CNK Knowledge Tracker

Transcription

1 CNK Knowledge Tracker Be a Step Ahead July 2016 CNK & Associates, LLP

2 Contents Notification, Circulars and Press Information 3 Recent Judicial Decisions 17 CNK in News 21 Disclaimer and Statutory Notice 22 CNK & Associates LLP Page 2 of 22

3 Notifications, Circulars and Press Information Notifications Prescribed Authority for expenditure on scientific research - the Income tax (10 th Amendment) Rules, 2016 Notification No. 29/2016, dated 28 th April 2016 With Effect from 1 st July, 2016 The report for approval of the scientific research program u/s 35(2AA) of the IT Act, 1961 can be submitted to Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax or Principal Director General of Income-tax or Director General of Income-tax having jurisdiction over the sponsor. The report for approval of the expenditure incurred on in-house research and development facility by a company u/s 35(2AB) of the IT Act, 1961 can be submitted by the prescribed authority in Form No. 3CL electronically to Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax or Principal Director General of Income-tax or Director General of Income-tax having jurisdiction over such company within 120 days- Of the grant of approval - in relation to the approval of in-house research and development facility in Part A of Form No.3CL Of the submission of the audit report in relation to quantifying the expenditure incurred on in-house research and development facility by the company during the previous year and eligible for weighted deduction under Section35(2AB) in Part B of Form No.3CL. Form No. 3CLA shall be furnished electronically to the Secretary, Department of Scientific and Industrial Research on or before the due date specified in Explanation 2 to Section139(1) for furnishing the return of income, for each succeeding year. Principal Director General of Income-tax (Systems) shall specify the procedures, formats and standards for ensuring secure capture and transmission of data, and shall also be responsible for the day-to-day administration in relation to furnishing the information in the manner so specified. Consequential changes have been made in Form No 3CK (Application form for entering into an agreement with the Department of Scientific and Industrial Research for cooperation in in-house Research and Development facility and for audit of the accounts maintained for that facility). CNK & Associates LLP Page 3 of 22

4 Annexure I has been inserted after Part C to provide for furnishing of information required there under separately in respect of each research and development facility approved by the prescribed authority under Section 35(2AB). Annexure II has been inserted to provide for furnishing the details of expenditure incurred on research and development facility/centre approved by the prescribed authority under Section 35(2AB). Form No 3CL now contains the report to be submitted by the prescribed authority to the income-tax authority specified under Section 35(2AB). Form No 3CLA contains the report from an accountant to be furnished under Section 35(2AB) relating to in-house scientific research and development facility. In Form No 3CM containing the order of approval of in-house Research and Development facility under Section35(2AB) to require the registration number, date and validity of recognition granted by the Department of Science and Industrial Research to the in-house research and development centre of the company. Furnishing of evidence of claims by employee for deduction of tax under Section 192 & Time and mode of payment of TDS and TCS to Government account the Income-tax (11th Amendment) Rules, 2016 Notification No. 30/2016, dated 29 th April 2016 With effect from 1 st June 2016, Rule 26C of the Income Tax Rules, 1962 requires furnishing of the following evidence of the claims by an employee to the person responsible for making payment under Section192(1) in Form No.12BB for the purpose of estimating his income or computing the tax deduction of tax at source. Sr. No. Nature of Claim Evidence or Particulars 1 House Rent Allowance Name, address and PAN of the landlord(s) where the aggregate rent paid during the previous year exceeds Rs. 1 lakh. 2 Leave Travel Concession or Evidence of expenditure Assistance 3 Deduction of interest under the head Name, Address and PAN of the lender Income from House Property 4 Deduction under chapter VI-A Evidence of investment or expenditure Rule 30(2A) There is an increase in time limit for payment of TDS under Section194- IA to government account from 7 days to 30 days from the end of the month in which deduction is made. CNK & Associates LLP Page 4 of 22

