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  • Dipak Shah
    Revisionary power u/s. 263 cannot be excersied for inadequate Enquiry on a particular matter Posted In Income Tax Case Laws | Judiciary | No Comments »
    Message 1 of 38 , Jan 1, 2013
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      Revisionary power u/s. 263 cannot be excersied for inadequate Enquiry on a particular matter

      In the present case, the records reveal that the assessee was specifically queried regarding the nature and character of the one-time regulatory fee paid by it as well as the bank and stampduty charges. A detailed explanation in the form of statements and other documents required of by the Assessing Officer were produced at the stage of original assessment. Clearly this was not a case of “No Enquiry”. The lack of any discussion on this cannot lead to the assumption that the Assessing Officer did not apply his mind. The proceeding in fact shows that Assessing Officer directed his mind specifically on this aspect and then concluded that the expenditure was in the revenue field. Moreover the decision in Comsat Max Ltd. (supra) has ruled that the expenditure was revenue; it constituted one plausible or reasonable view. Under these circumstances, the Commissioner could not have validly exercised his supervisory or revisionary power under Section 263. As far as the other issues i.e. bank guarantee charges and stamp duty are concerned, this Court is of the opinion that the decision in India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC) andJeewan Lal (1929) Ltd. v. CIT [1971] 74 ITR 143 (Cal.), conclude the issue. These expenses had to be regarded as falling properly in revenue filed. Report further notices that CIT (Appeals) did not specifically furnish any reasons to say why the original assessment order was unsupportable in law, in the final order made by him on 30.03.2009.
      HIGH COURT OF DELHI
      Commissioner of Income-tax
      v.
      Vodafone Essar South Ltd.
      IT Appeal NO. 119 OF 2012
      NOVEMBER 20, 2012
      JUDGMENT
      S. Ravindra Bhat, J. – The Revenue is aggrieved by an order of the Income Tax Appellate Tribunal (ITAT) in Vodafone Essar South Ltd. v. CIT [2012] 51 SOT 57 (Delhi) (URO). The question of law sought to be urged by it is whether the impugned order is in error in setting aside the assessment made by the CIT, after invoking jurisdiction under Section 263 of the Income Tax Act.
      2. Briefly, the facts are that the respondent assessee, in its return for assessment year 2004-05, declared loss of Rs. 234,75,55,861/-; the assessed loss was Rs. 229,92,11,019/- under Section 143(3) of the Act. The Assessing Officer had allowed a claim for Rs. 35,81,30,408 on account of regulatory fee and Rs. 34,92,168/- towards stamp duty, by the assessment order dated 22.12.2006. The Commissioner of Income Tax sought to exercise his jurisdiction under Section 263 of the Act and issued notice on 10.02.2009, stating that the license fee was, in fact, capital expenditure. The CIT also formed the opinion that loan arrangement charges and stamp duty under the bank guarantee were capital expenditure. The assessee’s contentions were rejected and an order was made by the CIT on 30.03.2009. The assessee carried the matter in appeal to the ITAT; that Tribunal by the impugned order allowed the appeal.
      3. Counsel for the Revenue contended that the impugned order is in error, over-looking that regulatory charges were one-time fee and conferred a capital advantage without which the assessee could not start and continue the business. The mere circumstance that the A.O. had enquired into the matter meant nothing because his order made under Section 143(3) did not reflect any application of mind in that regard. The very nature of the expenditure and the stamp duty paid was, conclusively pointed out to the fact but for such down payment the assessee could not continue thetelecom business. This constituted a valid and legitimate ground for assumption of jurisdiction under Section 263; the Tribunal consequently fell into an error in setting aside the order of the CIT.
      4. Counsel for assessee on the other hand relied upon the notices issued by the A.O. in the first instance during the assessment proceedings under Section 143(3), specifically enquiring into the expense and the amortization of the amounts. Counsel also referred to the assessee’s reply dated 06.11.2006, explaining the nature and character of the expenditure. It was argued further that the CIT (Appeal) was made aware after issuance of notice under Section 263 through the assessee’s representative’s letter dated 24.03.2009 that in fact the decision of the Tribunal in Comsat Max Ltd.v. Dy. CIT [2009] 29 SOT 436 (Delhi), had also been brought to the notice of the Commissioner. That ruling had considered the question of payment of one time regulatory fee which was held to be revenue expenditure under Section 37 of the Act. Learned counsel emphasized that once this Tribunal ruling as well as the ruling of the another Delhi Bench of the Tribunal in Mahanagar Telephone Nigam Ltd. (MTNL) v. Addl. CIT [2006] 8 SOT 376 decided on 25th June, 2007 existed and was available, the CIT ought to have dropped the proceedings.
      5. Learned counsel next relied on the judgment of the Supreme Court in Malabar Industrial Co Ltd.v. CIT [2000] 243 ITR 83, where it was held that where two views are possible, the power under Section 263 cannot be exercised. To the same effect, the judgment in CIT v. G.M. Mittal Stainless Steel (P.) Ltd. [2003] 263 ITR 255 was relied upon.
