Guide to Residential Status Under Section 6 and 6A of the Income Tax Act

Introduction

Determining residential status under the Income Tax Act, particularly Sections 6 and 6A, is pivotal for assessing an individual's tax liability in India. This guide provides an exhaustive analysis of the conditions, tax implications, disclosure requirements, and differentiation between Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), and Deemed Resident categories.

1. Verbatim Text of Sections 6 and 6A

Section 6: Residential Status

For Individuals:

• An individual is considered a resident in India if during the previous year they:
  • Stayed in India for 182 days or more, or
  • Stayed in India for 60 days or more and 365 days or more in the 4 years immediately preceding the previous year.
• Exceptions apply for Indian citizens and Persons of Indian Origin (PIOs) concerning the duration of stay requirements.

For Hindu Undivided Families (HUFs):

• A HUF is deemed a resident in India if its control and management, wholly or partly, are situated in India during the relevant year.

Exceptions:

• Specific conditions apply for Indian citizens leaving India for employment or as crew members of an Indian ship.

Section 6A: Deemed Resident

• Deemed Resident: An individual who is a citizen of India or a PIO, whose total income other than income from foreign sources exceeds ₹15 lakh during the previous year, and who is not liable to tax in any other country due to residence or domicile therein, shall be deemed to be a resident in India.

2. Analytical Overview of Residential Status Categories

Resident and Ordinarily Resident (ROR)

Additional Conditions for ROR:

• Must have been resident in India for at least 2 out of the 10 immediately preceding years.
• Stayed in India for at least 730 days during the 7 years preceding the previous year.

Taxation:

• RORs are taxed on their worldwide income, necessitating comprehensive disclosure of all global income, foreign assets, and bank accounts in Indian tax returns.

Resident but Not Ordinarily Resident (RNOR)

Criteria for RNOR:

• Does not meet both additional ROR conditions.

Taxation:

• Taxed on income earned in India, income received in India, and income from businesses controlled or set up in India. This status provides transitional benefits for individuals returning to India or those with global income exposure.

Non-Resident (NR)

Basic Conditions:

• Does not satisfy either of the conditions mentioned under Section 6.

Taxation:

• Taxed only on income received or deemed to be received in India, ensuring NRs are not taxed on global income, promoting ease of compliance and international mobility.

Deemed Resident under Section 6A

Criteria for Deemed Resident:

• Indian citizen or PIO.
• Total income (excluding foreign sources) exceeding ₹15 lakh during the previous year.
• Not liable to tax in any other country due to residence or domicile.

Taxation:

• Deemed residents are automatically classified as RNORs, taxed only on income earned in India and income from businesses controlled in India.

3. Taxability and Disclosure Requirements

Comprehensive Chart: Residential Status and Tax Implications

Residential Status	Conditions for Classification	Taxability	Income Disclosure Requirements
Resident and Ordinarily Resident	Stayed in India for 2 out of 10 years. Stayed in India for 730 days in 7 years.	Global income, including foreign sources, taxable.	Comprehensive disclosure of all income, foreign assets, and foreign bank accounts in Indian tax returns.
Resident but Not Ordinarily Resident	Does not meet both additional ROR conditions.	Income earned in India and from businesses controlled in India taxable.	Report Indian income and specified foreign assets.
Non-Resident	Does not meet basic residency conditions.	Income received or deemed received in India taxable.	Report income sourced in India.
Deemed Resident	Indian citizen or PIO. Total income > ₹15 lakh (excluding foreign). Not liable to tax in any other country.	Indian income and income from businesses controlled in India taxable.	Report Indian income and income from businesses controlled in India, similar to RNORs.

4. Examples Illustrating Different Scenarios

Scenario 1: Indian Citizen Working Abroad

Facts: Mr. D works in UAE, visits India for 150 days (P.Y. 2023-24), total income ₹18 lakh (excluding foreign).

• Residential Status: Deemed resident.
• Tax Implications: RNOR status, taxed on Indian income only.

Scenario 2: PIO Visiting India

Facts: Ms. E, PIO, visits India for 130 days (P.Y. 2023-24), total income ₹12 lakh (excluding foreign).

• Residential Status: Non-resident (NR).
• Tax Implications: Taxed on income sourced in India.

Scenario 3: Returning Indian Citizen

Facts: Mr. F returns to India from UK, stays 200 days (P.Y. 2023-24), total income ₹22 lakh (excluding foreign).

• Residential Status: Resident and Ordinarily Resident (ROR).
• Tax Implications: Global income taxable in India.

Scenario 4: Foreign Citizen

Facts: Mr. G, US citizen, stays in India for 70 days (P.Y. 2023-24), total income ₹25 lakh (including ₹10 lakh foreign).

• Residential Status: Non-resident (NR).
• Tax Implications: Taxed on income sourced in India.

Scenario 5: Deemed Resident with High Income

Facts: Ms. H, Indian citizen, stays 110 days (P.Y. 2023-24), total income ₹30 lakh (excluding foreign).

• Residential Status: Deemed resident.
• Tax Implications: RNOR status, taxed on Indian income only.

5. Additional Propositions and Considerations

• Taxability of Different Income Sources: Variations in taxation ensure equitable treatment based on residential status, balancing global income versus income sourced in India.
• Reporting and Compliance Requirements: Stringent guidelines enhance transparency and tax compliance across all residential classifications.
• Stay in India Definition: Includes territorial waters up to 12 nautical miles, impacting days of stay calculation.
• Foreign Companies: Classification hinges on effective management location, influencing tax liabilities in India.

Conclusion

Understanding and accurately determining residential status under Sections 6 and 6A of the Income Tax Act is critical for effective tax planning, compliance, and international tax obligations. This guide provides clarity on the intricate provisions, ensuring individuals and professionals navigate tax implications accurately and transparently in the Indian fiscal landscape.

Guidance on Determining Place of Supply for Goods Delivered to Unregistered Persons under GST - Clarified by CBIC

Key Points of the Clarification

1. Clause (ca) in Section 10(1) of the IGST Act:

   • "Clause (ca)": This clause, effective from October 1, 2023, addresses the place of supply for goods delivered to unregistered persons.
   • "Unregistered persons": Individuals or entities not registered under GST.
   • "Place of supply": Determined based on the delivery address recorded on the invoice.

2. Explanation to Clause (ca):

   • "Delivery address": The location where the goods are delivered is the key determinant for the place of supply.
   • "Recorded in the invoice": The address must be accurately noted on the invoice.
   • "Supplier's location": If no delivery address is recorded, the supplier's location is used as the place of supply.

Example Scenario

Scenario:

• An unregistered person (Mr. A) in State X orders a mobile phone from an e-commerce platform.
• Mr. A provides a billing address in State X and a delivery address in State Y.

Clarification:

• The place of supply will be the delivery address (State Y) recorded on the invoice.
• This ensures the GST applicable will be based on the delivery location (State Y).

Implementation Steps for Suppliers

1. Record Accurate Delivery Address:

   • Ensure the delivery address is accurately recorded on the invoice.
   • Verify that the billing address and delivery address are correctly entered to avoid any confusion.

2. Use Delivery Address for GST Calculation:

   • When the delivery address is different from the billing address, use the delivery address to determine the place of supply for GST purposes.
   • Example: If the billing address is in State X and the delivery address is in State Y, the place of supply will be State Y.

3. Invoice Format:

   • Update the invoice format to prominently display both the billing address and delivery address.
   • Clearly label these addresses to ensure they are not confused during processing.

4. E-commerce Platforms:

   • Ensure your system captures and reflects the correct delivery address on the invoice.
   • Inform your sellers and buyers about this provision to avoid any misunderstanding.

Trade Notices and Communication

1. Issue Trade Notices:

   • Tax officials should issue trade notices to inform businesses about this clarification.
   • Highlight the importance of recording the delivery address accurately on the invoice.

2. Ensure Uniformity:

   • The goal is to have consistent application of the law across all transactions involving unregistered persons.
   • Provide examples and scenarios in trade notices to illustrate the correct application of the rule.

3. Seek Assistance if Needed:

   • Encourage businesses to reach out to tax officials if they encounter difficulties in implementing these provisions.
   • Offer support and guidance to ensure smooth compliance.

Conclusion

The CBIC’s clarification ensures that for goods delivered to unregistered persons, the delivery address on the invoice determines the place of supply for GST purposes. By following these practical steps, suppliers and e-commerce platforms can ensure compliance with the updated provisions, promoting uniform application and reducing confusion. 