5 Rule 31A(2) - Common due date is now applicable for filing of statement of TDS under Section200(3) in case of Government deductors and other deductors Sr. No. Date of ending of the quarter of the financial year Due Date 1 30 th June 31 st July of the Financial Year (FY) 2 30 th September 31 st October of the FY 3 31 st December 31 st January of the FY 4 31 st March 31 st May of the FY immediately following the FY in which the deduction is made. Procedure for online submission of statement of deduction of tax under Section 200(3) and statement of collection of tax under proviso to Section 206C (3) read with Rule 31A(5) and 31AA(5) respectively Notification No. 6/2016, dated 4 th May 2016 and Notification No.11/2016, dated 22 nd June 2016 The Principal Director General of Income-tax (Systems) has laid down the following procedures of registration in the e-filing portal, the manner of the preparation of the statements and submission of the statements as follows: The deductors/collectors will have the option of online filing of e-tds/tcs returns through e-filing portal or submission at TIN Facilitation Centers. Procedure for filing e- TDS/TCS statement online through e-filing portal is as under: Registration: The deductor/collector should hold valid TAN and is required to be registered in the e-filing website ( as "Tax Deductor & Collector" to file the "e-tds/e-tcs Return Preparation: The Return Preparation Utility (RPU) to prepare the TDS/TCS Statement and File Validation Utility (FVU) to validate the Statements can be downloaded from the tin NSDL website ( The statement is required to be uploaded as a zip file and submitted using a Digital Signature Certificate. The signature file for the zipped file will be generated using the DSC Management Utility (available under 'Downloads' in the e-filing website Alternatively, deductor/collector can e-verify using EVC. Submission: The deductor/collector is required to login to the e-filing website using TAN and go to TDS -> Upload TDS. The deductor/collector is required to upload the "Zip" file along with the signature file (generated as explained in para (b) above) or EVC. Once uploaded, the status of the statement shall be shown as "Uploaded". The uploaded file shall be processed and validated at the e-filing portal. Upon validation the status shall be either "Accepted" or "Rejected which will reflect within CNK & Associates LLP Page 5 of 22

6 24 hours from the time of upload. The status of uploaded file will be visible at TDS - > View Filed TDS. In case the submitted file is "Rejected", the reason for rejection shall be displayed. Procedure for submission of declaration by a person claiming receipt of certain incomes without deduction of tax in Form 15G/15H under Section197A(1)/(1A) read with Rule 29C Notification No. 7/2016, dated 4 th May 2016 The Principal Director General of Income-tax (Systems) has laid down the following procedures: Registration: The deductor/collector is required to register by logging in to the e-filing website ( of the Income Tax Department. To file the "Statement of Form 15G/15H", deductor should hold a valid TAN. Following path is to be used for the registration process: Register yourself Tax Deductor & Collector Preparation: The prescribed schema for Form 15G/15H and utility to prepare XML file can be downloaded from the e-filing website home page under forms (other than ITR) tab. The Form 15G/15H utility can be used to prepare the xml zip file. The declaration is required to be submitted using a Digital Signature Certificate. The signature file for the zipped file can be generated using the DSC Management Utility (available under Downloads in the e-filing website Submission: The designated person is required to login to the e-filing website using TAN and go to e-file Upload Form 15G/15H. The designated person is required to upload the "Zip" file along with the signature file (generated as explained in para (b) above). Once uploaded, the status of the statement shall be shown as "Uploaded". The uploaded file shall be processed and validated at the e-filing portal (list of validations are given in the user manual). Upon validation, the status shall be either "Accepted" or "Rejected which will reflect within 24 hours from the time of upload. The status of uploaded file will be visible at my account View Form 15G/15H. In case the submitted file is "Rejected", the reason for rejection shall be displayed and the corrected statement can be uploaded again. Relaxation in conditions for issue of certificate without tax deduction Notification No. 31/2016, dated 5 th May 2016 Income Tax Rule 29B relates to Application for Certificate authorizing receipt of Interest and other sums without deduction of tax under Section195(a) in which the condition for issue of certificate that person applying for the certificate has not been subjected to penalty under Section271(1)(iii) has been removed. CNK & Associates LLP Page 6 of 22

7 Relevant dates notified for the purpose of the Income Declaration Scheme, 2016 Notification No. 32/2016, dated 19 th May 2016 The Central Government has notified the following dates for the purposes of the Income Declaration Scheme, 2016: Sr. No. Particulars Relevant Date 1 A person may make declaration u/s 183(1) On or before 30 th 2 The tax and surcharge is payable u/s 184, and penalty is payable u/s 185 in respect of the undisclosed income 3 The benamidar shall transfer to the declarant, being the person who provides the consideration for such asset, or his legal representative The Income Declaration Scheme Rules, 2016 notified Notification No. 33/2016, dated 19 th May 2016 September 2016 On or before 30 th November, 2016 On or before 30 th September, 2017 The Income Declaration Scheme Rules, 2016 have come into force on the 1 st June The Rules provide for the various definitions, the methods to determine the fair market value of assets declared and the manner of declaration of income or income in the form of investment in any asset etc. The Rules have also notified the various forms under the said scheme like Form 1 (Form of declaration under Section183 of the Finance Act, 2016, in respect of the Income Declaration Scheme, 2016), Form 2 (Acknowledgement of declaration), Form 3 (Intimation of payment under Section187(1)) and Form 4 (Certificate of declaration under Section183). The rules for furnishing of: electronically under digital signature; or through transmission of data in the form electronically under electronic verification code; or in print form, to the concerned Principal Commissioner or the Commissioner who has the jurisdiction over the declarant. Last date for filing declaration under Direct Tax Dispute Resolution Scheme Notification No. 34/2016, dated 26 th May 2016 The Central Government has notified 31 st day of December 2016 as the date on or before which a person may make a declaration to the designated authority in respect of tax arrears or specified tax under the Direct Tax Dispute Resolution Scheme, CNK & Associates LLP Page 7 of 22