      6. This Court has considered the submissions as well as the record. The assessee during the course of the original assessment proceedings had been issued a questionnaire by the Assessing Officer which specifically contained enquiries as to the circle wise details of the regulatory fee paid, particulars with regard to bank charges for entries above Rs. 2 lakhs and information about bank guarantee commission paid and lastly details of allowability of amortization of licence fee claimed under Section 35-ABB and the basis thereof. In response to this, it appears that the assessee’s representative furnished the details under a cover of letter dated 06.11.2006. The details of regulatory fees paid, bank charges etc. were disclosed. It was after considering all this that the Assessing Officer framed the order under Section 143(3) on 29.12.2006.
      7. It is argued that one time entry fee paid by the assessee was in terms of the new Telecom Policy of 1999 which required that if the telecom operator wished to migrate from the existing regulatory regime, it had to pay a revenue based licence fee. It is urged that neither the variable revenue based licence fee conferred an enduring benefit to the operator nor could it be termed as payment for obtaining licence. The Appellate Commissioner while invoking jurisdiction under Section 263 was of the opinion that the Assessing Officer’s order was erroneous and prejudicial to the revenue.
      8. It would be apparent from the above narrative that the assessment original framed on 22.12.2006 was after a full enquiry into the nature and effect of the one-time regulatory fee. This fee had to be paid because of a change in the Telecom policy. The Revenue’s contention is that the lack of any discussion in Assessing Officer’s order is an obvious error, justifying invocation of the power and jurisdiction under Section 263. This clearly amounted to lapse on the part of the Assessing Officer authorizing the Commissioner to re-open /exercise his revisional power.
      9. Section 263 authorizes the Commissioner to look into an order or complete the assessment provided the jurisdictional conditions are satisfied i.e. the order in question is erroneous and it is prejudicial to the interest of revenue. The decision in Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi) is an authority for stating that the expression erroneous “would extend to cases where the assessment order is silent and does not mention any facts relating to the necessary enquiry.” This view was later followed in Duggal & Co. v. CIT [1996] 220 ITR 456. In this case, however, the assessee contended that the view taken by the Commissioner was not the only possible one and that even before finalization of his order, the decision in Comsat Max Ltd. (supra) rendered by the Delhi Tribunal by order dated 30.01.2009 was specifically brought to the notice. It specifically mentions that such a licence fee does not confer an enduring benefit or advantage and that it would fall in the Revenue field. The relevant extract of the citation too was reproduced in the letter dated 24.03.2009. However, the Commissioner in his order under Section 263 did not even advert to it. In these circumstances, this Court is of the opinion that the view adopted by the Assessing Officer was clearly one among the two plausible views that could have been taken which clearly dis-entitled the CIT (Appeal) to exercise his jurisdiction under Section 263, in terms of the decision of the Supreme Court in Malabar Industrial Co. Ltd. (supra).
      10. This Court is conscious that an earlier bench of this Court in CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167, had held that if there is some enquiry by the A.O. in the original proceedings even if inadequate that cannot clothe the Commissioner with jurisdiction under Section 263 merely because he can form another opinion. It was emphasized here that the notice and questionnaire given to the assessee which were duly replied, were evidence of full and due enquiry about this expenditure. After satisfying himself that they were in fact revenue expenditure, the assessee’s claim was upheld under Section 37. The Court in Sunbeam Auto Ltd. (supra) held as follows :
      “Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between “lack of inquiry” and inadequate inquiry”. If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of “lack of inquiry”.
      11. In the present case, the records reveal that the assessee was specifically queried regarding the nature and character of the one-time regulatory fee paid by it as well as the bank and stamp duty charges. A detailed explanation in the form of statements and other documents required of by the Assessing Officer were produced at the stage of original assessment. Clearly this was not a case of “No Enquiry”. The lack of any discussion on this cannot lead to the assumption that the Assessing Officer did not apply his mind. The proceeding in fact shows that Assessing Officer directed his mind specifically on this aspect and then concluded that the expenditure was in the revenue field. Moreover the decision in Comsat Max Ltd. (supra) has ruled that the expenditure was revenue; it constituted one plausible or reasonable view. Under these circumstances, the Commissioner could not have validly exercised his supervisory or revisionary power under Section 263. As far as the other issues i.e. bank guarantee charges and stamp duty are concerned, this Court is of the opinion that the decision in India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC) and Jeewan Lal (1929) Ltd. v.CIT [1971] 74 ITR 143 (Cal.), conclude the issue. These expenses had to be regarded as falling properly in revenue filed. Report further notices that CIT (Appeals) did not specifically furnish any reasons to say why the original assessment order was unsupportable in law, in the final order made by him on 30.03.2009.
      12. As a result of the above discussion, this Court is of the opinion that the question of law framed has to be answered in favour of the assessee and against the Revenue. The appeal, being meritless, has to fail and is therefore dismisse

