Faceless appeals, CBDT extends faceless assessments to the second level

Conception of new faceless regime

The government had introduced the faceless assessment regime from 2018, thereby eliminating the physical interface between the Assessing Officer (“AO”) and the assessee. Suitable amendments were made in the Income Tax Act, 1961 (“IT Act”), authorising the government to notify a suitable scheme for this purpose, which led to the setting up of a Centralised  Communication  Centre i.e. an internet-based, independent, centralised communication centre for issuance of e-notices to taxpayers, thus doing away with the need for the traditional face to face appearance by an assessee before the designated income tax authority. These preliminary steps finally culminated in the launch of the Faceless Assessment Scheme, 2019.


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Faceless assessment Is this the right cure

The government has over the years strived to modernize the taxation system in our country to remove the discretions and unnecessary harassments experienced by the taxpayers. It has continuously integrated new technologies with the various tax compliances and other proceedings under the IT Act. With continuous planning and efforts, the Indian Revenue Authorities (“IRA”) have enabled electronic filing of several applications and returns under the Income Tax Act, 1961 (“IT Act”) and have even intimated their approvals or objections directly through the e-filing portal.


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Tax motivated transaction IPSO Facto may not be regarded as Sham

In today’s economy, a business entity cannot undermine the impact of taxation on its growth and development trajectory, which is why tax planning is considered to be the most pivotal part of financial planning. While the line between tax planning and tax evasion is very thin, the Supreme Court, on various occasions, has differentiated between the two concepts and has repeatedly held that minimisation of tax liability through legitimate tax planning is not illegal.[1]


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International Financial Services Centre

Inauguration of India’s first International Financial Services Centre (“IFSC”) at the Gujarat International Finance Tec-City (“Gift City”) in Gujarat is a positive development to invigorate our financial sector. If everything that is being attempted to achieve is accomplished, it will mark our entry on the global stage. When IFSC was being set up, our then Finance Minister, Late Mr. Arun Jaitley, had envisioned an IFSC at par with other global financial hubs like London, Singapore, Hong Kong, Dubai, etc. An IFSC encourages all major global players to operate in such facility, which in turn would facilitate a two way flow of finance, financial products, financial services, etc.. It would also attract the best talent pool because of access to multiple career opportunities as well as ability to work with the market leaders and world class products. For India, despite being one of the fastest-growing economies in the world, having one of the best talent pools that has created a name for itself in the global scene, having a significantly young population and emerging as one of the most sought after jurisdictions for start-ups, to not have an IFSC of its own and to not offer financial services to businesses across the world, would have been a great travesty.


Continue Reading International Financial Services Centre, an idea whose time has come – Part I: Banking Sector

Applicability of new TDS provisions on sale of securities

Generally, transactions involving sale of shares by non-resident shareholders are subject to withholding tax at applicable rates under the Income-tax Act, 1961 (“IT Act”), provided the gains arising from such sales are taxable in India. However, there was no requirement to withhold/ deduct any tax on gains arising to resident sellers from sale of shares/ securities.
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 BUMPY ROAD AHEAD FOR M&A TRANSACTION - BUDGET 2021

The Finance Minister (“FM”) introduced her promised ‘never like before Budget’, with the objective of stimulating economic growth through higher spending on healthcare and infrastructure, against the backdrop of the economic slowdown caused by the Covid-19 pandemic. The FM has also proposed a slew of reforms under the Finance Bill, 2021 (“Bill”), to rationalize the extant provisions of the Income-tax Act, 1961 (“IT Act”). Certain proposals introduced in the Bill could significantly impact M&A deals and change the traditional modus operandi of M&A transactions in India. The ensuing paragraphs will focus on a few such significant amendments proposed in the Bill, which may require close consideration by stakeholders before entering an M&A transaction, be it amalgamation, share acquisition or an acquisition of business as a going concern.
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Karnataka HC affirms discount on issue of ESOPs is a tax-deductible business expenditure