Understanding Tax Audit Requirements under Section 44AB for AY 2024-25

 Navigating tax audit requirements under the Income Tax Act, particularly Section 44AB, is crucial for businesses and professionals to ensure compliance and avoid penalties. Here’s a detailed chart outlining thresholds, presumptive income rules, and conditions for exemption from tax audits:

Category	Threshold for Tax Audit	Additional Conditions for Exemption from Tax Audit
Business Turnover	Exceeds Rs. 1 crore	- Turnover does not exceed Rs. 2 crores and income declared at 8% (or 6% for non-cash)
		- From April 1, 2024: Cash receipts ≤ 5% of turnover, limit increases to Rs. 3 crores
		- Cash transactions (receipts + payments) ≤ 5% of total turnover, limit to Rs. 10 crores
Presumptive Income under Section 44AD	-	- Not applicable if income declared under Section 44AD (8% of turnover)
Special Cases for Business	Deemed income under Sections 44AE, 44BB, 44BBB	- If income declared lower than deemed profits under these sections
Professionals	Gross Receipts exceed Rs. 50 lakhs	- From April 1, 2024: Cash receipts ≤ 5% of gross receipts, limit increases to Rs. 75 lakhs
Presumptive Income under Section 44ADA	-	- Not applicable if income declared under Section 44ADA (50% of gross receipts)
Special Cases for Professionals	Deemed income under Section 44ADA	- Income declared lower than deemed profits and exceeds non-taxable limit
Other Conditions	Compliance with other audit requirements	- If required under any other law and audit conducted before specified dates

Detailed Analysis:

1. Business Turnover:

   • Tax audit required if turnover exceeds Rs. 1 crore.
   • No audit needed if turnover is up to Rs. 2 crores and income declared at 8% (or 6% for non-cash receipts).
   • From April 1, 2024, turnover can be up to Rs. 3 crores without audit if cash receipts are ≤ 5% of turnover.
   • For turnover up to Rs. 10 crores, audit not required if cash transactions (receipts + payments) ≤ 5% of total turnover.

2. Presumptive Income under Section 44AD:

   • Applicable to eligible businesses (except those in specified sectors).
   • Presumptive income deemed at 8% of turnover.
   • If income declared under Section 44AD, tax audit under Section 44AB generally not required.

3. Special Cases for Business:

   • Tax audit required if income deemed under Sections 44AE (goods carriages), 44BB (non-resident shipping business), or 44BBB (non-resident aircraft operation) and income declared lower than deemed profits.

4. Professionals:

   • Tax audit required if gross receipts exceed Rs. 50 lakhs.
   • From April 1, 2024, gross receipts can be up to Rs. 75 lakhs without audit if cash receipts are ≤ 5% of gross receipts.

5. Presumptive Income under Section 44ADA:

   • Applicable to eligible professionals.
   • Presumptive income deemed at 50% of gross receipts.
   • If income declared under Section 44ADA, tax audit under Section 44AB generally not required.

6. Other Conditions:

   • Compliance with audit requirements under any other law suffices if audit conducted before specified dates.

Understanding these thresholds and conditions helps businesses and professionals in India manage their tax obligations effectively. 

Ensuring Procedural Accuracy in Faceless Tax Assessments: A Landmark Ruling by the Madras High Court

In the case of GE Power Conversion India (P.) Ltd. vs. National Faceless Assessment Centre (Madras, 2024), the petitioner challenged an order issued under Section 143(3) read with Section 144C(1) of the Income Tax Act, 1961. The petitioner contended that the order, which proposed a transfer pricing adjustment to the total income, was improperly labeled as a Draft Assessment Order. They argued that it was, in fact, an Assessment Order passed under Section 143(3) read with Section 144B of the Act.

Court's Decision:

The Madras High Court held that the order should have been correctly formatted as a Draft Assessment Order under Section 144B(1). However, it was formatted as an order under Section 143 r.w.s 144B. Despite this formatting error, the court ruled that the order was still a Draft Assessment Order and valid in law.

Key Points and Reasoning:

1. Incorrect Formatting:

   • The order issued by the National Faceless Assessment Centre (NFAC), New Delhi, was electronically formatted using a template meant for orders under Section 143(3) and Section 144B.
   • This led to a mistake in the preamble of the order, causing confusion about its nature as a Draft Assessment Order.

2. Validity of Assessment:

   • The court emphasized that such a formatting error is not fatal to the validity of the assessment proceedings.
   • The intent of the order was clear from its content, and the label "Draft Assessment Order" was evident from the document itself.
   • The procedural mistake did not affect the substantive rights of the petitioner or the overall integrity of the assessment process.

3. Parliamentary Intent and Faceless Assessment:

   • The court recognized Parliament's attempt to modernize and streamline the tax assessment process through the faceless assessment scheme.
   • The faceless assessment mechanism aims to reduce human interface, enhance transparency, and improve efficiency in tax administration.
   • Minor technical glitches in the system-generated orders should not derail the overarching goal of a faceless assessment process.

Impact of the Ruling:

1. Clarity on Procedural Errors:

   • The judgment clarifies that minor procedural errors, such as incorrect formatting of orders, do not invalidate the assessment.
   • This provides reassurance to taxpayers and the tax administration that the substantive aspects of the assessment take precedence over technical glitches.

2. Reinforcement of Faceless Assessment Scheme:

   • The ruling supports the continued implementation of the faceless assessment scheme, reinforcing the legislative intent to make tax assessments more transparent and efficient.
   • It underscores the judiciary's recognition of the need to adapt to technological advancements in tax administration.

3. Guidance for Tax Authorities:

   • The judgment serves as a guideline for tax authorities to ensure accuracy in formatting and procedural adherence in system-generated orders.
   • It also highlights the importance of addressing any technical issues promptly to avoid similar disputes in the future.

Conclusion:

The Madras High Court's decision in GE Power Conversion India (P.) Ltd. vs. National Faceless Assessment Centre (Madras, 2024) underscores the importance of procedural accuracy in tax assessments while reaffirming the validity of the faceless assessment mechanism. By ruling that minor formatting errors do not invalidate an assessment, the court has reinforced the legislative intent to streamline tax administration through technology. This judgment serves as a crucial precedent for the handling of technical errors in the evolving landscape of faceless assessments.

Legal Framework and Tax Treatment of Payments to Retired Partners

Key Legal Principles and Analytical Reasoning

Case Reference: Deloitte Haskins and Sells LLP v. National E Assessment Centre, [2024] (Mumbai - Trib.) Court: ITAT Mumbai Bench 'D' Assessment Year: 2018-19

Payments to Retired Partners

Legal Principle:

• Payments made to retired partners, as per the partnership deed, are prior charges on the firm's gross fees and should not be considered part of the firm's income. These payments are obligations that must be deducted before calculating the firm's taxable income.

Analytical Reasoning:

Partnership Deed Obligations

Nature of the Obligation:

• The partnership deed serves as a binding contract outlining the responsibilities and entitlements of the partners, including those who retire. It specifies that retired partners are to be compensated for their prior contributions to the firm's earnings, acknowledging that while they contributed to the firm’s revenue during their tenure, they did not fully realize the benefits due to the timing of billings and collections.

Legal Characterization:

• Such payments are not voluntary or discretionary. They are mandatory payments enforced by the partnership deed, creating a legal obligation. This obligation takes precedence over the determination of net income and must be settled before any profit distribution or income calculation for tax purposes.

Diversion of Income by Overriding Title

Conceptual Framework:

• The principle of "diversion of income by overriding title" posits that when income is pre-emptively diverted due to an overriding legal obligation, it does not form part of the taxpayer’s income. This diversion occurs at the source, meaning the income never actually reaches the taxpayer in the first place.

Judicial Precedents:

• The landmark case CIT v. Sitaldas Tirathdas [1961] 41 ITR 367 (SC) provides a foundational precedent. The Supreme Court of India clarified that if an obligation is such that it diverts income before it reaches the taxpayer, it is not taxable in the hands of the taxpayer.
• In CIT v. C.C. Chokshi & Co. ITA No.209, the ITAT Mumbai reinforced this principle, applying it specifically to payments made under partnership deeds.

Application in Deloitte Case

Income Recognition and Accounting

Methodology:

• Deloitte follows the cash system of accounting, wherein income is recognized only when it is received. This contrasts with accrual accounting, where income is recognized when earned, regardless of receipt. The cash system aligns recognized income with actual cash flow, providing a more accurate financial picture for firms operating on this basis.

Service Tax and GST:

• Taxes such as service tax and GST are based on issued invoices rather than received payments. This creates a potential mismatch between taxable income and actual cash flow, particularly for firms following the cash system. The ITAT Mumbai recognized this discrepancy and Deloitte's efforts to reconcile these differences with detailed explanations and documentary evidence.

Payments to Retired Partners

Mechanics of Payment:

• Payments to retired partners are calculated based on their contributions and the terms specified in the partnership deed. These payments are processed from the firm’s gross receipts, ensuring that retired partners are compensated prior to the determination of net taxable income.