      No Reassessment u/s 147/148 for Legal Error / Illegality in Original Assessment Order

      Whether the AO has power to issue a notice u/s 148 for reopening of assessment u/s 147 on the basis of reason to believe that income has escaped from assessment at the time of original assessment due to a wrong claim of capital expenditure as revenue expenditure?
      The assessee had filed and furnished all details and particulars relating to the royalty payment including agreements,calculation and the approval before the Ld. AO during assessment proceedings. There was no failure on the part of the assessee to furnish true and correct all material facts. The facts were available before and were within the knowledge of the AO. The new AO as per the reasons recorded on the basis of the same facts, has observed that royalty payment should have been disallowed as it was capital in nature. This is a question of legal inference or interpretation which has been drawn from the same material facts on record. Therefore, the case falls in the category of change of opinion as at the time of original preceding the AO examined and gone into the question of royalty. Even if there was any legal error or illegality the same cannot be rectified and be made the subject matter of reassessment proceedings u/s 147/148 of the Act. The re-assessment order is also quashed.
      HIGH COURT OF DELHI AT NEW DELHI
      Date of Decision: 14th May, 2012.
      W.P.(C) 4753/2011
      Munjal Showa Ltd.
      Versus
      Deputy Commissioner of Income Tax
       ORDER
      SANJIV KHANNA,J: (ORAL)
      Munjal Showa Ltd. has filed the present writ petition for quashing the notice dated 24.3.2011 issued under Section 148 of the Income Tax Act, 1961 („Act‟, for short) for the assessment year 2005-06.
      2. It is an accepted case that the original assessment proceedings pursuant to return of income filed on 29.10.2005 were completed by  an order under Section 143(3) of the Act dated 31.12.2008. The assessee had declared income of `10,83,61,920/- which was enhanced to `33,49,73,994/- by order dated 31.12.2008. We are not concerned with the said addition, which is the subject matter of challenge in the appellate proceedings.
      3. On 24.3.2011 the respondent issued notice under Section 148 of the Act inter alia recording the following reasons:
      “Return of income declaring income of Rs. 10,83,61,920/- was filed on 29/10/2005. Assessment was completed u/s 143(3) on 31/12/2008 at Rs.33,49, 73,994/- resulting in demand of Rs.11,14, 78,598/-.
      Perusal of profit & Loss a/c reveals that assessee had claimed and was allowed the expenditure of Rs.11,53,93,229/- as Royalty paid to M/s. Showa corporation of Japan, its majority shareholder for the license to manufacture its products and use its technical know-how. Also as per the annual report of company, the technology imported was being absorbed gradually by the assessee. Thus, the expenditure incurred was essentially for creation ofintangible asset which would provide enduring benefit to the assessee. Hence, the expenditure of Rs.11,53,93,229/- was to be capitalized and depreciation of Rs.2,88,48,307/- @ 25% on it should have been claimed and allowed and balance amount of Rs.8,65,44,922/- was to be capitalized and added in its income by the assessee. However, assessee has not capitalized the expenses of Rs. 11,53,93,229/-. This view  has also been upheld by Hon’ble Supreme Court in the case of CIT Vs. Southern Switchgear Ltd. 232 ITR 359.
      Therefore, I have reason to believe that income of assessee to the extent of Rs.8,65,44,922/- has escaped assessment by way of wrong claim of expenditure which was not a revenue expenditure. Thus there is failure on the part of the assessee to fully and truly disclose true particulars of its income and the same is required to be reassessed and taxed which requires reopening of assessment by initiation of proceedings u/s 147 by issue of notice u/s 148. Therefore, notice u/s 148 is hereby issued. The notice is issued after obtaining approval from CIT-II, New Delhi vide her Letter no.F.No.CIT-II/Delhi/Notice 148/2010/3331 dated 1 8/03/2011.
      Sd/-
      (A.S. Nehra)
      Asstt. Commissioner of Income Tax,
      Circle 5(1), New Delhi”
      4. It is the accepted position that the re-assessment notice was issued after 4 years from the end of the assessment year. Therefore, two conditions are required for valid initiation of the reassessment proceedings. Firstly it should not be a case of change of opinion and secondly, there should be failure by the assessee to fully and truly disclose all material facts necessary for the assessment.
      5. Ld. counsel for the petitioner has drawn our attention to the letter dated 4.9.2008 which was written by the petitioner-assessee  during the course of the original assessment proceedings. In para 1 of this letter the petitioner had stated as under:
      “Apropos to our discussion in the previous hearing held on 20.08.2008 we are producing/ submitting the following information.
      1. Copy of Agreement related to royalty, approval of the agreement from Ministry of Commerce and Industry, Royalty calculation certificate from Chartered Accountant and detailed note on Royalty for the financial year 2004-05 is enclosed. (Please refer Annexure-A). It may please be noted that the Company has deducted and deposited the TDS.”
      6. It is clear from the aforesaid letter that at the time of the original assessment proceedings, the Assessing Officer had called for the copy of the agreement, approval of the agreement granted by Ministry of Commerce and Industry and royalty calculation-certificate of the chartered accountant. He had also called for and was furnished a detailed note on royalty. It is not disputed that the documents and details were finished. The petitioner had deducted TDS on the royalty paid.
      7. Thus, the question of royalty was specifically considered in the original assessment proceedings. In the counter affidavit it is stated that the Assessing Officer had not given any positive or negative  finding in the assessment order in this regard and therefore it is not a case of change of opinion. If an issue/aspect is raised by the Assessing Officer and the assessee furnishes reply, but no addition is made in the assessment order, the sequitor is that the Assessing Officer was satisfied with the reply and the stand of the assessee. In Commissioner of Income Tax Vs. Eicher Ltd. (2007) 294 ITR 310, it has been held: -
      “15. In Hari Iron Trading Co. v. CIT [2003] 263 ITR 437, a Division Bench of the Punjab and Haryana High Court observed that an assessee has no control over the way an assessment order is drafted. It was observed that generally, the issues which are accepted by the Assessing Officer do not find mention in the assessment order and only such points are taken note of on which thVVVI VssVV’sVVexplanations are rejected and additions/disallowances are made. We agree.
      16. Applying the principles laid down by the Full Bench of this court as well as the observations of the Punjab and Haryana High Court, we find that if the entire material had been placed by the assessee before the Assessing Officer at the time when the original assessment was made and the Assessing Officer applied his mind to that material and accepted the view canvassed by the assessee, then merely because he did not express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, therefore, the assessment  needed to be reopened. On the other hand, if the Assessing Officer did not apply his mind and committed a lapse, there is no reason why the assessee should be made to suffer the consequences of that lapse.”
      8. Moreover in the present case, the second condition is also not satisfied. The assessee had filed and furnished all details and particulars relating to the royalty payment including agreements,calculation and the approval. There was no failure on the part of the assessee to furnish true and correct all material facts. The facts were available before and were within the knowledge of the Assessing Officer. The new Assessing Officer as per the reasons recorded on the basis of the same facts, has observed that royalty payment should have been disallowed as it was capital in nature. This is a question of legal inference or interpretation which has been drawn from the same material facts on record. There is no allegation that there was failure or omission on the part of the assessee to furnish and state all material facts.
      9. Writ of certiorari is accordingly issued and the notice issued under Section 148 of the Act and order dated 24.3.2011 dismissing the objections to the reassessment proceeding passed by the Assessing Officer are quashed. The re-assessment order is also quashed.
      Writ petition is disposed of. No costs.
    • Dipak Shah
      CBDT releases FORM ITR-3, ITR-4, ITR-5, ITR-6, ITR-7 for A.Y. 2014-15 Posted In Income Tax | Notifications | 2 Comments » Income-tax Notification No. 28/2014,
      Message 38 of 38 , Jun 1, 2014


