Western India Regional Council of
The Institute of Chartered Accountants of India

Law Update Details

February 2019 CA. Haresh P. Kenia, CA. Deepak Lala, CA. Paras K. Savla & CA. Hemant R. Shah

Double Taxation Agreement-Section 90-Agreement between India and Hong Kong

The Central Government vide Notification No. S.O.6247(E) [No. 89/2018 (F.No. 500/124/97-FTD-II] dated 21/12/2018, notifies that agreement between the Government of the Republic of India and Government of the Republic of Hong Kong special administrative Region of People’s Republic of China for the avoidance of Double Taxation and prevention of fiscal evasion with respect to taxes on income. The agreement was signed on 19th March, 2018 and shall have effect in India in respect of Income derived in any fiscal year beginning or after the first day of April following the date on which the agreement entered into force. The agreement entered into force on 30th November, 2018.

Income Tax Authorities-Section 119 of the Income Tax Act 1961-Extension for furnishing report u/s. 286(4) of the Income Tax Act- instruction to subordinate authorities

The CBDT vide circular No. 9/2018 [F. No. 370142/17/2018-TPL] dated 26/12/2018 extends the period for furnishing of the report u/s. 286(4) read with rule 10DB(4) of the Income Tax Rules, by the constituent entities referred to u/s. 286(4)(a) or (aa), in respect of reporting accounting years ending upto February 28, 2018 to March 31, 2019. The Board in exercise of the power u/s. 119 issued the clarification as a one time measure, in order to remove the genuine hardship.

This is in view of notification in GSR 1217( E) dated 18/12/2018 which has amended and substituted rule 10DB(4) to provide that the period for furnishing of the report u/s. 286(4) by the constituent entity shall be 12 months from the end of the reporting accounting year.

It was further provided that in case the parent entity of the constituent entity is resident of a country or territory, where, there has been a systemic failure of the country or territory and the said failure has been intimated to such constituent entity, the period for submission of the report shall be six months from the end of the month in which said systemic failure has been intimated.

The CBDT received the representation stating that constituent entity of an international group, which is resident in India, having parent entity resident in jurisdictions with which India does not have an agreement providing for exchange of the report of the nature referred to in sub-section(2) of the Act and where the reporting accounting year is calendar year based, i.e., ending on December 31 of the year, would need to furnish the report under sub-section (4) of section 286 of the Act in India by December 31, 2018. The constituent entity in such case for the reporting accounting year ending on 31/3/2017 would have been required to furnish CbCR by 31/3/2018 which is not plausible.

In order to remove genuine hardship the Board extended the period for furnishing the report u/s. 286(4) read with the rule 10DB(4), in respect of the reporting accounting year upto February 28, 2018 to March 31, 2019.

Deduction of tax at source-Section 197 read with Section 206C of the Income Tax Act-Certification for deduction at lower rate – no deduction of Income Tax

The Principal Director General of Income Tax (systems) vide Notification No. 8/2018 [F. No. PR.DGIT(S)/CPC(TDS)/Notification/2018-19] dated 31/12/2018, in exercise of the powers delegated by the Central Board of Direct Taxes under Rule 28(2)/37G(2) of the Income Tax Rules, specifies the procedure, formats and standards for the purpose of electronic filling of Form No. 13 and generation of certificate u/s. 197(1)/206C(9) through TRACES as per the procedure given in the notifications.

The rule 28/37G of the Income Tax Rules, 1962 has been amended vide CBDT Notification No. 74/2018 dated 25/10/2018 to provide for filling an application for grant of certificate for deduction of Income Tax at lower rate or no deduction u/s. 197(1)/206C(9) to be made in Form No. 13 electronically in accordance to the procedures, formats and standards for ensuring secure capture and transmission of data and uploading of documents to be laid down by the Principal Director General of the Income Tax (systems)

The notification provides for the following:-
a. Procedure for electronic filling of Form 13
b. Procedure for assignment of application to the TDS assessing officer
c. Processing of the tax payer/deductee’s request by the TDS assessing officer, Range Heads and Commissioner of the Income Tax
d. Issuance of Certificate

