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I T MIRRORCONTENTSMouth piece of Income
Tax Bar Association
CA Kaushik D. ShahChairman
Jayprakash J. SoniCo-Chairman
Rajesh P. ShahCo- Chairman
Members
CA Darshan B. ParikhCA Hersh S. JaniKaushal P. VyasVikram B. Gandhi
Office Bearers
Dhruven V. ShahPresident
Chaitanya A. NayakVice President
Kartikey B. ShahHon. Secretary
CA Vishves A. ShahHon. Jt. Secretary
Ashutosh R. ThakkarHon. Treasurer
Managing Committee
Bharatkumar H. PatelKanaiyalal H. VidhvaniCA Nikit D. ShahCA Rajendra R. KabraRajesh J. ShahCA Ritesh G. GandhiRupang R. ShahTejash R. Shah
Invitee Member
Shailesh C. DesaiLatesh K. ParikhBakul R. Parikh
03CHAIRMAN'S COMMUNICATION
PRESIDENT'S COMMUNICATION05
SECTION - A
ANALYSIS OF DEDUCTION OF INTEREST
– SECTION 36(1)(III)
CA Kaushik D. Shah - Chartered Accountant
07
WHETHER PROSECUTION U/S 276B OF
THE INCOME TAX ACT, 1961 CAN BE
INITIATED IF THE TDS IS PAID LATE?
CA Kaushik D. Shah - Chartered Accountant
15
JUDICIAL PRECDENTS ON
DEMONETIZATION OF CURRENCY
PRAMOD N. POPAT - ADVOCATE
19
BENAMI TRANSACTIONS (PROHIBITION)
AMENDMENT ACT,2016
Kartikey B. Shah - Advocate
22
FAQS ON PRADHAN MANTRI GARIB
KALYAN YOJANA29
SECTION - B
CIRCULAR ON SECTION 45--CAPITAL
GAINS SHARE TRANSACTIONS36
CIRCULAR ON ADMISSIBILITY OF CLAIM
OF DEDUCTION OF BAD DEBT UNDER
SECTION 36(1)(VII) R/W SECTION 36(2)
38
CIRCULAR ON REVISION OF MONETARY
LIMITS FOR FILING OF APPEALS BY
THE DEPARTMENT
40
CIRCULAR ON AMENDMENT IN SECTION
206C OF THE INCOME-TAX ACT VIDE
FINANCE ACT 2016
44
NOTIFICATION ON AMENDMENT
IN RULE 8D46
AMENDMENT OF INSTRUCTION TO PROVIDE
FOR GUIDELINES FOR STAY OF DEMAND48
INCOME� TAX� BAR� ASSOCIATION 3 IT�Mirror� 2016-17����� Vol:� 2
I have great pleasure in putting in your hands the second issue of I.T. MIRROR which is Mouth
piece of Income Tax Bar Association. It is our endeavour to see that the Mirror is very useful to the
members in there day to day practice. In the first issue we have printed important and useful
articles of tremendous importance.
In this issue we would like to highlight the important circulars issued by CBDT with comments
which we are sure will be very helpful to the members. We have selected only important articles
and adopted principal of exceptions in selecting them. We have also printed important articles
which we are sure. The members would like to read and analyze.
I would like to specially mention the article on Benami Act which is written by the Hon. Secretary
Shri Kartik B. Shah. I must say that he has put in lot of efforts and pain in writing this article which is
a new topic for everyone.
We have consciously avoided the topic of Demonetisation as the same is covered in number of
magazines as well as seminars. However, let me give my views in brief on Demonetisation, while
the intent of the Prime Minister in this initiative cannot be doubted, there are certain concerns
which need to be addressed. The first is in regard to the notices that various persons have been
receiving on their depositing cash in their bank accounts and the surveys that are being carried
out. While the Income Tax Department certainly has the power to enquire into the source of
money, such actions should not lead to inspector raj which could, in turn, lead to abuse of power.
Even prior to demonetisation, there were complaints of tax terrorism. There must be a balance
between seeking information and inconvenience to the public. The use of authority must be
judicious.
It is now provided that in respect of income referred in Sections 68, 69, 69A, 69B, 69C or 69D
which is offered for the tax by the assessee in the Return of Income filed u/s. 139 the rate of tax on
such income will be 60% plus applicable surcharge and education cess. This will mean that any
income in the nature of cash credit, unexplained investments, unexplained expenditure etc. which
is offered for taxation u/s. 68, 69, 69A to 69D will now be taxable in the case of individual, HUF,
AOP, Firm, Company etc. at the rate of 60% (instead of 30% earlier) plus surcharge on the tax at
EDITORIALCHAIRMAN'S COMMUNICATION
CA Kaushik D.SHAHChairman of IT Mirror Committee 2016-17
INCOME� TAX� BAR� ASSOCIATION 4 IT�Mirror� 2016-17����� Vol:� 2
25% of tax (i.e. 15%) even if the total income is less than Rs. 1 Crore. Besides the above,
education cess at 3% of tax will also be payable.
It is unfortunate that this Amendment Act however provides that if the old notes deposited in the
Bank during the above period are of the value below Rs. 2.5 Lacs, no tax will be payable. This
means that the announcements by the Prime Minister, Finance Minister and others representing
the government that no enquiry will be made in respect of deposits up to Rs. 2.50 Lacs have not
been honoured by the Government while enacting this Amendment Act.
In the end, I would like to draw the attention of the members to the CBDT notification for delegating thauthority for issuing notice u/s. 143(2) regarding Assessment. This notification is issued on 16
November 2016 which reads as under:
“Extract of Section 143(2) of Income Tax Act, 1961 related to Assessment for reference-
(2) where a return has been furnished under section 139, or in response to a notice under sub-
section(1) of section 142, the Assessing Officer or the prescribed income-tax authority, as the
case may be, if, considers it necessary or expedient to ensure that the assessee has not
understated the income or has not computed excessive loss or has not under-paid the tax in any
manner, shall serve on the assessee a notice requiring him, on a date to be specified therein,
either to attend the office of the Assessing Officer or to produce, or cause to be produced before
the Assessing Officer any evidence on which the assessee may rely in support of the return”.
In my opinion this is the most retrogate step taken by the Hon. CBDT. I hope no harassment will
take place on account of the powers granted to the I.T.O. for issuing notice in respect of scrutiny
assessments.
Wish you all a Very Happy, Prosperous and Meaningful 2017.
INCOME� TAX� BAR� ASSOCIATION 5 IT�Mirror� 2016-17����� Vol:� 2
President's Communication
Dhruven V. ShahPresident
Respected seniors and professional colleagues!
Warm Greetings!
Since 8th November, the Honourable Prime Minister announced the decision of Demonetisation.
Thus each passing day is witnessing myriad changes in financial and economic structure of the
country. Benefits of this decision extends to tackle the menace of counterfeit notes,
consequentially to turn off the terror funding tap and to bring holders of unaccounted money to
book. This indeed is an added honour for the honest taxpayers of our country.
Being professionals of the IT industry, onus is on our shoulders to effectively get conversant with
new laws like Benami Property Act, Income Tax Amendment (2016) Act, Insolvency and
Bankruptcy Code, Real Estate (Regulation and Development) Act and above all Goods and
Services Act. It is essential that we effectively convey these news laws to our clients and help them
with advanced and appropriate tax planning. Pradhan Mantri Garib Kalyan Yojna, 2016 opened
up from 17/12/2016 and will continue up to 31/03/2017. It is our responsibility to make our clients
aware of it so that they may avail the benefits of such schemes and save themselves from hefty
penalties and stricter punishments. As many persons have missed IDS, 2016, Government has
given another chance to them to come out clean and contribute in the progress of the Nation.
Through I T Mirror we always try to provide insight into current updates of the new regulations. In
this second volume of I T Mirror, we have included some of the resourceful articles regarding
current scenario in Section A. In Section B we have collected some of the recent circulars and
notifications from CBDT along with necessary comments which explains the purpose and its
effect on different regulations. I specially thank CA Kaushik D Shah our Honourable chairman of I
T Mirror committee for taking the pain to narrate comments on circulars.
Last but not the least, Year 2016 has witnessed some dynamic reforms taken by the Central
Government in the area of legislations. I wish each and every member of this association more
enterprising, knowledgeable and prosperous New Year 2017. Let us all welcome the coming year
with the conviction that we would maintain always the integrity and dignity of this profession at the
highest level.
Wishing you Best of 2017!!!
Section A
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INCOME� TAX� BAR� ASSOCIATION 7 IT�Mirror� 2016-17����� Vol:� 2
Deduction of expenses incurred for earning business income is spelt out in the Sections 30 to 36
of Income Tax Act, 1961. Under Section 36 of Income Tax Act, 1961, there are number of
deductions available subject to the conditions laid down. In this discussion, I would take up
Section 36(1)(iii) of the Income Tax Act, 1961 and analyze the provision therein from all facets,
which will make us understand the deduction in a comprehensive way. In the vortex of legal
pronouncements, I will analyze few case laws as well, which throw light on the grey areas that are
not captured or construed in the tax legislation.
Meaning and ConceptThe bare reading of Section 36(1)(iii) is as follows:
“36 (1) the deductions provided for in the following clauses shall be allowed in respect of the
matters dealt with therein, in computing the income referred to in Section 28
(i) and (ii) ******
(iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business
or profession:-
Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an
asset for extension of existing business or profession (whether capitalized in the books of account
or not) for any period beginning from the date on which the capital was borrowed for acquisition of
the asset till the date on which such Asset was first put to use, shall not be allowed as deduction.
The sub section has three important words or phrases that are core for understanding of this
Section i.e. (i) Interest, (ii) Borrowed and, (iii) For the purpose of business or profession. In the
following paragraphs, I would elucidate the meaning of these words or phrases with reference to
this particular section for better understanding.
(i) Meaning of “Interest”:
The definition of interest given under Section 2(28A) says about “interest payable in any
manner in respect of any moneys borrowed or debt incurred”. But for Section 36(1)(iii),
“interest is restricted to that on money borrowed and not on debt incurred.