Tax Treatment:

• The ITAT Mumbai concluded that such payments are not part of the firm's taxable income due to the principle of diversion by overriding title. The payments are made before the income reaches the firm and thus do not constitute taxable income.

Judicial Reasoning and Conclusion

Court's Analysis:

• The court examined the nature of the payments, the legal obligations stipulated in the partnership deed, and the principle of diversion by overriding title. It held that these payments, mandated by a pre-existing legal obligation, must be excluded from the firm's taxable income.

Impact on Tax Assessments:

• This decision sets a clear precedent, reinforcing that payments made to retired partners under a partnership deed are prior charges on gross income. Such payments are legally diverted before becoming income, thus not taxable. This ensures accurate income recognition and respects the legal obligations toward retired partners.

Conclusion

Established Law:

• Payments to Retired Partners: Payments made to retired partners, as stipulated in the partnership deed, are excluded from the firm's taxable income due to the legal obligation and the principle of diversion by overriding title.

Analytical Reasoning:

• The partnership deed creates a binding legal obligation, diverting income at the source. The cash system of accounting further supports this by recognizing income based on actual receipt, aligning with the legal framework established by judicial precedents.

This decision by the ITAT Mumbai Bench 'D' provides a robust legal and analytical framework for understanding the tax treatment of payments to retired partners, offering clear guidance for future tax assessments and ensuring compliance with established accounting principles and legal obligations.

Guide to Section 276B of the Income Tax Act: Defending Against Non-Payment or Belated Remittance of TDS

Law

Section 276B of the Income Tax Act:

• Offense and Penalties: If a person fails to deposit the tax deducted at source (TDS) with the Central Government within the stipulated period, they face rigorous imprisonment for a term ranging from three months to seven years and a fine.
• Nature of Offense: The offense under Section 276B is strict liability, meaning the prosecution does not need to prove intent (mens rea). The mere failure to remit TDS on time constitutes an offense.

Section 278AA:

• Reasonable Cause Defense: No person shall be punished for failure to comply with Section 276B if they can prove the failure was due to a reasonable cause.
• Interpretation of Reasonable Cause: The term is not explicitly defined in the Act and is assessed based on the specifics of each case.

Procedure and Compliance

1. Timely Remittance of TDS:

   • Compliance Requirement: Deduct TDS from payments as per the provisions of the Income Tax Act and remit it to the Central Government within the specified time frame.
   • Documentation: Maintain detailed records of TDS deductions and payments, including dates and amounts. This is crucial for both compliance and as evidence in case of any disputes.

2. Receiving Show-Cause Notice:

   • Initial Action: Upon receiving a show-cause notice for failure to deposit TDS on time, immediately gather all relevant documents and prepare an explanation for the delay.
   • Response: Submit a detailed response to the authorities, including any supporting documents that explain the reasons for the delay.

3. Establishing Reasonable Cause:

   • Evidence Collection: Collect all pertinent evidence that can explain the delay. This could include:
     • Financial statements showing cash flow issues.
     • Correspondence with government bodies regarding delayed payments.
     • Internal company memos or reports detailing administrative errors.
   • Submission: Provide a thorough response to the authorities, clearly outlining the reasonable cause for the delay. Include all supporting documents.

4. Legal Proceedings:

   • Representation: Engage legal representation to present your case effectively in court.
   • Defense Strategy: Focus on demonstrating the reasonable cause defense by presenting all collected evidence and referencing relevant case law precedents.

Solution

Proving Reasonable Cause:

• Financial Hardships: If the delay was due to financial difficulties, present detailed financial statements and other supporting documents to show the financial situation.

  • Case Reference: ITO vs. Roshni Cold Storage (Madras High Court) accepted financial losses as a reasonable cause for delay. The court acknowledged that substantial financial losses can justify the delay in remitting TDS.

• Delayed Government Payments: If the delay was due to waiting for government reimbursements, provide official correspondence and documentation showing the delay in payments.

  • Case Reference: Aditya Institute of Technology and Management case (Andhra Pradesh High Court) recognized delayed government reimbursement as a reasonable cause. The court observed that when the majority of students were admitted under the fee reimbursement scheme, the delay in receiving these funds from the government could be considered a reasonable cause.

• Human Errors: If the delay was due to an oversight or error by a company official or accountant, provide internal communications and corrective measures taken to avoid future occurrences.

  • Case Reference: Sonali Autos Private Limited vs. State of Bihar (Patna High Court) considered an oversight by the accountant as a reasonable cause. The court held that a reasonable cause means a cause that prevents a reasonable person of ordinary prudence from acting under normal circumstances without negligence or inaction.

Compounding of Offenses:

• Compounding Application: To avoid prosecution, file an application for compounding the offense under Section 279(2) of the Income Tax Act.
  • Charges: Compounding fees include 3% per month of the TDS amount for the first occasion, plus prosecution establishment expenses and litigation costs.
  • Timelines: Applications should be filed promptly to avoid increased charges. Applications filed after 12 months but within 24 months incur a higher fee of 1.25 times the normal charges, and those filed after 24 months but within 36 months incur 1.50 times the normal charges.

Steps to File Compounding Application:

1. Preparation: Compile all necessary documents and evidence supporting the compounding request. This includes financial records, proof of delayed government payments, internal memos, and other relevant documentation.
2. Submission: Submit the application to the Principal Chief Commissioner or Chief Commissioner in accordance with the guidelines.
3. Follow-Up: Maintain regular follow-up with the authorities to ensure the application is processed in a timely manner. Respond promptly to any additional queries or requirements.

Detailed Case References:

• ITO vs. Roshni Cold Storage:

  • Summary: The Madras High Court ruled that significant financial losses can constitute a reasonable cause for the delay in remitting TDS.
  • Implication: This case sets a precedent for using financial hardship as a defense under Section 278AA.

• Aditya Institute of Technology and Management:

  • Summary: The Andhra Pradesh High Court recognized delayed fee reimbursements from the government as a reasonable cause for TDS remittance delays.
  • Implication: This case highlights the acceptance of delays caused by external factors beyond the control of the taxpayer.

• Sonali Autos Private Limited vs. State of Bihar:

  • Summary: The Patna High Court accepted that an oversight by the accountant was a reasonable cause for delay.
  • Implication: This case demonstrates that human error, when substantiated, can be a valid defense for delayed TDS remittance.

Conclusion: To avoid prosecution under Section 276B, ensure timely remittance of TDS. If delayed, gather and present evidence of a reasonable cause to defend against penalties. Utilize the option of compounding to resolve the issue by paying the prescribed fees. Legal representation and thorough documentation are crucial for a successful defense.

Compliance Guide: Sections 206AB & 206CCA and Vendor Declaration Draft

In the realm of Indian tax legislation, Sections 206AB and 206CCA of the Income Tax Act have been pivotal in reshaping compliance norms, particularly concerning Tax Deduction at Source (TDS) and Tax Collection at Source (TCS). These sections were introduced to reinforce tax discipline by imposing higher rates of TDS/TCS on specified persons who have not met their income tax return filing obligations. Understanding these provisions is crucial for businesses and individuals alike to ensure adherence and avoid penalties.

Understanding Sections 206AB & 206CCA

Section 206AB: Tax Deduction at Source (TDS)

Section 206AB mandates higher TDS rates for "specified persons" who have not filed their income tax returns for the immediately preceding two financial years, and where the aggregate TDS deducted in each of these years is ₹50,000 or more. The rates under this section are prescribed as:

• Twice the rate specified in the relevant provision of the Act, or
• Twice the rate or rates in force, or
• Five percent.

Section 206CCA: Tax Collection at Source (TCS)

Similarly, Section 206CCA imposes elevated TCS rates on specified persons who have not furnished their PAN or Aadhaar to the collector of TCS. The rates are set as:

• Twice the rate specified in the relevant provision of the Act, or
• Five percent.

Recent Amendments and Exemptions

The Union Budget 2023 brought about significant amendments to the definition of "specified person" under Sections 206AB and 206CCA. This revision exempts non-residents without a permanent establishment in India and individuals not obligated to file income tax returns for the relevant assessment year from these higher tax rates. This adjustment aims to streamline compliance requirements and alleviate burdens on certain categories of taxpayers. 

