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Credit for Foreign Taxes permitted for the PE of an Indian Company In a path-breaking recent judgement of Bank of India vs. ACIT, ITAT Mumbai its held that profits of foreign branches of a resident, having PE outside India and taxed outside India under tax treaties, shall also be chargeable to tax in India. The assesseee, however, is entitled to credit for taxes paid abroad, as admissible under the said treaty or the domestic law. Furthermore, stated that, Treaty protection normally comes into play for taxation of a non-resident in India, and not for taxation of a resident in whose hands global income is to be taxed anyway. The ITAT further held that the effect of Hon’ble Supreme Court’s judgment in Kulandagan Chettiar’s case was clearly overruled by the legislative developments and it is specifically legislated that the mere fact of taxability of the income in the treaty partner jurisdiction will not take it out of the ambit of taxable income of an assessee in India. The judgement also asseverated that Section 115JB applies to banking companies, after the 2012 amendment and that the foreign branches liable to be taxed under the tax treaties are also liable for MAT.
Karnataka HC upholds ITAT order, holds that payment made by assessee-company (Abbey India) during AY2005-06 to its UK Group Co. (ANP) towards reimbursement of hotel and travelling expenses incurred onseconded employees is not FTS and thus, not liable for TDS u/s 195; ANP entered into a secondmentagreement with assessee to facilitate the outsourcing agreement between ANP and a third party serviceprovider in India and deducted TDS on salary reimbursed exclusive of hotel and travelling expenditure;Stating that the employees of ANP seconded to India were highly skilled technical personnel, Revenue heldthat the entire payment made was in the nature of FTS u/s 9(1)(vii) and also under Art. 13 of India-UK DTAA;Observes that under the agreement, the seconded employees have to work at such place as the assesseemay instruct and function under the control, direction and supervision of the assessee in accordance with thepolicies, rules and guidelines applicable to the employees of the assessee; Remarks that “the assessee for allpractical purposes has to be treated as employer of the seconded employees.”; Opines that there is noobligation in law for deduction of tax at source on payments made for reimbursement of costs incurred by anon-resident enterprise and therefore the amount paid by the assessee was not amenable to witholding u/s195; Holds that the expenses incurred by the seconded employees which were reimbursed by the assesseeis not liable to TDS as not covered under FTS; Distinguishes Delhi HC ruling in Centrica India and states that“In the instant case, the issue of permanent establishment is not involved. Therefore, the aforesaid decisionis not applicable to the fact situation of the case.”
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SC upholds the levy of GST on lottery
ThisTax Alert summarizes a recent ruling of the Supreme Court (SC). In the writ petition, the petitioner challenged the definition of goods under the Central Goods and Services Tax Act, 2017 (CGST Act) to the extent it includes actionable claim. It also challenged the valuation mechanism since the taxable value includes prize money.
The key observations of the SC are:
- Article 366(12) of the Constitution defines goods in an inclusive manner and does not specifically exclude actionable claim. Thus, definition of goods under the CGST Act is not in conflict with Article 366(12).
- Article 246A, which empowers the Parliament to make laws with respect to Goods and Services Tax begins with a non obstante clause, which confers a very wide power to make laws.
- Definition of goods as per section 2(52) is in line with the SC’s ruling in the case of Sunrise Associates, wherein it was held that actionable claims are “goods” but not for the purposes of the Sales Tax Act.
- There is no hostile discrimination in taxing lottery, betting and gambling and not taxing other actionable claims. The rationale to tax the same is easily comprehensible.
- When there are specific statutory provisions enumerating what should be included and excluded from the value of supply, it cannot be accepted that prize money is to be deducted while determining the value of taxable supply of lottery.
Comments
- This ruling, which mainly relies on the earlier judgement of the SC in case of Sunrise Associates, may come as a setback for those engaged in the lottery business.
- The petitioner had also challenged the rate disparity between state-run and state-authorized lotteries. The same was brought to the knowledge of the GST Council in its 38th meeting. Since the Council decided to implement a single tax rate, the issue was later reserved by the petitioner.
Imp Tax Judgements
The State of Jharkhand & Ors Vs Brahmaputra Metallics Limited, Ranchi
The apex court today in a landmark decision dismissed the appeal of the State of Jharkhand by holding that the rebate of electricity duty which it had promised in terms of Jharkhand Industrial Policy 2012 and which was supposed to be notified by it by way of notification which was not issued and thus depriving the respondents of the benefit was hit by doctrine of promissory estoppel and doctrine of legitimate expectation. The court held that the State having held out a solemn representation in the above terms, it would be manifestly unfair and arbitrary to deprive industrial units within the State of their legitimate entitlement. It is one thing for the State to assert that the writ petitioner had no vested right but quite another for the State to assert that it is not duty bound to disclose its reasons for not giving effect to the exemption notification within the period that was envisaged in the Industrial Policy 2012. The court also brushed aside the argument of State on account of Unjust enrichment noting that the respondent did not collect any amount towards electricity duty.