ANALYSIS OF DEDUCTION OF INTEREST– SECTION 36(1)(III)
CA Kaushik D. ShahChartered Accountant
(ii) Concept of “borrowed”:
Provisions of Section 36(1)(iii) talks about capital borrowed and not about any other
debts or liability. A loan of money undoubtedly results in a debt, but every debt does
not involve a loan. Liability to pay a debt may arise from diverse sources and a loan is one of
such sources. The legislature has, under this clause, permitted as an allowance interest paid
on capital borrowed for the purposes of the business; and the capital, in this context, means
money and not any other asset purchased on credit [Bombay Steam Navigation Co. Pr. Ltd.
v. CIT, 56 ITR 52 (SC)]
• Importance of the word “loan”:
To qualify a transaction as loan, there must be a settlement / agreement between the
parties that particular amount would be given by one party to other party. The terms would
be that it would be refunded or returned either on demand or on the directions of the
creditors and particular interest / no interest would be paid on the said amount. Thus, for
the purpose of loan there must be interaction between the parties and there must be a
concluded contract. Thus for Section 36(1)(iii) the necessary precondition is the existence
of a loan transaction or a loan agreement between two parties with an established role of
creditor and debtor. There is a Gujarat High Court judgment in the case of Arun Family
Trust vs. CIT 298 ITR 437 (Guj.) which brings out this fact clearly.
• Element of refund is must:
An element of refund or repayment is a must in the concept of borrowing. If there is no
obligation to refund the capital provided, interest on such capital is not deductible under
Section 36(1)(iii) – Pepsu Road Transport Corp. V. CIT 130 ITR 18 (P&H).
(iii) Explanation of the term “for the purpose of business”:
This phrase, as held by many legal pronouncements, is the most important yardstick for
the allowability of deduction Under Section 36(1)(iii) of Income Tax Act, 1961. While
explaining the meaning of this phrase the Hon'ble Supreme Court in the case of S. A.
Builders Ltd. vs. CIT (A), Chandigarh reported in 288 ITR 1 has used the word
“commercial expediency”. By using this phrase Hon'ble Supreme Court has given a
new dimension and clarified the concept further. In the judgment the Supreme Court has
defined commercial expediency as “an expression of wide imports and includes such
expenditure as a prudent businessman incurs for the purpose of Business. The
expenditure may not have been incurred under any legal obligation, but yet it is allowable
as business expenditure, if it was incurred on grounds of commercial expediency”.
Further, following this judgment, the High Court of Delhi in the case of Punjab Stainless
Steel Inds. Vs. CIT 324 ITR 396, has further elaborated “The commercial expediency
would include such purpose as is expected by the assessee to advance its business
INCOME� TAX� BAR� ASSOCIATION 8 IT�Mirror� 2016-17����� Vol:� 2
interest and may include measures taken for preservation, protection or
advancement of its business interests, which has to be distinguished from the
personal interest of its directors or partners, as the case may be. In other words,
there has to be a nexus between the advancing of funds and business interest of the
assessee firm. The appropriate test in such a case would be as to whether a reasonable
person stepping into the shoes of the directors/partners of the assessee-firm and working
solely in the interest of the assessee-firm/ company, would have extended such interest
free advances. Some business objective should be sought to have been achieved by
extending such interest free advances when the assessee-firm/company itself is
borrowing funds for running its business.
Thus, for allowance of a claim for deduction of interest under this provision, following
three conditions needs to be fulfilled:
(i) The money, that is capital, must have been borrowed by the assessee
(ii) It must have been borrowed for the purpose of business
(iii) The assessee must have paid interest on the borrowed amount which is shown
as expenditure
Proviso to Section 36(1)(iii)
Section 36(1)(iii) provides for deduction of amount of the interest paid in respect of capital
borrowed for the purpose of the business or profession. Proviso to section 36(1)(iii) was amended
by Finance Act, 2003 w.e.f. 1 April, 2004 relating to A.Y 2004-2005 and subsequent years. st
This
was inserted to disallow interest on moneys borrowed for acquiring a capital asset till the date on
which the asset was brought to use even if it is for extension of existing business.
The logic behind provision is only to ensure that wherever interest is capitalized in the books of
account, it remains capitalized for the purpose of income tax. This interest cannot be claimed as a
deduction under Section 36(1)(iii) of the Act. One is not clear on the import of the expression
"extension of existing business or profession."
Extension is alien to income tax parlance and cannot be defined in objective and exact terms. In
today's business context, even acquisition of machinery worth a few lacs may tantamount to
extension. The objective is to address issues of substantial expansion of business. If that was the
intention, the concept of "extension of industrial undertaking", as mentioned and applicable for
Section 35D of the Act dealing with amortization and preliminary expenses, could have been
transplanted in Section 36(1)(iii) of the Act. This would clearly establish that the proviso would
apply to extension of industrial undertaking and not extension of business per se.
INCOME� TAX� BAR� ASSOCIATION 9 IT�Mirror� 2016-17����� Vol:� 2
Also, the use of the expression "whether capitalized in the books of account or not" could
raise host of controversies. Interest is capitalized in the books of accounts in the present
regime in accordance with the principles laid down in Accounting Standard 16 on
borrowing costs. The operative portion of the standard is as follows:
"Borrowing costs that are directly attributable to the acquisition, construction or production of a
qualifying asset should be capitalized as part of the cost of that asset. The amount of borrowing
costs eligible for capitalization should be determined in accordance with this statement. Other
borrowing costs should be recognized as an expense in the period in which they are incurred."
Borrowing costs are capitalized as part of the cost of a qualifying asset when it is probable that
they will result in future economic benefits to the enterprise and the costs can be measured
reliably. Other borrowing costs are recognized as an expense in the period in which they are
incurred. This mandatory standard has to be applied in respect of accounting periods
commencing on or after April 1, 2000. Also the AS 16, in paragraph 21 of Cessation of
capitalization, it is said that Capitalization of borrowing costs should cease when substantially all
the activities necessary to prepare the qualifying asset for its intended use or sale are complete.
While in Income Tax Act, Capitalization of borrowing costs should cease when business will start.
It means capitalization concept as per accounts and as per IT Act is not matching so no one can
say that this is the concealment of Income or inaccurate particular. Proviso itself hints that
company may capitalize it or not.
Hence, once interest is capitalized for accounting purposes, the proviso could have simply stated
that the treatment given for accounting purposes would apply for the purpose of tax computation
also. It is also not clear as to use of the expression "extension of profession" in the proviso. While
extension of business is normal and part of business activity, one cannot visualize or understand
how interest in such cases would be capitalized. In sum, the amendment has been introduced to
nullify judicial controversies on the subject and bring the much needed alignment between books
and income tax in the matter of interest accounting.
• Extent of disallowance when there is time lag between disbursement of loan and asset
being put to use
In my opinion, if the time lag is substantially long, then only the question of disallowance
of interest arises. As per the mandate of Accounting Standard 16 (AS-16) on Accounting for
Borrowing Cost, it is specifically provided that interest can be capitalized only in respect of
“qualifying asset” and it states that a qualifying asset is an asset that necessarily takes a
substantial period of time to get ready for its intended use. Assets which are ready for the
intended use when acquired are not qualifying asset and hence the assessee cannot capitalize
interest to the cost of qualifying asset and the same has to be written off to the profit and loss
account and the deduction u/s 36(1)(iii) cannot be denied. If it is not done, there would be
INCOME� TAX� BAR� ASSOCIATION 10 IT�Mirror� 2016-17����� Vol:� 2
violation of AS -16 which will make the financial statements untrue and unfair. The
time lag in our case between the loan disbursed and the asset used is very short and
hence it is not possible to capitalize the cost of interest. It is further submitted that in
my opinion assessee is otherwise entitled to deduction of such interest u/s 37(1) as such
situation is not covered by section 36(1)(iii). As per section 37(1), any expenditure incurred
wholly and exclusively for the purpose of business is required to be allowed as deduction u/s
37(1).
• Amendment in the Finance Act, 2015
Para 5 of ICDS-IX “Borrowing Costs” provides that to the extent the funds are borrowed
specifically for the purposes of acquisition, construction or production of a qualifying asset, the
amount of borrowing costs to be capitalized on that asset shall be the actual borrowing costs
incurred during the period.
It can be seen that there is a conflict between the proviso to section 36(1)(iii) and Para 5 of
ICDS-IX. Proviso to section 36(1)(iii) envisages capitalization of interest on capital borrowed
for acquisition of an asset only if such acquisition of asset is for extension of existing business
or profession while ICDS-IX envisages capitalization even if there is no extension of existing
business or profession, in order to align the provisions of the proviso to section 36(1)(iii) with
Para 5 of ICDS-IX, the Finance Act, 2015 has omitted the words “for extension of existing
business or profession” from the proviso to section 36(1)(iii). The amendment will be
effective from assessment 2016-17.
• Asset acquired out of borrowed capital need not have been used during relevant year and
interest can be allowed unless this asset is not for extension of existing business.
Asset acquired need not to have been used during the relevant previous year where
machinery was purchased out of borrowed funds for the purpose of business and it was
treated as business assets, merely because such machinery had not been actually used in
business at the time when assessment was made, interest paid on amount borrowed could
not be disallowed CIT vs. Associated Fibre & Rubber Industries (P.) Ltd. [1999] 102 Taxman
700 (SC)/CIT v. Insotex (P.) Ltd. [1984] 150 ITR 195 (Kar.)/Calico Dyeing & Printing Works v.
CIT [1958] 34 ITR 265 (Bom.)/C.T. Desai v. CIT [1979] 120 ITR 240 (Kar.). See also Dy. CIT v.
Core Health Care Ltd. [2008] 167 Taxman 206 (SC)/Jt. CIT vs. United Phosphorus Ltd. [2008]
167 Taxman 261 (SC).
In view of Supreme Court's judgment in case of Dy. CIT v. Core Health Care Ltd. [2008]
167 Taxman 206, it was to be held that interest paid in respect of borrowing to purchase capital
assets, which are not put to use in concerned financial year, can be permitted as an allowable
deduction Jt. CIT v. United Phosphorous Ltd. [2008] 167 Taxman 261 (SC). Where machinery
INCOME� TAX� BAR� ASSOCIATION 11 IT�Mirror� 2016-17����� Vol:� 2
was purchased out of borrowed amount for purpose of business and it was treated as
business assets merely because such machinery had not been actually used in
business at time when assessment was made, interest paid on amount borrowed
could not be disallowed CIT v. Associated Fibre & Rubber Industries (P.) Ltd. [1999] 102
Taxman 700 (SC)/CIT v. Insotex (P.) Ltd. [1984] 150 ITR 195 (Kar.)/Calico Dyeing & Printing
Works v. CIT [1958] 34 ITR 265 (Bom.)/C.T. Desai v. CIT [1979] 120 ITR 240 (Kar.).
However, this is before the insertion of proviso but it is clear that when it is proved that the
capital is not borrowed after business was set up then this proviso will not be applicable and
decision of above mentioned cases can be applicable because in the cases above, the capital
was not borrowed after the existing business was started and at the time of capital borrowed
no business existed and all the capital was borrowed altogether and not with separate
sanctioning of the loan.