8 Direct Tax Dispute Resolution Scheme Rules, 2016 Notification No. 35/2016, dated 26 th May 2016 CBDT notifies Direct Tax Dispute Resolution Scheme Rules, For details refer: Date of Applicability of Equalisation Levy Notification No. 37/2016, dated 27 th May 2016 Equalisation levy has been notified to be applicable from 1 st June, Equalisation Levy Rules, 2016 Notification No. 38/2016, dated 27 th May 2016 The Equalisation Levy Rules, 2016 have been notified. For details refer: Challan-cum-statement in Form No. 26QB to be now filed within 30 days Notification No. 39/2016, dated 31 st May 2016 Rule 31A(4A) has been amended to increase the time limit to furnish the challan-cumstatement in Form No. 26QB electronically from 7 days to 30 days from the end of the month in which deduction is made. CBDT notifies Cost Inflation Index for FY Notification No. 42/2016, dated 2 nd June 2016 Cost Inflation Index, which is applicable for computation of indexed cost of acquisition while computing long term capital gains, has been notified as 1125 for FY Section14A disallowance Rule 8D Notification No. 43/2016, dated 2 nd June 2016 Rule 8D has been amended to delete the proportionate interest on general borrowings, and to provide that the Section14A disallowance shall not exceed total expenditure claimed by the assessee. CNK & Associates LLP Page 8 of 22

9 Simplification of procedure for Form No. 15G & 15H Clarifications Notification No. 09/2016, dated 9 th June 2016 The due dates for quarterly uploading of 15G/H declarations by payers on e-filing portal have been notified as under: Sr. No. Date of ending of the quarter of the FY Due Date 1 30 th June 15 th July of the FY 2 30 th September 15 th October of the FY 3 31 st December 15 th January of the FY 4 31 st March 30 th April of the FY immediately following the FY in which declaration is made. The manner for dealing with Form 15G/15H received by payer during the period from 1 st October 2015 to 31 st March 2016: It has been clarified that the payer is to furnish 15G/15H declarations received during the period from 1 st October 2015 to 31 st March 2016 on e-filing portal ( in the given format on or before 30 th June No TDS on Section 10(23DA) payment received by securitization trust Notification No. 46/2016, dated 17 th June 2016 No deduction of tax under Chapter XVII of the Income Tax Act, 1961 is now required to be made on the payments of the nature specified in Section 10(23DA) of the Act received by any securitization trust as defined in clause (d) of the Explanation to Section115TC of the Act. No TDS on payment to payment systems company authorised by RBI. Notification No. 47/2016, dated 17 th June 2016 The Central Government hereby notifies that no deduction of tax under Chapter XVII of the Section 197A(1F) of the Income-tax Act, 1961 shall be made on the payments of the nature specified below, in case such payment is made by a person to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934, excluding a foreign bank, or to any payment systems company authorised by the Reserve Bank of India namely :- bank guarantee commission; cash management service charges; depository charges on maintenance of DEMAT accounts; charges for warehousing services for commodities; CNK & Associates LLP Page 9 of 22