Conclusion

Understanding the nuances of Sections 206AB and 206CCA is imperative for businesses to navigate tax obligations effectively. By ensuring compliance and utilizing the provided declaration, vendors and payees can mitigate risks and uphold seamless business operations. Stay informed, stay compliant, and embrace these tax provisions to foster financial prudence and regulatory adherence

Draft Declaration for Compliance

To facilitate compliance with Sections 206AB and 206CCA, vendors and payees can use the following declaration template:

---

Draft Declaration

On the Letterhead of the Vendor

Undertaking pursuant to Section 206AB and Section 206CCA

To
[Name of the Company]
[Date]
[Place]

Re: Declaration Confirming Filing of Income Tax Return for Immediately Preceding Two Years

I, [Name of the person signing declaration], in the capacity of [Self/Proprietor/Partner/Director] of [Vendor Name], having registered office address at [Address] and PAN [PAN Number], do hereby declare that I/we have filed our Income Tax Returns for the immediately preceding two financial years as detailed hereunder:

S.No	Financial Year	Due Date of filing return of income u/s 139(1) of the Act	Date of filing return of income	Acknowledgement Number
1	2021-22	[Date]	[Date]	[Acknowledgement Number]
2	2022-23	[Date]	[Date]	[Acknowledgement Number]

I/We further state that the above information is true and correct. If any liability arises on your business under Section 206AB/206CCA of the Act in respect of tax to be deducted/collected on account of any of the information mentioned hereinabove being incorrect, we hereby indemnify to reimburse the same.

Yours faithfully,

For [Vendor Name]

[Name of person signing]
[Designation]

India's FDI Landscape in FY 2023-24: State-wise Insights and Strategic Considerations

Overview

In FY 2023-24, India saw foreign direct investment (FDI) inflows fall to a five-year low of $44.4 billion, slightly below the $46 billion received in the previous fiscal year. This decline can be attributed to global economic uncertainties and a shift towards domestic-focused investments.

Top Performing States

Despite the overall decline, several states demonstrated resilience and growth in attracting FDI:

State	FDI Inflows (US$ billion)	Year-on-Year Change	Notable Investments
Gujarat	7.3	+55%	Micron's new semiconductor plant
Maharashtra	-	+2%	Continued strong investment attraction
Tamil Nadu	2.4	+12%	Foxconn and Pegatron expansions
Telangana	3.0	+132%	Significant investments from Amazon

Declining States

Some states experienced a downturn in FDI inflows:

State	FDI Inflows (US$ billion)	Year-on-Year Change	Reason
Karnataka	-	-37%	Reduced startup funding, tech sector saturation
Delhi	-	-13.4%	General reduction in investment

Sector-wise Trends

The sector-wise performance of FDI in FY 2023-24 varied, reflecting changing priorities and economic conditions:

Sector	FDI Inflows (US$ billion)	Year-on-Year Change	Notes
Computer Software & Hardware	7.9	Decline	Highest despite the drop
Services	6.6	Decline	Second highest inflow
Construction	-	Near threefold increase	Rising interest due to infrastructure projects
Pharmaceuticals	-	-48%	Significant decline
Chemicals	-	-54%	Significant decline
Automotive	-	-20%	Significant decline
Telecom	-	-60%	Significant decline

Conclusion

The fiscal year 2023-24 highlighted a complex and evolving FDI landscape in India. Despite an overall decline in inflows, certain states like Gujarat, Maharashtra, Tamil Nadu, and Telangana showed strong growth and continued to attract significant foreign investments. Meanwhile, states such as Karnataka and Delhi faced notable decreases in FDI.

Sector-wise, the construction industry emerged as a new favorite among foreign investors, indicating a shift towards infrastructure development. Traditional sectors like pharmaceuticals, chemicals, automotive, and telecom experienced significant declines, reflecting changing investment priorities.

Key Takeaways for Decision-Making

1. Investment Hotspots: Consider Gujarat and Telangana for potential investment opportunities, given their impressive FDI growth.
2. Sector Opportunities: The construction sector is emerging as a lucrative field due to increased infrastructure projects.
3. Risk Areas: Be cautious about investing in traditional sectors like pharmaceuticals and chemicals, which have shown significant declines.
4. Strategic Shifts: Focus on regions and sectors showing resilience and growth to capitalize on evolving trends in India's investment landscape.

Overall, while challenges persist, the resilience of certain states and the dynamism within various sectors underscore India's potential to adapt and attract foreign investments in a fluctuating global economy.

Established Law on Transitioning Unadjusted TDS as Input Tax Credit

In the seminal case of Fins Engineers and Contractors (P.) Ltd. v. Superintendent, Central Tax and Central Excise, the High Court of Kerala delivered a crucial judgment clarifying the treatment of unadjusted TDS (Tax Deducted at Source) under the Central Goods and Services Tax Act, 2017 and the Kerala State Goods and Services Tax Act, 2017. This case addressed significant issues regarding the transitioning of TDS as unutilized input tax credit and the implications of using unapproved credit for tax payments.

Key Points of Established Law

1. Prohibition on Transitioning Unadjusted TDS:

   • The court ruled that unadjusted TDS, which is part of the output tax payable by the assessee, cannot be transitioned as unutilized input tax credit. This principle upholds the integrity of the GST credit system by ensuring that only eligible credits are transitioned.

2. Consequences of Using Unapproved Credit:

   • In this case, the assessee used Rs. 37,24,463 of unapproved credit to settle their output tax liability, prompting the tax authorities to demand the reversal of this amount along with penalties. The usage of unapproved credit contravened the provisions of the GST law.

3. Obligations of Revenue Authorities:

   • The court acknowledged that since the assessee had already used the unapproved credit to pay their output tax, reversing the amount was unnecessary because the revenue was required to refund the same amount to the assessee for unadjusted TDS. This highlights the revenue’s obligation to ensure accurate refunds for unadjusted TDS amounts.

4. Demand for Tax and Interest Set Aside:

   • Given that the revenue had a duty to refund the unadjusted TDS amount, the court set aside the demand for the reversal of tax and any associated interest. This decision relieved the assessee from the undue financial burden.

5. Upholding of Penalties:

   • Despite setting aside the demand for tax and interest, the court upheld the penalties imposed on the assessee for the irregularity. The penalties were justified due to the improper claim and usage of unapproved credit, reinforcing the need for compliance with GST regulations.

Case Reference

• Fins Engineers and Contractors (P.) Ltd. v. Superintendent, Central Tax and Central Excise
• W.A. NO. 143 OF 2024
• Decided on May 24, 2024
• Judges: DR. A.K. JAYASANKARAN NAMBIAR and SYAM KUMAR V.M.

Relevant Provisions

• Section 142 and Section 54 of the Central Goods and Services Tax Act, 2017 and the Kerala State Goods and Services Tax Act, 2017 were pivotal in this judgment. These sections deal with transitional provisions, the treatment of unadjusted TDS, and the protocol for claiming refunds and utilizing input tax credits.

Reasoning Behind the Title

The title "Established Law on Transitioning Unadjusted TDS as Input Tax Credit: A Landmark Decision by the Kerala High Court" effectively captures the essence of the judgment. It emphasizes the key legal principle established by the court regarding the non-transitioning of unadjusted TDS as input tax credit, highlights the significance of the ruling, and acknowledges the authoritative role of the Kerala High Court in setting this legal precedent. This title is designed to attract attention to the critical legal clarification and its broader implications for GST compliance. 

Comprehensive Guide to Audit Trail Reporting Requirements

In 2024, significant amendments were made to the Companies (Audit and Auditors) Rules, 2014, introducing new requirements under Rule 11(g) concerning audit trails. Below is a detailed table to help you understand the new requirements and ensure compliance, along with suggestive responses or remarks by the auditors.

