CBDT clarification on CASS assessments

 

The CBDT has issued Instruction Number 20/2015 to clarify several issues in connection with scrutiny in CASS assessments. This is a very welcome step taken by the CBDT although it remains to be seen whether the assessing officers will follow these instructions in word and spirit. The said instructions are attached.

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Proteus Consultants and I are not responsible for any and all losses, claims, damages and liabilities arising out of or related to following anything that may be posted in this blog. If you rely upon anything posted here, you do so at your sole risk and responsibility.

New monetary limits for quoting of PAN

Vide Press Release, the CBDT has announced that revised monetary limits for compulsory quoting of PAN shall apply from 01st January, 2016. The Press Release is available here. The change in Rule 114B may be expected shortly.

 

Disclaimer:
Proteus Consultants and I are not responsible for any and all losses, claims, damages and liabilities arising out of or related to following anything that may be posted in this blog. If you rely upon anything posted here, you do so at your sole risk and responsibility.

CBDT simplifies requirements relating to Form 15CB

The CBDT has simplified the requirements relating to obtaining Form 15CB in respect of payments made out of India. The list of payments that do not require Form 15CB has been expanded and greater clarity has been provided in the way in which Form 15CA is to be filled in. Please write to us at info@proteusconsultants.com for more details.

 

Disclaimer:
Proteus Consultants and I are not responsible for any and all losses, claims, damages and liabilities arising out of or related to following anything that may be posted in this blog. If you rely upon anything posted here, you do so at your sole risk and responsibility.

CBDT Order: extension of due date

The CBDT has today (30th September, 2015) extended the due date for filing return of income and tax audit report to 31st October, 2015 for assessees in Gujarat and Punjab & Haryana who were due to file this by 30th September, 2015. This order is in compliance with the directions of the jurisdictional High Courts in the cases of Vishal Garg & Ors v Union of India & Anr (CWP 19770-205) as well as All Gujarat Federation of Tax Consultants v CBDT (Special Civil Application No. 15075 of 2015).

This appears to be an aggressive stand of the CBDT and the relation has probably not been extended to other states because no Court has directed the CBDT to do so. The order is subject to the outcome of any further appeal/SLP that the CBDT may file against the judgments referred to above.

Disallowance u/s 40(a)(ia)

Section 40 of the Income Tax Act, 1961 deals with amounts not deductible in computing the income chargeable under the head “Profits and gains of business and profession”. According to sub-section (ia), as amended by the Finance (No. 2) Act, 2014 w.e.f. 01.04.2015, 30% of any sum payable to a resident on which tax was deductible at source but on which tax has either not been deducted or, after deduction has not been paid on or before the due date for filing return of income was to be disallowed in the hands of the deductor at the time of computing income under the head of “Profits and gains of business and profession”. In such cases, the sum could be claimed as a deduction in the year in which the tax was actually paid [first proviso to section 40(a)(ia)].

 

The Finance Act, 2013 introduced a second proviso to section 40(a)(ia). According to this, if the deductor has failed to deduct the whole or any part of tax that was deductible on payment of any sum to a resident but is not deemed to be an assessee in default as per section 201, then the tax shall be deemed to have been deducted and paid on the date on which the payee (recipient) has filed his/her/its return of income.

 

For the deductor to be deemed to be not an assessee in default as per section 201, the following are to be satisfied vide proviso to section 201(1) inserted by the Finance Act, 2012 w.e.f. 01.07.2012:

 

  1. The deductor has failed to deduct the whole or any part of the tax deductible on sum paid/credited to a resident;
  2. The payee has furnished his return of income u/s 139;
  3. The payee has taken into account such sum for computing his income in his return of income;
  4. The payee has paid the tax due on the income declared by him in the return of income; and
  5. Form 26A is furnished by the payee vide Rule 31ACB.

 

Therefore, government was not really losing any revenue because the tax was being paid by the resident payee although it was not deducted at source /not paid after deduction by the deductor. Although in such cases the deductor was not being considered an assessee in default vide section 201, during the course of assessment, the deductor was not being able to claim the benefit of deduction of the sum in computing his return of income for assessment years up to the date of amendment by the Finance Act, 2013. The revenue authorities continued to disallow the amount u/s 40(a)(ia) up to AY 2012-13 because the amendment in this section was effected from AY 2013-14.