      CBDT releases FORM ITR-3, ITR-4, ITR-5, ITR-6, ITR-7 for A.Y. 2014-15

      Income-tax Notification No. 28/2014, Dated- 30th day of May, 2014
       S.O. 1418(E).─In exercise of the powers conferred by section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-
      1. (1) These rules may be called the Income-tax (6th Amendment) Rules, 2014.
      (2) They shall be deemed to have come into force with effect from the 1st day of April, 2014.
      2. In the Income-tax Rules, 1962 (hereinafter referred to as the said rules), in rule 12, insub-rule(2), in the proviso,-
      (a) after the expression “section 10A”, the expression “section 10AA”shall be inserted;
      (b) after the expression “section 44AB”, the expression “section 44DA, section 50B”shall be inserted;
      (c) for the expression “or section 115JB”, the expression “section 115JB or section 115VW”shall be substituted.
      3. In the said rules, in Appendix-II, for FORM ITR-3, FORM ITR-4, FORM ITR-5, FORM ITR-6 and FORM ITR-7, the following FORMS shall respectively be substituted, namely:-
      [Notification No. 28/2014, F. No.142/2/201 4-TPL]
      (Gaurav Kanaujia) Director to the Government of India
      Note.- The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section 3, Sub-section (ii) vide notification number S.O.969(E), dated the 26th March, 1962 and last amended by Income-tax (5th Amendment) Rules, 2014 vide notification S.O. No.1297 (E) dated 16 May, 2014.

      Services provided to Foreign Principals for marketing their products in India qualify as an export of service

      We are sharing with you an important judgement of the Hon’ble CESTAT, Delhi, in the case of Commissioner of Service Tax, Delhi Vs. Menon Associates [2014-TIOL-885-CESTAT-DEL] on following issue:
      Issue:
      Whether the Business Auxiliary Services (“BAS”) provided to Foreign Principals for marketing their products in India qualify as an export of services under the erstwhile Export of Service Rules, 2005 (“the Export Rules”)?
      Facts & Background:
      Menon Associates (“the assessee” or “the Respondent”) was engaged in providing marketing services to its Foreign Principals based in UK, Italy and Australia during the period April, 2008 to January, 2009 (“the period”), which involved marketing of Principal’s products in India. In consideration for the said activity, the assessee was getting commission from its Foreign Principals on which they paid Service tax amounting to Rs.15,49,103/- under BAS taxable under Section 65(105)(zzb) of the Finance Act, 1994. Subsequently, realizing that the services provided by them amounted to export of services in terms of Rule 3(1)(iii) of the Export Rules, they have applied for refund of the Service tax so paid by them.
      The refund claim was rejected by the Adjudicating Authority but was allowed by the Learned Commissioner (Appeals), holding that the service of marketing of goods provided to Principals located abroad is export of service in terms of Rule 3(1)(iii) of Export Rules in as much as this service has been used by the persons located abroad for their business and the Respondent have also received the payment in foreign exchange, as is evident from the remittance certificates which showed all the transactions during the period along with the credit advices.
      Being aggrieved by the said order, the Revenue preferred an appeal before the Hon’ble CESTAT, Delhi, contending that the Agreements between the Respondent and its Foreign Principals stipulate that the Respondent are to act as their representatives in India and supply information about their products and sell the same within the territory of India. Thus, whatever services had been rendered by the Respondent were meant to be used in India and had, in fact, been used in India and hence, the condition regarding use of the service and the delivery of the service being outside India was not satisfied. The Revenue also pleaded that the remittance advices produced do not mention the invoice no and hence, it cannot be said that the value of the services provided had been received by the Respondent in convertible foreign exchange.
      Held:
      It was held by the Hon’ble CESTAT, Delhi that BAS rendered by the assessee to its Foreign Principals for marketing their product in India qualify as an export of service under the provisions of the Export Rules.
      The Hon’ble CESTAT, Delhi further held that since the clients to whom BAS has been provided are located outside India and the same has been used by them for their business, the following conditions of Rule 3(1) of the Export Rules read with Rule 3(2) thereof are satisfied:
      (a)   Service has been provided to a recipient located outside India for use in relation to commerce or industry,
      (b)   Service has been used outside India.
      Regarding the other condition prescribed in Rule 3(2) of the Export Rules, requiring the payment to be made in convertible foreign exchange, the Hon’ble CESTAT, Delhi upheld the finding of Learned Commissioner (Appeals) in this regard.
      Therefore, the Hon’ble CESTAT, Delhi rejected the contention of the Department and decided the case in favour of the assessee/ Respondent.
      Point to note:
      Effective form July 1, 2012, the Export Rules are rescinded and replaced by Rule 6A of the Service Tax Rules, 1994 (“the Service Tax Rules”) read with the Place of Provision of Services Rules, 2012 (“the POP Rules”). Post July 1, 2012, for a service to be treated as an export of service, all the conditions as specified under Rule 6A of Service Tax Rules read with Rule 6(8) of the Cenvat Credit Rules, 2004 needs to be fulfilled. Otherwise, the service will not be treated as an export of service.
      (Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@...)

