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 Until the Circular is withdrawn, the position in respect of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 Until the Circular is withdrawn, the position in respect of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.