 

In an order that has recently been confirmed by the Hon’ble High Court (in the case of Ansal Land Mark Township Pvt. Ltd.), Delhi, the ITAT, Agra Bench considered the entire issue in the case of Rajiv Kumar Agarwal in ITA 337/Agra/2013. The ITAT analysed the provisions in detail and reasoned that the insertion of the second proviso to section 40(a)(ia) was declaratory and curative in nature and should be given retrospective effect from 01.04.2005.

 

This judgment of the Hon’ble High Court, Delhi should be of assistance to those who face disallowance u/s 40(a)(ia) of such sums, although they are not be held assessees in default as per section 201.

Regarding extension of due date of filing return of income to 07th September, 2015

On 2nd September, 2015, it was notified by the CBDT that the due date for filing return of income for all assesses who were required to file their returns electronically by 31st August, 2015 had been extended to 07th September, 2015.

Many people seem to have missed the fact that the extension has been granted only for those who were required to file their returns electronically and not to all taxpayers. The extension, therefore, applies only to the following:

  1. Individual or HUF filing return of income in ITR 3 or ITR 4, that is, earning income from being Partners in Firm or having income from proprietorship business, but not liable for tax audit;
  2. Resident individual having income from any source outside India;
  3. Individual claiming any relief under DTAA with another jurisdiction;
  4. Individuals filing return in Form ITR 1 or ITR 2 and having total income in excess of INR 5 Lakhs or claiming refund of taxes;
  5. Firm not liable for tax audit u/s 44AB.

The extension of due date for filing return of income does not apply to those who were required to file their return of income by 31st August, 2015 but who do not fall in the above category.

 

Disclaimer:
Proteus Consultants and I are not responsible for any and all losses, claims, damages and liabilities arising out of or related to following anything that may be posted in this blog. If you rely upon anything posted here, you do so at your sole risk and responsibility.

New Rule defining period of stay in India for crew of ships

Section 6 of the Income Tax Act, 1961 deals with “Residence in India”. The Finance Act, 2015 inserted Explanation 2 to Section 6(1) which says that for an individual who is a citizen of India and a member of a crew of a foreign bound ship leaving India, the period of stay in India in respect of the voyage as such a crew member shall be determined in the prescribed manner.

Now the CBDT has issued notification number 70/2015 prescribing the manner of determination of period of stay for such cases. According to the said Notification, in case of a citizen of India and a member of a crew of a ship, the period or periods of stay in respect of an eligible voyage shall not include the following period(s): the period from the date of joining the ship till the date of signing off from the ship as entered in the Continuous Discharge Certificate in respect of the voyage.

You can read the rest of the brief here.

Disclaimer:
Proteus Consultants and I are not responsible for any and all losses, claims, damages and liabilities arising out of or related to following anything that may be posted in this blog. If you rely upon anything posted here, you do so at your sole risk and responsibility.

Finance Act 2015 available for download

The 2015 Finance Act has been passed and is now available for download here. Some interesting features are:

 

General Announcements

  • Current account deficit for FY15 to be below 1.3 % of GDP.
  • Expect CPI to remain close to 5% by year-end.
  • To achieve 3.9% fiscal deficit in FY16.
  • To put in place Direct Tax Regime.
  • Increase in Visa On Arrival facility from 43 to 150 countries.

Taxes

  • To rationalise & remove exemptions for corporates.
  • Basic rate of Corporate Tax reduced from 30% to 25% over next 4 years.
  • Exemptions for Individual Tax payers to continue.
  • Distinction between foreign direct investment and foreign portfolio investment will be abolished
  • GAAR deferred by two years.
  • To incentivise debit-credit card transactions.
  • To exempt SAD on all items.
  • To replace wealth tax with additional 2% surcharge on super rich with annual income of over 1 crore rupees.
  • To increase central excise duty to 12.5%.
  • Excise duty cut on footwears.
  • Changes in Excise duty on cigarettes.
  • To increase service tax rate from 12.36% to 14%.
  • Transport Allowance exemption increased to Rs. 1600.
  • To allow Exemption of Rs. 1.5 lakh under New Pension Scheme.
  • Health insurance premium exemption raised to Rs 25,000 from Rs 15,000.
  • Health Insurance premium limit for senior citizens to be Rs. 30,000.
  • Giving the PAN number to be made mandatory for any purchases above Rs 1 lakh.