10 underwriting service charges; clearing charges (MICR charges) including interchange fee or any other similar charges by whatever name called charged at the time of settlement or for clearing activities under the Payment and Settlement Systems Act, 2007; credit card or debit card commission for transaction between merchant establishment and acquirer bank FATCA Rules for registration, due diligence & information maintenance Notification No. 48/2016, dated 20 th June 2016 In order to provide sufficient time to the reporting Financial Institutions for completing the due diligence procedure in respect of other reportable account referred to in Rule 114H (3)(d)(ii), which is high value account as on 31 st December 2015, the timeline specified for review of pre-existing individual account has been extended from 30th June, 2016 to 31 st December The timeline in case of U.S. reportable account which is low value account as on 30 th June 2014 continues to be 30 th June Similarly, in respect of other reportable account referred to in Rule 114H(5)(e)(i), timeline specified for review of pre-existing entity account has been extended from 30 th June 2016 to 31 st December The timeline in case of a U.S. reportable account continues to be 30 th June, For details refer: General Anti Avoidance Rule Notification No. 49/2016, dated 22 nd June 2016 The cut-off date for exclusion from provisions of General Anti Avoidance Rule (GAAR), for transfer of investments, of 30 th August 2010, has been amended to 1 st April Further, the cut-off date for applicability of GAAR, has been extended from 1 st April 2015, to 1 st April, Relaxation from deduction of Tax at higher rate u/s 206AA Notification No. 53/2016, dated 24 th June 2016 Rule 37BC has been inserted to provide the details and documents required to be furnished by a non-resident, not having permanent account number, in order that the provisions of Section206AA shall not apply in respect of payments in the nature of interest, royalty, fees for technical services and payments on transfer of any capital asset. These documents and CNK & Associates LLP Page 10 of 22

11 details include address in the home country, tax residency certificate of the home country and tax identification number in the home country. For details refer: /notification /notification pdf Rules for Foreign Tax Credit Notification No. 54/2016, dated 27 th June 2016 Rule 128 has been notified, laying down the rules for grant of credit of taxes paid in a foreign country. The credit is to be granted in the year in which the income corresponding to such tax has been offered to tax or assessed to tax in India For details refer: Government Notifies Rules regarding Fair market value and reporting requirement for Indian concern Indirect transfer provisions Section 9(1) of the Income-tax Act, 1961 Notification No. 55/2016, dated 28 th June 2016 The rules for Determination of value of assets and apportionment of income in certain cases have been notified. The rules lay down the formula for determination of the proportion of assets located in India, and also requires furnishing of a report of an accountant in Form 3CT. For details refer: /communications/ notification/notification pdf) Circulars Initiation of penalty proceedings under Sections 271D and 271E of the Income-tax Act, 1961 Circular No.: 09/2016, dated 26 th April 2016 CBDT has notified that the Assessing Officers (below the rank of Joint Commissioner of income-tax) have to make a reference to the Range Head, regarding any violation of the provisions of Section269SS and Section269T, as the case may be, in the course of the assessment proceedings (or any other proceedings under the Act). The Assessing Officer (below the rank of Joint Commissioner of Income-Tax) shall not issue the notice in this regard. The Range Head will issue the penalty notice and shall dispose/complete the proceedings within the limitation prescribed under Section 275(1)(c). CNK & Associates LLP Page 11 of 22

12 Limitation for penalty proceedings under Sections 271D and 271E of the Income-tax Act, 1961 Circular No.: 10/2016, dated 26 th April 2016 The CBDT has clarified that the period of limitation of penalty proceedings under Section 271D and Section 271E of the Act is governed by the provisions of Section 275(1)(c). Therefore, the limitation period for the imposition of penalty under these provisions would be the expiry of the FY in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later. The limitation period is not dependent on the pendency of appeal against the assessment or other order referred to in Section 275(1)(a). Payment of interest on refund under Section 244A of excess TDS deposited under Section 195 of the Income-tax Act, 1961 Circular No.: 11/2016, dated 26 th April 2016 CBDT has clarified that, in view of the judgment made by the Apex Court, it is settled that if a resident deductor is entitled for the refund of tax deposited under Section195, then it has to be refunded with interest under Section244A from the date of payment of such tax. Verification of tax-returns for Assessment Years , , , and through EVC which are pending due to non-filing of ITR-V Form and processing of such returns Circular No.: 13/2016, dated 6 th May 2016 In case of returns for Assessment Years , , , , and , which were uploaded electronically by the taxpayer within the time allowed under Section139 of the Act and which have remained incomplete due to nonsubmission of ITR-V Form for verification, the CBDT has permitted verification of such returns also through EVC. Such verification process must be completed by 31 st August As an alternative to EVC, the taxpayer is allowed to send a duly signed copy of ITR-V to the CPC, Bengaluru by this date by speed post. In such cases, CBDT has also relaxed the time-frame for issuing the intimation as provided in second proviso to Section143(1) of the Act, and directed that such returns shall be processed by 30 th November 2016 and intimation of processing of such returns shall be sent to the taxpayer concerned as per the laid down procedure. In refund cases, while determining the interest, provision of Section 244A(2) of the Act would apply. In case the taxpayer does not get his return regularized by furnishing a valid verification (either EVC or ITR-V) till 31 st August 2016, necessary consequences as provided in law CNK & Associates LLP Page 12 of 22

