Key Income-Tax Updates
Clarification regarding tax ability of income earned by a non-resident investor from off-shore investments routed through an Alternate Investment Fund
July 3, 2019: CBDT: As section 115UB(1) of the Income-tax Act, 1961 (the Act) provides that the investments made by Category I or Category II AIFs are deemed to have been made by the investor directly. It is clarified that any income in the hands of the non-resident investor from off-shore investments routed through the Category I or Category II AIF, being a deemed direct investment outside India by the non-resident investor is not taxable in India under section 5(2) of the Act.
It is further clarified that loss arising from the off-shore investment relating to non-resident investor, being an exempt loss, shall not be allowed to be set-off or carried-forward and set off against the income of the Category I or Category II AIF.
Union Budget 2019-20
July 5, 2019: The key highlights of Budget inter-alia are as under:
• Increase in applicable surcharge now – @ 25%, where total income exceeds INR 20m and @ 37%, where total income exceeds INR 50m.
• Reduced tax rate of 25% will be extended to companies with turnover of INR 4bn in FY 2017-18
• Proposal to introduce faceless assessment in electronic mode involving no human interface.
• Tax incentives for units located in the IFSC
Protocol Amending the Agreement between the Government of the Republic of India and the Government of the People’s Republic of China
July 17, 2019: MoF: The Governments of India and the People’s Republic of China, on 26 November 2018, signed a Protocol amending the Double Taxation Avoidance Agreement between India and China. India notified this Protocol on 17 July 2019.
Exemption from furnishing return of income for non-residents earning income from
investment fund set-up in IFSC
July 26, 2019: GoI: The Central Government (CG) issued a notification under sub-section (1C)
of section 139 of the Act exempting a non-resident (not being a company) or a foreign company from furnishing a return of income in India who earns income from investment in an investment fund set- up in IFSC. An investment fund has been defined to mean a Category I and II AIF, which have been granted a certificate of registration and are regulated by the SEBI (AIF) Regulations, 2012. The above exemption from furnishing return of income is subject to the satisfaction of the certain conditions.
United Investments v. ACIT (ITA No. 511/Kol/2017)
July 1, 2019: The Kolkata bench of the Tribunal in its order dated 01 July 2019 has allowed assessee’s claim for carry forward of long term capital loss from sale of listed shares on which securities transaction tax has been paid.
CBDT issues clarification on eligibility of small Start-ups to avail tax holiday
August 22, 2019: CBDT: CBDT has clarified that small start-ups with turnover upto Rs. 25 crore will continue to get the promised tax holiday as specified in Section 80-IAC of the Income Tax Act, 1961 (the Act) which provides deduction for 100 percent of income of an eligible start-up for 3 years out of 7 years from the year of its incorporation.
CBDT constitutes Start-up Cell for redressal of grievances related to Start-ups
August 30, 2019: CBDT: To redress grievances and address various tax related issues in the cases of Start-ups, a Start-up Cell has been constituted by CBDT.
Consolidated circular for assessment of Startups
August 30, 2019: CBDT: CBDT has issued circular providing clarity on several aspects relating to the assessment of startups under section 56(2)(viib) of the Act and the recovery of demand therefrom. The Circular is said to be a consolidated one and is intended to provide a hassle-free tax environment to the Startups as promised by the Hon’ble Finance Minister.
Gift of shares made by a company under an internal restructuring exercise not a “colourable device” – rejection of revision under section 263 of the Income-tax Act, 1961 (the Act)
November 1, 2019: The Mumbai bench of the Income-tax Appellate Tribunal holds transfer of shares of a company as “gift” by a taxpayer to its group company is not a colourable device. It rejected the Revenue’s contention that the taxpayer had resorted to circular transaction of transfer of shares to avoid capital gains tax. In addition, the Tribunal quashed the Commissioner of Income-tax’s revisionary order under section 263 of the Act, as the Tribunal observes that the tax officer had made due enquiries during the assessment proceedings and the CIT was only trying to substitute its opinion, which cannot be done by exercising revisionary jurisdiction under section 263 of the Act.
Tribunal holds that valuation of shares under section 56(2)(viib) of the Act, based on the fair value of assets, cannot be rejected
November 6, 2019: The Delhi bench of the Income-tax Appellate Tribunal held that where
the taxpayer has demonstrated with evidence that the fair market value (FMV) of an asset is much more than the book value, the tax officer cannot use the book value of the asset, ignoring its FMV, for valuation of shares under clause (ii) of Explanation (a) to section 56(2)(vii)(b) of the Act. The Tribunal further ruled that shares should be valued based on various relevant factors and not merely based on financials.