Income from other sources-Section 56(2)(viia) –not to apply in case of receipt of shares by closely held company or firm as a result of fresh issuance of shares by closely held company

The CBDT vide circular no.: 10/2018 [F.No.173/626/2018-ITA.I] dated 31/12/2018 clarified as under:

The CBDT, keeping in view the legislative intent to apply anti-abuse provision contained in section 56(2) (viia) to transfer of shares for no or inadequate consideration, clarified that section 56(2) (viia) of the Act shall apply in cases where a specified company or firm receives the shares of the specified company through transfer for no or inadequate consideration. Hence, the provisions of section 56(2)(viia) of the Act shall not be applicable in cases of receipt of shares by the specified company or firm as a result of fresh issuance of shares as mentioned above, by the specified company.

The section 56(2) (viia) of the Income Tax Act, 1961 provides for taxation of income where a company in which public are not substantially interested or a firm receives shares of a specified company from a person for no or inadequate consideration.

The representation was received by the board that the term “receives” used in section 56(2)(viia) of the Act, being of a wider import and might lead to taxation of Income in the cases where the shares are received by a firm or specific company as a result of a fresh issuance of shares including by way of issue of bonus shares, right shares and preference shares or transactions of similar nature by the specified company.

Income from other Sources-Section 56(2)(viia) of the Income Tax Act-Withdrawal of circular No. 10/2018[F. No. 173/626/2018-ITA.I] dated 31/12/2018 on applicability of section 56(2)(viia) of the Income Tax Act for issue of shares by company in which public are not substantially interested

The CBDT vide circular No. 02/2019[F. No. 173/616/2018-ITA.I] dated 4/1/2019 withdraws the circular No. 10/2018 dated 31/12/2018 and clarified that said circular shall be considered to have been never issued.

It has been brought to the notice of the Board that the matter relating to interpretation of the term “receives” used in section 56(2) (viia) of the Income Tax Act, 1961 is subjudice in certain higher judicial forums. Further, representations have been received from stakeholders seeking clarification on other similar provisions in section 56 of the Act.

Accordingly, the matter has been reconsidered by the Board. Given the fact that the matter relating to interpretation of the term “receives” used in section 56(2)(viia) of the Act is pending before judicial forums and stakeholders have sought clarifications on similar provisions in section 56 of the Act, the Board is of the view that the matter is required to be examined afresh so that a comprehensive circular on the matter can be issued.

Deduction of Tax at source-Salaries –Section 192-Income Tax deduction from salaries during the financial year 2018-19

The CBDT vide circular No. 01/2019 [F. No. 275/192/2018-IT(B)] dated 1/1/2019 specifies the rates of deduction of Income Tax from the payment of income under the head “salaries” under section 192 of the Income Tax Act during the financial year 2018-19 and also explains certain related provisions of the Act and Income Tax Rules, 1962.

Finance Act 2018-Explanation notes

The CBDT vide circular No. 8/2018 [F. No. 370/142/07/2018-TPL], dated 26/12/2018 gives explanatory notes to the provisions of the Finance Act, 2018.

Income Tax Authorities-Section119-Exception from online filling of the application under section 197 and 206C(9) in the cases of NRI’s and resident applicants

The CBDT by virtue of the powers u/s. 119 of the Act issued the order dated 24/12/2018, allowing the following:

i. Allows non-resident Indians (NRI’s), who are not able to register themselves on TRACES, to file manual application in Form No. 13 before the TDS officer or in ASK Centres till 31/3/2019.

ii. Allows resident applicants to file manual application in Form No. 13 before the TDS officer or in ASK Centres till 31/12/2018.

The rule 28 was amended vide notification 74/2018 dated 25/10/2018, to prescribe electronically filling of application for lower deduction or no deduction u/s. 197 using digital signature or EVC. Similar changes are also made in rule 37G to prescribe electronic filling of application u/s. 206C(9) for lower or NIL rate of tax collection at source.

The functionality of online filling has since been made available by CPC-TDS through TRACES Portal Form No. 13 is a common form for application u/s. 197 and 206C(9).