13 for non-filing the return may follow. In this regard, Principal DGIT (Systems) has been directed to take all necessary measures to duly inform the taxpayers who are proposed to be covered vide this order, to complete the verification process within the time allowed. Additional Depreciation u/s 32(1)(iia) of the Income Tax Act, reg. Circular No.: 15/2016, dated 19 th May 2016 The CBDT has clarified that the business of printing or printing and publishing amounts to manufacture or production of an article or thing and is accordingly eligible for additional depreciation u/s 32(1)(iia) of the Act. It has also directed that appeals may not be filed on this ground by officers of the Department and those already filed in Courts/Tribunals may be withdrawn / not pressed upon. Explanatory Notes on provisions of the Income Declaration Scheme, 2016 as provided in Chapter IX of the Finance Act, 2016 Circular No.: 16/2016, dated 20 th May 2016 The Scheme provides an opportunity to persons who have paid not full taxes in the past to come forward and declare the undisclosed income and pay tax, surcharge and penalty totaling in all to 45% cent of such undisclosed income declared. This Circular explains the substance of the provisions of the said scheme as incorporated in Chapter IX of the Finance Act, The Circular covers in detail the following: the scope of the scheme, rate of tax, surcharge and penalty, time limits for declaration and making payment, form for declaration, declaration not eligible in certain cases, circumstances where declaration shall be invalid and effect of valid declaration. Clarifications on the Income Declaration Scheme, 2016 Circular No.: 17/2016 dated 20 th May 2016, Circular No.: 24/2016 dated 27 th June 2016 and Circular No.: 25/2016 dated 30 th June 2016 The Income Declaration Scheme, 2016 incorporated as Chapter IX of the Finance Act, 2016 has come into force from 1 st June The first of the Tax Payer Education series of Frequently Asked Questions (FAQs) specifying details of the scheme and clarifying eligibility available under the same has been uploaded on the official website of the Income Tax Department www. incometaxindia.gov.in for viewing. CNK & Associates LLP Page 13 of 22

14 Jurisdictional Principal Commissioner/ Commissioner to be the Principal Commissioner/ Commissioner to whom declaration under the Income Declaration Scheme, 2016 is to be made Circular No.: 19/2016, dated 25 th May 2016 The CBDT has clarified that the jurisdictional Principal Commissioner or the Commissioner, as the case may be, who exercises jurisdiction over such declarant, shall be the Principal Commissioner or the Commissioner as referred to in Section186 of the Income Declaration Scheme 2016, to whom declaration under Section183 of that Scheme is to be made. Relaxation for Furnishing of UID in case of Form 15G/15H for certain quarters reg. Circular No.: 18/2016, dated 25 th May 2016 Rule 29C(5) provides that the payer shall also furnish unique identification number along with the details of the transactions covered under Form 15G/15H in quarterly TDS statements in accordance with the provisions of Rule 31A(4)(vii), irrespective of the fact that no tax has been deducted in the said quarter. The CBDT has relaxed the condition of furnishing of Unique Identification number allotted by the deductor for the quarter ending and in the quarterly statement of deduction of tax in accordance with sub-rule (5) of Rule 29C. E-filing of appeals: Extension of time limit. Circular No.: 20/2016, dated 26 th May 2016 The CBDT has extended the time limit for filing of e-appeals to the Commissioner (Appeals). E-appeals which were due to be filed by 15 th May 2016 can be filed up to 15 th June All e-appeals filed within this extended period would be treated as appeals filed in time. Taxpayers who could not successfully e-file their appeal and had filed paper appeals are required to file an e-appeal in accordance with Rule 45 before the extended period i.e. 15 th June Such e-appeals would also be treated as appeals filed within time. Clarification regarding cancellation of registration u/s 12AA of the Income-tax Act, 1961 in certain circumstances Circular No.: 21/2016, dated 27 th May 2016 It is clarified that it shall not be mandatory to cancel the registration already granted u/s 12AA to a charitable institution merely on the ground that the cut-off specified in the CNK & Associates LLP Page 14 of 22