For more details, read the budget.

 

Disclaimer:
Proteus Consultants and I are not responsible for any and all losses, claims, damages and liabilities arising out of or related to following anything that may be posted in this blog. If you rely upon anything posted here, you do so at your sole risk and responsibility.

Safe harbour rules notified

The government has notified the Safe Harbour Rules. Download a PDF version at Safe Harbour Rules.

Disclaimer:
Proteus Consultants and I are not responsible for any and all losses, claims, damages and liabilities arising out of or related to following anything that may be posted in this blog. If you rely upon anything posted here, you do so at your sole risk and responsibility.

Safe Harbour Rules Draft released for feedback and comments by stakeholders

DRAFT “SAFE HARBOUR RULES”

 

The Ministry of Finance, Government of India, has issued a Press Release on 14th August, 2013 inviting comments and suggestions on Safe Harbour Rules. The draft rules have been framed based on the recommendations of the Rangachary Committee.

 

WHAT IS SAFE HARBOUR?

With increase in business with foreign customers and vendors, many of whom are related parties for the Indian entity doing business with them, the provisions relating to Transfer Price (TP) and Arms Length Price (ALP) have become very critical. It is commonly known that there are many disputes between the Revenue Authorities and the taxpayer on the computation of TP/ALP. In India, the authorities have been very aggressive in arriving at estimates of TP/Alp and their estimate is, quite often, at variance with the TP/ALP declared by the taxpayer. Vide Finance (No. 2) Act, 2009, a new section, viz. 92CB, was inserted in the Income Tax Act, 1961 (Act) which says that the determination of ALP shall be subject to safe harbor rules. It defines “safe harbor” as circumstances in which the income-tax authorities shall accept the transfer price declared by the taxpayer.

 

TO WHOM WOULD THE SAFE HARBOUR RULES APPLY?

The draft Rules propose that safe harbor rules would apply to an “eligible assessee” who enters into an “eligible international transaction” in certain circumstances as specified.

 

WHO IS AN ELIGIBLE ASSESSEE?

An “eligible assessee” means a person who has exercised the option for application of safe harbor rules and who:

  1. Is engaged in providing software development services or ITES or KPO services, with insignificant risk, to a non-resident associated enterprise;
  2. Has made any intra-group loan;
  3. Has provided a corporate guarantee;
  4. Is engaged in providing contract R&D services wholly or partly relating to software development, with insignificant risk, to a non-resident associated enterprise;
  5. Is engaged in providing contract R&D services wholly or partly relating to generic pharmaceutical drugs, with insignificant risk, to a non-resident associated enterprise; or
  6. Is engaged in the manufacture and export of core and non-core auto components and where 90% or more of total turnover during the financial year are in the nature of OEM sales.

 

WHAT IS AN ELIGIBLE INTERNATIONAL TRANSACTION

This refers to an international transaction between the eligible assessee and its associated enterprise. Either or both should be non-resident. The transaction should undertaken by the eligible assessee and should comprise of:

  1. Software development services, ITES or KPO services, where the aggregate value of such transactions during the fiscal year does not exceed INR 100 crores for each of such services.
  2. Advance of intra-group loan, provision of corporate guarantee, contract R&D services wholly or partly relating to software development or generic pharmaceutical drugs and manufacture and export of core and/or non-core auto components.

 

WHAT IS INSIGNIFICANT RISK?