Key issues - Section 36(1)(iii)
1) Interest on borrowed capital used for interest free loan
The law on this issue is settled after the Hon'ble Supreme Court judgment in the case of S. A.
Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1 (SC), in which the concept of “commercial
expediency” was used. Thus, where the funds of the business are diverted for interest free loans,
the main criteria for permissibility of interest on those funds are based on whether it was for
commercial expediency or not. The phrase “commercial expediency” has following important
traits as established by case laws cited supra:
• Such purpose as is expected by the assessee to advance its business interest.
• May include measures taken for preservation, protection or advancement of its business
interests.
• To be distinguished from the personal interest of its directors or partners, as the case may
be.
• There has to be a nexus between the advancing of funds and business interest of the
assessee. Some business objective should be sought to have been achieved by
extending such interest free advances when the assessee firm/company itself is
borrowing funds for running its business.
The Hon'ble Supreme Court has also relied upon the case where there would be mixed fund at the
disposal of the assessee. It further clarifies that under Section 36(1)(iii) the ultimate use of the fund
is important. It may not be relevant as to whether the advances have been extended out of the
borrowed funds or out of mixed funds which include borrowed funds. The test to be applied in such
cases is not the source of the funds but the purpose for which the advances are extended.
Let me further give you reference of jurisdictional High Court in CIT vs. Raghuvir Synthetics Ltd.
(354 ITR 222) has held that when interest free funds available with the assessee were far greater
INCOME� TAX� BAR� ASSOCIATION 12 IT�Mirror� 2016-17����� Vol:� 2
than loan advanced to the sister concerns and borrowed money was not utilized for the
purpose of advance to the sister concerns then interest was not disallowable merely on
account of the utilization of funds for non-business purposes and when no evidence is
brought on record by the Department that borrowed money was utilized for the purpose of
advance to sister concerns.
2) Interest on borrowing utilized for earning exempt income
The issue is whether to allow the interest on borrowing utilized for exempt income or non
assessable income. The primary condition for allowing deduction of interest in the computation of
business income is that the interest was paid on capital borrowed for the purpose of business or
profession. If the borrowed capital is utilized not in the business whose income is assessable, but
in earning some non assessable or exempt income, the interest paid thereon, is not an allowable
deduction under these provisions. This analogy flows from Section 14A inserted in Chapter IV of
the Act, by the Finance Act, 2011 with retrospective effect from 01.04.1962, which is intended to
safeguard the interest of the Revenue on account of wrong claim of expenditure relating to exempt
income against taxable income. The Section 14A postulates that only expenditure which is
relatable to taxable income should be deducted in computing the total income. Hence,
expenditure which is incurred to earn exempt income should not be considered in the computation
of total income as this would result in double advantage to the assessee.
Direct judgment which covers this issue is H.T. Conville vs. CIT 4 ITR 137. Where a borrowing is
specifically meant for use in a new industrial undertaking covered by Section 10B, such interest
would go to reduce the eligible relief. It was, therefore, decided in Procon Systems P. Ltd. V. ITO
296 ITR 636 (Mad) that such interest cannot be reduced from eligible profits, because it has
already been allowed as a business deduction.
Further, as per the jurisdictional High Court in CIT vs. Gujarat State Fertilizers and Chemicals
Ltd. (358 ITR 323), CIT vs. UTI Bank Ltd. (215 Taxman 8) & CIT vs. Hitachi Home and Life
Solutions (I) Ltd. (221 Taxman, 109) has held that where assessee's interest free funds far
exceeds investment made for earning exempted dividend income, and Assessing Officer had
failed to establish nexus between borrowed funds and investments made, than no disallowance
u/s 14A could be made since the presumption is that the interest free funds are first utilized for
making investment and not interest bearing funds following ratio of Hon'ble Bombay High Court
judgment of CIT vs. Reliance Utilities & Power Ltd. (313 ITR 340).
3) Distinction between Section 36(1)(iii) and Section 37(1)
Section 37(1), which is a residuary general provision, may have application to any expenditure
(including interest) which is not of the nature described in Sections 30 to 36. To an extent, Section
36(1)(iii) and Section 37(1), so far as the allowance of interest is concerned, run parallel to each
INCOME� TAX� BAR� ASSOCIATION 13 IT�Mirror� 2016-17����� Vol:� 2
other. But later, they do differ and it can then be discerned whether a given case falls
within the phraseology of Section 36(1)(iii) or Section 37(1). Comparing the two, I may
see –
4) The extent of disallowance under Section 36(1)(iii)
The Assessing Officer is often confronted with a question as to the extent of disallowance when it
is proved that the borrowings were utilized for non business purposes. In such situations, there
could be two possible scenarios:
i) Where there is only borrowed fund and no composite or mixed fund
In such cases, the disallowance is to be made at the full rate of interest payable on
such borrowed money. The amount of interest, if any, realized from such utilization is
not to be taken into account for ascertaining the extent of the disallowance [CIT vs.
India Silk House, 152 ITR 79 (Mad)].
ii) Where there is composite or mixed funds
In such a case, the Assessing Officer is required to co-relate between the natures of
feeding fund with utilization of such fund. After this co-relation the Assessing Officer
may devise methods based on factual analysis of the source of fund with the utilization
of fund to arrive at the figure of part disallowance of interest expenditure. In this case,
there cannot be full disallowance of interest payable by the assessee. Where the funds
are mixed up, so that it is not possible to identify the extent of borrowings utilized for
such loans, proportionate amount could be disallowed as held in K. Somasundaram
and Brothers Vs. CIT 238 ITR 939 (MAD).
In this article, I have dealt with important provisions of Section 36(1)(iii) and number of
issues arising out of the detailed analysis of the section as well as proviso, however
still the issues are likely to crop up and I hope this article would help in resolving those
issues.
Section 36(1)(iii) Section 37(1)
1. It must be interest on capital (moneys) borrowed
1. It may be interest even on any debt incurred
2. The borrowing must be for the “purpose of business”
2. The debt incurred must be and exclusively for the purpose of the business
3. The borrowed amount may be utilized for even procuring a capital asset related to the business
3. The debt incurred must not be utilized for procuring a capital asset so as to fall within the gamut of “capital expenditure”
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ISSUE:XYZ Ltd. Is a sick company incurring losses since last five years. However in spite of adverse
financial conditions the company paid all the tax deducted at source, but same was paid late. The
CIT (TDS) has initiated provisions of Section 276B, of the Income Tax Act, 1961 for prosecution.
It is worthwhile examining the wording of relevant provisions closely. The text is as
follows:276B- Failure to pay tax to the credit of Central Government under chapter XIID or
XVIIB.“If a person fails to pay to the credit of the central Government,
• the Tax deducted at source by him as required by or under provisions of Chapter
XVIIB or • the tax payable by him , as required by him or under,
• Sub Section(2) of Section 115-O; or• the second proviso to Section 194B,
he shall be punishable with rigorous imprisonment for a term which shall not be less than
3 months but which may extend to 7 years and with fine.”
Firstly, the very heading suggest that there should be a failure to pay the tax. Secondly the
placement of clause (a) in the section, makes it clear that it pertains to the tax deducted as per the
provisions of chapter XVIIB and not payment as per provision of chapter XVIIB. Thus, failure to
pay is on different footing. Put differently, payment need not be within the time specified in that
chapter.
In short, the section contemplates total failure and not mere delay. As against this, even if the tax is
already paid with interest, the notices for prosecution are being issued. The notices also mention
the fact of prior payment. This, then, is clearly against the wording and spirit of the provision.
It is necessary to compare the text of section 276B with provisions of section 40(a)(ia).Section
40(a) (ia) contemplates a time limit for the payment of tax as well ; and not merely the deduction as
per Chapter XVII B. For mere delay, there are already adequate provisions viz. section 40(a)(ia)
disallowance; 201(1A)- interest, 271C and 221 – penalty. Thus, section 276B clearly applies to
total failure and not a mere delay.
WHETHER PROSECUTION U/S 276B OF THE INCOME TAX ACT,1961 CAN BE INITIATED IF THE TDS IS PAID LATE?
CA Kaushik D. ShahChartered Accountant
In case of BEE GEE MOTORS AND TRACTORS AND ANOTHER vs. INCOME TAX
OFFICER Punjab and Haryana High court reported 218 ITR 155 “held that the
complaint was that the petitioners did not deduct the income tax at source for the years 1982-83 &
1983-84, thus, making themselves liable for punishment under section 276B of the Act. However,
the petitioners later did deduct the required tax on February 20, 1985 and deposited the same on
the same date. By the time tax was deducted and deposited, no prosecution had been launched.
Since an insignificant amount of Rs. 9428 in one case and an even lesser amount in another case
was involved and the prosecution was launched after a number of years after the default was
committed or the tax was deposited and the matter was pending since 1993, the complaint
deserved to be quashed.”
The provision of the chapter XVIIB cast duties on assessee to deduct tax at source on various
payments made to the deductee. Thus, the deductor is an agent of the government to collect tax.
The tax so collected, has to be deposited or paid to the credit of the Central Government and any
failure in the payment of tax in time will attract all the consequences of payment of interest and
penalty and even prosecution.
The High Court of Bombay , Nagpur Bench in the case of ITO V/S Sultan Enterprises reported in
127 Taxman 514 was held as under :
“The facts of the case are not much in dispute. The offence in question relates to non deposit of tax
deducted at source amount within the prescribed time and therefore action was taken against
them and dues were recovered by imposing penalty and interest. This also amounts to offence
punishable provided under sections 276B and 278B.The learned CJM erred in applying the
principle of double jeopardy as provided under section 300 of the code of criminal procedures for
the simple reason that the recovery of the amount due and payable by respondent firm to the
income tax department has nothing to do with criminal prosecution because it is a distinct
provision inviting penal action for the default committed by the firm. They are liable both for the
recovery of the amount with interest and penalty so also for prosecution for having committed
offence punishable under section 276B of the act for their failure to pay the amount within the
prescribed period and as the respondent firm is a partnership concern all the partners of the firm
as contemplated under section 278B would be liable to be prosecuted.”
The Central Board of Direct Taxes (CBDT) has recently modified the guidelines for initiation of
prosecution under section 276B of the Income Tax Act, 1961 (“Act”). The press release dated
August 6, 2013 has clarified that any delay in remittance of Tax Deducted at Source (“TDS”),
would be liable for prosecution regardless of the period of delay.