Rewarding employees through share-based benefit schemes has been an effective tool for the companies to not just recognise their contribution to the company, but also retain them by imbibing a sense of belonging and ownership. One such scheme, popular among the companies for almost last two decades, has been grant of Employee Stock Option Plans (“ESOPs”). In simple terms, an ESOP is an option and not an obligation, provided by a company to its employees, to purchase its shares at a future date at a pre-determined price, which is ordinarily less than the market price, on satisfaction of certain prescribed conditions. While the issuance of ESOPs entail various tax implications for both the employer and the employees, the scope of this blog is limited to ascertaining the validity of an employer’s right to claim the perceived discount granted on the issue of shares as a tax deductible business expenditure. Recently, the Karnataka High Court (“HC”) affirmed the ruling of the special bench of the Bangalore Income Tax Appellate Tribunal (“ITAT SB”) in the case of Biocon Ltd.[1], wherein it was held that discount on issuance of ESOPs is an allowable business expenditure under Section 37(1) of the Income-tax Act, 1961 (“IT Act”) for the employer.
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Foreign Pension Funds’ tax treatment to match Sovereign Funds for certain investments 

Background

With a view to boost infrastructure investments in India and make Indian investment more attractive, the Finance Act, 2020 (FA, 2020) introduced section 10(23FE) in the Income-tax Act, 1961 (IT Act). This section provides an exemption from tax in India in respect of income of certain specified investors who have investments in the infrastructure sector. Specified investors for this purpose include a wholly owned subsidiary of Abu Dhabi Investment Authority, ‘pension funds’ (PF) and ‘sovereign wealth funds’ (SWF). The exempt income would include interest, dividend or long-term capital gains arising to the specified investors, from their investments made in (a) company or entity engaged in developing, maintaining or operating an ‘infrastructure facility’ (Infra Companies); (b) Category-I and Category-II Alternate Investment Funds which have in turn made all their investments in Infra Companies; and (c) business trusts (i.e. Real Estate Investment Trusts and Infrastructure Investment Trusts). These exemptions are available if the Specified Investors meet certain conditions, including the requirement that they should be notified by the Indian Central Government in this regard. In pursuance to this, the Central Board of Direct Taxes (CBDT) has specified the procedure for the inclusion of PFs in the tax exemption notification.
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By Hook or By Crook - When IT dept. sought to tax rights issue as unexplained cash credit but Tribunal refused

Background

In general, tax can only be levied on an amount, which falls within the meaning of the term ‘income’ or ‘deemed income’. Capital receipts are not taxable except where they are characterised as ‘income’ through specific provisions in the Income-tax Act, 1961 (“IT Act”). Thus, amounts received by way of share capital, whether the amount representing face value or premium, being capital receipt are not characterised as ‘income’ of a company, and therefore not taxed. However, it has been seen that this exemption under the law can be misused. A time-tested strategy aimed at laundering an individual’s unaccounted funds involves incorporation of sham entities with huge capital at premium, which in turn invests these funds in the individual’s legitimate businesses by way of subscription to shares at a premium. Section 68 (‘Cash Credits’) of the IT Act attempts to deter such practices by bringing to tax any sum found credited in the books of an assessee if the assessee offers no or unsatisfactory explanations on the nature and source of the credit.
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Assessing Indian tax considerations for successful offshore listing of Indian companies

We have seen in the blog dated September 14, titled ‘Using SPAC Vehicles as a Means of Listing Outside India’, that special purpose acquisition companies (“SPAC”) are making a comeback for the purposes of listing of companies outside India.

As a follow up to the earlier blog, we will examine some feasible structures for offshore listing and their Indian tax considerations. This examination is intended to identify the relevant tax considerations and ensure that such a listing takes place with due regard to them.

Shares of Indian companies and of foreign companies, deriving substantial value from Indian assets, are regarded as capital assets situated in India. Any gains derived by any person, including a non-resident, from transfer of an Indian capital asset is regarded as income taxable in India. The term ‘transfer’ in this context is given a very wide meaning and it includes within its purview sale, exchange, relinquishment of the asset, extinguishment of any right in the capital asset, conversion of the capital asset into stock in trade, maturity or redemption of zero coupon bond, etc. We will limit ourselves here to the meaning of transfer in relation to shares and securities. The law also provides how the gains are to be computed when there is a transfer of shares. It is a settled law that where the mechanism to compute gains is not available, it is presumed that the legislature did not intend such a transfer to be subjected to tax.
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