Highlights of Key changes in new ITR Forms 3, 4, 5, 6 and 7

The new ITR Forms 1, 2 and 4S were notified for the Assessment Year 2015-16 vide Notification No. 41/2015, Dated 15-04-2015. However, in view of representations received from various stakeholders, the CBDT came out with simplified version of ITR forms 1, 2, 2A and 4S.

Now the CBDT has notified the remaining ITR forms, viz, ITR Forms 3, 4, 5, 6 and 7 vide Notification No. 61/2015. Key changes in ITR forms is highlighted below.

• Expenditure on CSR activities: Section 37(1) was amended by the Finance (No. 2) Act, 2014 to provide that any expenditure incurred by an assessee on the activities relating to corporate social responsibility (CSR) shall not be allowed as deduction as same could not be considered to be incurred for the purposes of the business or profession. Accordingly, ITR 6 has been revised to provide for reporting of expenditure on CSR activities if the same is debited to profit and loss account.
• Foreign portfolio investors/Foreign Institutional investors: Foreign Institutional Investor (FII) and Foreign Portfolio Investor (FPI) are required to furnish their SEBI registration number in the new ITR 5 and 6.
• Bank accounts held by assessee: In old return forms taxpayers are required to give details of only one bank account. Now in new return forms taxpayer are required to report details of all bank accounts except dormant accounts.
• Change in partners/members: A new column has been inserted in ITR-5 to require the assessee to furnish the details of change in the partners/members of the firm/AOP/BOI, as the case may be, during the previous year.
• Aadhaar Number and passport number: Aadhaar number and passport number are required to be given in new ITR 3 and 4 (if assessee has obtained the same).

CBDT Signs Advance Pricing Agreements (APAs) to Usher in Certainity in Taxation

As a part of a major initiative to usher in certainty in taxation, the Central Board of Direct Taxes (CBDT) entered into two unilateral Advance Pricing Agreements (APAs) on 3 August, 2015 with two Multi-National Companies (MNCs) which includes the first APA with a “Rollback” provision. With this, the CBDT has so far signed 14 APAs of which 13 are unilateral APAs and one is a bilateral APA. The 14 APAs signed relate to various sectors like telecommunication, oil exploration, pharmaceuticals, finance/banking, software development services and ITeS (BPOs). 

Unilateral APAs are agreed between Indian taxpayers and the CBDT, without involvement of the tax authorities of the country where the associated enterprise is based. Bilateral APAs include agreements between the tax authorities of the two countries. An APA with the “Rollback” provision extends tax certainty for nine financial years as against five years in APAs without “Rollback”. 

APAs settle transfer prices and the methods of setting prices of international transactions in advance. The Government is committed to conclude a large number of APAs to foster an environment of tax cooperation and certainty. Currently, a number of unilateral as well as bilateral APAs with Competent Authorities of UK and Japan etc are at advanced stage of negotiations. 

A Framework Agreement was recently signed with United States under the Mutual Agreement Procedure (MAP) provision of the India-US Double Taxation Avoidance Convention (DTAC). This is a major positive development. About 200 past transfer pricing disputes between the two countries in Information Technology (Software Development) Services [ITS] and Information Technology enabled Services [ITeS] segments are expected to be resolved under this Agreement during the current year. So far, 35 disputes have been resolved and another 100 are likely to be resolved in the next three months. 

The Framework Agreement with the US opens the door for signing of bilateral APA with the US. The MAP programs with other countries like Japan and UK are also progressing very well with regular meetings and resolution of past disputes. These initiatives will go a long way in providing stable tax environment to foreign investors doing business in India.

ITAT unsettles the settled law; allows set-off of long term capital loss arising from sale of STT paid equity shares

RAPTAKOS BRETT & CO. LTD. V. DCIT [2015] 58 taxmann.com 115 (Mumbai - Tribunal)

Facts:

• Assessee filed its return of income wherein it claimed set-off of long term capital loss arising from sale of shares (STT paid) against the long term capital gain arising from sale of land.
• The Assessing Officer (AO) denied setting off of such loss by relying upon the verdict of Apex Court in case of CIT vs. Hariprasad & Company Pvt. Ltd. (1975) 99 ITR 118. He was of the view that income includes loss and, therefore, if the long-term capital gain arising from sale of shares (STT paid) does not form part of the total income as per section 10(38), then the loss arising from such shares would also not form part of the total income.
• The CIT(A) confirmed the order of the AO. Aggrieved by the order of CIT(A), assessee filed the instant appeal before the Tribunal.

