Direct Tax Alert – April 2023
1. Personal income tax to GDP ratio rises to 2.94 in FY 2021-22
The Finance Minister, Smt. Nirmala Sitharaman chaired a periodic review meeting with the Central Board of Direct Taxes (CBDT). During the review meeting, the FM was apprised about the impact of various initiatives. Introducing new data sources in SFT has led to an 1118% increase in reported information. Further, FM was also apprised of the fact that the Personal Income Tax to GDP ratio has been steadily increasing from 2.11 in F.Y. 2014-15 to 2.94 in F.Y. 2021-22.
2. CBDT Notifies Cost Inflation Index for FY 2023-24
Notification No. 21/2023/F.NO. 370142/5/2023 Dated 10-04-2023, in exercise of the powers conferred by clause (v) of the Explanation to Section 48 of the Income Tax Act, 1961, the Central Govt. notified ‘348’ as Cost Inflation Index for the FY 2023-24.
3. CBDT Notifies ‘CBSE’ and ‘GNIDA’ for exemption u/s 10(46)
Notification S.O 1687 No. 18/2023/F.No. 300196/27/2021-ITA-I Dated 10-04-2023.
4. CBDT Notifies jurisdictions of investment entities that won’t be treated as passive non-financial entity for SFT reporting
Notification No. 17/2023 dated 06.04.2023, In exercise of the powers conferred by section 285BA of the Income-tax Act, 1961, read with sub-clause (ii) of clause (D) of the Explanation to clause (6) of rule 114F of the Income-Tax Rules, 1962 the Central Board of Direct Taxes, makes amendment in the notification of the Government of India, Ministry of Finance (Department of Revenue), Central Board of Direct Taxes, published in the Gazette of India, Extraordinary, Part I, Section 1 vide Notification No. 78/2018 dated the 5th November, 2018 in the Table specifying jurisdictions for the purpose of the said sub-clause.
5. Govt. increases maximum amount that can be deposited in National Savings (Monthly Income Account) Scheme
Notification No. G.S.R 239(E) [F.No. 1/3/2023-NS] Dated 31.03.2023-
In the National Savings (Monthly Income Account) Scheme, 2019, in paragraph 4, in sub-paragraph (2),
a.for the words “rupees four lakh fifty thousand”, the words “nine lakhs” shall be substituted;
for the words “nine lakhs”, the words “fifteen lakh” shall be substituted.
Important Judicial Precedents
1. PCIT, Central-3 Vs. Abhisar Buildwell [SC – 149 Taxmann.com 399]
If a search or requisition is conducted, the AO assumes jurisdiction for block assessment under Section 153A of the Act. All pending assessments/reassessments will stand abated, meaning they will no longer be valid. If any incriminating material is found during the search, the AO can assess or reassess the total income, taking into consideration the incriminating material and other material available with the AO, including the income declared in the returns.
However, if no incriminating material is found during the search, the AO cannot make any additions to the completed/unabated assessments. The AO can only re-open these assessments under Sections 147/148 of the Act, subject to the fulfillment of the conditions mentioned under those sections.
2. SAP Labs India Pvt. Ltd. V. ITO [SC – 149 taxmann.com 327]
Determination of the arm’s length price by the Tribunal can be subject to scrutiny by the High Court in an appeal under Section 260A of the IT Act. The High Court can examine whether the relevant guidelines under the Act and the Rules have been taken into consideration, whether the comparability of two companies or selection of filters has been done judiciously, and whether the comparable transactions have been considered properly. Therefore, the view taken by the Karnataka High Court in the case of Softbrands India (P.) Ltd. [2018] 94 taxmann.com 426 (Karnataka)/[2018] 406 ITR 513 (Karnataka) that the determination of the arm’s length price by the Tribunal is final and cannot be subject to scrutiny under Section 260A of the IT Act may not be acceptable.
3. Kamal Nath Vs. PCIT [SC – 149 Taxmann.com 370]
Transfer of jurisdiction valid if documents found from third party revealed that assessee had nexus with them.
SLP dismissed against impugned order of High Court that where sufficient material in form of WhatsApp chats, documents, files, laptops, etc., was found from other involved persons indicating a nexus between them and assessee in large-scale collection of illegal money, order passed under section 127 transferring assessee’s case from Kolkata to Delhi for coordinated investigation was justified.
4. Union of India Vs. Baba Banda Singh Bahadur Education Trust [SC – 150 Taxmann.com 40]
Where Commissioner, while considering application of assessee for grant of exemption under section 10(23C)(vi) specifically observed and held that activity of assessee could not be said to be solely for imparting education and that assessee was indulging into profit and said finding of fact recorded by Commissioner, as such, had not been upset by High Court while setting aside order passed by Commissioner denying exemption under section 10(23C)(vi), impugned judgment and order passed by High Court was to be quashed and set aside.
5. CIT Vs. Prakash Chand Lunia (D) [SC – 149 taxmann.com 416]
Term “any expenditure” in Section 37 includes losses incurred in the course of business and incidental to it. Any loss incurred by an assessee for an unlawful purpose or prohibited by law cannot be deducted as an expenditure under Explanation 1 to Section 37. If an expenditure/loss is incurred for an illegal purpose, it is not deemed to have been incurred for the purpose of business/profession, and no deduction can be made. Losses resulting from penalties or confiscation cannot be claimed as a deduction as they are not incidental to any business.
A penalty or a confiscation is a proceeding in rem, and therefore, a loss in pursuance to the same is not available for deduction regardless of the nature of business, as a penalty or confiscation cannot be said to be incidental to any business.
6. US Technologies International (P.) Ltd. Vs. CIT [SC – 149 taxmann.com 144]
Where assessee-company, engaged in software development, had remitted tax deducted at source in respect of salaries, contract payments etc. belatedly, it was not a case of non-deduction of TDS at all and thus assessee was not liable to pay penalty under section 271C.
7. Owens Corning Singapore Pvt. Ltd. Vs. DCIT [2023-TII-103-ITAT-MUM-INTL]
Whether charges received from AEs for carrying out of re-fabrication of bushings does not tantamount to ‘make available of technical knowledge’ as there is no transfer of technology and hence cannot be taxed as FTS – YES: ITAT
8. TATA NYK Shipping PTE Ltd. Vs. CIT [2023-TII-100-DEL-INTL]
Whether at assessment stage, AO could not enlarge scope of limited scrutiny to examine if assessee is entitled to treaty benefits or not, when tax residency certificate is valid piece of evidence available – YES