Domestic and Direct Tax Updates

published on 31 October 2022

Notifications and Circulars 

1. Additional guidelines on tax deduction at source (TDS) from benefits or perquisites

Section 194R of the Income Tax Act, 1961 ('ITA') provides for 10 per cent TDS from value of benefit or perquisite arising from carrying of business or profession. Additional clarifications have now been issued by the CBDT vide Circular No. 18 dated 13 September 2022. Some of the clarifications provided by CBDT in the current Circular regarding reimbursement transactions and dealer conference have been covered below:

•  If TDS is already done under other applicable provisions (such as, sec. 194C – Contractor payments or sec. 194J – Professional or technical services) from out-of-pocket expenses (reimbursement) forming part of consideration billed, TDS under section 194R would not apply.
• Similarly, if the party who is reimbursed any expenses qualifies as a "pure agent", as defined in the Goods & Service Tax (GST) Valuation Rules 2017, such reimbursement would not be treated as benefit/perquisite for the purposes of section 194R ITA.
• In case of a dealer conference organized to educate dealers about products of company:-

•  Amount of benefit included by dealer as income in his Income Tax Return in respect of company gifted car used by dealer in his business shall be considered as "actual cost" for the purposes of claiming depreciation by dealer, subject to fulfilment of other conditions.
  

Click here to read our earlier update in respect of Guidelines issued in past under section 194R.

2. CBDT notifies form for filing modified Income tax return pursuant to business reorganization

Section 170A inserted by Finance Act, 2022 provides for furnishing of modified return by entities going through business reorganization (through proceedings before court or tribunal). Such modified return needs to be furnished within a period of six months from the end of the month in which such order of business reorganization was issued by the competent authority. 

Accordingly, Form ITR-A has been notified by the CBDT vide Notification No. 110/2022 dated 19 September 2022, for furnishing the modified return of income, by the successor entity in a business reorganization. The notification shall come into force from 1 November 2022. 

As the ITR-A has been notified with effect from 1 November 2022 that has reduced the time available for filing ITR-A, in order to remove genuine hardship caused and to provide adequate time for filing modified return to the companies, CBDT vide order dated 26 September 2022 has extended the time limit for filing modified return i.e. ITR-A to 31 March 2023 by the successor companies, in cases where business reorganization is ordered between 1 April 2022 and 30 September 2022.

3. CBDT notifies Form 29D for claiming TDS refund under section 239A

There may be certain agreements or arrangements, where a payer may commercially agree to bear TDS in respect of any income payable to non-resident. However, sometimes, the payer may believe that there was no TDS required from such income of non-resident. To facilitate claiming refund of TDS in such situations, Finance Act, 2022 had introduced section 239A, allowing such payer to apply for a refund of TDS done under Section 195 on payments (except interest) to non-residents, if such payer had borne TDS but claims that no TDS was required on such amount.

In this regard, CBDT has now introduced Form 29D for claiming tax refund under section 239A. The form needs to be accompanied by a copy of an agreement or other arrangement providing for liability of TDS 

to be borne by the payer.

Domestic Tax Rulings 

1. Procedure for receiving refund by a foreign company not having bank account in India 

Karnataka High court (HC), in the case of M. Tech Holdings PTE Limited [TS-718-HC-2022(KAR)], allowed writ petition, wherein the HC has laid down procedure for receiving tax refund by foreign company not having a bank account in India.

In this case, refund of INR 2 million was determined for M. Tech by tax authorities. MTech had a bank account in Singapore, which could not be validated on e-filing portal of tax department, due to which tax authorities were unable to credit tax refund into such bank account.

The Karnataka HC directed MTech to open a virtual bank account in India and intimate details of such bank account to tax authorities for validation. It directed tax authorities to credit refund amount to such virtual bank account, upon validation, from which it can be remitted to the foreign bank account of MTech.

2. Delhi HC rules on prosecution proceedings against Indian Company's Director 

Prosecution of company director for offence and lapses on part of company is an eminent risk. In case of Vipul Aggarwal [TS-568-HC-2022(DEL)], Company did not file its Return of Income (ROI) within due date as well as within period provided in notice given by tax officer for filing ROI. Tax Department initiated prosecution proceedings against company as well as director of company. Director of company moved the HC for quashing of prosecution proceedings.

HC referred to section 278B ITA which deems every person who was responsible for the conduct of the business of the company at the time of commission of offence, to be deemed guilty of the offence. HC also referred to section 278E ITA which presumes culpable mental state i.e., mens rea, unless it is rebutted by the taxpayer.

Though HC held that in view of section 278B prosecution proceedings against director cannot be quashed, in absence of sanction from appropriate authority under section 279, HC quashed prosecution proceedings against director.