INCOME TAX REGULATORY UPDATES SEPT 2022
NOTIFICATION NO. 99/2022/F. NO.370142/9/2022-TPL PART (2), DATED 17-08-2022
TCS provisions u/s 206C(1G) don’t apply to NR-buyer who doesn’t have PE in India: CBDT
Editorial Note : The CBDT has notified that the provisions of section 206C(1G) shall not apply to a person (being a buyer) who is a non-resident and who does not have a permanent establishment in India. The CBDT has withdrawn its earlier notification wherein exemption was provided to NR who is visiting India.
NOTIFICATION NO.98/2022/F.NO.370142/33/2022-TPL, DATED 17-08-2022
CBDT notifies Form 29D to get refund of tax deducted under section 195
Editorial Note : The Finance Act 2022 inserted a new Section 239A providing that a taxpayer may file an application before the AO to get the refund of tax deducted under section 195 on any income (other than interest) if no tax deduction was required. Now, the CBDT has notified that such application shall be filed in Form no. 29D along with copy of an agreement or other arrangement referred to in section 239A.
NOTIFICATION NO. S.O. 3867(E), DATED 17-08-2022
CBDT notifies ‘CPPIB India Private Holdings Inc.’ for Sec. 10(23FE) exemption
Editorial Note : The Central Board of Direct Taxes (CBDT) has notified pension fund, namely, CPPIB India Private Holdings Inc., for the purpose of exemption under section 10(23FE). The notified funds shall be eligible to claim exemption in respectively.
NOTIFICATION NO. 100/2022/F.NO. 370142/35/2022-TPL, DATED 18-08-2022
CBDT extends time-limit for furnishing of Form 67; FTC can be claimed at time of filing belated & updated ITR
Editorial Note : The CBDT has amended Rule 128 to provide that Form 67 can be furnished on or before the end of assessment year where return of income for such assessment year has been furnished within the time specified under Section 139(1) or Section 139(4). In case of updated return, Form shall be filed on or before filing of such updated return.
NOTIFICATION NO. 101/2022/F.NO. 370142/37/2022-TPL, DATED 22-08-2022
CBDT amends Rule 17CB to replace ‘trust or institution’ with ‘specified person’ to incorporate FA 2022 amendment
Editorial Note : The Finance Act 2022 had amended Section 115TD to make them applicable to any institution covered under section 10(23C)(iv)/(v)/(vi)/(via). The amendment has been carried out by substituting the words “trust or institution” with the words “specified person”. Rule 17CB which provides for method of valuation of accreted income for the purposes of section 115TD has been amended to substitute reference of “trust or institution” with “specified person
IMPETUS TO IFSC – TAX EXEMPTION U/S 10(4E) – CBDT PRESCRIBES CONDITIONS TO BE FULFILLED FOR TAX EXEMPTION ON TRANSFER OF OFFSHORE DERIVATIVE INSTRUMENTS OR OVER-THE-COUNTER DERIVATIVES BY NONRESIDENTS
Section 10(4E) of the Income-tax Act exempts income arising to a non-resident by way of transfer of
- Non-deliverable forward contracts, or
- Offshore derivative instruments, or
- Over-the-counter derivatives,
entered into with an offshore banking unit of an IFSC which fulfils prescribed conditions under rule 21AK of the Income-tax Rules, 1962.
The prescribed rules for this purpose are:
- The off shore banking unit must be holding a valid registration certificate granted under IFSC
regulations, and
- The contract must not be entered into by the non-resident through a ‘Permanent Establishment’
(i.e., taxable presence) in India.
Notification no. 87 dated 1 August 2022 issued by CBDT
The original rule 21AK prior to amendment by CBDT prescribed the conditions applicable for taxexemption only for non-deliverable forward contracts u/s 10(4E). Going forward, however, off-shore derivative instruments and over-the counter derivatives have also been included in the rule to align the same with section 10(4E).