15 proviso to Section2(15) of the Act is exceeded in a particular year, without there being any change in the nature of activities of the institution. If in any particular year, the specified cut-off is exceeded, the tax exemption would be denied to the institution in that year and cancellation of registration would not be mandatory unless such cancellation becomes necessary on the ground(s) prescribed under the Act. With the introduction of Chapter XII-EB in the Act vide Finance Act, 2016, prescribing special provisions relating to tax on accreted income of certain trusts and institutions, cancellation of registration granted u/s 12AA may lead to a charitable institution getting hit by sub-section(3) of Section115TD and becoming liable to tax on accreted income. The cancellation of registration without justifiable reasons may, therefore, cause additional hardship to an assessee institution due to attraction of tax-liability on accreted income. The tax authorities have, therefore, been advised not to cancel the registration of a charitable institution granted u/s 12AA just because the proviso to Section 2(15) comes into play. The process for cancellation of registration is to be initiated strictly in accordance with Section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions. Admissibility of claim of deduction of Bad Debt under Section 36(1)(vii) read with Section 36(2) of the Income-Tax Act, reg. Circular No.: 12/2016, dated 30 th May 2016 The CBDT has clarified that the claim for any debt or part thereof in any previous year, shall be admissible under Section 36(1)(vii) of the Act, if it is written off as irrecoverable in the books of accounts of the assessee for that previous year and it fulfills the conditions stipulated in Section 36(2). Accordingly, it has directed that no appeals may henceforth be filed on this ground and appeals already filed, if any, on this issue before various Courts/Tribunals may be withdrawn/not pressed upon. Amendment in Section 206C vide Finance Act 2016 Clarifications regarding TCS Circular No.: 22/2016, dated 8 th June 2016 Finance Act 2016 has expanded the scope of Section206C (1D) with effect from 1 st June 2016, to provide that the seller shall collect 1% from the purchaser on sale in cash of any goods (other than bullion and jewellery) or providing of any services (other than payment on which tax is deducted at source under Chapter XVII-B) exceeding Rs.2 lakh. So far as sale of Jewellery and bullion is concerned, the provisions of sub-section (1D) of Section206C prior to its amendment by the Finance Act 2016 continue to apply. Further, with a view to bring high value transactions within the tax net, Section 206C(1F) provides that the seller who receives consideration for sale of a motor vehicle exceeding Rs. 10 lakh, shall collect 1% of the sale consideration as tax from the buyer. Any person CNK & Associates LLP Page 15 of 22

16 who obtains in any sale the goods of the nature specified in sub-section (ID) or (IF) of Section 206C is a buyer. The seller for the purposes of collection of tax under Section 206C shall be A Central Government or a state Government, Any local authority, or corporation or authority established under any Central, State or Provincial Act, Any company, firm or cooperative society, An individual or Hindu undivided family who is liable to audit as per provisions of Section 44AB during the FY immediately preceding the FY in which the goods are sold or the services are provided. Amendment in Section 206C of the Income-tax Act vide Finance Act 2016 Clarifications regarding TCS Circular No.: 23/2016, dated 24 th June 2016 The CBDT has issued FAQs vide Circular No.22/2016 dated 8 th June, The Board has decided to clarify the issue as regards applicability of the provisions relating to levy of TCS where the sale consideration received is partly in cash and partly in cheque by issue of an addendum to the above circular, in the form of question and answer. For FAQ refer: Press Information Income Computation and Disclosure Standards notified under Section145(2) of the Income tax Act, 1961 to be applicable from 1 st April 2016 The Central Government had notified 10 Income Computation and Disclosure Standards (ICDS), which were applicable from 1 st April 2015 i.e. Previous Year (PY) (Assessment Year (AY) ). Subsequent to notification of the ICDS, a number of representations were received which were examined by an Expert Committee. The revision of ICDS/ issue of clarifications as recommended by the Committee are under consideration. The revision of the Tax Audit Report is also being made for ensuring the compliance with the provisions of ICDS and for capturing the disclosures mandated by the ICDS. Considering these facts, the applicability of ICDS has been postponed to 1 st April 2016 i.e. PY (AY ). For details refer: CNK & Associates LLP Page 16 of 22