      Requirement of Form 15CA and Form 15CB when remittance is not taxable

      CA Pankaj G. Shah
      CA-Pankaj-ShahForm 15CA is a Declaration of Remitter and is used as a tool for collecting information in respect of payments which are chargeable to tax in the hands of recipient non-resident. This is starting of an effective Information Processing System which may be utilized by the Income tax Department to independently track the foreign remittances and their nature to determine tax liability. In the modern times, the system for selection of cases into scrutiny have reduced drastically and without scrutiny there was no check to ensure that taxable foreign remittances have been made after deduction of tax or not. Therefore, the remittance channel i.e. Banks have been directed to obtain Form 15CA and 15CB before making any remittance. Authorised Dealers/ Banks are now becoming more vigilant in ensuring that such Forms are received by them before remittance is effected since now as per revised Rule 37BB a duty is casted on them to furnish Form 15CA received from remitter, to an income-tax authority for the purposes of any proceedings under the Income-tax Act.
      The issue which has arisen here is that whether Form 15CA has to be submitted in all cases since the Bankers demand it invariably?
      In this regards the attention is invited to the Headings of the Form which provides as under:
      “Information to be furnished for payments, chargeable to tax, to a non-resident not being a company, or to a foreign company”
      “(To be filled up if the remittance is chargeable to tax and does not exceed fifty thousand rupees and the aggregate of such remittances made during the financial year does not exceed two lakh fifty thousand rupees)”
      (Underlined for emphasis)
      As can be seen from above the Form clearly states that it needs to be filled only if the remittance is chargeable to tax in India. Therefore on the first blush it appears crystal clear that Form 15CA is not required to be filled if the remittance/ payment to non-resident are not chargeable to tax. However the confusion has been created to Banks since a list has been provided in Rule 37BB where no information in Form 15CA is required and therefore except for the items provided in the list, Banks are insisting for Form 15CA even though the payment is not chargeable to tax. In such cases, the possible recourse is to submit a declaration in form of a note to Bank stating the nature of remittance and reason as to why it is not chargeable to tax and consequently exempted from the submission of Form 15CA.
      How would one come to know that the remittance is chargeable to tax or not?
      The answer is Form 15CB. Chargeability can be ascertained and certified by obtaining the Certificate from a Chartered Accountant in Form no. 15CB. This certificate has been prescribed under Section 195(6) of the Income tax Act and is an alternate channel of obtaining Tax clearance apart from Certificate from Assessing Officer.
      Perusal of Form 15CB makes it clear that there is no condition or exemption to obtain such certificate when the remittance is not chargeable to tax. In fact this Form 15CB is the Tax Determination Certificate where the Issuer CA examines the remittance having regard to chargeability provisions under Section 5 and 9 of Income tax Act along with provisions of Double tax Avoidance Agreements with the Recipient’s Residence Country. Therefore in my opinion, it is advisable to obtain 15CB even in cases where 15CA is not mandated. Though there is no penal provision prescribed in the Act if such Certificates in Form 15CB and Declaration in Form 15CA are not obtained, but it is in the interest of Assessee to have a tax determination in Form 15CB from a CA, since Non-resident taxation involves various complex issues and the consequences of Non deduction are severe.
      (The author can be reached at pankajgshah@... or on +91 96918 93040 for any queries)

      Points to Remember While Submitting Form No. 15G & 15H

      CA Naresh Jakhotia

      Very often, readers keep enquiring about the submission of forms No. 15G/15H to the banks or others payer so that interest could be received without deduction of tax at source (TDS). In this column, I am covering all about Form No. 15G & 15H and hopefully the detailed elaboration hereunder would provide a comprehensive picture about the submission of Form No. 15G & 15H.

      What is Form 15G/ H and its relevance:
      Basically, as you may be knowing, Tax at source is deductible (TDS) on some interest paid or payable, above Rs. 5,000/- (Rs. 10, 000/- if the payer is a bank). If yearly interest payment doesn’t exceed Rs. 5,000/- or Rs. 10, 000/-, as mentioned above, then there is no liability to deduct tax at source.

      TDS is nothing but tax paid in advance on behalf of the payee and credit for the same can be claimed by the payee at the time of filing the income tax return. However, TDS can be avoided by the payee by submitting declaration form No. 15G/15H. These forms have to be filed in duplicate and once the payer (bank, post office, company etc) takes them on record, the entire interest is to be paid to the depositor / lender without TDS.  There are certain precautions one should take while submitting these forms. Filing a wrong form without being eligible to do so would be illegal and could involve payment of interest on the tax payable and also attracts penal consequences. The conditions under which Form 15G and 15H may be filed are almost similar yet there is a significant difference which needs to be noted carefully. In routine course, lot of taxpayers end up filing one of these forms when they are not eligible to do so and vice versa.
      The main difference between Forms 15G and 15H is that Form 15G is meant for non-senior citizens whereas Form 15H is meant for senior citizens only.

      Who can submit form No. 15G?

      First and foremost only, a person who is resident in India can submit form No. 15G. NRI cannot submit this form. To be eligible to furnish Form 15G, the non-senior citizen needs to fulfill the following two conditions:
      1. The final tax on his estimated total income computed as per the provisions of the Income Tax Act should be nil; and
      2. The aggregate amount of interest income etc. received during the financial year should not exceed the basic exemption limit for that relevant year.
      If both these conditions are satisfied, Form 15G may be furnished to the payer & entire interest income could be received without any TDS.

      Who can submit form No. 15H?

      Any resident individual, who is above the age of 60 years or has completed the age of 60 years at any time during the financial year, can submit form No. 15H provided his tax liability on the basis of his estimated income is nil. Unlike form No. 15G, this form can be submitted by the senior citizen even though the total interest amount from the payer may exceed Rs. 2.50 Lacs (i.e., the limit of basic exemption limit).