Under Section 276B of the Act, any tax deductor could be prosecuted for delay or default in
remittance of TDS and be sentenced with rigorous imprisonment up to a period of 7 years. Prior to
this press release, the Revenue Authorities (“RA”) were adhering to an internal guideline of
initiating prosecution proceedings where the delay was more than 12 months. In other words, a
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tolerance period of 12 months of delay for initiation of prosecution was followed.
To curb the practice of tax deductors deliberately deducting the remittance of TDS and
deploying the funds for business, the CBDT has withdrawn the tolerance period, which was only
an internal guideline, not prescribed in law. With this change in policy, the RA could initiate
prosecution proceedings even for a day's delay in remittance of taxes. It has also been clarified
that tax deductors would have the option of applying for compounding of such offences before the
Jurisdictional Chief Commissioner and the offence would be compounded in suitable cases.
CONCLUSION:It is pertinent to note that CBDT had issued instruction number 1335 of CBDT dated 28-5-1980 to
the effect that prosecution should not normally be proposed when the amount involved are not
substantial and the amount in default has also been deposited to the credit of the government.
It is necessary to compare the text of section 276B with provisions of section 40(a)(ia). Section
40(a)(ia) contemplates a time limit for the payment of tax as well; not merely the deduction s per
Chapter XVIIB. For merely delay, there are already adequate provisions viz. Section 40(a)(ia)
disallowance; 201(1A)-interest, 271C and 221- penalty. Thus, section 276B clearly applies to
total failure and not a mere delay.
The Provisions of Section 278AA lays down that no person shall be punishable for any failure
referred to in section 276B if he proves that there was reasonable cause for such failure.
It is essentially a question of fact to be decided in each case on consideration of material placed
before the concerned authority. However the burden of proof that there was a reasonable cause
for default is on assessee.
In SEQUOIA CONSTRUCTION CO. LTD. & ORS. Vs. P.P. SURI, INCOME TAX OFFICER
reported in(1985) 47 CTR(DEL) 277: (1986) 158 ITR 496 (DEL) : (1985) 21 TAXMAN 13 there
was delay in deposit of TDS. In view of reasonable cause shown by assessee, penalty
proceedings came to be dropped by both appellate authorities. In this respect the court held that
“Dropping of penalty proceedings must weigh with trial Court while judging the reasonable cause
prevailing with assessee. Milder proof of reasonable cause must be taken to have been
established. Continuance of prosecution proceedings would be a sheer exercise in futility and
harassment of assessee – Prosecution was quashed”.
In UNION OF INDIA vs PYARELAL TARACHAND & ANR. (2003) 180 CTR (MP) 551 : (2003)
264 ITR 525 (MP) : (2004) 135 TAXMAN 97 the hon high court declined to interfere in the
judgment where trial court acquitted the assessee because it was not proved that the assessee
has deliberately or intentionally committed the default.
Prosecution can not be initiated against the company. It has to be initiated in the name of Director
or Principal Officer responsible for TDS compliances. For initiating prosecution proceedings
against the director of the company, the assessee officer has to give notice u/s 2(35) expressing
his intention to treat such directors of a company as “principal officers”. However, it would be
sufficient compliance if in the show cause notice issued to the company it is mentioned that the
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directors are to be considered as principal officers of the company.
In absence of both, permission is not granted to appeal against the judgment passed by
Addl. Chief Metropolitan Magistrate whereby respondent director of the company has
been acquitted of the offence under s. 276B. (COMMISSIONER OF INCOME TAX vs. DELHI
IRON WORKS (P) LTD. & ORS(2011) 331 ITR 5 (DEL) : (2010) 195 TAXMAN 372 (DEL).
The Supreme Court in Madhumilan Syntex Limited vs Union of India (2007) 290 ITR 199 (SC)
(2007) 160 Taxman 71 (SC) held that a delayed payment of tax deducted at source constitutes
offence u/s 276B. In that case, the assessee had deposited the TDS amount late. The assessee
had contended that since it has paid the amount, though late, it has not committed any default and
hence no offence can be registered against it. The Supreme Court dismissed this contention and
observed that – “ The contention of the appellant that though tax deducted at source has been
deposited late but since TDS has already been deposited to the account of the Central
Government, there was no default and no prosecution can be ordered, could not be accepted.
Once a statute requires to pay tax and stipulates period within which such payment is to be made,
the payment must be made within that period. If the payment is not made within that period, there
is default and appropriate action can be taken under the Act. Interpretation canvassed by the
appellant would make the provision relating to prosecution nugatory."
Keeping in mind the stringent provisions of law, first thing which is required is its strict compliance.
Assessee is required to pay interest and penalty for various defaults. There is an urgent need for
clear cut guidelines about the amount of Tax default and period of default which may attract
prosecution. This will not only save time of the assessee and the department but will also save
assessee from undue harassment.
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[1] A day after demonetization scheme, we all the Professionals are flooded with
various questions and day to day queries from our valued clients. Hopefully you
are observing and going through same atmosphere as I am. You may have
seen various reports which range from the scary to the alarmist on the topic of
demonetization. In fact here social media and News agency warriors must also
take the blame for spreading grossly exaggerated news.
[2] The Government has decided to discontinue with the legal tender character of
High Denomination Bank Notes (HDNs) of Rs. 500 and Rs. 1000 with effect
from November 9, 2016. In other words, such notes will not be legal tenders
from midnight of November 8, 2016. Old HDNs can be exchanges or deposited
in banks till December 30, 2016. After announcing such demonetization,
people have started worrying about the tax implications even in case of genuine
savings deposited into bank account.
[3] In the beginning some people have posted the unverified computation chart of
tax and penalty on cash deposit. Some reports say that you will have to pay
almost 95 % tax on the old cash you deposit in Banks. Some in Social Media
even interpreted that the 200 % penalty is on the income.
[4] Finance Minister introduced Taxation amendment Bill 2016 to tax HDNs
deposited in bank accounts and amended provisions of Section 115BBE to tax
the HDNs deposited in Bank Tax@ 60% + Surcharge@ 25% of tax, and
penalty@ 10% of tax, if assessed by A.O. However if opted for Pradhan Mantri
Garib Kalyan Yogna 2016 – 30% Tax + 33% of tax as Surcharge and penalty @
10% of income declared. 25% declared income to be deposited in interest free
deposit for Four Years. In search & seizure case higher tax and penalty
proposed.
[5] Demonetization as well as Taxation amendment Bill 2016 introduced to tax
JUDICIAL PRECDENTS ON DEMONETIZATIONOF CURRENCY
PRAMOD N. POPATADVOCATE
HDNs deposited in bank accounts will raise many legal issues and lot of
litigations will arise. I, think appellate authorities will be flooded with lot
of appeals.
[6] In all these situations we have to guide our clients and pacify them in case of
genuine cash savings deposited in bank accounts. We have to advise them not
to be panic.
[7] In order to provide, some guideline on this issue I, have analyzed judicial
precedents wherein such issues have been discussed in the past, for the
benefit of professional brothers.
Particulars Case lawsBurden of proof A. In case o f rece ip t o f money by way o f
encashment of HDNs, the burden to
prove the source of money and its nature
rests solely on assessee – Anil Kumar
Singh v. CIT [1972] 84 ITR 307(Cal).
Forming part of cash A. The assessee exchanged HDNs in RBI
Balance in books and c la imed tha t they cons is ted o f h i s
cash balance in books. He stated that he had kept large sum of money for
the purpose of conducting his business and making
payments to labour. The ITO rejected explanation of
assessee, inter-alia, on the ground that assessee
failed to show why he kept large sums at hand at one
place when at each of the places where work was
carried out there were banks.The Apex Court held that such HDNs assessable as
income of assessee as there was material to show
that such HCDNs did not form part of cash balance
of assessee and the source of money was not
explained satisfactorily – Sreelekha Banarjee v.
CIT [1963] 49 ITR 112 (SC) B. The accounts of assessee had been accepted by
the Tribunal as genuine. Thus, it was impossible to
say that HDNs could not be included in the cash
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balance shown in books – Mehta Parikh &
Co. v. CIT [1956] 30 ITR 181 (SC).C. Value of HDNs was not assessable as
income from undisclosed sources if cash balance
shown in accounts of assessee was sufficient to
cover HDNs and value of HDNs formed part of cash
balance of the assessee – Lakshmi Rice Mills v.
CIT [1974] 97 ITR 258 (Pat.)D. Only source of receipt of money has to be disclosed
and not the source of receipt of HDNs which were
legal tenders at the relevant time – Lakshmi Rice
Mills v. CIT [1974] 97 ITR 258 (Pat.)E. HDNs could not be treated as income from
undisclosed sources just because it was not
mentioned in books that cash balance consisted of
HDNs – Chunilal Tikamchand Coal Co. Ltd. v. CIT
[1955] 27 ITR 602 (Pat.)F. It is for the department to show that assessee did not
possess the HDNs at the relevant time – Gur
Prasad Hari Das v. CIT [1963] 47 ITR 634 (All).G. Where assessee had deposited Rs.81,000 in high
denomination notes and Tribunal held that
assessee usually had cash of Rs. 81,000, said
amount could not be treated as income of assessee
from undisclosed sources – CIT v. Associated
Transport (P.) Ltd. [1995] 212 ITR 417 (Cal.)
Encashment of HDNs A. Tribunal could not make addition of undisclosed
representing income where HDNs encashed by assessee were
personal savings savings from his personal allowance – Sri SriNilkantha Narayan Singh v. CIT [1951] 20
ITR 8 (Pat.)
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INTRODUCTIONThe amendments of Benami Transactions (Prohibition) Act should further enhance
India's attractiveness as an investment destination by encouraging greater transparency
in ownership of property. Along with other regulatory changes such as implementation of
Goods and Services Act (GST), Real Estate (Regulation & Development) Act (RERA) and
Land Digitization, this amendment is a step in the right direction. In the short term, it will
lead to a reduction in transaction volumes. However, in the long term, it will help aligning
transactions with ethical standards and will increase international institutional investors
and financial institutions participation in this sector. Benami transactions (prohibition) Act,
1988 (hereinafter referred to as “the Act” or “the 1988 Act”) was a small act with 9 sections
when originally enacted. Benami Transactions (prohibition) amendment act, 2016
(hereinafter referred to as “the 2016 amendment act”) has amended the act to enlarge it
from 9 sections to 72 sections, 2016 amendment act has renamed the 1988 act as
“prohibition of Benami property Transactions Act,1988.” 2016 act shall come into force
with effect from 01/11/2016. (NOTIFICATION NO. SO 3289[E], DATED 25-10-2016)
DEFINITIONBenami transaction is a transaction or arrangement whereby the identity of real owner
(beneficial owner) of property is concealed by showing someone else (benamidar) as
owner on record. The beneficial owner provides or pays consideration for purchase of
property. Benami transaction is a consensual act and not something imposed upon a
person such as unauthorised access to his account or fraud.Benamidar and beneficial owner can be any person (viz. individual, HUF, firm, company,
trust, etc.)
