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Case Laws Income Tax
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Condonation of delay in tax exemption claims should favor substantive rights over mere technical filing defects when bona fide.
Equitable application of the Condonation Power requires authorities to admit late Form No.10B filings when short delays or credible explanations would otherwise strip claimants of substantive exemption rights; procedural defects such as digital-signature technicalities must be tested against documentary e-filing evidence and substantial compliance, while administrative safeguards permit subsequent verification of the audit report.
Case Laws Income Tax
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Royalty characterisation for software determines withholding-non exclusive copies/licenses generally not subject to TDS unless income is chargeable.
Payments for off the shelf/shrink wrapped software or hardware embedded software that constitute a resale of a copyrighted article or a grant of a non exclusive, restricted licence for internal use do not ordinarily constitute royalty under section 9(1)(vi) or typical DTAA provisions; withholding under section 195 arises only where the non resident's receipts are chargeable to tax in India (e.g., due to a PE or transfer of substantive copyright rights), and retrospective domestic amendments cannot be used to impose past withholding obligations on payors who lacked notice of the expanded definition.
Case Laws Income Tax
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Revisional jurisdiction cannot overturn a plausible assessment on charitable deductions where donation conditions are met.
Tribunals held that Explanation 2 limiting CSR expenditure as a business deduction operates within the business income chapter and does not ipso facto bar claims under the donations regime; specific statutory exceptions indicate Parliament's choice to restrict only certain items. A mandatory CSR outlay does not automatically negate donation character where there is no material return, provided donee approval and documentary evidence are established. On revisional power, section 263 cannot be invoked to overturn an assessing officer's tenable, precedent backed view where enquiries were made; revision is justified only if the AO's conclusion is legally untenable or there was no inquiry.
Case Laws Income Tax
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Accumulated trust income: Tribunal rulings treat the 2022 amendment as prospective, preserving the prior six year utilisation window.
Two Tribunal benches held that the Finance Act, 2022 amendment to the accumulation provision is prospective; accumulations made before 1 April 2022 remain governed by the prior law including the additional one year grace, and utilisation within that six year window cannot be taxed for AY 2023 24. The Tribunals relied on the presumption against retrospectivity, the Finance Bill memorandum stating an effective date of 1 April 2023, and fairness doctrines to conclude Parliament did not intend to curtail vested rights retroactively.
Case Laws Income Tax
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Tribunal recall power limited: later judicial overruling alone cannot reopen finalized tax orders under review rules.
The tribunal's power to amend is limited to rectifying a mistake apparent from the record existing at the time of the original order or to taking into account contemporaneous binding precedent not placed before it; a subsequent overruling or clarification by a superior court cannot alone justify recall, in light of the explanatory bar in Order XLVII Rule 1 CPC and related authorities.
Case Laws Income Tax
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The faceless scheme and RMS produce information that may be surfaced to the JAO, permitting the JAO to conduct the pre-notice inquiry and form satisfaction to issue a notice initiating reassessment; thereafter records may be transmitted for faceless assessment via automated allocation, embodying a two-stage model that preserves both JAO initiation authority and central faceless assessment.
Act Rules Income Tax
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Permitted Modes of Investment: clarifies eligible instruments for registered non profit funds under section 350 compliance.
The schedule lists closed, enumerated permitted modes of investment for monies under section 350, privileging government backed and regulated instruments, specified sectoral debt and equity, deposits with public authorities, and notified schemes; it defines key terms (e.g., long term finance as five year minimum) and preserves transitional and historical exceptions including a one year short term holding rule for non specified assets and preservation of corpus assets held on specified historical dates.
Act Rules Income Tax
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Deduction for specified payments: qualifying contributions allowed, but breach or early disposal triggers recapture of previously allowed deductions.