17 Recent Judicial Decisions Charitable Trusts and Institutions Letting out of property held under trust when it is vacant; is an incidental activity not hit by the proviso to Section 2(15). DIT (Exemptions) Mumbai vs. Lala Lajpatrai Memorial Trust 69 taxmann.com 158 (Bom HC) dated 13 th April 2016 Assessee-trust, established for educational purposes had let out its building which included an auditorium to an Institute, to conduct colleges, and run a Management Institution on a nominal rent. When the auditorium was not utilised by college, it was let out to outsiders. The Bombay High Court held that income earned from letting out of premises is incidental activity and would not fall within first proviso to Section2(15). It is a well-settled principle of law that the test to determine as to what would be a charitable purpose within the meaning of Section2(15), is to ascertain what is the dominant object of the activity; whether it is to carry out a charitable purpose or to earn profit. If the pre-dominant object is to carry out a charitable purpose and not to earn profit, the purpose would not lose its charitable character merely because the some profit arises from the activity. The High Court also held that Section 11(4A) which requires maintenance of separate accounts would not be attracted as letting out was part and parcel of educational activities carried on by trust. Contributions made by members of a mutual concern cannot be subjected to tax merely because part of its excess of income over expenditure is invested in mutual funds CIT vs. Air Cargo Agents Association of India 68 taxmann.com 335 (Bom HC) dated 31 st March 2016 The concept of mutual concerns not being subject to tax is based on the principle that no man can profit out of itself. The jurisdictional High Court held that therefore, the test to be satisfied before an association can be classified as a Mutual concern are complete identity between the members i.e. contributors and the participants, the action of the mutual concern must be in furtherance of its objectives and there must be no scope of profiteering by the contributors from a fund. Mere investment of excess of income over expenditure in mutual funds cannot make the contributions of members of a mutual concern liable to tax. CNK & Associates LLP Page 17 of 22

18 Salary Income Tips collected from customers by the employer Hotel and paid to its employees does not amount to Salary and hence employer is not required to deduct TDS on such payments u/s 192 ITC Ltd. vs. CIT 68 taxmann.com 323 (SC) dated 26 th April 2016 The assessee hotel was paying tips to its employees without deducting tax on same. The amounts were paid from the tips collected through credit card payments from the customers in the restaurants/hotel. The Supreme Court held that since the employer company was not responsible for paying the tips to the employee, and it represented voluntary payment from third parties, it could be considered as Salary as per provisions of Section 15. Further, the argument of the revenue that these payments were received by the employees from their employer and hence, Section17 would be attracted was also not acceptable. In the instant case, even though the payment was made by the employer company, the company is not responsible for making this payment. It is clear that under the scheme of Section17, payment must be by an employer, whether such employer is a future employer or a past employer of the employee in question. The contract of employment in the instant cases, not being the proximate cause for the receipt of tips by the employee from a customer, the same would be outside the dragnet of Sections 15 and 17 and accordingly assessee could not be considered to be an assessee in default in pursuance of provisions of Section 201. Capital Gains Deferred consideration which is dependent on a contingency does not accrue unless the contingency has occurred and is not liable to capital gains tax in year of transfer CIT vs. Mrs. Hemal Raju Shete 68 taxmann.com 319 (Bom HC) dated 29 th March 2016 The Bombay High Court held that where there is no certainty of receiving any amount as deferred consideration, the aggregate amount of deferred consideration cannot be brought to tax in the year of transfer. The test of accrual is whether there is a right to receive the amount though later and whether such right is legally enforceable. This amount which could be received as deferred consideration is dependent/contingent upon certain events, therefore, it cannot be said to have accrued to the assessee. What can be taxed is the amount received or accrued and not any notional or hypothetical income. CNK & Associates LLP Page 18 of 22

19 Business income Expenditure on Corporate Social Responsibility (CSR), is a deductible expenditure. Explanation 2 to Section 37(1) inserted w.e.f. 1 st April 2015 is not retrospective and is only applicable to CSR expenditure referred to in Section 135 of the Companies Act 2013 and not to voluntary CSR expenditure ACIT vs. Jindal Power Ltd. 70 taxmann.com 389 (Raipur Trib) dated 23 rd June 2016 The Raipur Bench of the ITAT held that Explanation 2 to Section 37(1) is introduced only with effect from 1 st April 2015 and hence cannot be construed so as to be disadvantageous to the assessee for the period prior to this amendment. This provision as set out in Explanation 2 to Section 37(1), refers only to CSR expenses under Section 135 of the Companies Act, 2013, and, as such, it cannot have any application for the period not covered by this statutory provision which itself came into existence in Furthermore the Explanation 2 to Section 37(1) comes into play with reference to the expenses incurred under the statutory obligation of Section135 of the Companies Act and hence it was held that expenses incurred on a voluntary basis would be said to be incurred "wholly and exclusively for the purposes of business". Income From Other Sources Fundamental Principles of accrual of income under mercantile system of accounting explained CIT vs. Neon Solutions Pvt. Ltd. IT Appeal No and 2360 of 2013 (Bom HC) dated 5 th April 2016 The Mumbai Tribunal held that it is a fundamental principle that for accruing any income there should be a reasonable degree of certainty of its realisation. Non-recognition of income on the ground that the income had not accrued as the realisability of the principal outstanding itself was doubtful is legally correct under the mercantile system of accounting. The Bombay High Court dismissed the appeal filed by the Department and upheld the order of the Tribunal as questions raised did not give rise to any substantial question of law. Losses in Speculation Business Loss incurred in share trading business by companies whose principal business is trading in shares will not be treated as speculation loss but as normal business loss and the same can be adjusted against income from business or other sources. Fiduciary Shares & Stock (P.) Ltd. vs. ACIT 70 taxmann.com 23 (Mum Trib) dated 13 th May 2016 The Mumbai Tribunal held that the amendment of Explanation to Section 73 of the Act though inserted by Finance (No. 2) Act, 2014 is clarificatory in nature and is applicable retrospectively from 1 st April 1977 from which date the Explanation to Section 73 was CNK & Associates LLP Page 19 of 22

