tax officers to continue to work from home amid the rising number of Covid-19 cases in India.
His words were “We perceived our roles as tax enforcers hitherto… We want a total paradigm shift and we want to be tax facilitators” adding to the point that the effort was to make the compliance process easier and ensure objectivity.
Under the new system, taxpayers won’t have to visit territorial jurisdiction tax officers or the income tax department on receiving income tax scrutiny or assessment notices.
“The whole system was earlier loaded with individual discretion and subjective judgment of an individual officer, resulting in some sort of an inconvenience to the taxpayer,” Mody said.
The change would also involve an overhaul of the existing cadre system, reorientation and a total change of mindset for the tax authorities, which Mody said was the need of the hour.
So far, 58,319 cases have been assigned through the automatic system, keeping them away from geographical jurisdictions, of which 7,116 cases were disposed of without any additions. In 291 cases, additions were proposed to be made and have been submitted to the risk management unit
Goods and Services Tax
GST e-invoice update
• Threshold for e-invoice raised to INR 500 crores from INR 100 crores. With this amendment, registered person whose aggregate turnover in a financial year exceeds INR 500 crores would be required to comply with e-invoice requirement from 1 October 2020.
• SEZ units have been exempted from the requirement of e-invoice
Quick bites: GST on hand sanitisers
In the present COVID pandemic scenario, hand sanitiser is one such item which is on the shopping list of everyone, be it housewife, businessman or corporates. From a supply side perspective, many are looking at it as a great business opportunity with a hope that they would make a killing in this business in these uncertain times. And this caught the attention of Directorate General of Revenue Intelligence (DGGI) which acts as a watchdog to tackles GST evasion and revenue leakage. According to DGGI, suppliers are misclassifying hand sanitisers as ‘medicaments’ with 12% GST whereas correct classification of sanitisers is ‘disinfectants’ which attracts 18% GST. So, DGGI has already started investigation for possible GST evasion here. Finance Ministry also was quick in issuing a clarification that sanitisers are disinfectants like soaps and anti-bacterial liquids, which attract 18% GST. Further, reduction in GST rate is not recommended as it would create a sort of inverted duty structure which will create working capital issues to the manufacturers. So, suppliers who have paid GST at 12% would have to shell out additional 6% from their pocket unless their buyers are generous to reimburse this 6% incremental GST.
No service tax on foreclosure charges on premature termination of loan
Recently Larger Bench of CESTAT in M/s Repco Home Finance Ltd., held that service tax is not leviable on foreclosure charges levied by banks/NBFCs for premature termination of a loan by the borrower. Period involved in this case is prior to introduction of negative list in service tax regime and of course, GST regime. But we believe that this decision would have wider ramifications and the principles on which CESTAT has given its Ruling would certainly aid in determining tax implications in GST regime in cases where injured party has received damages in case of breach of contract.
Let us understand the principles laid down by CESTAT in this case:
• Consideration must flow from the service recipient to the service provider and should accrue to the benefit of the service provider and that the amount charged has necessarily to be a consideration for the taxable service provided.
• Definition of ‘consideration’ under section 2(d) of the Contract Act is that consideration should flow at the desire of the promisor. Thus, if the consideration is not at the desire of the promisor, it ceases to be a consideration.
• It is not the desire of the banks that a borrower should cut short the period of loan and make the entire payment, for the business of a bank is to earn income out of the interest that it gets on the amount that is given as loan to a borrower.
• Premature termination of loan is a unilateral act of the borrower which is a material breach of contract which prompts the banks to claim damages.
• Damages can be determined by Courts or they can also be incorporated in the loan agreements and other commercial contracts so as to ensure certainty in dealings and also serve as a deterrent measure. This aspect of damage is known as liquidated damages.
• Foreclosure charges are recovered as compensation for disruption of a service and not towards lending services. Foreclosure is anti-thesis to lending and, therefore, cannot be construed to be in relation to lending.
• Foreclosure charges should not be viewed as alternative mode of performance of the contract because they arise upon repudiation of specified terms of contract and are intended to compensate the injured party. This is because alternative mode of performance still contemplates performance, whereas foreclosure is an express repudiation of the contractual terms giving rise to the levy of foreclosure charges.
• Merely because the clause relating to damage is featuring in a contract, it would be incorrect to conclude that the party has been given an option to violate the contract.
• The contract cannot be understood to be providing an option to the parties to either perform or not perform/violate.
• There is marked distinction between conditions to a contract and considerations for the contract.
• Foreclosure charges are nothing but damages which the banks are entitled to receive when the contract is broken.
Based on the above principles, CESTAT held that foreclosure charges are nothing but damages for breach of contract and are not consideration for any service provided by banks/NBFCs and hence, service tax is not leviable on the same.