Schedule XV lists payments that qualify for deduction under section 123-notably life insurance premia subject to quantitative ceilings by policy issue date and disability status, specified provident/pension/superannuation contributions, notified securities and mutual fund units, certain term deposits and housing finance repayments-and sets withdrawal and recapture rules whereby surrender, premature transfer, early withdrawal or sale within holding periods causes previously allowed deductions to be treated as income; definitions and eligibility depend on cross-references and delegated notifications.
Act Rules Income Tax
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Life insurance taxable profit computed by annual average of actuarial surplus, separate from other business for tax purposes.
Life insurance taxable profit must be computed separately as the annual average of actuarial surplus from statutory valuations excluding earlier inter-valuation surplus/deficits, with specified add-backs; non-life taxable income is the profit before tax and appropriations per statutory accounts subject to enumerated tax adjustments, and non-resident branch profits may be allocated by India-premium proportion absent suitably reliable alternative data.
Act Rules Income Tax
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Recognition conditions for provident funds determine tax treatment and trustee obligations, with investment limits tied to securities definitions.
Schedule XI conditions tax-favourable treatment of recognised provident, superannuation and gratuity funds on structural and operational criteria (trust form, vesting, non-revocability, employee coverage, permitted assets and payment rules); recognition/approval is discretionary and revocable; failures attract inclusion of accumulated balances or contributions in employee income and procedural obligations such as TDS; trustees face record-keeping, reporting and potential liability, while the Board may make rules subject to statutory limits and section 534 oversight.
Act Rules Income Tax
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Deduction for site restoration funds: designated SBI deposits allow capped tax relief but trigger deeming on improper use.
A deduction permits upstream petroleum and natural gas taxpayers to deduct amounts deposited in designated site restoration accounts held with the State Bank of India, limited to the lesser of actual deposits or 20% of business profits before the deduction; deposits and interest are treated as account balance, withdrawals are restricted to scheme permitted uses, and improper utilisation or account closure triggers deeming provisions or disallowance, with an eight year clawback on asset sales subject to narrow exceptions.
Act Rules Income Tax
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Deduction for development account deposits: allowable up to 40% of profits, subject to strict deposit, audit and claw back rules.
The Schedule allows growers and manufacturers of tea, coffee and rubber to deduct deposits into prescribed development accounts up to the lesser of actual deposits or 40% of business profits, subject to carrying on the specified business in India, depositing funds in specified special or deposit accounts under board or National Bank schemes, and furnishing a prescribed audited report by the specified date; unauthorised withdrawals or use for specified articles are deemed taxable and assets acquired from such funds are subject to claw back if sold or transferred within eight years.
Act Rules Income Tax
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Income exclusion for political funding conditioned on transparency, recordkeeping, prescribed receipt modes and distribution obligations.
The Schedule excludes specified receipts from total income of eligible political parties and electoral trusts-covering property income, other sources, capital gains and voluntary contributions for registered parties, and voluntary contributions for electoral trusts-conditional on maintenance of books, audited accounts, prescribed filing of returns, donor identification for significant contributions, prescribed modes of receipt for larger donations, distribution obligations for electoral trusts, and cross-referenced compliance with electoral and banking statutory provisions.
Act Rules Income Tax
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Persons exempt from tax: categories qualify for total income exclusion subject to approvals, notifications and prescribed conditions.
Schedule VII lists 48 categories of persons whose total income is exempt from income tax subject to specified conditions: approvals by tax/regulatory authorities, Central Government notifications, prescribed financing thresholds to qualify as wholly or substantially government financed, and defined time limited exemptions for certain financing institutions. The Schedule relies on six Notes for statutory definitions and cross references other income tax provisions (including treatment of anonymous donations) to determine exclusion from total income.