Question	Response	Auditor's Remarks
1. Is there any exemption for small and medium companies from maintaining books of account in accounting software with an audit trail feature?	No, there is no exemption. Every company, regardless of size, must maintain books of account in accounting software with an audit trail if they choose to keep their records electronically. Non-compliance will require the auditor to modify their report under Rule 11(g). This requirement is outlined in Section 128(1) of the Companies Act, 2013, and Rule 3 of the Companies (Accounts) Rules, 2014.	Auditors should ensure that all companies, irrespective of size, comply with this requirement. If not, they must report this non-compliance under Rule 11(g).
2. Is there a requirement for auditors to report on the audit trail feature in their limited review report for listed companies?	No, currently there is no such requirement. The Companies Act, 2013 and SEBI Regulations do not mandate auditors to report on the audit trail feature in their limited review report for listed companies. Auditors focus on this aspect during their annual audit report under Rule 11(g).	Auditors are not required to comment on the audit trail feature in their limited review report for listed companies. This should be addressed in the annual audit report.
3. What is the implication for the auditor if the accounting software does not allow modification but lacks an audit trail feature?	All accounting software must have an audit trail feature, regardless of its capability to prevent modifications. If this feature is absent, the company is not compliant with Rule 3(1), and the auditor must report this non-compliance under Rule 11(g).	Auditors must ensure that the software used by the company has an audit trail feature. If not, they should report non-compliance under Rule 11(g).
4. How should auditors report if there are technical glitches in the accounting software affecting the audit trail feature?	Technical issues do not exempt the company from maintaining an audit trail. The management is responsible for ensuring the audit trail is functional throughout the year. If glitches occur, auditors must note this in their report and modify their comments under Rule 11(g) to reflect the non-compliance.	Auditors should document any technical issues and report them as non-compliance under Rule 11(g). Management should be advised to resolve these issues promptly.
5. Can auditors use IT experts to assist with evaluating the audit trail feature?	Yes, auditors can use IT experts. Involving IT specialists can help evaluate the management controls and configurations of the audit trail feature. However, auditors must comply with SA 620 and retain ultimate responsibility for the audit report.	Auditors may engage IT experts but must ensure compliance with SA 620. The responsibility for the audit report remains with the auditors.
6. What if the audit trail feature is not operational throughout the financial year?	The audit trail must be enabled throughout the year, even if there are no transactions during certain periods. If not, auditors must report this non-compliance under Rule 11(g), impacting their reports under Sections 143(3)(b) and 143(3)(h) of the Companies Act, 2013.	Auditors should verify that the audit trail feature was operational throughout the year. If not, they should report this as non-compliance under Rule 11(g).
7. Should audit trail reporting be based on every change or on materiality?	Audit trail reporting applies to all transactions. While auditors may use materiality for selecting samples, the requirement is to maintain an audit trail for every transaction. Reporting is factual and should capture all changes made to the books of account.	Auditors should ensure that the audit trail captures every transaction. Sample selection for testing may consider materiality, but the audit trail itself should be comprehensive.
8. Should auditors modify their report if there are no adverse findings but the accounting software lacks an audit trail feature?	Yes, auditors must modify their report. Even if there are no adverse findings in the financial statements, the absence of an audit trail feature requires auditors to note this non-compliance under Rule 11(g).	Auditors must report non-compliance under Rule 11(g) if the audit trail feature is absent, regardless of other findings.
9. What should auditors do if the software cannot retain the edit log due to limitations?	The software must retain the edit log. If the accounting software cannot retain the edit log, it does not meet the requirements of Rule 3(1). Auditors must report this limitation and modify their comments under Rule 11(g).	Auditors should confirm that the software retains the edit log. If it does not, they must report this as non-compliance under Rule 11(g).
10. Is it necessary to report the effective date of audit trail implementation?	No, reporting the effective date is not required. However, if the audit trail feature was not operational throughout the entire reporting period, auditors must note this in their report and modify their comments under Rule 11(g).	Auditors need not report the effective date but must ensure the audit trail feature was operational throughout the reporting period. Any lapses should be reported as non-compliance under Rule 11(g).

These guidelines ensure that all companies maintain accurate and tamper-proof financial records using accounting software with audit trail features. For detailed guidance, refer to the respective sections of the Companies (Accounts) Rules, 2014, and the Companies Act, 2013.

Guidance Note on Writing Off Export Receivables Under FEMA

The Foreign Exchange Management Act, 1999 (FEMA), is a comprehensive framework that governs foreign exchange and import transactions in India. It sets explicit conditions for the realization of export proceeds, aiming to ensure the stability and integrity of the country's foreign exchange reserves. Despite exporters' best efforts, circumstances may arise where export receivables remain unrealized. This guidance note examines whether such situations constitute a violation of FEMA and elucidates the conditions under which export receivables can be written off.

Limits to Write-Off Export Receivables

Under FEMA, there are defined limits for writing off export receivables, which vary depending on the status of the exporter or the authorized dealer involved. These limits are crucial for maintaining a balance between regulatory oversight and operational flexibility. The prescribed limits are as follows:

• Exporter (other than status holder exporter): 5% of the total export proceeds realized during the previous calendar year.
• Status holder exporters: 10% of the total export proceeds realized during the previous calendar year.
• Authorized dealers: 10% of the total export proceeds realized during the previous calendar year.

These limits serve to ensure that the write-off process does not significantly impact the country's foreign exchange reserves while providing some leeway to exporters facing genuine difficulties.

Conditions to Write Off Export Receivables Under FEMA

Exporters and authorized dealers can write off export receivables up to the specified limits, provided they meet certain stringent conditions. These conditions are designed to ensure that write-offs are justified and reflect genuine attempts to recover the proceeds. Key conditions include:

1. Outstanding Period: The export proceeds must remain outstanding for more than one year.
2. Effort Evidence: Exporters must provide documentary evidence showing that all efforts have been made to realize the dues.
3. Specific Scenarios:
   • Insolvency of the Overseas Buyer: A certificate from the official liquidator confirming the buyer's insolvency and the impossibility of recovering the export proceeds.
   • Untraceable Buyer: The overseas buyer cannot be traced for an extended period.
   • Destruction or Auction of Goods: Goods exported have been destroyed or auctioned by customs, port, or health authorities in the importing country.
   • Settlement Interventions: The balance outstanding represents amounts settled through the intervention of the Foreign Chamber of Commerce, Indian Embassy, or similar organizations.
   • Undrawn Balance: The unrealized amount represents the undrawn balance (not exceeding 10% of the invoice value) and remains unrecoverable despite best efforts.
   • Legal Costs: The cost of legal action is disproportionate to the unrealized amount, or the court decree is unenforceable due to reasons beyond the exporter’s control.
   • Dishonored Bills: Bills drawn for discrepancies between the letter of credit value and actual export value, or provisional and actual freight charges, remain dishonored with no prospects of realization.

When Exporters Cannot Write Off Export Receivables

Certain conditions strictly prohibit the write-off of export receivables under FEMA:

• Externalization Problems: Exports to countries with externalization problems, where the buyer has deposited the value in local currency but repatriation is not permitted by the central banking authorities.
• Legal Investigations: Outstanding bills under investigation by agencies such as the Enforcement Directorate, Central Bureau of Investigation (CBI), or the Directorate of Revenue Intelligence (DRI).

How to Write Off Export Receivables

Banks utilize the RBI’s Export Data Processing and Monitoring System (EDPMS) to report the write-off of unrealized export proceeds. Banks can cancel export claims upon application if the proceeds have been converted and realized into Indian currency from other sources, and the exporter is not listed in the RBI's caution list.

Role of Insurance Settlements

Exporters can request banks to set aside the relevant export bill in the EDPMS if claims are settled by Insurance Companies regulated by IRDA or ECGC. In such cases, the 10% limit does not apply, and the write-off is governed by the terms of the insurance policy. For example, if ECGC settles 80% of the export bill value, the exporter can write off the remaining 20%.

Summary

Writing off export receivables under FEMA is a nuanced process that balances regulatory compliance with the operational needs of exporters. The conditions and limits imposed by FEMA are designed to ensure that the write-off mechanism is not misused and that genuine cases of non-realization are accommodated within a structured framework.

Exporters must meticulously document their efforts to realize export proceeds and ensure compliance with FEMA's conditions to avoid penalties and maintain their operational integrity. For any assistance related to exports, government regulations, and writing off export receivables, understanding the evolving rules and regulations under FEMA is crucial. This detailed guidance aims to equip exporters with the necessary knowledge to navigate these complexities effectively.

Understanding and Complying with Significant Beneficial Ownership (SBO) Rules for LLPs

The Ministry of Corporate Affairs (MCA) has issued new compliance requirements for LLPs under the LLP Act, 2008. These requirements are detailed in the Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023. This guide will help you understand and comply with these rules by July 1, 2024.

Important Terms

• LLP (Limited Liability Partnership): A type of business structure where partners have limited liabilities.
• SBO (Significant Beneficial Owner): An individual who has significant control or benefits from the LLP.

Who is a Significant Beneficial Owner (SBO)?

An SBO is an individual who, alone or with others, directly or indirectly:

• Owns at least 10% of the contribution to the LLP.
• Holds at least 10% of voting rights in the LLP.
• Has the right to receive at least 10% of the profits from the LLP.
• Exercises significant influence or control in the LLP.

Compliance Requirements for LLPs

Steps for Compliance

1. Identify SBOs

   • Determine if any individual meets the criteria for being an SBO.

2. Notify SBOs

   • Request SBOs to declare their status using Form LLP BEN-1.

3. File with MCA

   • Submit Form LLP BEN-2 within 30 days of receiving Form LLP BEN-1 from SBOs.

4. Maintain Records

   • Keep an up-to-date Register of SBOs using Form LLP BEN-3.

5. Regular Updates

   • Ensure all changes and declarations are timely recorded and reported.

Detailed Steps for Compliance

1. Identify SBOs

An SBO can be identified based on:

• Contribution: Owns at least 10% of the contribution to the LLP.
• Voting Rights: Holds at least 10% of voting rights in the LLP.
• Profit Sharing: Has the right to receive at least 10% of the profits from the LLP.
• Control: Exercises significant influence or control in the LLP.