20 placed on the statute. Therefore, the loss incurred in share trading business by such companies, i.e. like the assessee will not be treated as speculation business loss but normal business loss, and hence the same loss can be adjusted against other business income or income from any other sources of the year. Section 245 Approach of the department in setting off refund against demand without serving a prior intimation under Section245, without providing opportunity of hearing to assessee and without arriving at a satisfaction to the effect that such adjustment of refund can only be the mode of recovery of demand is bad in law. Department directed to refund the amount set off together with interest. Vijay Singh Kadam vs. CCIT- W.P. (C) 683/2016 (Writ Petition Del. HC) dated 25 th April 2016 The High court has held that the power under Section 245 of the Act to set off amount to be refunded against the sum amount found payable is discretionary in nature and before invoking such power; the AO is expected to intimate the assessee in writing informing him of the action proposed to be taken under this section. A further implicit requirement is that the Revenue will have to be satisfied that the Assessee will not be in a position to satisfy the demand of tax and that but for the set off, the outstanding tax amount cannot be recovered at all. The High Court directed the Department to issue the refund to the assessee which was adjusted without issuing notice under Section 245. Return back to Contents CNK & Associates LLP Page 20 of 22

21 CNK in News Tax collection at source a solution and a problem Authored by Mr. Gautam Nayak Holding overseas assets is not a crime by itself Authored by Mr. Gautam Nayak Tax rules tilt scales in favour of buybacks versus dividends Authored by Mr. Gautam Nayak Tax transparency: how much public disclosure is needed? Authored by Mr. Gautam Nayak Return back to Contents CNK & Associates LLP Page 21 of 22

22 DISCLAIMER AND STATUTORY NOTICE This e-publication is published by CNK & Associates, LLP, Chartered Accountants, India, solely for the purposes of providing necessary information to employees, clients and other business associates. This publication summarises the important statutory and regulatory developments. Whilst every care has been taken in the preparation of this publication, it may contain inadvertent errors for which we shall not be held responsible. The information given in this publication provides a bird s eye view on the recent important select developments and should not be relied solely for the purpose of economic or financial decision. Each such decision would call for specific reference of the relevant statutes and consultation of an expert. This document is a proprietary material created and compiled by CNK & Associates LLP. All rights reserved. This newsletter or any portion thereof may not be reproduced or sold in any manner whatsoever without the consent of the publisher. This publication is not intended for advertisement and/or for solicitation of work. Our Offices in India Bengaluru Chennai 96, 7th Cross, Kochu Bhavan Domlur, Ground Floor, Old No 62/1, New No 57, Bengaluru McNichols Road, Chetpet Tel. No Chennai Tel No Mumbai Mumbai (Suburban Office) Mistry Bhavan, 3rd Floor, 501/502, Narain Chambers, Dinshaw Vachha Road, Churchgate M.G. Road, Vile Parle ( East) Mumbai Mumbai Tel No Tel No: /01/02 Pune Vadodara 4, Kumar Panorama, 1 st Floor C-201/202, Shree Siddhi Vinayak Complex, 45/18 Shankerseth Road Faramji Road, Pune Alkapuri, Tel No: /52 Baroda Tel. No Our Overseas Office Dubai Suite#17.06 Dubai World Trade Centre Shaikh Zayed Road, Dubai, P.O.Box Tel. No CNK & Associates LLP Page 22 of 22