Act Rules Income Tax
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IFSC tax exclusion for specified financial incomes conditions relief on non-resident unit-holding, convertible receipts and prescribed rules.
Schedule VI excludes specified IFSC-related income from "total income" for defined eligible persons, listing discrete income heads (capital gains on IFSC exchange transfers, securities transfers, securitisation trust receipts, derivative and portfolio receipts, royalty/interest on aircraft/ship leases, specified fund returns, dividends of IFSC leasing units, and interest payable by IFSC units) together with conditional eligibility tied to convertible foreign exchange receipt, non-resident unit-holdings, commencement-of-operations windows, regulatory registration, and delegated computational prescriptions.
Act Rules Income Tax
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Tax exclusion for institutional investment vehicles: conditional non inclusion of specified income subject to regulatory compliance and clawback.
Schedule V excludes specified income from total income for defined eligible persons-investment funds, business trusts (including REITs/InvITs), venture capital vehicles and certain foreign public investors-operating as a negative list subject to conditions and Notes. Exclusions include non business dividend and interest for investment funds, SPV interest/dividend exemptions for business trusts, REIT rental income exclusions for directly owned assets, and a layered specified person exemption with holding period, investment type, proportional computation, carve outs and clawback rules; implementation relies on cross references to SEBI/RBI/IFSC rules and Board guidelines.
Act Rules Income Tax
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Non resident exemptions conditioned on residency, limited presence and Central Government notification restrict exclusions from taxable income.
Schedule IV excludes specified receipts from total income of defined non residents and foreign companies where each listed entry identifies the income class, eligible person and conditions for exclusion. Exclusions depend on factual predicates-residency under foreign exchange rules, limited period of presence, absence of employer taxable presence in India, RBI permissions for NR(E) accounts-and on Central Government notification or approved agreements. Key categories include NR(E) account interest, diplomatic remuneration, short term foreign employee remuneration, specified royalties/fees, Offshore Banking Unit deposits, intra group cruise lease rentals, regional community investments and notified crude oil arrangements.
Act Rules Income Tax
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Income exclusions from total income: targeted, conditional exemptions rely on prescribed procedures and cross referenced regulations.
Schedule III excludes specified categories of receipts from total income for designated eligible persons, linking each excluded income to eligible person categories and conditional provisos. It covers personal reliefs (pensions, allowances, capped partial NPS withdrawals), partnership and family allocations, disaster compensation, conditional sectoral subsidies and institutional exemptions (research, khadi, securitisation, investor protection and settlement funds), and relies on prescribed procedures, certificates and cross references to subordinate legislation for operability.
Act Rules Income Tax
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Life insurance exemption tightened by period, premium ratio and aggregate premium tests, altering tax treatment of policy and IFSC receipts.
Schedule II excludes specified classes of income from total income while imposing conditional tests on life insurance and retirement/savings receipts. Life insurance exclusions depend on policy issue periods, premium to sum assured ratios, aggregate premium ceilings and express ineligibility for certain receipts. Provident fund interest attributable to large post cut off contributions is excluded from exemption with the non excluded portion to be computed as prescribed. The Schedule adds an equalisation levy exclusion interacting with treaty notifications and treats IFSC issued policies differently under a targeted aggregate premium carve out.
Act Rules Income Tax
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Business connection safe harbour for non-resident funds: compliance thresholds determine Indian tax nexus exclusion.
The Schedule establishes a safe harbour whereby certain non-resident investment funds and eligible fund managers will not constitute a business connection in India if they satisfy exhaustive investor-composition, concentration, corpus, independence, non-control, prohibited-associate-investment and arm's-length remuneration conditions, with specified carve-outs, transitional reliefs, registration requirements under prescribed securities-regulator frameworks, and filing and record keeping obligations to substantiate compliance.