      Difference between form 15G and 15H:
      1. Form 15G can be submitted by individual below the Age of 60 Years while form 15H can be submitted by senior citizens (60 years & above).
      2. Form 15G can be submitted by Hindu undivided families also but form 15H can be submitted only by Individual above the age of 60 years.
      3. 15G cannot be filed by any person whose income from interest on securities/interest other than “interest on securities” exceeds the applicable basic exemption limit.
      Certain points to remember while submitting Form 15G & 15H:
      1. Please ensure to mention Permanent Account Number (PAN) on the forms while submitting form No. 15G or 15H. In case, taxpayer fails to provide PAN to the deductor, the tax would be deductible @ 20%.  As a precautionary measure, taxpayer should keep hard copy of an acknowledgement of 15G/15H filed with the deductor (with PAN mentioned over it) to ensure that tax is not deducted at all.
      2. These Forms are to be submitted in duplicate, one of which is forwarded to the IT department. Income Tax Authorities can make further inquiries regarding the declaration filed by the depositor.
      3. The form should be submitted at the beginning of each financial year or at the time of deposit itself so as to avoid a situation where payer has already deducted the tax before its receipt.
      4. If a person is making FD in different branches of same bank then these forms should be deposited at each and every branch where the deposit has been made. For example, if Mr. Ashish has made deposits at three different branches of SBI, then he has to submit the Forms at each branch separately.
      5. These Forms can only be used for payments like dividends, interest on securities, interest other than interest on securities, national saving schemes, interest on units. For other types of payments (like brokerage, rent etc), these forms cannot be used.
      6. It may be noted that new set of  forms are required to be filed every year and  the eligibility criteria as stated above needs to be examined every year  before furnishing the forms. Form 15G / Form 15H, once submitted, is valid for the financial year in which it is furnished. For subsequent years, the form would be required to be submitted again if assessee wants to receive the interest without deduction of tax at source.
      7. No TDS is deductible by banks on interest payable in saving bank accounts and recurring deposit accounts
      8. In case of bank FDR made for longer duration, even if interest will be paid on maturity only, the bank is required to deduct tax at source on the interest accrued for that year even though no interest in fact has been paid. So, ensure to submit form No. 15G/H on yearly basis even if FD doesn’t mature in that year.
      9. Any false or wrong declaration attracts penalty under section 277 & so it should not be signed blindly. Such false declaration is liable for prosecution which may range from 3 months to 7 years depending upon the quantum of default. Taxpayer can be penalized with rigorous imprisonment irrespective of fact that such wrong details were furnished intentionally or unintentionally as “Ignorance of Law is no excuse.”
      10. Further, the taxpayer may please note that Part A1 in form 26AS shows the interest on FD’s against which tax is not deducted due to submission of Form No. 15G/ 15H. The information is readily with the IT department.
      11. Irrespective of the fact that Form15G & 15H has been filed or not, such income has to be mentioned under proper head while filing the return.
      I hope that from the above discussion, it may be clear that you need to comply with certain conditions to be eligible to file form No. 15G or 15H. Moreover, you need to take certain precautions while filing these forms with the payer.
      (Author is a CA in Practice from Nagpur and is Partner in M/s. SSRPN & Co.)
      IT : A firm assigned a Keyman Insurance Policy to its partner just two days before completion of lock-in period and on that it had nil surrender value - The ITAT held that such assignment was made with a malafide intention so that the surrendered value could escape taxability in the hands of the employee - Therefore, the amount received under Keyman Insurance Policy would be taxable in the hands of partner
      Facts:
      (a)  A partnership firm had taken a Keyman Insurance Policy in the name of the partner-assessee on March 31, 2005 and paid the first premium on the same day.
      (b)  Second and third premiums were paid on March 31, 2006 and March 31, 2007 respectively.
      (c)  After payment of premium for 3 years, firm had an option to surrender the policy at any time. However, if policy was surrendered before the completion of three years from the date of policy, i.e., 31st March, 2008, its value would be nil.
      (d)  The partnership firm assigned the policy to the partner-assessee on March 29, 2008 who, in turn, without paying the premium due on March 31, 2008 surrendered the policy and transferred the funds to the firm.
      (e)  Assessee contended that assignment of policy in his favour had converted Keyman Insurance Policy into an ordinary life policy and, therefore, any amount received on its maturity would be exempt under Section 10(10D).
      (f)  Assessee contended that since the surrender value of the policy was 'zero' at the time of assignment, same could not be taxable in his hands as was held by the tribunal in the case of Dr. Naresh Trehan v. Dy. CIT [I.T.A No. 1964/Del of 2010]
      ITAT held in favour of revenue as under:
      (1)  In view of section 28(vi) of the IT Act any amount received by an organization under a Keyman Insurance Policy would be taxable in the hands of such an organization as business profit. If such policy is endorsed in favour of employee (Keyman) than it would be taxable as 'profits in lieu of salary' under section 17(3)(ii). If such policy is endorsed in favour of any other person then sum received under the policy would be taxed as income from other sources under section 56(2)(iv). CBDT vide Circular No.762, dated February 18, 1998 had also clarified the same.
      (2)  Dr. Naresh Trehan case (Supra) was misinterpreted by assessee as in that case it was held that the surrender value of the policy was taxable in the hands of the transferee. The contention of assessee, that there was no surrender value on the date of assignment, was baseless because for all practical purposes the policy had completed 3 years and it was only due to malafide intention of the assessee to evade tax that it was transferred to the partner-assessee just two days before the completion of three years.
      (3)  Considering all the facts, it was crystal clear that the firm and assessee had arranged the affairs so as to kill two birds with one stone. It had got the required funds and simultaneously it did not pay any taxes thereon.
      (4)  In these circumstances, the findings of the Hon'ble Supreme Court in the case ofMcDowell & Co. [1985] 22 Taxman 11 were squarely applicable. Therefore, the whole affairs was rendered sham and the assessee was held liable to pay tax on surrender value received from Keyman Insurance Policy.
      ■■■
      [2014] 45 taxmann.com 573 (Amritsar - Trib.)
      IN THE ITAT AMRITSAR BENCH
      Deputy Commissioner of Income-tax
      v.
      Manjit Kumar
      H.S. SIDHU, JUDICIAL MEMBER 
      AND B.P. JAIN, ACCOUNTANT MEMBER
      IT APPEAL NO. 175 (ASR.) OF 2013
      [ASSESSMENT YEAR 2009-10]
      MAY  21, 2014 
      Tarsem Lal for the Appellant. Sudhir Sehgal for the Respondent.
      ORDER
       