OBJECTS OF BENAMI ACTTo prohibit a Benami Transaction so that the beneficial owner (true owner/real
owner/person who provided consideration) would be compelled to keep the
BENAMI TRANSACTIONS (PROHIBITION)AMENDMENT ACT,2016
Kartikey B. ShahAdvocate
property in his own name only and the legal complexities owing to the
apparent ownership not being the real ownership, could be avoided. CATEGORIES OF BENAMI TRANSACTIONS
CATEGORY I : TRANSACTION OR ARRANGEMENT WHERE
CONSIDERATION PROVIDED BY PERSON OTHER THAN THE
TRANSFEREE OR THE PERSON IN WHOSE NAME PROPERTY IS HELD
• EXCEPTIONS-TRANSACTIONS WHEN IT IS NOT BENAMI» HUF Property held in the name of Karta/Members of HUF, property is
held for the benefit of Karta or a member of a HUF and consideration is
paid out of known sources of HUF.» Property held in Fiduciary capacity means informal relations which
exist whenever one party trusts and relies upon another held by a
person like trustee, executor, partner, agent, director of a company etc.
for the benefit of another person like trust, firm, principal, company etc.» Property is held by individual in name of spouse or child and not
specifically for the benefit of them and consideration is paid out of known
sources of individual.» Property is held by individual in joint names of himself or his
brother/sister/lineal ascendant or descendent and consideration is paid
out of known sources of individual and not specifically meant out of
income of known sources. The terms Brother and sister will not include
cousins.
CATEGORY II : WHERE TRANSACTIONS IS CARRIED OR MADE IN A
FICTITIOUS NAMEAs per Section 2(9)(D) provides that a transaction or an arrangement
in respect of a property is a Benami transaction if the person
providing the consideration is not traceable or is fictitious.
CATEGORY III : BENAMIDAR NOT AWARE OF OR DENIES KNOWLEDGE OF
TRANSACTION
CATEGORY IV : BENEFICIAL OWNER WHO PAID CONSIDERATION IS
FICTITIOUS OR IS UNTRACEABLE
POINTS TO PONDERIn this article I have narrated certain points mentioned below having importance in
understanding this act in a better way. Each point has its own importance and no one is
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interconnected to one another.
1. Benami property means any property which is the subject matter of
a Benami transaction and also includes proceeds from such property -
section 2(8).2. Benamidar means a person or a Fictitious person, as the case may be, in
whose name the Benami property is transferred or held and includes a
person who lends his name.3. Beneficial owner means a person, whether his identity is known or not, for
whose benefit the Benami property is held by a Benamidar. 4. Person being a Benamidar shall not retransfer the Benami property held by
him to the beneficial owner or any other person acting on his behalf.5. Section 58 of the act provides that Central Government may by notification
exempt any property relating to charitable or religious trusts from operation
of the act.6. Benami act covers all kinds of Immovable assets and movable assets
including cash, bank balance, shares etc.7. Though Benami transactions could be used to disguise the real ownership
of a property to prevent detection of the illegal activity that produced it, but it
can be entered into for other purposes like defrauding creditors, avoiding
payment of taxes or social reasons. 8. The true test to determine whether the transaction is Benami or not is to look
into the Intention of the parties, viz, whether it was intended to operate as
such or whether it was meant to be colourable. In every Benami transaction
the intention of the parties is the essence.9. In ITO v. M.R. Dhanalakshmi Ammal (1978) 112 ITR 413 (Mad.) court
suggested criteria for discharging burden of proof for the parties who sets
up the case of Benami nature of transaction. They are as under.a) The source of purchase consideration relating to the transaction,b) Possession of property,c) Position of the parties and their relationship to one another,d) Circumstances, pecuniary or otherwise, of the alleged transfer,e) The motive for the transaction,f) The custody and production of the title deeds, and g) The previous and subsequent conduct of the parties.
10. Where there was no proof to establish necessary ingredients of Benami like
contribution of capital, enjoyment of profits and control of business,
assessing officer could not be said be justified in including income of sister
concern PFI in hands of assesse company on ground that PFI was
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benamidar of assesse. – Parakh Foods Ltd. Dy. CIT (1998) 64
ITD 396 (Pune-Trib.)11. Prohibition contained in Benami Transaction Act against plea by
any person claiming to be real owner does not extend to declaring a
transaction as Benami transaction in tax proceedings.- P.K. Narayanan v. ITO (1994) 49 ITD 229 (Coch-Trib.)
12. In Benami transaction there is an operative transfer resulting in the vesting
of title in the transferee and in sham or Bogus or Fictitious transaction no
transaction has actually taken place and the transaction is merely shown to
have taken place on paper.- Meenakshi Mills Ltd. V. CIT (1957) 31 ITR 28 (SC)- Krishna Kumar v. Harman Dass (1991) 56 Taxman 233 (Delhi)
13. Power of attorney transactions are not regarded as Benami transactions
provided consideration has been paid to the original owner, person who
grants possession holds ownership, stamp duty on transaction has been
paid and the contract has been registered. Power of attorney transactions
cannot be treated as completed transfers or conveyances. Bonafide
genuine transactions such as power of attorney to family members or
development agreements between land owners and developer cannot be
brought in the radar of suspicion. 14. Where assessee's wife had been assessed for several years in respect of
share income from a firm which had been granted registration, merely
because during search of assessee's residence his wife stated that she did
not know name of firm and the share of profit therein though she admitted
she was a partner, she could not be treated as assessee's Benami so as to
include share income in assessee's hands.- Gaurishankar Omkarmal v. ITO (990) 37 TTJ (Ahd-Trib.) 353.
15. Depositing monies belonging to another would attract the Benami act and
returning the money in new notes would violate section 6 which forbids
benamidar from re-transfering property to real owner or any one acting on
his behalf. 16. If transaction involves foreign property, it would be covered under black
money act and not under Benami act.17. Section 2(9) (A) suggests that it must be established that the property is
held or possessed by the Benamidar and that consideration was paid by
another person. If the Benamidar is only a name lender than it is a “sham
Transaction”.18. Benami transaction is a punishable offence. Whoever enters shall be
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punishable with rigorous imprisonment for a term not less than one
year but which may extend to 7 years and shall also be liable with
fine which may extend to 25% of the fair market value of the
property or with both. Any property held Benami liable to be confiscated by
Central Government. No person being a Benamidar shall re-transfer the
Benami property held by him to the beneficial owner or any other person
acting on his behalf. With or without motive Benami transactions once
entered will attract all punishments. No suit, claim, action or defence based
on any right in respect of any property held Benami, shall be allowed by or
on behalf of a person claiming to be the real owner of such property.19. Section 54 of the act provides that any person who is required to furnish
information under this act knowingly gives any false information to any
authority or furnishes any false document in any proceedings under this act
shall be punishable with rigorous imprisonment for a term not less than 6
months but which may extend to 5 years and shall also be liable to fine
which may extend to 10% of the fair market value of the property. Offences
under the act are Non-cognizable but not bailable.20. Under Section 4(1) the real owner cannot bring any suit, claim or action to
enforce his right as the real owner on the plea that the ostensible owner is
Benamidar.21. Every proceedings under the act shall be deemed to be a judicial
proceeding. Any books of accounts or other documents produced before
the authority and impounded by him may retain for a period not exceeding 3
months from the date of order of attachment made by adjudicating authority.22. Where the initiating officer is of the opinion that the person in possession of
the property held Benami may alienate the property during the period
specified in the notice, he may, with the previous approval of the Approving
Authority, by order in writing, attach provisionally the property in the manner
as may be prescribed, for a period not exceeding 90 days from the date of
issue of notice.23. Notice may be served on the person named therein either by post or as if it
were a summons issued by a court under the code of civil procedure,1908.24. The Administrator shall by notice in writing order within 7 days of the date of
the service of notice to any person, who may be in possession of the
Benami property, to surrender or deliver possession thereof to the
administrator or any other person duly authorised in writing by him, in this
behalf and in the event of noncompliance of the order and immediate
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possession is warranted for the purpose of forcibly taking over
possession requisition the service of any police officer to assist him
and it shall be the duty of the officer to comply with the requisition.25. Any person including the initiating officer, aggrieved by an order of the
Adjudicating Authority may refer an appeal within 45 days in such form and
along with such fees, as may be prescribed, to the Appellate Tribunal
against the order passed by the Adjudicating Authority. Every appeal shall
be accompanied by a fee of Ten Thousand rupees.
26. POWERS OF APPELLATE TRIBUNAL» To determine a case finally, where the evidence on record is
sufficient» To take additional evidence or to require any evidence or to require
any evidence to be taken by the Adjudicating Authority, where the
Adjudicating Authority has refused to admit evidence, which ought to
have been admitted,» to require any document to be produced or any witness to be
examined for the purposes of proceeding before it,» to frame issues which appear to the Appellate Tribunal essential for
adjudication of the case and refer them to the Adjudicating Authority for
determination,» To pass final order and affirm, vary or reverse an order of
adjudication passed by the Adjudicating Authority and pass such other
order or orders as may be necessary to meet the ends of justice.27. Any party aggrieved by any decision or order of the Appellate Tribunal may
file an appeal to the High court within a period of 60 days from the date of
communication of the decision or order. 28. No prosecution, suit or other proceeding shall lie against the Government or
any officer of the Government or the Appellate Tribunal or the Adjudicating
Authority established under this act, for anything done or intended to be
done in good faith under this act.29. Where a person dies during the course of any proceeding under this act,
any proceeding taken against the deceased before his death shall be
deemed to have been taken against the legal representative and may be
continued against the legal representative from the stage at which it stood
on the date of the death of the deceased.30. Declaration under Pradhan Mantri Garib Kalyan Yojna, 2016 will not enjoy
immunity from Benami Act.31. Money deposited in Jan Dhan account if investigations reveal that money
INCOME� TAX� BAR� ASSOCIATION 27 IT�Mirror� 2016-17����� Vol:� 2
deposited belong to someone else then the provisions of Benami
act would be invoked to confiscate the money. 32. Section 281 A of the Income Tax Act, 1961 has been repealed
because of the amended Benami act except Jammu & Kashmir where this
act does not apply.