RECENT JUDICIAL RULINGS ON INCOME TAX
SECTION 9 OF THE INCOME-TAX ACT, 1961 – INCOME – DEEMED TO ACCRUE OR ARISE IN INDIA
Royalties/fees for technical services – Web hosting services : Where assessee paid web hosting charges to various vendors towards space provided on their websites and AO held same to be in nature of FTS whereas CIT(A) held same to be in nature of royalty and, further, held that same was also taxable as business income under DTAA, since all three characters could not be attributed to same kind of payment, matter was to be remanded to AO for de novo verification in order to correctly characterise nature of said payment – Lemnisk (P.) Ltd. v. Deputy Commissioner of Income-tax – [2022] 141 taxmann.com 195 (Bangalore – Trib.)
Royalty/FTS – Advisory, consultancy and professional service : Where assessee paid consultancy charges to various non-resident consultants in various countries and Assessing Officer treated same as FTS and made disallowance under section 40(a)(i) for non-deduction of TDS on same without considering agreements between assessee and various parties located in different jurisdictions qua DTAA, issue was to be remanded to Assessing Officer to consider it de novo in light of agreements entered into by assessee with various parties – Lemnisk (P.) Ltd. v. Deputy Commissioner of Income-tax – [2022] 141 taxmann.com 195 (Bangalore – Trib.)
SECTION 23 OF THE INCOME-TAX ACT, 1961 – INCOME FROM HOUSE PROPERTY – ANNUAL VALUE
Vacancy allowance : Where assessee with two co-owners executed lease deed on 1-2-2016 and as per lease deed possession was given to lessee on 1-6-2016, since for period between 1-2-2016 and 1-6-2016 assessee was making demised property operational and property was actually let out during relevant financial year, section 23(1)(c) would be applicable and as lease rental received was nil, addition made by Commissioner (Appeals) on basis of Annual Letting Value (ALV) under section 23(1)(a) was to be deleted – Yash Vardhan Arya v. Income-tax Officer (International Taxation) – [2022] 141 taxmann.com 216 (Bangalore – Trib.)
SECTION 37(1) OF THE INCOME-TAX ACT, 1961 – BUSINESS EXPENDITURE – ALLOWABILITY OF
Professional fee : Where assessee incurred expenditure on account of professional fees for establishment of its subsidiary company in Australia, since said expenditure was incurred for expanding assessee’s business, same was capital in nature – Lemnisk (P.) Ltd. v. Deputy Commissioner of Income-tax – [2022] 141 taxmann.com 195 (Bangalore – Trib.)
SECTION 40(a)(i) OF THE INCOME-TAX ACT, 1961 – BUSINESS DISALLOWANCE – INTEREST, ETC. PAID TO A NON-RESIDENT WITHOUT DEDUCTION OF TAX AT SOURCE
Depreciation : Where assessee made payment to a non-resident for purchase of software and capitalized same, no disallowance of depreciation on said capitalized amount could be made by invoking section 40(a)(i) even though assessee did not deduct TDS on such payment – Lemnisk (P.) Ltd. v. Deputy Commissioner of Income-tax – [2022] 141 taxmann.com 195 (Bangalore – Trib.)
Contingent payment : Where assessee created provision towards advertisement charges at end of year, since said provision was in respect of contingent liability for which invoices were not received and, further, assessee had immediately reversed said provision on 1st day of next accounting year even before amount accrued to payee, thus, there was no accrual of income in hands of payee, no disallowance was to be made in respect of said provision – Lemnisk (P.) Ltd. v. Deputy Commissioner of Income-tax – [2022] 141 taxmann.com 195 (Bangalore – Trib.)
SECTION 57 OF THE INCOME-TAX ACT, 1961 – INCOME FROM OTHER SOURCES – DEDUCTIONS
Interest : Where assessee had not brought on record any documentary evidence to show that it had incurred interest expenditure as against income assessed under head ‘Income from other sources’, disallowance of interest expenditure was to be confirmed – Yash Vardhan Arya v. Income-tax Officer (International Taxation) – [2022] 141 taxmann.com 216 (Bangalore – Trib.)