Indirect Holding Examples:

• Body Corporate: The SBO is the person who holds the majority stake (>50% equity or voting rights) in the body corporate.
• Partnership Firm: The SBO is an individual who is a partner or holds a majority stake in the partner entity.
• Trusts: The SBO can be a trustee, beneficiary, or settlor, depending on the type of trust.
• Pooled Investment Vehicles: The SBO can be a general partner, investment manager, or chief executive officer.

2. Notify SBOs

LLPs must notify individuals who are identified as SBOs to declare their status. This can be done using Form LLP BEN-4.

Form LLP BEN-4 Notification Steps:

• Send the form via email or post to the identified SBO.
• Include instructions for completing Form LLP BEN-1.

3. File with MCA

After receiving the SBO declaration in Form LLP BEN-1, the LLP must file Form LLP BEN-2 with the MCA within 30 days.

Filing Steps:

• Collect completed Form LLP BEN-1 from SBOs.
• Submit Form LLP BEN-2 electronically to the MCA portal.
• Ensure submission is done within the 30-day window to avoid penalties.

4. Maintain Records

LLPs are required to maintain a Register of SBOs using Form LLP BEN-3. This register should include details of all SBOs and be kept at the LLP's registered office.

Form LLP BEN-3 Details:

• Names of SBOs.
• Details of their contributions.
• Date of declaration.
• Changes in their status.

5. Regular Updates

LLPs must ensure that any changes in the SBO status are declared and recorded promptly.

Update Process:

• SBOs must declare any changes using Form LLP BEN-1 within 30 days of the change.
• LLPs must update the Register of SBOs and file the updated information with the MCA using Form LLP BEN-2.

Key Dates and Forms

Action	Form	Deadline
SBO Declaration	LLP BEN-1	Within 90 days of rule start
Notify Partners	LLP BEN-4	As required
File SBO Information with Registrar	LLP BEN-2	Within 30 days of LLP BEN-1
Maintain SBO Register	LLP BEN-3	Ongoing
File Register of Partners	Form 4A	Within 30 days of rule start
Declare Beneficial Interest	Form 4B	Within 30 days of name entry
Record Change in Beneficial Interest	Form 4C	Within 30 days of change
Update Registrar on Beneficial Declarations	Form 4D	Within 30 days of declaration

Exceptions

These rules do not apply if the contribution is held by:

• Government entities (Central/State).
• Investment vehicles registered with SEBI.
• Entities regulated by RBI.

Register of Partners (Form 4A)

Every LLP must maintain a Register of Partners in Form 4A. This includes detailed information about each partner and any changes in their beneficial interest.

Sample Format of Form 4A

S. No.	Details
1.	Name of the Partner
2.	Corporate Identification Number
3.	Unique Identification Number
4.	Address
5.	Email ID
6.	Father's/Mother's/Spouse's Name
7.	Status
8.	Occupation
9.	PAN No.
10.	Citizen of India (Yes/No)
11.	Nationality
15.	Total amount of contribution
16.	% share in total contribution
17.	% change in total contribution by admission of Partner
19.	Date of declaration under rule 22B
20.	Name and address of beneficial partner
21.	Amount of contribution by beneficial partner
22.	Date of receipt of nomination
23.	Name and address of nominee
24.	Date of cessation of partnership
25.	Reason of cessation
26.	Name of transferee, if any
26A	SRN number and date of filing E-form-3
27.	Remarks
28.	Authentication/Signature

Conclusion

To comply with the SBO rules:

• Identify and notify SBOs.
• File necessary forms on time.
• Maintain accurate records.
• Ensure regular updates for any changes.

By following these steps, your LLP will remain compliant, transparent, and avoid any legal issues.

Remember: File Forms LLP BEN-2 and Form 4D by July 1, 2024, to avoid fees and penalties.

Key Updates from the 53rd GST Council Meeting for Taxpayers

The 53rd GST Council meeting, chaired by Finance Minister Nirmala Sitharaman, brought several important updates aimed at simplifying GST compliance and reducing the tax burden for businesses. Here's a detailed and easy-to-understand summary of the key changes that matter to you:

Changes in GST Rates

1. Goods:

   • Aircraft Parts and Tools: Now taxed at 5% on imports to promote local aircraft maintenance and repair.
   • Milk Cans: Taxed at 12% for steel, iron, and aluminum milk cans.
   • Paperboard Boxes: GST reduced from 18% to 12%.
   • Solar Cookers and Sprinklers: Uniformly taxed at 12%.
   • Defense and Research Imports: No IGST on imports for defense and research purposes until June 30, 2029.
   • SEZ Imports: No additional Compensation Cess on imports to Special Economic Zones (SEZs) since July 1, 2017.
   • Unit Run Canteens: Special tax exemptions for defense-related canteens.

2. Services:

   • Railway Services: Certain public and inter-railway services are tax-exempt.
   • Special Purpose Vehicles (SPVs): Tax exemptions for services provided to Indian Railways.
   • Accommodation Services: Rentals up to ₹20,000 per month are tax-exempt under specific conditions.
   • Insurance Services: Clarified rules and some tax exemptions for insurance services.

Measures to Ease Compliance

1. Waiving Interest and Penalties:

   • Pay taxes for FY 2017-18, 2018-19, and 2019-20 by March 31, 2025, and avoid extra interest and penalties.

2. Reducing Legal Disputes:

   • GST Appellate Tribunal will only handle disputes over ₹20 lakhs.
   • High Courts will handle disputes over ₹1 crore.
   • The Supreme Court will handle disputes over ₹2 crores.

3. Lower Pre-Deposit for Appeals:

   • Reduced pre-deposit amounts for filing appeals to ease the financial burden.

4. Extended ITC Deadlines:

   • Deadline to claim Input Tax Credit (ITC) for specific fiscal years extended to November 30, 2021.

5. New Filing Deadlines:

   • Composition taxpayers can now file returns by June 30 instead of April 30.

6. Interest on Delayed Returns:

   • No interest charged if the due amount is available in the Electronic Cash Ledger on the due date.

Other Important Updates

1. Anti-Profiteering:

   • New applications for anti-profiteering cases can only be made until April 1, 2025.

2. Refund Mechanism:

   • Clear process for refunding extra IGST paid due to price changes after exporting goods.

3. Trade Clarifications:

   • Clear guidelines to help reduce disputes and simplify compliance.

4. Aadhaar Authentication:

   • Biometric-based Aadhaar verification for GST registration to prevent fraud.

These updates aim to make GST compliance easier, reduce disputes, and clarify tax rules, providing smoother business operations for all taxpayers. Stay informed and take advantage of these changes to ensure compliance and benefit from the new provisions. 

Section 50C Not Applicable to Leasehold Rights in Land and Building

Legal Principle

In the landmark decision of Shivdeep Tyagi vs. ITO [2024] 163 taxmann.com 614 (Delhi - Trib.), the Income Tax Appellate Tribunal (ITAT) established a crucial legal principle: Section 50C of the Income-Tax Act, 1961, which pertains to the valuation of land or buildings for tax purposes, does not extend to the transfer of leasehold rights. This decision clearly demarcates the boundary between ownership of land or buildings and leasehold rights, preventing the unwarranted application of Section 50C to transactions involving leasehold interests.

Detailed Reasoning

1. Distinct Nature of Leasehold Rights: Leasehold rights involve the right to use and occupy property for a specified term, without conferring full ownership. This is fundamentally different from owning land or buildings, where the title and full ownership rights are transferred. Recognizing this distinction is critical to applying tax provisions accurately.

2. Scope and Application of Section 50C: Section 50C is explicitly designed to apply to the transfer of 'land or building or both.' It mandates that if the sale consideration reported by the assessee is less than the value assessed by the stamp valuation authority, the latter value should be deemed as the full consideration for tax purposes. The legislative intent and the explicit wording of Section 50C do not encompass leasehold rights, which are rights to use rather than to own property.

3. Legislative Distinction in Section 54D: Section 54D of the Act differentiates between 'land or building' and 'any right in land or building.' This distinction indicates that the legislature views rights in land or building as separate from the land or building itself. Consequently, Section 50C's valuation rules are not intended to apply to leasehold rights.

4. Judicial Precedents: The ITAT’s decision draws on the Supreme Court's ruling in Amarchand N. Shroff [1963], which underscores that deeming provisions must be strictly interpreted within their legislative scope. This precedent supports the conclusion that Section 50C should not be extended beyond its clear terms to include leasehold rights.