The draft rules propose that an eligible assessee with insignificant risk shall be identified having regard to the following factors:

  1. The non-resident associated enterprise (foreign principal) performs most of the economically significant functions involved in the work. These would include conceptualization and design of the product, providing strategic direction and framework, either through its own employees or through its other associated enterprises (which excludes the eligible assessee). The only role of the eligible assessee would be to carry out the work assigned by the foreign principal;
  2. The capital, funds and other economically significant assets (including intangibles required) are provided by the foreign principal or its other associated enterprises. The eligible assessee is only remunerated for the work carried out by it;
  3. The eligible assessee works under the direct supervision of the foreign principal. The foreign principal should not only have the capability to control or supervise by also actually controls or supervises the activities carried out;
  4. The eligible assessee does not assume or has no economically significant realized risks. This requirement is not a “paper requirement” but shall be judged from the actual conduct of the foreign principal;
  5. The eligible assessee has no ownership right (whether legal or economic) on any intangibles that are generated during the course of rendering of the services. This should vest in the foreign principal as evidenced both by the contract as well as from the conduct of the parties.

 

WHAT ARE THE CIRCUMSTANCES THAT ARE SPECIFIED

The circumstances specified are set out in the table below:

 

Eligible International Transaction Circumstances specified
Software development services Operating Profit Margin (OPM) is 20% or more on Operating Expenses (OE).
ITES OPM is 20% or more on OE.
KPO OPM is 30% or more on OE.
Intra-group loans where the amount of loan advanced does not exceed INR 50 crores. Interest rate should be at least base rate of SBI as at 30th June of the relevant fiscal year + 150 basis points.
Intra-group loans where the amount of loan advanced exceeds INR 50 crores. Interest rate should be at least base rate of SBI as at 30th June of the relevant fiscal year + 300 basis points.
Corporate guarantee not exceeding INR 100 crores Commission of 2% or more per annum on the guaranteed amount.
Contract R&D services relating to software development OPM is 30% or more of OE
Contract R&D services relating to pharmaceutical drugs OPM is 29% or more of OE
Manufacture and export of core auto components OPM is 12% or more on OE
Manufacture and export of non-core auto components OPM is 8.50% or more on OE

 

HOW ARE OPERATING EXPENSE (OE), OPERATING REVENUE (OR) AND OPERATING PROFIT MARGIN (OPM) DEFINED?

OE means the cost incurred during the course of its normal operations and in connection with eligible international transactions for the fiscal year. It includes depreciation and amortization expenses relating to the assets used by the taxpayer but excludes the following:

  1. Interest expense;
  2. Provision for unascertained liabilities;
  3. Pre-operating expenses;
  4. Loss arising out of translation of foreign currency items;
  5. Extra-ordinary items;
  6. Loss on sale of assets/investments of the taxpayer;
  7. Other items not relating to the operating activities of the taxpayer.

 

OR means the revenue of the taxpayer earned during the course of its normal operations and in connection with eligible international transactions for the fiscal year. It excludes the following:

  1. Interest income;
  2. Provision no longer required written back;
  3. Refunds relating to income-tax expense of taxpayer;
  4. Income arising out of translation of foreign currency items;
  5. Extra-ordinary items;
  6. Income on sale of assets/investments of the taxpayer;
  7. Other items not relating to the operating activities of the taxpayer.

 

OPM is defined as (OR-OE)/OE.

 

OTHER IMPORTANT POINTS IN THE DRAFT RULES

  1. Documentation requirements shall continue to apply;
  2. Eligible assessee may not invoke MAP for such transactions where the TP of the eligible assessee is accepted by the Revenue authorities;
  3. For exercising option of safe harbour, Form3CEG should be submitted to the Assessing Officer on or before the due date for filing annual return of income.
  4. Assessing Officer may conduct enquiry to ascertain whether the taxpayer is entitled to apply for safe harbour.
  5. Software development services, ITES, KPO etc have all been defined in the proposed rules and may be referred to.
  6. The rules shall be effective A.Y. 2013-14 and 2014-15.
  7. The rules shall not apply for international transactions entered into with an associated enterprise located in a “no tax” or “low tax” country as defined, or located in a territory specified in section 94A of the Act.

Links:

Draft Safe Harbour rules

Rangachary Commission Report Part 1

Rangachary Commission Report Part 2 to 6

 

Disclaimer:
Proteus Consultants and I are not responsible for any and all losses, claims, damages and liabilities arising out of or related to following anything that may be posted in this blog. If you rely upon anything posted here, you do so at your sole risk and responsibility.