SECTION 92B OF THE INCOME-TAX ACT, 1961 – TRANSFER PRICING – INTERNATIONAL TRANSACTION, MEANING OF
Others : Where in earlier year assessee had sold intellectual property in question to its AE and it was an outright sale and there was no international transaction in relevant assessment year after outright sale of such asset, no TP adjustment was to be made – DQ Entertainment (International) Ltd. v. Deputy Commissioner of Income-tax – [2022] 141 taxmann.com 188 (Hyderabad – Trib.)
Corporate Guarantee : Transaction of providing corporate guarantee results in providing benefit to AE and, therefore, provision of transfer pricing should be invoked in respect of such a transaction – DQ Entertainment (International) Ltd. v. Deputy Commissioner of Income-tax – [2022] 141 taxmann.com 188 (Hyderabad – Trib.)
SECTION 92C OF THE INCOME-TAX ACT, 1961 – TRANSFER PRICING – COMPUTATION OF ARM’S LENGTH PRICE
Adjustments – Interest : Share application money cannot be treated as loan amount only because of delay in issuance of shares by its subsidiary – Wockhardt Ltd. v. Assistant Commissioner of Income-tax – [2022] 141 taxmann.com 189 (Pune – Trib.)
Adjustments – Guarantee commission : Benchmarking of guarantee fee charged by assessee at 0.75 per cent by obtaining a quotation from HSBC India which had been used as an external CUP could not be faulted with – Wockhardt Ltd. v. Assistant Commissioner of Income-tax – [2022] 141 taxmann.com 189 (Pune – Trib.)
Adjustments – Interest : Interest on loans advanced to AEs has to be charged on basis of rate prevalent in countries where loan was received – Wockhardt Ltd. v. Assistant Commissioner of Income-tax – [2022] 141 taxmann.com 189 (Pune – Trib.)
Adjustments – Interest : There are several factors which need to be considered before holding that every receivable is an international transaction and it requires an assessment on working capital of assessee – Wockhardt Ltd. v. Assistant Commissioner of Income-tax – [2022] 141 taxmann.com 189 (Pune – Trib.)
Adjustments – Commission : It is aggregate of all costs incurred by assessee which produce overall profit from manufacturing activity; where there were four types of costs incurred by assessee, namely, material consumption manufacturing expenses, administrative selling and distribution expenses and depreciation, TPO was not justified in considering only two expenses, namely, manufacturing and marketing as contributing to earning of profits; TPO ought to have considered material cost and depreciation cost contributing to generation of income from manufacturing activity in same way as he considered manufacturing and marketing costs – Deputy Commissioner of Income-tax v. Atlas Copco (India) Ltd. – [2022] 141 taxmann.com 192 (Pune – Trib.)
SECTION 154 OF THE INCOME-TAX ACT, 1961 – RECTIFICATION OF MISTAKE – APPARENT FROM RECORDS
AO cant withdraw interest u/s 244A(2) in rectification u/s 154 when PCCIT/CCIT/PCIT/CIT has not decided exclusion of period for interest – Otis Elevator Company (India) Ltd. v. Deputy Commissioner of Income-tax, 13(1)(1) – [2022] 141 taxmann.com 391 (Mumbai – Trib.)
SECTION 276B OF THE INCOME-TAX ACT, 1961 – OFFENCES AND PROSECUTION – FAILURE TO PAY TAX ON DISTRIBUTED PROFITS OF DOMESTIC COMPANIES/DEDUCTED AT SOURCE
Conditions precedent : Where Trial Court took note of notice issued to assessee under section 2(35) and came to conclusion that assessee was only asked to show cause why prosecution should not be initiated against him for offence punishable under section 276B, but nothing was contained therein with regard to contents of section 2(35), no error was committed by Trial Court in discharging assessee for offence punishable under section 276B – Income-tax Department v. Jenious Clothing (P.) Ltd. – [2022] 141 taxmann.com 239 (Karnataka)
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