Direct Tax Vista Your weekly Direct Tax recap Edn. 10 – 14th June 2022 By Vivek Jalan, Partner, Tax Connect Advisory Services LLP

 

 

1. No TDS is required to be deducted on Credit Card Commission

Section 194H casts an obligation on the assessee for TDS only when a person acts on behalf of other person. The commission charged by Credit Card Companies is unilaterally retained by the credit card company. It cannot be said that bank acts on behalf of the merchant establishment or that merchant establishment conducts the transaction for the bank. The sale made on the basis of credit card is merely a transaction by the merchant establishment and the credit card company only facilitates the electronic payment for a certain charge. The commission retained by the credit card company is therefore akin to normal bank charges and not in the nature of commission/brokerage on behalf of the merchant establishment as envisaged under Section 194H of the Act. Thus no TDS would be leviable incase of Credit Card commission. The Order of The Hon’ble Delhi High Court in CIT VS. JDS APPARELS PVT. LTD., (2015) 53 TAXMANN.COM 139 (DEL.) was upheld by The Hon’ble ITAT-Delhi in the case of GLOBAL HEALTHLINE PVT. LTD. Vs ITO [2022-VIL-704-ITAT-DEL]

 

2. Payment of tax under dispute may enhance the interest burden

Many a times, a question arises during business operations whether to stop the interest burden from accruing, would it be a wise decision that the tax amount be paid under protest and the litigation continued. This would lead to freezing the interest portion till the date of the payment it is argued. Assesses need to be careful in this approach as the Co–ordinate Bench of Tribunal in Union Bank of India v/s ACIT, [2017] 162 ITD 142 (Mum.), after considering the decision of the Hon'ble Supreme Court in Gujarat Fluoro Chemicals, has held that where the amount of tax demanded is paid by the assessee then it shall first be adjusted towards interest payable and balance if any whatever tax payable. Hence the interest ‘meter’ would still go on. The same analogy applies while granting refund u/s 244A as was held in DY. COMMISSIONER OF INCOME TAX Vs MSM SATELLITE (SINGAPORE) PTE. LTD. [2022-VIL-707-ITAT-MUM]. The refund already granted to the assessee should be first adjusted against the interest component and balance, if any, towards the tax component of the refund due.

 

This is not charging/granting ‘interest on interest’ which was considered incorrect by The Hon'ble Supreme Court in Gujarat Fluoro Chemicals.

 

3. TDS Credit shall be given in the AY in which such income is assessable and not when it appears in Form 26AS

Many a times, AOs do not grant credit of TDS in Assessment Year when the corresponding income is assessable to tax on the premise that such credit is not reflected in form no.26AS for that AY, although it is reflected in subsequent AYs when the TDS was deducted and paid. A combined reading of Section 199(3) r.w. Rule 37BA(3) makes the position of law clear that credit for TDS is available in the year in which the income is reported and as a corollary, should not be deferred to some other assessment year. As a matter of precaution an undertaking may be taken from the assessee by the Authorities declaring that such credit claimed in one AY shall not be doubly claimed in any other assessment year in future based on form 26AS or any other document. The same was held in the case of M/s INTERGLOBE ENTREPRISES PVT. LTD. Vs ASSISTANT COMMISSIONER OF INCOME TAX [2022-VIL-695-ITAT-DEL].

 

4. Interest on Loan to Foreign AE would be Libor + mark up (around 200 BPs)

The comparison of Interest Rate for international transaction vis-à-vis that prevailing in Indian banking system is not just. The Hon'ble Delhi High Court has decided the) that Libor + mark up is the appropriate rate in the case of CIT vs. Cotton Naturals (I) (P.) Ltd. reported in 55 taxmann.com 523 (Delhi High Court]. The ITAT Delhi has followed this order of Delhi High Court in the case of Bharti Airtel vs. ACIT vide ITA No 5636/Del/2011.

 

5. Books not required to be produced for Registration of Charitable trust

The new Scheme of registration u/s 12A or u/s 80G is online and all documents need to be produced online. Producing the statutory audit report and other documents as required for registration u/s 12A read with Rule 17A or u/s 80G, is sufficient. There is absolutely no requirement to produce the physical books of account and bills & vouchers under Rule 17A. The same was rightly held in the case of XAVIER COUNCIL OF INNOVATIONS Vs PR. CIT (EXEMPTIONS), HYDERABAD [2022-VIL-697-ITAT-CTK].

 

6. Supremacy of IBC over Income Tax Act

The Hon’ble Supreme Court in the case of Pr. CIT v. Monnet Ispat & Energy Ltd. [SLP (C) No.6487 of 2018, dated 10-8-2018] has upheld overriding nature and supremacy of the provisions of the IBC over any other enactment in case of conflicting provisions, by virtue of a non obstante clause contained in section 238 of the Code. The Apex Court in case of Alchemist Asset Reconstruction Co. Ltd. v. Hotel Gaudavan (P.) Ltd. [2017] 88taxmann.com 202 has also held that even arbitration proceedings cannot be initiated after imposition of the moratorium u/s 14 (1) (a) has come into effect and it is non est in law and could not have been allowed to continue.