      Per Bench ; This appeal of the assessee arises from the order of the CIT(A), Jalandhar, dated 04.01.2013 for the assessment year 2009-10.The assessee has raised following grounds of appeal:
      "1.  Whether on the facts & circumstances of the case, the CIT(A) is right in deleting the addition of Rs.59,14,720/- made by the AP treating the maturity proceeds of insurance policy as taxable by ignoring the fact that assignment of policy just two days before the completion of three years i.e. on 29th March, 2009 was done not for any financial or commercial consideration but just to avoid tax.
      2.  Whether on the facts & circumstances of the case, the CIT(A) has ignored the clause 4 (iv) and 4(v) of the policy which reproduced as under:

       "(iv) A proportion of each premium the investment content, will be used to buy units in the Fund(s) of your choice. The current investment content rate for all premiums is specified in the policy schedule.

       (v) If you have chosen more than one Fund, we will split the investment content in accordance with your instructions before we allocate units in each fund."

       It is evident from the above clauses that the policy was not mere an insurance policy but was an investment tool for the firm.
      3.  Whether on the facts & circumstances of the case, the CIT(A) is justified in restricting the disallowance of expenses like petrol, car, business promotion expenses etc. incurred in by the assessee to Rs.40,000/- and not to 50% of the balance expenditure of Rs.1,76,408/- after allowing telephone expenses amounting to Rs. 2,16,216/- whereas the ld. CIT(A) himself observed that the assessee was engaged in the business commodity trading which is mainly done by sitting in the office on telephone.
      4.  That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off."
      2. The brief facts of the case as arising from the order of the AO at pages 2 to 7 are reproduced for the sake of convenience as under:
      "2. From the capital account of the assessee, it was noticed that an amount of Rs.59,14,702/- was credited to this account on 26.04.2008. There was no reference to this amount in the return of income or other details. Accordingly, vide letter dated 31.10.2011 the assessee was asked to intimate the nature and source of this amount. It was intimated vide letter filed on 14.11.2011 that M/s. J.V. Steel Traders , a firm in which the assessee was a partner, had taken a Keyman's Insurance Policy from HDFC Life Insurance Co. in the name of the assessee. The same was assigned to him by the firm on 29th of March, 2008. The reason for the same has been stated to be inability of the firm to pay the premium due to losses. That policy was surrendered by the assessee, in April 2008 and the amount of Rs.59,14,702/- is the proceeds of that policy. The matter was discussed at length with Sh. Janak Raj, father of the assessee and Sh. Yogesh Thakur, CA counsel for the assessee on 01.12.2011. During discussion the following salient facts regarding the policy emerged:
      (i)  The policy was purchased by the firm on 31st March, 2005 and the first premium was paid on that date.
      (ii)  The second and third premiums were paid on 31st March, 2006 and 31st March, 2007 respectively.
      (iii)  The firm claimed and was allowed deduction of these amounts for the respective assessment years u/s 37(1) of the Income Tax Act, 1961.
      (iv)  As per the terms of the policy, the firm was required to pay premium for at least 3 years, which had been paid by it as above.
      (v)  After payment of the premium for 3 years, the firm could surrender the policy at any time and would get the unutilized value of the units at the credit of the policy. However, before the completion of three years from the date of the policy i.e. 31st March, 2008, this value would be ZERO.
      (vi)  The policy was assigned by the firm to the assessee on 29th of March, 2008.
      (vii)  The next premium due on 31.03.2008 was not paid by the assessee.
      (viii) The assessee surrendered this policy to the company in April, 2008 and got the proceeds in his account on 26th April, 2008 i.e. within one month from the date of assignment.
      (ix)  Out of the above sale proceeds, an amount of Rs.59,14,000/-was transferred to the same firm i.e. M/s. J.V. Steel Traders by the assessee on Ist May, 2008.
      2.1 In this manner, the whole process of assignment of the policy by the firm to the assessee, its surrender and encashment by him and transfer of the funds to the firm was completed in a period of about a month. Had the policy not been assigned and been surrendered and encashed by the firm itsesf, the proceeds would have been taxable in its hands. However, the assessee has not included this sum in his taxable income. Accordingly, vide note sheet entry dated 01.12.2011, the assessee was asked to explain as to why the amount of Rs.59,14,702/- may not be treated as his taxable income and added to his income. The case was adjourned to 15.12.2011. On 15.12.2011, the case was attended by Sh. Janak Raj, father of the assessee, alongwith Sh.Yogesh Thakur, CA, Counsel and written reply was filed. The gist of the same is reproduced as below:
      "As already submitted in our last reply that the assessee has received a sum of Rs.59,14,702/- on account of surrender value of unit link endowment policy no. 10197551 of HDFC, M/s. J.V. Steel Traders, Ludhiana where he was a key partner as on 29.03.2008. This policy was purchased by the firm in the name of the assessee under keyman insurance policy in the year 2005. The premium for the year ending 2005, 2006 and 2007 were paid by the firm amounting to Rs.15 lac each and deduction has been claimed by the firm u/s 37(i) of the Act on the premium so paid. In March, 2008, the keyman insurance policy was assigned by the firm in the favour of keyman. At the time of assignment of this policy, the surrender value of the policy was Nil. It is further submitted that assignment of the policy no longer answers description of keyman insurance policy because on assignment the keyman becomes policy holder and since the policy is on his life, the policy gets converted into ordinary life policy and loses the characteristics of keyman insurance policy and hence amount received on maturity by keyman in whose favour policy is assigned is exempt u/s 10(10D). Therefore, the amount of Rs.59,14,702/- received by the assessee, on account of surrender value of policy no.l10197551 is exempt u/s 10(10D) of the Act. The photo copies of policy documents and surrender value certificates issued by the HDFC Life Insurance Co. were also submitted before your goodself at the time of last hearing of the case.