CONCLUSION
The amendment in the act is a means to reduce generation and utilization of
unaccounted (black) money. This was a pivotal election promise made by the current
government. Through this amendment the government seeks to clearly define ‚
Benami 'transactions, establish adjudicating authorities and an Appellate Tribunal to
deal with Benami transactions, and specifies the penalty for entering into Benami
transactions. Moreover, this will also increase the tax revenue for the Government by
curbing unaccounted money into the system. Along with other regulatory changes
such as implementation of Goods and Services Act (GST), Real Estate (Regulation &
Development) Act (RERA) and Land Digitization, this amendment is a step in the right
direction in improving transparency in real estate transactions. In the short term it will
lead to a reduction in transaction volumes. However, in the long term it will make India
a more attractive investment destination, aligning transactions with ethical standards
and will increase international institutional investors and financial institutions
participation in this sector.
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The Government has announced demonetization of existing currency of Rs. 500/1000 with effect from the 9th November, 2016. However, concerns have been raised that some of the existing provisions of the Income-tax Act, 1961 ('Act') could possibly be used for concealing black money. So, the Government has introduced Taxation Laws (Second Amendment) Bill, 2016 in the Lok Sabha to amend the provisions of Income-Tax Act.
The Government has announced Pradhan Mantri Garib Kalyan Yojana 2016 (PMGKY) in the Taxation Laws (Second Amendment) Bill, 2016. As per this PMGKY black money deposited in banks or held in cash can be offered for taxation at 49.9% (i.e., 30% tax, 9.9% surcharge and 10% penalty).
Q1. Who can make a declaration under PMGKY?
➢ "Any person" can make declaration as PMGKY available to every person (whether
resident or non-resident)
➢ Non-resident Indians, Foreign Citizens & Foreign Companies can make declaration
under PMGKY.
➢ Trustee can make a declaration on behalf of the beneficiary of a trust.
➢ Beneficiary can make separate declaration of his other income.
➢ Amalgamating company or a company which has converted itself into LLP cannot
make declaration as entity no more exists.
➢ Declaration can be filed on behalf of a deceased individual/a partitioned HUF/a
Company-in-liquidation/a dissolved firm/a dissolved private trust.
➢ Declaration can be made by a person who has not filed ITR in the past.
➢ If firm has undisclosed income, declaration shall be made by the firm.
➢ Partner cannot declare firm's income in his name.
➢ Partner may declare his undisclosed income in his name.
➢ Company can declare its undisclosed income.
➢ Govt. servant can declare undisclosed income inherited by him from his deceased
parents provided he can prove that it was really inherited by him.
➢ Person who has received notice under section 142/143(2)/148/153A/153C can
make declaration.
➢ Person searched (raided) or surveyed can also make declaration.
Q2. Who cannot make a declaration under PMGKY?
➢ Any person in respect of whom order of detention made under COFEPOSA, 1974.
FAQS ON PRADHAN MANTRI GARIB KALYAN YOJANA
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➢ Any person notified as accused in respect of securities scam of 1991-1992.
➢ Any person liable to be prosecuted under Chapter IX or Chapter XVII of IPC,
1860.
➢ Any person liable to be prosecuted under NDPS Act, 1974.
➢ Any person liable to be prosecuted under Unlawful Activities (Prevention) Act, 1967.
➢ Any person liable to be prosecuted under Prevention of Corruption Act, 1988.
➢ Any person liable to be prosecuted under Prohibition of Benami Property
Transactions Act, 1988.
➢ Any person liable to be prosecuted under Prevention of Money-Laundering Act,
2002.
➢ Person against whom FIR filed under any of the above Acts can declare if charge
sheet was not filed nor summons issued.
Q3. Which income can be declared under PMGKY?
➢ Undisclosed income which is taxable under the Income-tax Act, 1961 and in the form
of cash or deposit in an account with a specified entity can be declared.
➢ Undisclosed income in the form of jewellery, bullion, diamonds, other valuables can
be declared after selling them and converting them into cash or getting their sales proceeds credited to bank account.
➢ Cash or deposits with specified entities.
➢ 'Black' received in cash in property sales can be declared.
➢ Deposits in PPF account can be declared
➢ NSC cannot be declared
➢ RD balance in bank/post offices can be declared
➢ Deposits with NBFCs can be declared if they are notified as 'specified entities'
➢ Deposits with co-operative societies can be declared if they are notified as 'specified
entities'
➢ Deposits with Post Office can be declared
➢ It appears credit of TDS in Form 26AS will be available for payment under the
Scheme to the extent not claimed in ITR filed.
Q 4. Which income cannot be declared under PMGKY?
➢ Undisclosed income in the nature of "Red money" i.e. proceeds of crime, drugs,
terrorism, benami property, money-laundering cannot be declared.
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➢ Undisclosed foreign income/asset chargeable to tax under the Black Money
(Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 cannot be declared.
➢ Undisclosed income in the form of jewellery, bullion, diamonds, other valuables,
NSCs, investments in capital of firms etc. cannot be declared.
Q5. For which assessment years can declaration be made?
➢ Income chargeable to tax under Income-tax Act for any assessment year
commencing on or before 1-4-2017 can be declared.
Q6. What is the rate of tax, surcharge, penalty, interest and deposit under the PMGKY?
➢ Tax @ 30% of declared undisclosed income
➢ Pradhan Mantri Garib Kalyan Cess @ 33% of tax i.e. 9.9% of declared undisclosed
income.
➢ Penalty @10% of declared undisclosed income.
➢ Total payment to be made (tax plus PMGKY cess plus penalty) @ 49.9% of declared
undisclosed income.
➢ Deposit @ 25% of declared undisclosed income in PMGKY non-transferable non-
interest-bearing bonds for 4 years.
➢ Payment of 49.9% as well as deposit of 25% to be made before filing declaration.
➢ Proof of payment and deposit to be attached to declaration.
➢ Last date of declaration to be notified by Govt.
➢ No Education cess
➢ No Surcharge
➢ No Penalty under Section 270A
➢ No interest under section 234A or 234B or 234C
➢ Tax, cess and penalty paid are non-refundable
➢ No rounding off of undisclosed income declared
➢ No rounding off of tax payable under PMGKY
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FREQUENTLY ASKED QUESTIONSPradhan Mantri Garib Kalyan Deposit Scheme (PMGKDS), 2016
1. What is Pradhan Mantri Garib Kalyan Deposit Scheme (PMGKDS), 2016
Pradhan Mantri Garib Kalyan Deposit Scheme (PMGKDS), 2016 is a scheme notified by
the Government of India on December 16, 2016 which is applicable to every declarant
under the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana,
2016.
2. Who is eligible to deposit in PMGKS?
The deposit under this Scheme shall be made by any person who declared undisclosed
income under sub-section (1) of section 199C of the Taxation and Investment Regime for
Pradhan Mantri Garib Kalyan Yojana, 2016.
3. In what form will the deposits under this scheme be held?
The Deposits shall be held at the credit of the declarant in Bond Ledger Accounts (BLA)
maintained with Reserve Bank of India.
4. Who are the authorized agencies where the application and amount of deposit
will be accepted?
Application and amount for the deposit (in the form of Bond Ledger Account) shall be
received by any banking company to which the Banking Regulation Act, 1949 (10 of 1949)
applies (Authorized Banks).
5. Where can declarants get the application form?
Application for the deposit will be available at branches of authorized banks. It is also
available in the Reserve Bank of India website.
6. When can a declarant make the deposit into the scheme?
The deposits under this Scheme shall be made in a single payment in any of the
authorized banks from the 17th day of December, 2016 till 31st day of March, 2017
7. What are the Know-Your-Customer (KYC) norms?
Permanent Account Number (PAN) is the KYC document for individuals depositing in the
scheme. If a declarant does not hold PAN, he shall apply for PAN and provide the details of
such PAN application along with acknowledgement number to the bank while making the
application. On receipt of PAN, the details may be updated with the bank from which
application was made.
8. What is the minimum and maximum limit for depositing in the scheme?
The deposit by a declarant shall not be less than twenty-five per cent of the
undisclosed income declared under sub-section (1) of section 199C of the
Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016. Deposit
shall be made in multiples of ₹ 100.
9. Will any interest be paid on the deposit under the scheme?
No interest shall be paid for deposits made in this scheme.
10. After making the deposit, will any documentary evidence be issued?
On deposit, an acknowledgement receipt mentioning name of declarant and amount
deposited will be duly authorized and provided by the bank from which application was
made. Subsequently a certificate of holding for the BLA will be issued which may be
collected from the authorized bank.
11. When will the deposit be repaid ?
Repayment of the deposit will be made after a period of 4 years from the effective date of
deposit (ie., date of tender of cash or the date of realization of draft or cheque or transfer
through electronic transfer)
12. What will the declarant get on redemption?
On redemption, the entire amount deposited into the scheme will be repaid.
13. How will the declarant get the redemption amount?
The redemption amount will be credited to the bank account furnished by the person in the
application form.
14. What are the procedures involved during redemption?
· On the date of maturity, the proceeds will be credited to the bank account as per the
details on record.
· In case there are changes in any details, such as, account number, IFSC code,
email ids etc then the investor must intimate Reserve Bank Of India , through the
authorized banks promptly.
15. Can the deposit made into this scheme be prematurely redeemed ?
No, option for premature redemption of the BLA is not available.
16. Can the BLA be gifted/transferred to a relative or friend on some occasion?
No, the BLAs cannot be gifted/transferred to any relative or friend. Transferability of the
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Bond Ledger Account shall be limited to nominee or to the legal heir of an
individual holder, only in the event of death of the declarant.
17. Who will provide other services to the declarants after deposit in the scheme?
The banks through which the deposit into this scheme was made will provide other
customer services such as change of bank account details, cancellation of nominee etc.
18. What are the payment options for depositing in PMGKS?
The deposit shall be made in the form of cash or draft or cheque drawn in favour of the
authorised bank accepting such deposit or by electronic transfer.
19. Whether nomination facility is available for these investments?
Yes, nomination facility is available as per the provisions of the Government Securities Act
2006 and Government Securities Regulations, 2007. A nomination form is available along
with Application form. In case of cancellation/change in nomination, a separate form is to
be filled and submitted to the authorized bank.
20. Are the BLAs tradable?
No, the Bonds ledger Account are not tradable.