 

U/s 178(6) of the Act, as amended w.e.f. 01.11.2016, the Code shall have overriding effect. The provisions of section 14 of the Code institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority shall be prohibited during the moratorium period under Insolvency and Bankruptcy Code.

 

7. RBI asks UCBs to make higher provisions for inter-bank exposures

The RBI issued fresh provisioning norms for urban cooperative banks' inter-bank exposure as well as valuation of their perpetual non-cumulative preference shares and equity warrants, directing them to continue making provisions to the tune of 20% for such exposures. The RBI came up with these rules in the wake of the bankruptcy of the Punjab & Maharashtra Cooperative Bank (PMC) in September 2019 and the subsequent merger of the cooperative bank with Unity Small Finance Bank, which came into effect from January 25, 2022. The new norms shall be applicable for all Urban Cooperative Banks (UCBs) and are in force with immediate effect.

 

8. No need for authorized persons to file a return disclosing detail of guarantee availed & invoked from NR entities

The RBI has decided to discontinue the return w.r.t Details of guarantee availed and invoked from non-resident entities under the Foreign Exchange Management Act, 1999 with effect from the quarter ending June 2022. Earlier, RBI issued A.P. (DIR Series) circular No 26, dated February 18, 2022, wherein Authorised Persons were advised about the proposed discontinuation of the said return.

 

9. RBI hikes repo rate under LAF by 50 BPs to 4.90%; SDF rate adjusted to 4.65% and MSF rate and Bank Rate to 5.15%; remains focused on withdrawal of accommodation to ensure that inflation remains within the target; supports growth

Inflation risks have materialised, and it is likely to remain above the upper tolerance level of 6% through the first 3 quarters of 2022-23. Considerable uncertainty surrounds the inflation trajectory due to global growth risks and geopolitical tensions. The supply side measures taken by the government would help to alleviate some cost-push pressures. The RBI noted that continuing shocks to food inflation could sustain pressures on headline inflation. Persisting inflationary pressures could set in motion second round effects on headline CPI. Hence, there is a need for calibrated monetary policy action to keep inflation expectations anchored and restrain the broadening of price pressures. Accordingly, the RBI decided to increase the policy repo rate by 50 basis points to 4.90 per cent. It also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.

 

10. RBI allows bank branches in GIFT-IFSC to act as professional clearing member of IIBX

RBI has allowed Indian banks and subsidiaries of foreign banks operating in GIFT-IFSC to act as Professional Clearing Member of the India International Bullion Exchange (IIBX). The parent bank of the subsidiary has to seek a 'No Objection Certificate' from the RBI before its branch in GIFT-IFSC seeking professional clearing membership of IIBX, subject to fulfilment of the prudential requirements. With prior approval of the Board, eligible banks have to apply to RBI with details of its proposed business plan as a PCM along with particulars of the risk management architecture instituted at its branch in GIFT-IFSC. Banks should adhere to RBI guidelines on capital requirements for their exposures arising from their branch in GIFT-IFSC functioning as PCM on IIBX. The bank shall comply with the regulatory capital requirement of the host or home regulator, whichever is more stringent. The parent bank should meet RBI guidelines managing on liquidity risk, including those arising from its functioning as a PCM of IIBX as issued from time to time. The bank shall ensure adherence to the extant RBI guidelines on the large exposure framework as issued from time to time, including all exposures taken by its branch in GIFT-IFSC. With the approval of the bank’s Board, the branch in GIFT-IFSC shall, put in place an effective risk management framework, including the prudential limits in respect of each of its trading clients, considering their net worth, business turnover and other relevant parameters as per the bank’s assessment. The branch of the bank in GIFT-IFSC may, as a PCM of IIBX, clear and settle trades executed by its clients as trading members of the exchanges subject to the condition that the total exposure which the branch would take on its clients should be determined by the Board in relation to the Tier 1 capital of the bank and the capital of its branch in GIFT-IFSC and shall be monitored on an ongoing basis, said RBI.

 

However, the bank shall ensure that its branch in GIFT-IFSC, in its role as a PCM, does not undertake any transaction/ activity on IIBX other than what is required as a professional clearing member, it added.

 

11. CBDT modifies conditions for eligible investment fund – Section 9A(8A)

As per Notification No. 59/2022/F. No. 370142/11/2022-TPL dated 6th June, 2022 clause (k) of sub-section (3) of Section 9A is being modified. As per the new clause the foreign investment funds for their activities not to constitute business connection in India, the fund shall not carry on, or participate in, the day to day operations of any person in India but for this purpose appointment of directors or executive director shall not be considered as participation in day to day operations of such person in India. The notification also modifies meaning of term ‘eligible fund manager’ referred to in subsection (8A) of section 9A of the Act, now clause (e), clause (f), and clause (g) of section 9A(3) shall not apply in the case of an eligible investment fund and its eligible fund manager if such fund manager is located in an IFSC.

 

(The author is a FCA, LL.M & LL.B and Partner at Tax Connect Advisory Services LLP. The views expressed are personal. The author is The Chairman Indirect Tax Core Group of CII and The Chairman of The Fiscal Affairs Committee of The Bengal Chamber of Commerce. He has Authored more than 15 books on varied aspects of Direct and Indirect Taxation. E-mail - vivek.jalan@taxconnect.co.in)