CIT Versus NALWA INVESTMENTS LTD (Delhi High Court) [TS-390-HC-2020(DEL)]/ [2020] 118 taxmann.com 278 (Delhi) / (2020) 427 ITR 229 (Del)
Receipt of shares of amalgamated company by the shareholders of amalgamating company in lieu of their shareholding in amalgamating company is transfer within the meaning of section 2(47) and 45 of Income Tax Act,1961. If on the date of amalgamation, the shareholders of amalgamating company held those shares as capital asset, such transfer would be exempt from capital gains tax under section 47(vii).If on the other hand such shares were held as stock-in-trade, such transaction would be taxable as normal business income under section 28. Capital gains taxation scheme of 1961 Act in the form of S. 2(14), 2(47), 45 and 47 is different from similar scheme under section 12B of Income Tax Act,1922. Therefore, Supreme Court Judgement in CIT Vs Rasiklal Maneklal HUF (1989) 177 ITR 198 (SC) rendered under Income Tax Act, 1922 is not applicable to an amalgamation under 1961 Act. Such amalgamation is governed by CIT Vs Grace Collis (2001) 248 ITR 323 (SC)
Parle International Limited Vs Union of India & Ors
The Bombay high court in the above case dealing with an order in original which was passed in the year 2019 in pursuance of a Show cause notice which was issued in the year 2006 and which was responded by the Company at that time itself and all of a sudden after 13 years the proceedings were revived and order passed towards CENVAT credit on inputs and capital goods under CENVAT credit rules. The court noted decision of Bombay High court in the case of Bhagwan S Tolani Vs B C Agarwal (1983) 12 ELT 44 that even when no limitation for passing an order is prescribed in law, limitation would have to be read in to it otherwise if such contentions as to limitation were to be accepted, it would mean that the department can commence adjudication proceedings 10 years, 15 years or 20 years after the original show-cause notice was issued which could not be permitted. Larger public interest requires that revenue should adjudicate the show-cause notice expeditiously and within a reasonable period. What would be the reasonable period would depend upon the facts and circumstances of each case but certainly a period of 13 years cannot be termed as a reasonable period. On these facts the show cause notice and order passed thereupon were quashed and set aside.
Shri Vijay Kumar Wanchoo v. ITO Ward 2(5), NOIDA, UP
Where the assessee sold in AY 2009-10 by two different registered transfer deeds, two flats which were used as residence by amalgamating both into one single unit and invested the capital gains in one new residential house, exemption u/s 54 could not be denied. Relying on ITAT Mumbai’s order in DCIT v. Ranjit Vithaldas in ITA No. 7443/Mum/2002 and in ACIT 18(1) Mumbai v. Sh. Dinesh A Vora in ITA 5547/Mum/2011 it was held that Capital gains arising from more than one residential houses and invested in one residential house shall entail exemption under section 54.Appeal of the assessee was thus allowed
Government waives penalty for non-compliance of QR code on B2C invoices till March 2021
ThisTax Alert summarizes a recent notification [1] issued by Central Board of Indirect Taxes and Customs (CBIC) under Goods and Services Tax (GST).
As per earlier Notification no. 14/2020-CT dated 21 March 2020, effective from 1 December 2020, registered persons (other than those specified), whose aggregate turnover in a financial year exceed INR 500 crore, issuing invoice to unregistered person (i.e. B2C invoice), shall provide dynamic quick response (QR) code on such invoice.
Vide the recent notification, CBIC has waived the amount of penalty leviable under section 125 of Central Goods and Services Tax Act, 2017, for not providing dynamic QR code on B2C invoices during the period December 2020 to March 2021.
However, such waiver is subject to the condition that the taxpayer complies with the provisions of the Notification no. 14/2020-CT from 1 April 2021 onwards.
It is pertinent to note that while penalty for not providing QR code is waived, the same would still be treated as non-compliance under GST. Though section 125 is a residual penal provision under which the penalty has been waived by the Government, there is also a provision under section 122(3)(e) which deals with penalty for invoices not issued in accordance with the provisions of the GST law.
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