The Tribunal held in favour as assessee as under:

• The ratio and the principle laid down by the Hon’ble Apex Court in the case of Hariprasad (Supra) would not apply in the instant case, as the concept that ‘income will include loss’ would apply only when entire source is exempt from tax and not when only one of the income falling within such source is exempt.
• Section 10(38) provides for exemption from capital gains only on transfer of Long term equity shares with certain conditions, wherein one of conditions of exemption was payment of security transaction tax (STT). Thus, the income contemplated under section 10(38) is only a part of the source of capital gain and only a limited portion of such source is treated as exempt.
• From the conjoint reading and plain understanding of sections 2(14), 45, 47, 70 and 71 it can be seen that, 
• Firstly, shares in the company are treated as capital asset and no exception has been carved out in section 2(14), for excluding the equity shares and unit of equity oriented funds that they are not treated as capital asset; 
• Secondly, any gains arising from transfer of Long term capital asset is treated as capital gain which is chargeable u/s. 45; 
• Thirdly, section 47 does not enlist any such exception that transfer of long term equity shares/funds are not treated as transfer;
• Lastly, section 70 & 71 elaborates the mechanism for set off of capital gain. Nowhere, any exception has been made/ carved out with regard to Long term capital gain arising on sale of equity shares. 

Thus, whole genre of income under the head capital gain on transfer of shares is a source, which is taxable under the Act. If the entire source is exempt or is considered as not to be included while computing the total income then in such a case, the profit or loss resulting from such a source do not enter into the computation at all. However, if a part of the source is exempt by virtue of particular "provision" of the Act for providing benefit to the assessee, then in our considered view it cannot be held that the entire source will not enter into computation of total income. Hence, Long term capital loss on sale of shares could be set off against Long term capital gain on sale of land.

Assessing Officer not to raise direct demand against an assessee wherein TDS credit mismatch arises due to default of deductor: CBDT

The concept of TDS was introduced by the Government to collect taxes at very point of origin of income. Accordingly, the responsibility is casted on the payer (i.e., deductor) to deduct tax at specified rate while making remittance of specified income to the payee (i.e., deductee). 

As per section 199, deductee is entitled to get credit of tax so deducted only if such amount is paid by the deductor to the Central Government. However, as per section 205, deductee shall not be called upon to pay the tax to the extent tax has been deducted from his income. Thus, the Act puts a bar on direct demand against the deductee where tax has already been deducted from his income by the deductor. 

In this regard, grievances have been received by the CBDT from many taxpayers that Assessing Officers were denying credit of TDS in those cases where deductor failed to deposit the TDS to the Government.

Thus, the CBDT has instructed Assessing Officers not to raise coercive demand against assessee on account of TDS credit mismatch wherein such mismatch arises due to default of deductor to deposit TDS into the account of Government - INSTRUCTION NO. 275 DATED 01/06/2015

Competition Commission of India Finds Hyundai, Reva and Premier to be in Contravention of the Competition Law

The Competition Commission of India (‘the Commission’), in its order dated 27.7.15 has found 3 Car Companies, namely, Hyundai Motor India Ltd. (Hyundai), Mahindra Reva Electric Car Company (P) Ltd. (Reva) and Premier Ltd. (Premier) to be in contravention of the provisions of the Competition Act, 2002 (‘the Act’). The instant order is in continuation of Commission’s main order in the same case dated 25.08.2014 vide which the Commission had inter alia imposed penalties on fourteen out of the seventeen car companies under Section 27 of the Act.

The order against Hyundai has remained pending pursuant to the writ petition filed by it in the Madras High Court challenging the jurisdiction of the Commission. In regards, Reva and Premier, the order remained pending because of the applications filed by them requesting for striking out of their names from the array of parties. Accordingly, the Commission decided to pass a separate order against these three car companies after affording them reasonable opportunity to make their submissions in respect of the findings of the Director General (DG) in its investigation.