21. To whom the queries regarding PMGKDS be sent?
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Section B
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CIRCULAR NO. 6/2016, DTD. 29-2-2016[F.NO. 225/12/2016-ITA-II]
Sub-section (14) of section 2 of the Income-tax Act, 1961 (Act) defines the term capital
asset to include property of any kind held by an assessee, whether or not connected with
his business or profession, but does not include any stock-in-trade or personal assets
subject to certain exceptions. As regards shares and other securities, the same can be
held either as capital assets or stock-in-trade/trading assets or both. Determination of the
character of a particular investment in shares or other securities, whether the same is in
the nature of a capital asset or stock-in-trade, is essentially a fact-specific determination
and has led to a lot of uncertainty and litigation in the past.
2. Over the years, the courts have laid down different parameters to distinguish the shares
held as investments from the shares held as stock-in-trade. The Central Board of Direct
Taxes (CBDT) has also, through Instruction No. 1827, dated August 31, 1989 and Circular
No. 4 of 2007 dated June 15, 2007, summarized the said principles for guidance of the
field formations.
3. Disputes, however, continue to exist on the application of these principles to the facts of
an individual case since the taxpayers find it difficult to prove the intention in acquiring
such shares/securities. In this background, while recognizing that no universal principal in
absolute terms can be laid down to decide the character of income from sale of shares
and securities (i.e. whether the same is in the nature of capital gain or business income),
CBDT realizing that major part of shares/securities transactions takes place in respect of
the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial
modification to the aforesaid Circulars, further instructs that the Assessing Officers in
holding whether the surplus generated from sale of listed shares or other securities would
be treated as Capital Gain or Business Income, shall take into account the following--
(a) Where the assessee itself, irrespective of the period of holding the listed shares and
securities, opts to treat them as stock-in-trade, the income arising from transfer of such
shares/securities would be treated as its business income,
(b) In respect of listed shares and securities held for a period of more than 12 months
Section 45--Capital Gains--Share Transactions--Issue of Taxability of Surplus on Sale of Share and Securities--Capital Gain or Business
Income--Instruction in Order to Reduce Litigation
immediately preceding the date of its transfer, if the assessee desires to treat
the income arising from the transfer thereof as Capital Gain, the same shall not
be put to dispute by the Assessing Officer. However, this stand, once taken by the
assessee in a particular Assessment Year, shall remain applicable in subsequent
Assessment Years also and the taxpayers shall not be allowed to adopt a
different/contrary stand in this regard in subsequent years;
(c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of
capital gain or business income) shall continue to be decided keeping in view the
aforesaid Circulars issued by the CBDT.
4. It is, however, clarified that the above shall not apply in respect of such transactions in
shares/securities where the genuineness of the transaction itself is questionable, such as
bogus claims of Long Term Capital Gain/Short Term Capital Loss or any other sham
transactions.
5. It is reiterated that the above principles have been formulated with the sole objective of
reducing litigation and maintaining consistency in approach on the issue of treatment of
income derived from transfer of shares and securities. All the relevant provisions of the
Act shall continue to apply on the transactions involving transfer of shares and securities.
COMMENTS TO UNDERSTAND THE GENESIS
This is a very important circular clarifying as to when the surplus on sale of shares is taxable business income and when it is taxable as Capital Gains. Legal battles have been going on sometimes the outcome is in the favour of the assessee and sometimes against the assessee. This circular is helpful in deciding this most critical issue. Let me refer to para 3(a)…. “Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income.”
In my opinion this clause clearly suggests that if assessee wants to treat the surplus on sale of shares as stock-in-trade then the income arising from the transfer of shares will be treated as business income. However, if the assessee in spite of volume as well as frequency of share transactions treats the surplus as Capital Gain then the same has to be taxed as Capital Gain. Though clause (a) is silent on this aspect the intention is loud and clear.
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CIRCULAR NO. 12/2016, DT. 30-5-2016[F.NO.279/MISC./140/2015-ITJ]
1. Proposals have been received by the Central Board of Direct Taxes regarding filing
of appeals/pursuing litigation on the issue of allowability of bad debt that are written off
as irrecoverable in the accounts of the assessee. The dispute relates to cases
involving failure on the part of assessee to establish that the debt is irrecoverable.
2. Direct Tax Laws (Amendment) Act, 1987 amended the provisions of sections
36(1)(vii) and 36(2) of the Income Tax Act 1961, (hereafter referred to as the Act) to
rationalize the provisions regarding allowability of bad debt with effect from the 1st
April, 1989.
3. The legislative intention behind the amendment was to eliminate litigation on the
issue of the allowability of the bad debt by doing away with the requirement for the
assessee to establish that the debt, has in fact, become irrecoverable. However,
despite the amendment, disputes on the issue of allowability continue, mostly for the
reason that the debt has not been established to be irrecoverable. The Honble
Supreme Court in the case of TRF Ltd. In CA Nos. 5292 to 5294 of 2003 vide judgment
dated 9-2-2010 [(2010) 36 (I) ITCL 2 (SC) : 2010 TaxPub(DT) 1481 (SC)], has stated
that the position of law is well settled. After 1.4.1989, for allowing deduction for the
amount of any bad debt or part thereof under section 36(1) (vii) of the Act, it is not
necessary for assessee to establish that the debt, in fact has become irrecoverable; it
is enough if bad debt is written off as irrecoverable in the books of accounts of
assessee.
4. In view of the above, claim for any debt or part thereof in any previous year, shall be
admissible under section 36(l)(vii) of the Act, if it is written off as irrecoverable in the
books of accounts of the assessee for that previous year and it fulfills the conditions
stipulated in sub section (2) of sub-section 36(2) of the Act.
Admissibility of Claim of Deduction of Bad Debt Under Section 36(1)(vii) r/w Section 36(2)
5. Accordingly, no appeals may henceforth be filed on this ground and appeals
already filed, if any, on this issue before various Courts/Tribunals may be
withdrawn/not pressed upon.
6. This may be brought to the notice of all concerned.
COMMENTS TO UNDERSTAND THE GENESIS
In this circular it is clarified that the claim of bad debt has to be allowed as
deduction even when debt is not established to be irrecoverable. The
circular ratifies the decision of their lordships for Supreme Court in the
case of TRF Ltd.
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CIRCULAR NO. 21/2015, DTD. 10-12-2015F.NO. 279/MISC. 142/2007-ITJ (PT)
Reference is invited to Boards Instruction No. 5/2014 dt. 10-7-2014 wherein monetary limits
and other conditions for filing departmental appeals (in Income-tax matters] before Appellate
Tribunal and High Courts and SLP before the Supreme Court were specified.
2. In supersession of the above instruction, it has been decided by the Board that
departmental appeals may be filed on merits before Appellate Tribunal and High Courts and SLP
before the Supreme Court keeping in view the monetary limits and conditions specified below.
3. Henceforth, appeals/ SLPs shall not be filed in cases where the tax effect does not exceed
the monetary limits given hereunder:
It is clarified that an appeal should not be filed merely because the tax effect in a case exceeds
the monetary limits prescribed above. Filing of appeal in such cases is to be decided on merits of
the case.
4. For this purpose, tax effect means the difference between the tax on the total income
assessed and the tax that would have been chargeable had such total income been reduced by
the amount of income in respect of the issues against which appeal is intended to be filed
(hereinafter referred to as disputed issues). However the tax will not include any interest thereon,
except where chargeability of interest itself is in dispute. In case the chargeability of interest is the
Revision of Monetary Limits for Filing of Appeals by the Department Before Income Tax Appellate Tribunal and High Courts and SLP
before Supreme Court--Measures for reducing litigation
S. No.
Appeals in
Income-tax matters
Monetary
Limit (in Rs)
.
Before Appellate Tribunal 10,00,000
.
Before High Court 20,00,00
0
.
Before Supreme Court 25,00,00
0
issue under dispute, the amount of interest shall be the tax effect. In cases where
returned loss is reduced or assessed as income, the tax effect would include notional tax
on disputed additions. In case of penalty orders, the tax effect will mean quantum of penalty
deleted or reduced in the order to be appealed against.
5. The Assessing Officer shall calculate the tax effect separately for every assessment year in
respect of the disputed issues in the case of every assessee. If, in the case of an assessee, the
disputed issues arise in more than one assessment year, appeal, can be filed in respect of such
assessment year or years in which the tax effect in respect of the disputed issues exceeds the
monetary limit specified in para 3. No appeal shall be filed in respect of an assessment year or
years in which the tax effect is less than the monetary limit specified in para 3. In other words,
henceforth, appeals can be filed only with reference to the tax effect in the relevant assessment
year. However, in case of a composite order of any High Court or appellate authority, which
involves more than one assessment year and common issues in more than one assessment year,
appeal shall be filed in respect of all such assessment years even if the tax effect is less than the
prescribed monetary limits in any of the year(s), if it is decided to file appeal in respect of the
year(sj in which tax effect exceeds the monetary limit prescribed. In case where a composite
order/ judgement involves more than one assessee, each assessee shall be dealt with separately.
6. In a case where appeal before a Tribunal or a Court is not filed only on account of the tax
effect being less than the monetary limit specified above, the Commissioner of Income-tax shall
specifically record that even though the decision is not acceptable, appeal is not being filed only
on the consideration that the tax effect is less than the monetary limit specified in this instruction.
Further, in such cases, there will be no presumption that the Income-tax Department has
acquiesced in the decision on the disputed issues. The Income-tax Department shall not be
precluded from filing an appeal against the disputed issues in the case of the same assessee for
any other assessment year, or in the case of any other assessee for the same or any other
assessment year, if the tax effect exceeds the specified monetary limits.
7. In the past, a number of instances have come to the notice of the Board, whereby an
assessee has claimed relief from the Tribunal or the Court only on the ground that the Department
has implicitly accepted the decision of the Tribunal or Court in the case of the assessee for any
other assessment year or in the case of any other assessee for the same or any other assessment
year, by not fi l ing an appeal on the same disputed issues. The Departmental
representatives/counsels must make every effort to bring to the notice of the Tribunal or the Court
INCOME� TAX� BAR� ASSOCIATION 41 IT�Mirror� 2016-17����� Vol:� 2
that the appeal in such cases was not filed or not admitted only for the reason of the tax
effect being less than the specified monetary limit and, therefore, no inference should be
drawn that the decisions rendered therein were acceptable to the Department. Accordingly, they
should impress upon the Tribunal or the Court that such cases do not have any precedent value.
As the evidence of not filing appeal due to this instruction may have to be produced in courts, the
judicial folders in the office of CsIT must be maintained in a systemic manner for easy retrieval.
8. 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 are under challenge,
or
(b) Where Boards 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 the addition relates to undisclosed foreign assets/ bank accounts.