In order to remove genuine hardship being faced by the certain applicants in filling online application in Form No. 13 and for proper administration of the provision of section 197 and 206C(9), the Board has allowed the Non-Resident Indian and Resident applicants to file manual application in certain circumstances.

Clarification on revision of monetary limits for filling appeals by the Department-Para 10 of the circular 3 of 2018 dated 11/7/2018

The CBDT vide circular No. 279/MIS/M-93/2018-ITJ, dated 11/12/2018 has issued the following clarification:-

The CBDT had vide circular No. 3 of 2018 dated 11/7/2018 raised threshold limit for filling appeal before ITAT, High Courts and Supreme Courts. In order to reduce litigation on the Income Tax matters, the CBDT has sharply increased the threshold limit for filling appeal before jurisdictional authorities as under:

Sr. No. Appeals /SLPs in Income- Tax Matters Monetary Limit (Rs.)
1 Before Appellate Tribunal 20,00,000
2 Before High Court 50,00,000
3 Before Supreme Court 1,00,00,000

The CBDT now clarified as under:

In para 10 of the said Circular read with Board’s letter issued vide F. No. 279/ Misc. 142/2007-ITJ (Pt), dated 20/8/2018, it has been unambiguously and expressly provided that adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax effect:

a. Where the Constitutional validity of the provisions of an Act or Rule is under challenge, or

b. Where Board’s order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or

c. Where Revenue Audit objection in the case has been accepted by the Department, or

d. Where addition relates to undisclosed foreign income/undisclosed foreign assets (including financial assets)/undisclosed foreign bank account.

e. Where addition is based on information received from external sources in the nature of law enforcement agencies such as CBI/ED/DRI/SFIO/Directorate General of GST Intelligence (DGGI).

f. Cases where prosecution has been filed by the Department and is pending in the Court.

The direction that appeals be ‘contested on merits’ in itself implies that there should not be any mechanical filling of appeals in these cases. It is therefore reiterated that the import and intent of para 10 of Circular 3 of 2018 is that even on issues mentioned in the said para, appeals against the adverse judgments should only be filed on merits.

S. 148, 292BB Reassessment notice issued in the name of diseased assessee

The notice fore reopening assessment was issued in name of deceased assessee. It was held that If the original assessee had lived and later participated in the proceedings, then, by reason of Section 292BB, she would have been precluded from saying that no notice was factually served upon her. When the notice was issued in her name- when she was no longer of this world, it is inconceivable that she could have participated in the reassessment proceedings, (nor is that the revenue’s case) to be estopped from contending that she did not receive it – Rajender Kumar Sehgal vs. ITO [2019] 101 taxmann.com 233 (Delhi).

S. 276C Prosecution

Assessee has contested assessment before the ITAT. Pending order of ITAT, which is the final fact-finding body. Assessing Officer initiated prosecution for willful evading payment of tax. It was held that there was no necessity for the Income Tax Department to have launched the prosecution hurriedly since the law of limitation under Section 468 Cr.P.C. for criminal prosecution has been excluded by the Economic Offences (Inapplicability of Limitation) Act, 1974 – Sayarmull Surana vs. ITO [2019] 101 taxmann.com 228 (Madras).

194-IA Limit of 50 lacs to be considered qua joint owner and not qua agreement

Each transferee is a separate income tax entity therefore, the law has to be applied with reference to each transferee as an individual transferee / person. The law cannot be interpreted and applied differently for the same transaction, if carried out in different ways. The point to be made is that, the law cannot be read as that in case of four separate purchase deed for four persons separately, Section 194-IA was not applicable, and in case of a single purchase deed for four persons and amount attributable to each person is below the statutory limit – Vinod Soni vs. ITO [2019] 101 taxmann.com 190 (Delhi-Trib.).

S. 2(24) Concept of real income

The Assessee agency merely performs the statutory functions under the VAT Act, 2005 and collects the tax amount for and on behalf of the State and transfers such collection to the Government Treasury. Even if the tax collection remains temporarily parked with the Assessee for some time, it cannot be treated as ‘income’ generated by the Assessee as the said amount does not belong to it. PCIT vs. H.P. Excise & Taxation Technical Service Agency.


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