After taking into account the findings of the DG and the detailed submissions by these three car companies, the Commission found their conduct to be in violation of the provisions of section 3(4) of the Act with respect to their agreements with local Original Equipment Suppliers (OESs) and agreements with authorized dealers whereby they imposed absolute restrictive covenants and completely foreclosed the aftermarket for supply of spare parts and other diagnostic tools. Further the Commission found that the said car companies, who were found to be dominant in the aftermarkets for their respective brands, abused their dominant position under section 4 of the Act. The car companies were found to be indulging in practices resulting in denial of market access to independent repairers as the latter were debilitated to provide services in the aftermarket for repair and maintenance of cars for want of genuine spare parts. Further, these car companies were also found to be using their dominant position in the market for spare parts and diagnostic tools to protect their market for repair services, thereby distorting fair competition.

The Commission has prescribed the same corrective measures to Hyundai, Reva and Premier as were prescribed in the main order dated 25.08.2014 to infuse competition in the after sales market in the automobile sector. To reiterate, the order directed the car companies to cease and desist from indulging in conduct which has been found to be in contravention of the provisions of the Act. The car companies were also directed to adopt appropriate policies which shall allow them to put in place an effective system to make the spare parts and diagnostic tools easily available in the open market to customers and independent repairers. Further, the Commission directed the car companies to not to put any restrictions or impediments on the operation of independent repairers/garages.

The Commission imposed a penalty calculated at the rate of 2% of its average turnover on Hyundai amounting to Rs. 420.2605 crores (Rupees Four Hundred and Twenty Crores, Twenty Six Lakhs and Five Thousand only) which is to be deposited within 60 days of receipt of the order. Considering the mitigating factors that worked in favour of Reva and Premier, the two car companies were absolved from paying monetary penalty.

Detailed order can be seen at Commission’s website www.cci.gov.in

'Walt Disney' didn't abuse its dominance by requiring release of its movies in India only via Digital Cinema platform

K SERA SERA DIGITAL CINEMA (P.) LTD. V. DIGITAL CINEMA INITIATIVES, LLC [2015] 57 TAXMANN.COM 443 (CCI)

Where informant filed complaint against ‘Digital Cinema Initiatives’ and ‘Walt Disney Company India’ (‘Opposite Parties’) for releasing their movies in India only through Digital Cinema Initiatives (DCI) compliant servers and projectors and DCI compliant format was found to be better than non-DCI compliant format, Opposite parties s had not contravened sections 3 and 4 of Competition Act, 2002 (‘the Act’)

Facts:

• The informant was a Digital Cinema Service provider. Its business mainly involved digital projection and screening of films in India through a specific technology known as its proprietary Sky Cinex Technology.
• The informant filed complaint against opposite parties alleging that they had entered into an anti-competitive agreement amongst themselves to release their movies in India in digital form only through Digital Cinema Initiatives (DCI) compliant servers and projectors.

The Competition Commission of India held as under:

• It was found that DCI compliant server was better than non-DCI compliant format, as far as quality and security were concerned
• The Informant failed to show that the alleged conduct of opposite parties was likely to have appreciable adverse effect on the competition
• Since no material was placed on record to infer anti-competitive agreement as envisaged under section 3 of the Act and the opposite parties were not dominant in the relevant market, no case of contravention of sections 3 and 4 of the Act was made out against them.

Credit of foreign TDS can't be denied even against tax levied on corresponding income eligible for section 10A relief

BLUE STAR INFOTECH LTD. V. ACIT [2015] 57 taxmann.com 386 (Mumbai - Tribunal)

Assessee qualified for tax relief under article 23 of DTAA between India and Japan in respect of income that has been subjected to tax in Japan even if such income was exempt in India under Section 10A

Facts

• The assessee filed its return wherein credit of tax deducted at Japan was claimed in respect of its income covered under Section 10A.
• The Assessing Officer (AO) rejected assessee's claim holding that the income on which the assessee was charged to tax in Japan was not chargeable to tax in India being exempt under the provisions of section 10A and, therefore, assessee was not eligible to claim credit for the tax deducted in Japan.
• On appeal, Order passed by AO was confirmed by CIT(A). Aggrieved by the order of CIT(A), assessee filed the instant appeal before the tribunal.

The Tribunal held in favour of assessee as under:

• The profits and gains to which the provisions of section 10A apply are not excluded from total income and instead 'a deduction of such profits and gains…..' shall be allowed from the total income of the assessee. It means 'total income' must first be determined from which deduction under section 10A shall be allowed. Therefore, it could not be said that the profits and gains to which section 10A applies are not charged to tax in India.
• As income that has been subjected to tax in Japan was also chargeable to tax in India (although exempted under Section 10A), assessee was qualified for tax relief under article 23 of DTAA between India and Japan.