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Reopening of assessment - Substance over Form - Failure to disclose material fact - Duty of the AO to make an enquiry to test the correctness of the disclosure made even if the statutory forms signed and certified by the Chartered Accountant

10 July, 2019

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2019 (7) TMI 415 - MADRAS HIGH COURT

2018 (10) TMI 442 - MADRAS HIGH COURT

Reopening of the assessment for the year 2010-2011. - Whether ingredients of Section 147 r.w.s 148 are satisfied?

Facts of the case

In the present case, deduction u/s 10B of Income Tax Act, 1961 was allowed to assessee (100% EOU) on the basis of Form No.56G. In the said Form in Column No.8 it is mentioned as 10th year of claim, but, in Column No.7, the date of commencement of manufacturing is mentioned as 28.03.2000. Thus the Assessing Officer stated that the year under consideration happens to be 11th year. The Assessing Officer also referred to the copy of the Form 56G for the assessment year 2001-2002. Accordingly the Assessing Officer informed the assessee that the assessee has exclusively extended its 10B holiday period to the 11th year and hence become ineligible for deduction under Section 10B.

Submission of the assessee

There was no opening stock as on 1.4.2000. The first invoice was raised only on 31.05.2000 to UNICEF, New Delhi. With regard to the date of commencement of manufacturing activity, the assessee stated that the firm came into existence on 20.03.2000, registered as an EOU on 29.03.2000 and has commenced manufacturing activity only after 01.04.2000.

With regard to the discrepancy pointed out by the Assessing Officer in the notice dated 25.01.2017, the assessee stated that the substance over Form is required to be taken into consideration and mere reporting of the date in the Form 56G does not give a conclusive picture as to the date of starting of manufacturing activity which is only in the month of April or which only in the assessment year 2001-02 which has been clearly claimed as the first year of exemption. Therefore, the assessee requested to drop all the assessment proceedings and reopen the assessment.

Single member bench [2018 (10) TMI 442 - MADRAS HIGH COURT], while entertaining the writ petition, has observed that:

Every non disclosure of material facts will not or cannot be a justifiable reason for reopening sustainable under judicial scrutiny.

On the other hand, such non disclosure of a material fact must be of such nature that, but for such non disclosure, the income, relatable to such material fact, would not have escaped assessment. In other words, it should lead to an irrebuttable conclusion that by the conduct of the assessee, either by providing wrong or incorrect particulars or by not providing the full and correct particulars, he should have made the Assessing Officer not to bring a particular income to tax, which is otherwise liable to be taxed. If this test is applied to the present case, I am of the view that the Revenue has to fail.

Revenue took the matter before the division bench of the High Court [2019 (7) TMI 415 - MADRAS HIGH COURT] wherein it was observed that:-

There can be no escape from this fact and the assessee should accept this mistake.................It may be true that the assessee can now take a stand that substance over form is to be considered but what is important is that the assessee at the first instance had a duty to give proper and correct details. We may say that the assessee failed in doing so. Be that as it may, what is required on the part of the Assessing Officer is not to go mechanically by the details disclosed by the assessee in the statutory form and or for that matter signed and certified by the Chartered Accountant. The Assessing Officer being cast with a statutory duty an enquiry is required to test the correctness of the disclosure made in such statutory forms. This is why the concept of substance over form was always preferred by Courts while dealing with such matters.

The second mistake which the assessee committed, which had invited the problem, was not mentioning the correct date of commencement of commercial production in its reply dated 02.02.2007 and this again was submitted through the very same Chartered Accountant. In the reply, there is a vague statement with regard to the commencement of manufacturing activity and what has been stated is that the assessee commenced manufacturing activity only after 01.04.2000. Thus, we are of the view that the assessee appears to have not been very seriously contesting the matter at the relevant point of time. Wisdom dawned upon the assessee only after the appellant passed the order dated 13.02.2017. It is thereafter the assessee through their Chartered Accountant gave the exact date of production/manufacture as 25.05.2000.

Keeping aside all these issues, we have examined the correctness of the order passed by the learned Single Bench and we note with approval the findings of the learned Single Bench in paragraphs 16 and 17 of the impugned order. The above finding rendered by the learned Single Bench is just and proper.

As pointed out by the learned Single Bench every non-disclosure of material facts will not or cannot be a justifiable reason for reopening an assessment. We reiterate that what was required to be considered is that, substance over form.

Therefore, we are of the considered view that the learned Single Bench was perfectly right in allowing the writ petition which had been done after thorough examination of the facts and the legal position. In our considered view the revenue has not made out any grounds to interfere with the order passed by the learned Single Bench.

 


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2019 (7) TMI 415 - MADRAS HIGH COURT

2018 (10) TMI 442 - MADRAS HIGH COURT

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Acts Income Tax