Supporting Judicial Precedents

The ITAT’s ruling is supported by several key judicial decisions that emphasize the distinct treatment of leasehold rights under tax laws:

Case	Court	Key Point
Atul G. Puranik v. ITO [2011]	Mumbai Tribunal	Leasehold rights are not equivalent to 'land or building' under Section 50C.
Ritz Suppliers (P.) Ltd. v. ITO [2020]	Kolkata Tribunal	Leasehold rights are distinct from land or building ownership.
Smt. Sowmya Sathyan v. ITO [2021]	Bangalore Tribunal	Section 50C does not cover leasehold rights.
CIT v. Amarchand N. Shroff [1963]	Supreme Court	Deeming provisions should not extend beyond their explicit legislative scope.
CIT v. Mother India Refrigeration Industries (P.) Ltd. [1985]	Supreme Court	Strict application of tax provisions is necessary.
CIT v. Greenfield Hotels & Estates (P.) Ltd. [2017]	Bombay High Court	Examination of Section 50C regarding various property rights.
Noida Cyber Park (P.) Ltd. v. ITO [2021]	Delhi Tribunal	Confirmed that leasehold rights are not covered by Section 50C.

Implications of the Decision

This established law ensures that taxpayers transferring leasehold rights are not unfairly subjected to the deeming provisions of Section 50C, which are intended solely for transactions involving ownership of land or buildings. By clearly distinguishing between different types of property rights, the decision promotes fairness and accuracy in tax assessments and prevents the misapplication of tax rules.

Summary Table for Clarity

Aspect	Details
Assessee	Shivdeep Tyagi
AO's Claim	Sold leasehold rights for Rs. 60,00,000; reassessed at Rs. 75,94,850
Issue	Applicability of Section 50C to leasehold rights
Tribunal's Holding	Section 50C does not apply to leasehold rights
Key Sections	Section 50C, Section 54D
Supreme Court Reference	Amarchand N. Shroff [1963]
Other Case References	Atul G. Puranik [2011], Ritz Suppliers [2020], Smt. Sowmya Sathyan [2021], CIT v. Mother India Refrigeration Industries [1985], Greenfield Hotels & Estates [2017], Noida Cyber Park [2021]

Conclusion

The ITAT’s decision in Shivdeep Tyagi vs. ITO clarifies that Section 50C of the Income-Tax Act, 1961, does not apply to the transfer of leasehold rights. This ruling aligns with the legislative intent and judicial precedents, ensuring that the application of tax provisions is confined within their explicit scope. It highlights the importance of precise statutory interpretation to prevent undue tax burdens on taxpayers and maintains the integrity and fairness of tax assessments.

Guidance Note on Form 26QC: Procedure, Due Dates, Penalties, and Correction

Introduction Form 26QC is mandated by Section 194IB of the Income Tax Act, requiring tenants to deduct TDS on rent payments exceeding Rs. 50,000 per month to resident landlords. This note provides a comprehensive overview of the filing procedure, due dates, penalties for defaults, and the process for correcting errors in Form 26QC.

Procedure for Filing Form 26QC

1. Applicability and TDS Deduction:

   • Tenants (Individuals, HUFs, etc.) making rent payments exceeding Rs. 50,000 per month are required to deduct TDS at 5% before remitting the rent to the landlord.

2. Filing Timeline:

   • Form 26QC must be submitted within 30 days from the end of the month in which TDS is deducted.
   • Alternatively, file within 30 days from the end of the financial year or upon vacation of the property or termination of the rent agreement.

3. Online Submission Process:

   • Accessing the TIN-NSDL Website:

     • Visit the TIN-NSDL (Tax Information Network - National Securities Depository Limited) website.
     • Navigate to the 'TDS on rent of property' section under the services menu.

   • Filling Form 26QC:

     • Select the option for online submission of TDS on property rent.
     • Fill in all mandatory fields accurately. Required details include PANs of tenant and landlord, property address, rent amounts, TDS deducted, etc.
     • Ensure all details are correctly entered to avoid discrepancies.

   • Submission:

     • Submit the completed Form 26QC electronically through the website.
     • Upon successful submission, an acknowledgment with a unique number will be generated.

Penalties for Defaults

• Late Filing:

  • A late fee of Rs. 200 per day is levied for each day of delay beyond the due date until the form is submitted.

• Delayed TDS Deduction or Deposit:

  • Interest of 1% per month is applicable on the TDS amount from the due date of deduction till the actual date of deduction.

• Fixed Penalties:

  • For delays exceeding one year in filing Form 26QC, penalties range from Rs. 10,000 to Rs. 1,00,000, depending on the duration of the delay and the discretion of the tax authorities.

Correction of Errors

• Errors in Form 26QC can be rectified through the TRACES (TDS Reconciliation Analysis and Correction Enabling System) platform.

• Correction Request:

  • After the initial submission, log in to TRACES.
  • Navigate to 'Statements / Forms' > 'Request for Correction'.
  • Select Form 26QC and proceed with the correction request.

• Verification and Approval:

  • Depending on the availability of Digital Signature Certificate (DSC) or jurisdictional Assessing Officer's approval, choose the appropriate verification method.
  • Submit the correction request and track its status on TRACES.

Conclusion

Form 26QC ensures compliance with TDS regulations on rental income, ensuring transparency and accountability in financial transactions between tenants and landlords. Timely filing, accurate reporting, and prompt correction of errors are crucial to avoid penalties and maintain tax compliance. By following these procedures diligently, taxpayers can fulfill their legal obligations effectively and contribute to a compliant tax environment.

Guidance Note on Share Buy-Back under Indian Company Law

Introduction

Share buy-backs are strategic financial maneuvers undertaken by companies to repurchase their own shares from existing shareholders. In India, the regulatory framework governing share buy-backs is primarily outlined in the Companies Act, 2013, and SEBI (Buy-back of Securities) Regulations, 2018. This guidance note aims to provide a detailed overview of the legal requirements, procedural steps, accounting treatment, and income tax implications associated with share buy-backs.

Legal Framework and Regulatory Compliance

1. Companies Act, 2013:

   • Section 68 governs the buy-back of shares, detailing conditions under which a company can repurchase its own shares.
   • A special resolution passed by shareholders is mandatory for initiating a share buy-back.

2. SEBI (Buy-back of Securities) Regulations, 2018:

   • Applicable to listed companies, these regulations provide guidelines to ensure transparency, fairness, and protection of minority shareholders.
   • SEBI approval and compliance with disclosure requirements are mandatory.

Procedural Steps

Step-by-Step Process of Share Buy-Back:

1. Special Resolution:

   • A special resolution must be passed at a general meeting of shareholders. The resolution must include an explanatory statement providing:
     • Full disclosure of material facts.
     • Justification for the buy-back.
     • Class of shares to be repurchased.
     • Timeframe for completion of the buy-back.

2. Public Announcement and Filing:

   • A public announcement of the buy-back must be made in newspapers and filed with SEBI and stock exchanges.
   • The company must file a return with the Registrar of Companies (ROC) and SEBI within 30 days of completing the buy-back.

3. Offer Price Determination:

   • The offer price must be determined based on SEBI guidelines, ensuring fairness and preventing market manipulation.

4. Opening and Closure of Offer:

   • The buy-back offer is opened and closed within the timeframe specified by SEBI regulations.

5. Acceptance and Payment:

   • Shareholders tender their shares during the buy-back offer period.
   • Payment to shareholders who tender their shares is made promptly.

6. Extinguishment of Shares:

   • Shares repurchased are extinguished, resulting in a reduction of the company's issued share capital.

Accounting Treatment

Detailed Accounting Entries:

1. Fresh Issue for Buy-Back:

   • Issue of Preference Shares:
     • At Par:
       • Debit Bank A/C
       • Credit Preference Share Capital A/C
     • At Premium:
       • Debit Bank A/C
       • Credit Preference Share Capital A/C
       • Credit Securities Premium Reserve A/C
     • At Discount:
       • Debit Bank A/C
       • Debit Discount on Issue of Debentures A/C
       • Credit Debentures A/C

2. Opening a Dedicated Bank Account:

   • Debit Buy-Back Bank A/C
   • Credit Bank A/C

3. Buy-Back of Shares:

   • Debit Equity Share Buy-Back Account
   • Debit Buy-Back Bank A/C

4. Cancellation of Shares Bought Back:

   • At Par:
     • Debit Equity Share Capital A/C
     • Credit Equity Share Buy-Back A/C
   • At Premium:
     • Debit Equity Share Capital A/C
     • Debit Premium Payable on Buy-Back A/C
     • Credit Equity Share Buy-Back A/C
   • At Discount:
     • Debit Equity Share Capital A/C
     • Credit Equity Share Buy-Back A/C
     • Credit Capital Reserve A/C

5. Transfer to Capital Redemption Reserve:

   • Debit Securities Premium Reserve A/C
   • Debit Free Reserve A/C
   • Credit Capital Redemption Reserve A/C

6. Adjustment of Premium Paid on Buy-Back:

   • Debit Securities Premium Reserve A/C
   • Debit General Reserve A/C
   • Debit Statement of Profit and Loss A/C
   • Credit Premium Payable on Buy-Back A/C

7. Buy-Back Expenses:

   • Debit Buy-Back Expenses A/C
   • Credit Bank A/C

Income Tax Implications

• Capital Gains:

  • Profit or loss from buy-back is treated as capital gains.
  • Short-term Capital Gains: If shares held for less than 36 months.
  • Long-term Capital Gains: If shares held for 36 months or more.

