The Finance Bill, 2013, as
introduced in Parliament is available
here. Among the amendments introduced, one which has caused some concern is
an amendment which states that Tax Residency Certificates are necessary but not
sufficient. Much of the concern appears to be undue. Under the general law,
TRCs are not conclusive as to residence. The amendment indicates that they are
not ‘sufficient’; and a subsequent
press release has indicated that the Department will not attempt to use
this amendment to go behind all TRCs. The Supreme Court in Azadi Bachao had held that a Mauritius TRC is conclusive: this was
on the basis of a specific Circular issued by the CBDT in relation to the
Mauritius treaty. Until the Circular is withdrawn, the position in respect of
Mauritius should continue to be the same.
introduced in Parliament is available
here. Among the amendments introduced, one which has caused some concern is
an amendment which states that Tax Residency Certificates are necessary but not
sufficient. Much of the concern appears to be undue. Under the general law,
TRCs are not conclusive as to residence. The amendment indicates that they are
not ‘sufficient’; and a subsequent
press release has indicated that the Department will not attempt to use
this amendment to go behind all TRCs. The Supreme Court in Azadi Bachao had held that a Mauritius TRC is conclusive: this was
on the basis of a specific Circular issued by the CBDT in relation to the
Mauritius treaty. Until the Circular is withdrawn, the position in respect of
Mauritius should continue to be the same.
Another set of amendments has been
in relation to the GAAR, which has been deferred to 1st April 2016 (which
should mean that the provisions shall be effective from FY 2015-16, AY 2016-17
onwards). The scope of what constitutes an impermissible avoidance arrangement
has been somewhat narrowed – an arrangement the main purpose (as opposed to
‘one of the main purposes’) of which is to obtain a tax benefit would be
covered. If the main purpose of the transaction as a whole is not tax benefit,
but that of a step in the transaction is, then the transaction would be presumed
to be an impermissible avoidance arrangement. Factors such as the period of
time for which the arrangement had existed, the fact of payment of taxes by the
assessee under the structure adopted, and the fact that an exit route was
provided by the arrangement, would be relevant but not sufficient to determine
whether the arrangement is an impermissible avoidance arrangement. The
constitution of the Approving Panel has been widened to include non-revenue
participation. The Panel would be headed by a serving or retired High Court
judge; and would also consist of one senior Revenue officer and one external
expert/scholar. Directions of the Panel are stated to be final and binding on
both, the Revenue as well as assessees.
in relation to the GAAR, which has been deferred to 1st April 2016 (which
should mean that the provisions shall be effective from FY 2015-16, AY 2016-17
onwards). The scope of what constitutes an impermissible avoidance arrangement
has been somewhat narrowed – an arrangement the main purpose (as opposed to
‘one of the main purposes’) of which is to obtain a tax benefit would be
covered. If the main purpose of the transaction as a whole is not tax benefit,
but that of a step in the transaction is, then the transaction would be presumed
to be an impermissible avoidance arrangement. Factors such as the period of
time for which the arrangement had existed, the fact of payment of taxes by the
assessee under the structure adopted, and the fact that an exit route was
provided by the arrangement, would be relevant but not sufficient to determine
whether the arrangement is an impermissible avoidance arrangement. The
constitution of the Approving Panel has been widened to include non-revenue
participation. The Panel would be headed by a serving or retired High Court
judge; and would also consist of one senior Revenue officer and one external
expert/scholar. Directions of the Panel are stated to be final and binding on
both, the Revenue as well as assessees.
In the context of domestic
taxation, there appear to be a number of changes introduced. The position of
law (as per the Bombay High Court in Dinesh
Tailor v. TRO 326 ITR 85) was that a director of a private company could in
certain circumstances be liable for the tax demand, but not for the interest or
penalty levied, on the private company. It has now been clarified that ‘tax’ in
this context shall include interest and penalty. Amendments have been
introduced effectively resulting in the application of s. 50C to certain
business assets too (contrary to the views taken by some High Courts). There
are some amendments to the definition of agricultural land; including one
amendment stating that the distance of the land from municipal limits (which is
one of the tests) is to be measured aerially (and not by road, as held by the
Punjab and Haryana High Court). A new investment allowance is proposed to be
introduced for a limited duration, by bringing in the new s. 32AC. Receipt of
immovable property for inadequate consideration is brought within the tax net:
the difference between the consideration and the stamp duty valuation is
taxable in the hands of the recipient u/s 56 (and this is in addition to any
liability which may be incurred by the transferor u/s 50C). TDS has also been
introduced on transactions involving transfers of immovable property for
consideration above Rs. 50,00,000.
taxation, there appear to be a number of changes introduced. The position of
law (as per the Bombay High Court in Dinesh
Tailor v. TRO 326 ITR 85) was that a director of a private company could in
certain circumstances be liable for the tax demand, but not for the interest or
penalty levied, on the private company. It has now been clarified that ‘tax’ in
this context shall include interest and penalty. Amendments have been
introduced effectively resulting in the application of s. 50C to certain
business assets too (contrary to the views taken by some High Courts). There
are some amendments to the definition of agricultural land; including one
amendment stating that the distance of the land from municipal limits (which is
one of the tests) is to be measured aerially (and not by road, as held by the
Punjab and Haryana High Court). A new investment allowance is proposed to be
introduced for a limited duration, by bringing in the new s. 32AC. Receipt of
immovable property for inadequate consideration is brought within the tax net:
the difference between the consideration and the stamp duty valuation is
taxable in the hands of the recipient u/s 56 (and this is in addition to any
liability which may be incurred by the transferor u/s 50C). TDS has also been
introduced on transactions involving transfers of immovable property for
consideration above Rs. 50,00,000.
Several amendments and new provisions in respect
of venture capital funds, securitisation trusts etc have been introduced, as
has been a new charge on certain companies in respect of buybacks; and we shall
examine these provisions in a separate post.
of venture capital funds, securitisation trusts etc have been introduced, as
has been a new charge on certain companies in respect of buybacks; and we shall
examine these provisions in a separate post.
On the mentioned Budget Proposal to mandating TDS of 1% on certain transactions in ‘immovable property’,- earlier proposed in the last Budget but later dropped like a hot potato,- has been sought to be reintroduced; albeit with some modification(s). In one’s perspective, however, it has obviously been so done yet again, mindlessly, without the very much needed/desired home work.
For an appreciation of the remark, what ought not to be over sighted is the very much live/ continuing provision for tax exemption of capital gains- e.g. section 54 and 54 EC. Should a taxpayer opts to, or intends opting for, such exemption, by complying with the stipulated conditions within the specified time frame, then he gets an extended time (2/3 years) for being taxed/to pay tax. The other inter-related/connected provisions, which require to have been correspondingly changed are noted to have been left untouched, To be focused on is, besides the saving section 197, section 199 , (rwr 37BA there under).
If one were to go by the latest public announcement, the DTC Bill has the prospects of being introduced in the Parliament for enactment before long. According to the last seen text of the Bill, the above referred present scheme of tax exemption is slated to undergo a significant change. For deliberation on the subject TDS, one might have to wait to know how it is going to be covered in the ‘simplified code’.
Turning to experts wishing to share more thoughts!
The TRC issue is a perfect example of how half baked the approach of the Government is to tax reform in general. Why can the Government not put in place a concrete process by which the residence issue is solved once and for all? One interesting possibility is to let the AAR deal with such cases. This will bring in proper judicial procedure and also reduce the discretionary powers of the AO