DIRECT TAX ALERT-JUNE 2021
- Section 194R: TDS @ 10% on Benefits or Perquisites arising out of Business or Profession
Finance Act, 2022 inserted section 194R, providing for withholding tax on the provision of any benefit perquisite provided by any person to any resident, in the exercise of the business or profession by such resident. Applicable in case the value of such benefit or perquisite provided in the aggregate exceeds Rs. 20,000/- during the F.Y. This section is applicable from 01.07.2022.
- Section 194S: TDS @ 1% on consideration for transfer of a Virtual Digital Asset (VDA)
Finance Act, 2022 inserted a new section 194S in the Act w.e.f. 1st July 2022. The new section mandates a person, who is responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset (VDA), to deduct an amount equal to 1% of such sum as income tax thereon. The tax deduction is required to be made at the time of credit of such sum to the account of the resident or at the time of payment, whichever is earlier.
- E-filing of Updated ITR u/s 139(8A) has been enabled for AY 2020-21 and AY 2021-22 using Excel utility for ITR 1 and ITR 4.
Important Judicial Precedents
- Remuneration received from firm can’t be construed as gross receipt for purpose of tax audit u/s 44AB.
Where assessee was merely a partner in a partnership firm and was not carrying on any business independently, remuneration received by assessee from said partnership firm could not be treated as gross receipts of assessee and, accordingly, assessee was justified in not getting her accounts audited under section 44AB with respect to such remuneration [Perizad Zorabian Irani v. Principal Commissioner of Income-tax 139 taxmann.com 164]
- Revenue’s appeal is to be rejected in limine if Revenue did not appeal against identical CIT(A) order in past in a non-low-effect case
Revenue can’t appeal against CIT(A) order without good reasons, if it accepted identical CIT(A) order in a non-low-tax-effect case.
When it is not possible for the revenue to challenge an order of the appellate authority in one case and when it has accepted identical order of the appellate authority in another case, it cannot at all be open to the Assessing Officer to challenge the order of CIT(A) on an issue on which relief has been given by CIT(A), in an earlier year, which has been not been challenged in appeal by the Assessing Officer. It is not the case of the Assessing Officer that the earlier year’s CIT(A)’s order was not challenged on account of low tax effect or any other technical reason. Once the stand of the CIT(A), on an issue, is accepted in one year, unless there are good and sufficient reason to take a different stand later, similar findings for a subsequent year cannot be challenged in further appeal either. For this reason alone, the grievance raised by the revenue is not maintainable in law and deserves to be rejected in limine. [ITO V. Niche Health Options Pvt. Ltd. Mumbai Tribunal 140 Taxmann.com 40]
- Sec. 9(1)(i) : Income deemed to accrue or arise in India –PE – Interest will not be taxed at a higher rate- DTAA- India- Japan. [Art. 7, 11(2), 11(6), 14]
Where the assessee is a company incorporated in, and fiscally domiciled in, the Republic of Japan. The assessee, inter alia, earned income from interest on suppliers’ credit. It was held that mere existence of a permanent establishment of the assessee company in India does not attract higher rate of tax. The beneficial rate of tax as per Article 11(2) cannot be denied. [DCIT vs. Marubeni Corporation, Japan (Mum.)(Trib.)ITA No.: 10/Mum/2022 dated June 17, 2022 _Bench ‘I’ _AY. 2016 -17]
- Whether assessee can claim extension of last date to seek payment of tax with late fee under Direct tax VsV Scheme, in absence of any such vested right – NO: HC
When the matter was pending before the High Court, the assessee opted to apply under Direct tax Vivad se Vishwas (VsV) scheme and submitted his application under statutory Form-1 and Form-2. The offer of assessee was accepted and a certificate u/s 5(1) of the Act was issued in statutory Form-3, whereby the amounts payable by the assessee towards full and final settlement of the tax arrears were determined. Later, the last date for payment of the amount u/s 3 of the Act was notified. After the assessee missed the deadlines, he received an e-mail whereby he was asked to contact his AO having failed to furnish Form-4. On the very next day, assessee sought for permission to pay the amount due under the Act alongwith additional fee and interest as owing to illness of his mother. The fate of the same however remains undecided and hence, present petition dismissed. [Amit Gupta VS. UOI, HC of Punjab and Haryana at Chandigarh, CW P No. 9469 of 2022]
- If there is no FTS article in DTAA, receipts from engineering services is business income & not taxable in India if foreign Co. has no PE in India
As there is no article on FTS (Fees for Technical Services) in India-Thailand DTAA. consideration for services such as business planning and co-ordination, engineering services, product R&D etc provided by Thai holding company to Indian subsidiary would be treated as business income under Article 7 and would not be taxed in India where Thai holding company does not have a PE in India. As the income from these services is business income under Article7, these would no qualify to be taxed in India as other income under Article 22. [DCIT V. Michelin ROH Co. Ltd. Delhi-Trib. 138 taxmann.com 497]
Recent Reforms in United Arab Emirate (UAE) tax laws:
On January 31, 2022 the Ministry of Finance of the United Arab Emirates (UAE) announced the introduction of a federal Corporate Tax (“CT”) on business profits, effective from the financial year beginning June 1, 2023.
Taxable Persons
Subject to certain exemptions discussed below, CT will be levied on UAE-incorporated companies such as LLCs, PSCs, PJSCs, and any other legal entities with a distinct legal personality, including, for example, LLPs and partnerships limited by shares.
In line with tax measures in other jurisdictions, CT will be levied on foreign legal entities: (1) with a permanent establishment (“PE”) in the UAE, and that earn UAE sourced income, or (2) that are tax resident by way of management and control in the UAE.
Applicable Tax Rates
CT will be charged on the annual taxable income of a business as follows:
• 0%, for taxable income not exceeding AED 375,000;
• 9%, for taxable income exceeding AED 375,000; and
• a different tax rate (not yet specified) for large multinationals that meet specific criteria set with reference to Pillar II of the OECD BEPS. In light of the Consultation Document’s emphasis on the UAE’s commitment to implementing the BEPS 2.0 measures, we expect that the rate will be fixed with reference to the rate finally determined by the OECD.
Exempt Entities
The following list of entities will be exempt from CT, either automatically or by way of application (the method is still undetermined):
- The federal UAE Government and Emirate Governments and their departments, authorities and other public institutions;
- Wholly Government-owned UAE companies that carry out a sovereign or mandated activity and that are listed in a cabinet decision;
- Businesses engaged in the extraction and exploitation of UAE natural resources that are subject to Emirate-level taxation (e.g. upstream oil and gas companies);
- Charities and other public benefit organizations that are listed in a Cabinet Decision issued at the request of the Ministry of Finance, upon application of the relevant entity;
- Public and regulated private social security and retirement pension funds; and
- Investment funds, as they are typically organized as ‘flow-through’ limited partnerships. Furthermore, regulated investment funds and Real Estate Investment Trusts can apply to the FTA to be exempt from CT subject to meeting certain requirements.