      In support of this plea, it is submitted that at the time of assignment, the surrender value is taxable as profits in lieu of salary u/s 17(2)(iii) in the assessment of the employee as stated by board in para 14.4 of circular 762 dt. 18th Feb., 1998 and if amount received on maturity is taxed again there would be double taxation of the same income which could not have been intended. The second submission that the assessee could make is to the effect that assignment which is irrevocable and unalterable of the policy, effects an absolute transfer of interest or benefit under the policy to the assignee and on assignment the assignee, becomes the only person entitled to the benefit under the policy and is subject to all liabilities and equities to which assignor was subject on the date of assignment and this means that assignee is not merely entitled to received the sum but has a right to policy money itself [see CED v. Kewelran [1989] 77 CTR (MP) 223: [1989] 179 ITR 254 (MP)]. Originally it was policy taken by one person on life of another person. After assignment it is a policy on the life of the policy holder himself and it does not come within the ambit of definition of 'Keyman insurance policy". The original policy may not have been cancelled and new policy may not have been issued but the assignment has totally altered the characteristic of original policy. Since after assignment assessee is policyholder and since policy is on his life, the sum received on maturity would be regarded as sum received under a life insurance policy and not sum received under keyman insurance policy and hence it would be exempt.
      Your goodself kind attention is further invited to the recent decision of "The Delhi Tribunal" in the case of "DR. Naresh Trehan v. Deputy CIT [2010-TIOL-418-ITAT-Del] in which it has been held that "on assignment of Keyman insurance policy - total sum received on maturity (after reducing surrender value of the policy at the time of assignment) is exempt from tax."
      In a recent ruling of the above said case, the Delhi Tribunal held that upon assignment of the keyman insurance policy by the company to the individual assessee, the total amount of the maturity value, as reduced by the amount equivalent to the surrender value of the policy at the time of assignment is not to be taxed.
      2.2 The case was discussed at length. The policy is claimed to have been assigned by the firm to the assessee as the former was not in a position to pay the premium due to losses. Another contention of the assessee is that, after the policy was assigned by the firm to the assessee, it was no more Keyman's Insurance Policy and it became the normal Life Insurance Policy. It has also been stated that, as per the terms of the policy, it could be assigned at any time. Hence, the action of the firm was legal. In support of these contentions, decisions of the Hon'ble ITAT, Delhi Bench in the case of Dr. Naresh Trehan and Sh. Rajan Nand have been cited.
      3. The above reply and various contentions raised by the assessee have been considered and are being dealt with as under:
      3.1. The first contentions of the firm being in loss and not affording to pay the premium does not hold any ground. In fact, it contains its rebuttal in itself. The policy is not merely a policy on the life of the assessee. This is in fact an investment policy. This is amply clear from clauses 4(iv) and 4(v) of the policy, which is reproduced as under:
      "(iv) A proportion of each premium, the investment content, will be used to buy units in the Fund(s) of your choice. The current Investment Content Rate for all premiums is specified in the policy schedule.
      (v) If you have chosen more than one Fund, we will split the Investment content in accordance with your instructions before we allocate units in each fund."
      The above clauses show it beyond any doubt that the policy was an investment tool for the firm. It had the option to invest in a particular fund or even to split the investment in more than one funds of its choice. No one gives away ones right just for the sake of it. The firm had already paid three installments of the premium and could have continued to hold the policy without making any further payment. It very well knew that a substantial part of premiums paid by it have gone into investment in fund(s) of its choice. Just two days after the policy was assigned, it would have completed 3 years and would be able to encash that investment. Rather, it chose to transfer the policy, because if it had been retained and encashed, the proceeds would have been subject to tax. The policy was assigned on 29th March, 2009 not for any financial or commercial consideration but just to avoid tax.
      3.2. The second contention of the assessee is that after assignment, the policy is no more Keyman's Insurance Policy, but a normal Life Insurance Policy. Before dealing with this contention, it will be worthwhile to go into the legal position relating to this issue. Section 17(3) of the Income-tax Act, 1961 deals with 'Profits in lieu of salary'. Clause (ii) of this section reads as under:
      "(ii) any payment (other than any payment referred to in clause (10) [, clause (10A)] [, clause (10B)], clause (11), [clause (12) [, clause (13)] or clause (13A)] of section 10), due to or received by an assessee from an employer or a former employer or from a provident or other fund [* * *], to the extent to which it does not consist of contributions by the assessee or [interest on such contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy."
      The underlined portion of the above clause was inserted vide finance (No.2) Act, 1996 w.e.f. 01.10.1996. The provision was explained by the CBDT through circular No.762 dated 18.02.1998. Para 14.4 of this circular, which had been referred to by the counsel for the assessee also in the reply filed on 15.12.2011, is reproduced below:
      "The act also lays down that the sums received by the said organization on such policies, be taxed as business profit' the surrender value of the policy endorsed in favour of the employee (Keyman), or the sum received by him at the time of retirement be taken as "profits in lieu of salary" for tax purpose; and in case of other persons having no employer-employee relationship, the surrender value of the policy or sum received under the policy be taken as income from other sources and taxed accordingly. The premium paid on the Keyman Insurance Policy

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