9. The monetary limits specified in para 3 above shall not apply to writ matters and direct tax
matters other than Income tax. Filing of appeals in other Direct tax matters shall continue to be
governed by relevant provisions of statute & rules. Further, filing of appeal in cases of Income Tax,
where the tax effect is not quantifiable or not involved, such as the case of registration of trusts or
institutions under section 12 A of the IT Act, 1961, shall not be governed by the limits specified in
para 3 above and decision to file appeal in such cases may be taken on merits of a particular case.
10. This instruction will apply retrospectively to pending appeals and appeals to be filed
henceforth in High Courts/ Tribunals. Pending appeals below the specified tax limits in para 3
above may be withdrawn/ not pressed. Appeals before the Supreme Court will be governed by the
instructions on this subject, operative at the time when such appeal was filed.
11. This issues under Section 268A (1) of the Income-tax Act 1961.
COMMENTS TO UNDERSTAND THE GENESIS
In this circular the monetary limits for filling appeals/ SLPs have been revised. The
CBDT has revised the monetary limits as specified in the circular. It is clarified that
an appeal should not be filed merely because the tax effect in a case exceeds the
INCOME� TAX� BAR� ASSOCIATION 42 IT�Mirror� 2016-17����� Vol:� 2
monetary limits prescribed. Filling in such cases is to be decided on merits
of case. However, the tax will not include any interest thereon, except
where chargeability of interest itself is in dispute. Thus, for e.g. monetary limit of
Rs. 10,00,000 for filling appeal before Tribunal will not include interest. There are
also welcome points of clarification given in the circular.
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INCOME� TAX� BAR� ASSOCIATION 44 IT�Mirror� 2016-17����� Vol:� 2
CIRCULAR NO. 23/2016 [F.NO. 370142/17/2016-TPL] DT. 24-6-2016
In order to curb the cash economy, Finance Act 2016 has amended section 206C of
the Income-tax Act to provide that the seller shall collect tax at the rate of one per cent
from the purchaser on sale in cash of certain goods or provision of services exceeding
two lakh rupees. Subsequent to the amendment, a number of representations were
received from various stakeholders with regard to the scope of the provisions and the
procedure to be followed in case of the amended provisions of Section 206C of the
Act. The Board, after examining the representations of the stakeholders, the issued
FAQs vide circular. No.22/2016 dated 8 June, 2016. The Board has further decided to
clarify the issue as regards applicability of the provisions relating to levy of TCS where
the sale consideration received is partly in cash and partly in cheque by issue of an
addendum to the above circular in the form of question and answer as under:
Question 1: Whether tax collection at source under section 206C(1D) at the rate of
1% will apply in cases where the sale consideration received is partly in cash and
partly in cheque and the cash receipt is less than two lakh rupees.
Answer: No. Tax collection at source will not be levied if the cash receipt does not
exceed two lakh rupees even if the sale consideration exceeds two lakh rupees.
Illustration: Goods worth Rs. 5 lakhs is sold for which the consideration amounting
to Rs. 4 lakhs has been received in cheque and Rs. 1 lakh has been received in
cash. As the cash receipt does not exceed Rs. 2 lakh, no tax is required to be
collected at source as per section 206C (ID).
Question 2: Whether tax collection at source under section 206C (ID) will apply only
to cash component or in respect of whole of sales consideration.
Answe: Under section 206C (ID), the tax is required to be collected at source on cash
component of the sales consideration and not on the whole of sales consideration.
Illustration: Goods worth Rs. 5 lakhs is sold for which the consideration amounting
Amendment in Section 206C of the Income-tax Act vide Finance Act 2016 -Clarifications regarding
to Rs. 2 lakhs has been received in cheque and Rs. 3 lakh has been
received in cash. Tax is required to be collected under section 206C (ID)
only on cash receipt of Rs. 3 lakhs and not on the whole of sales consideration of
Rs. 5 lakh.
COMMENTS TO UNDERSTAND THE GENESIS
In this circular the application of sec 206© regarding collection of tax at
source has been clarify to mean that this provision is applicable only in
respect of cash receipt of Rs. More than 2Lakhs and not on the whole of
sale consideration
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NOTIFICATION NO. 43/2016, DT. 2-6-2016[F.NO. 370142/7/2016-TPL]
S.O. 1949(E)--In exercise of the powers conferred by section 295 read with sub-
section (2) of section 14A of the Income-tax Act, 1961 (43 of 1961), the Central
Government hereby makes the following rules further to amend the Income-tax Rules,
1962, namely:
1. (1) These rules may be called the Income Tax (14th Amendment) Rules, 2016.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. In the Income-tax Rules 1962, in rule 8D,
(I) for sub-rule (2), the following sub-rule shall be substituted, namely:- (2) The
expenditure in relation to income which does not form part of the total income shall
be the aggregate of following amounts, namely:- (i) the amount of expenditure
directly relating to income which does not form part of total income; and
(ii) an amount equal to one per cent of the annual average of the monthly averages
of the opening and closing balances of the value of investment, income from which
does not or shall not form part of total income:
Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the
total expenditure claimed by the assessee.;
(II) sub-rule (3) shall be omitted.
Note:- The principal rules were published vide Notification S.O. 969 (E), dated 26th
March, 1962 and last amended by Income-tax (13th Amendment) Rules, 2016 vide
Notification S.O.1923(E), dated 31-5-2016.
Income Tax (14th Amendment) Rules, 2016--Amendment in Rule 8D
COMMENTS TO UNDERSTAND THE GENESIS
Very important circular has been issued in respect of disallowance u/s.
14A read with rule 8D should be an amount equal to 1% of the annual
average of the monthly averages of the opening and closing balances of
the value of investment , income from which does not or shall not form
part of total income. Provided that the amount of referred to in case
clause (i) and clause (ii) shall not exceed the total expenditure claimed by
the assessee. Further, sub rule (3) has been omitted. The most important
guideline is that the disallowance should not exceed the expenditure
claimed by the assessee.
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OFFICE MEMORANDUM, DTD. 29-2-2016[F.NO.404/72/93-ITCC]
Instruction No. 1914 dated 21-3-1996 contains guidelines issued by the Board
regarding procedure to be followed for recovery of outstanding demand, including
procedure for grant of stay of demand.
2. In part C of the Instruction, it has been prescribed that a demand will be stayed only
if there are valid reasons for doing so and that mere filing of an appeal against the
assessment order will not be a sufficient reason to stay the recovery of demand. It has
been further prescribed that while granting stay, the field officers may require the
assessee to offer a suitable security (bank guarantee, etc.) and/ or require the
assessee to pay a reasonable amount in lump sum or in instalments.
3. It has been reported that the field authorities often insist on payment of a very high
proportion of the disputed demand before granting stay of the balance demand. This
often results in hardship for the taxpayers seeking stay of demand.
4. In order to streamline the process of grant of stay and standardize the quantum of
lump sum payment required to be made by the assessee as a pre-condition for stay of
demand disputed before CIT (A), the following modified guidelines are being issued in
partial modification of Instruction No. 1914:
(A) In a case where the outstanding demand is disputed before CIT (A), the
assessing officer shall grant stay of demand till disposal of first appeal on payment
of 15% of the disputed demand, unless the case falls in the category discussed in
para (B) hereunder.
(B) In a situation where,
(a) the assessing officer is of the view that the nature of addition resulting in the
disputed demand is such that payment of a lump sum amount higher than 15% is
warranted (e.g. in a case where addition on the same issue has been confirmed by
appellate authorities in earlier years or the decision of the Supreme Court or
Amendment of Instruction No.1914, dated 21-3-1996 to Provide For Guidelines For Stay of Demand
jurisdictional High Court is in favour of Revenue or addition is based on
credible evidence collected in a search or survey operation, etc.) or,
(b) the assessing officer is of the view that the nature of addition resulting in the
disputed demand is such that payment of a lump sum amount lower than 15% is
warranted (e.g. in a case where addition on the same issue has been deleted by
appellate authorities in earlier years or the decision of the Supreme Court or
jurisdictional High Court is in favour of the assessee, etc.), the assessing officer
shall refer the matter to the administrative Pr. CIT/CIT, who after considering all
relevant facts shall decide the quantum/proportion of demand to be paid by the
assessee as lump sum payment for granting a stay of the balance demand.
(C) In a case where stay of demand is granted by the assessing officer on payment
of 15% of the disputed demand and the assessee is still aggrieved, he may
approach the jurisdictional administrative Pr. CIT/CIT for a review of the decision of
the assessing officer.
(D) The assessing officer shall dispose of a stay petition within 2 weeks of filing of
the petition. If a reference has been made to Pr. CIT/CIT under para 4 (B) above or a
review petition has been filed by the assessee under para 4 (C) above, the same
shall also be disposed of by the Pr. CIT/CIT within 2 weeks of the assessing officer
making such reference or the assessee filing such review, as the case may be.
(E) In granting stay, the Assessing Officer may impose such conditions as he may
think fit. He may, inter alia,-
(i) require an undertaking from the assessee that he will cooperate in the early
disposal of appeal failing which the stay order will be cancelled;
(ii) reserve the right to review the order passed after expiry of reasonable period
(say 6 months) or if the assessee has not co-operated in the early disposal of
appeal, or where a subsequent pronouncement by a higher appellate authority or
court alters the above situations;
(iii) reserve the right to adjust refunds arising, if any, against the demand, to the
extent of the amount required for granting stay and subject to the provisions of
section 245.
INCOME� TAX� BAR� ASSOCIATION 49 IT�Mirror� 2016-17����� Vol:� 2
5. These instructions/guidelines may be immediately brought to the notice of
all officers working in your jurisdiction for proper compliance.
COMMENTS TO UNDERSTAND THE GENESIS
This is a very important and beneficial circular for the tax payer. It is the
experience of every one that all kinds of huge assessments are being
made by the income tax department and when application is made for
stay of outstanding demand the same is rejected or you are told 50% of
the demand must be paid otherwise bank accounts will be attached. The
worst situation is when the AO does not apply his mind and rejects the
stay petition and even does not pass any speaking order. Let me refer to
para 4 (a) which reads as under…
“In a case where the outstanding demand is disputed before CIT
(A), the assessing officer shall grant stay of demand till disposal of first
appeal on payment of 15% of the disputed demand, unless the case falls
in the category discussed in para (B)…….
In my opinion this is a very beneficial circular and apart from the above
referred relaxation there are other guidelines also which must be referred
to for the purpose of stay petition.
INCOME� TAX� BAR� ASSOCIATION 50 IT�Mirror� 2016-17����� Vol:� 2
THANK YOU
INCOME� TAX� BAR� ASSOCIATION 51 IT�Mirror� 2016-17����� Vol:� 2
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