• Tax Deductibility:

  • Amount paid for share buy-back is not deductible for income tax purposes.

Conclusion

A well-executed share buy-back can enhance shareholder value and optimize capital structure. Companies must adhere strictly to legal requirements, follow prescribed procedures, maintain transparency, and ensure compliance with accounting standards and tax regulations. Understanding these complexities is crucial for corporate decision-makers and professionals involved in corporate finance and governance.

By following this guidance note, companies can navigate the intricacies of share buy-backs effectively, contributing to their strategic and financial objectives while safeguarding shareholder interests and complying with regulatory expectations.

Frozen Green Peas Not Considered Agricultural Produce: AAR

GST: When processes change 'Raw Green Peas' into 'Frozen Green Peas', the product's basic nature and character change. Therefore, it is not considered an agricultural product or vegetable. According to Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, services for storing processed frozen green peas are not exempt, and GST must be paid.

Authority for Advance Rulings, Uttarakhand   Stellar Cold Chain Inc., In re RULING NO. 03/2023-24 AUGUST 22, 2023

Processed Frozen Green Peas:

• Storage Services: The applicant stores raw green peas bought from the market and sells them. They sought a ruling on whether storage charges for frozen green peas are taxable under the GST Act.
• GST Exemption: They asked if these charges fall under the NIL GST Tariff for storage of cereals, pulses, fruits, and vegetables according to Notification No. 04/2022-Central Tax (Rate), dated 13-7-2022.

Decision:

• Notification No. 12/2017: Exempts storage or warehousing of cereals, pulses, fruits, and vegetables.
• Agricultural Produce Definition: Items from plant cultivation with minimal processing that do not alter their essential characteristics are considered agricultural produce.
• Processing Changes Nature: The processes to turn raw green peas into frozen green peas change the product's basic nature and character.
• GST Applicability: Storage of processed frozen green peas is not exempt. GST must be paid for these storage services as the law only exempts storage of green peas in their raw form.

Relevant Notifications:

• Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017
• Notification No. 04/2022-Central Tax (Rate), dated 13-7-2022

Guide to Rectifying Errors in GST Records

Introduction

The Goods and Services Tax (GST) system in India includes mechanisms for correcting human or systematic errors in official documents. Section 161 of the Central Goods and Services Tax (CGST) Act, 2017, empowers the Proper Officer to rectify any error apparent on the face of the record. This ensures that decisions and orders reflect the true intent of the law and the facts of the case. This guide explores Section 161 of the CGST Act, the types of errors that can be corrected under this section, and the relevant procedures and limitations.

Provisions for Rectification of Errors

Key Aspects

1. Authority to Rectify Errors:
   • The authority that issued the document can rectify errors.
2. Types of Errors Corrected:
   • Errors that are obvious and apparent on the face of the record.
3. Procedure for Rectification:
   • Errors can be corrected either on the authority’s own motion or when the error is brought to its attention by a relevant officer or the affected person.

Detailed Provisions

The relevant section states:

• Without prejudice to Section 160, any authority who issued any decision, order, notice, certificate, or document may rectify any apparent error.
• Time Limits: Rectification must be done within three months from the date of issue. However, no rectification is allowed after six months, except for clerical or arithmetical errors.
• Natural Justice: If the rectification adversely affects any person, the principles of natural justice must be followed, ensuring an opportunity for a hearing.

Special Provisions

• Advance Rulings: Specific provisions exist for rectifying an Advance Ruling under Section 102.
• Appellate Tribunal Orders: Specific provisions exist for rectifying orders passed by the Appellate Tribunal under Section 113(2).

Interpretation of the Non-Obstante Clause in Section 161

Section 161 includes a non-obstante clause stating "notwithstanding anything contained in any other provisions of the Act." This clause is significant as it implies that:

• General vs. Specific Provisions: General provisions under Section 161 do not override specific provisions (e.g., Sections 102 and 113(2)).
• Conflict Resolution: The non-obstante clause is invoked only in case of a conflict between the general and specific provisions.

Judicial Interpretations

• Clarification and Scope: The non-obstante clause clarifies the position but does not limit the scope of the operative part of the enactment.
• Clear Inconsistency Required: There should be a clear inconsistency between provisions before the non-obstante clause can override other provisions.

Time Limits for Rectifying Errors

Particulars	Time Limit	Special Points
Applying for Rectification	3 months from issue date	The date of signing is relevant. For the other party seeking relief, the date of communication is relevant. The delay in filing rectification cannot be condoned.
Completing Rectification	6 months from issue date	Not applicable for clerical or arithmetic errors, which can be corrected anytime.

Key Judicial Insights

• Date of Signing vs. Communication: The Supreme Court has ruled that the relevant date for calculating the limitation period is the date of signing, but for the other party, it is the date of communication.
• Non-condonable Delay: Any delay in filing a rectification application cannot be condoned.

Meaning of 'Error Apparent on the Face of Record'

The term 'error apparent on the face of the record' is not explicitly defined under GST law. However, it generally refers to mistakes that are obvious and do not require extensive interpretation.

Examples of Such Errors

• Clerical Mistakes: Typographical errors or wrong entries.
• Arithmetical Errors: Calculation mistakes.
• Errors of Law and Fact: Misinterpretation of law or incorrect facts that are evident from the records.

Illustrative Cases and Their Interpretations

No	Type of Error	Case Reference	Decision Summary
1	Mistake realized without debate	Mrs. Freny Rashid v. Assistant Controller of Estate Duty	A mistake must be obvious and not require debate or extensive argument.
2	Reassessment without checking books of account	Gold Finch Hotels Pvt. Ltd v. Deputy Commissioner of Commercial Taxes	Rectification allowed if reassessment order passed without verifying books of account.
3	Record includes all materials present in the record	Gammon India Ltd. v. CIT	Entire proceedings and documents considered at the time of the original order are part of the record.
4	Errors in records from any assessment year	CIT v. Keshri Metal (P.) Ltd	Mistakes can relate to records from any assessment year.
5	No reference to documents outside the records	Keshri Metal (P.) Ltd	Mistakes must be evident from the records and cannot involve external documents.
6	Clear mistake without further investigation	Kairali Ayurvedic Health Resort (P.) Ltd v. Commercial Tax Officer	An error must be so apparent that no further investigation is needed.
7	Inconsistency with retrospective amendment in the law	CIT v. E. Sefton & Co (P.) Ltd	Mistakes apparent from the record include inconsistencies with retrospectively amended laws.
8	Rectification for non-consideration of reply in the order	Mulchand Patti Mfg. Co. v. ITO	Mistakes include anything missed out in the record.
9	Reassessment without looking into books of account (reiterated)	Gold Finch Hotels Pvt. Ltd	Reassessment without book verification allows for rectification to check books of account.

Additional Considerations for Filing Appeals

Exclusion of Rectification Time in Filing Appeals

• Appeal vs. Rectification: An appeal is a remedy for aggrieved taxpayers, while rectification corrects visible mistakes.
• No Exclusion for Rectification Time: There is no specific exclusion for the time taken in rectification when calculating the time limit for filing an appeal.
• Rule 142 of CGST Rules, 2017: Upon passing a rectification order, a summary must be uploaded in Form GST DRC-08, and the time limit for filing an appeal starts from the communication date of the rectified order.

Legal Interpretations

• Supreme Court View: In Hind Wire Industries Ltd. v. CIT, the Supreme Court held that 'order' includes rectified orders, affecting the appeal time limit.
• High Court Decisions: In cases like Tvl. SKL Exports v. Deputy Commissioner (ST) (GST) (Appeal), the High Court directed the appellate authority to admit an appeal filed immediately after rectification rejection if the taxpayer promptly filed the appeal and paid the required tax.

Practical Advice

• Filing Appeals as Precaution: If there is uncertainty whether an error qualifies for rectification under Section 161, taxpayers should file an appeal within the permissible time to avoid complications.

In summary, Section 161 of the CGST Act provides a clear mechanism for rectifying obvious errors in GST records. Understanding the provisions, judicial interpretations, and procedural nuances ensures compliance and minimizes potential disputes.