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With a view to widen the tax-net, the Indian government (vide the Finance Act, 2020) has extended the scope of Tax Collected at Source (“TCS”) provided under Section 206C of the Income Tax Act, 1961 (ITA). As per the extended scope, tax is required to be collected at source on foreign remittances under the Liberalized Remittance Scheme, sale of overseas tour package and on sale of goods by specified seller (exceeding a specified limit). Such extended scope is applicable from 1 October 2020.
Regarding TCS on sale of goods, it is applicable on every seller whose total sales, gross receipts or turnover from his business exceeds INR 100 million in the immediately preceding Financial Year (FY). Specified seller who receives any amount as consideration for sale of any goods aggregating to INR 5 million or more in a FY from a buyer, at the time of receipt of such amount is required to collect TCS at the rate 0.1 per-cent on the sale consideration exceeding INR 5 million as income-tax. Further, as a covid-19 relief measure till 31 March 2021, lower rate of TCS at the rate of 0.075 per-cent shall be applied instead of 0.1 per-cent.
The Indian Government vide circular no. 17 of 2020 dated 29 September 2020 has clarified (inter alia) that, TCS is required to be collected at the time of receipt of sales consideration.Threshold of receipt of sales consideration of INR 5 million for applicability of TCS shall be computed based on sales from 1 April 2020. Further, no adjustment for sales return, discount or indirect taxes including Goods and Service Tax is required to be made for calculation of TCS on sale of goods. To know more, read our newsflash on this topic. Read more »
The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 received the Presidential assent on 29 September 2020. It has, inter alia, enacted the relaxations provided earlier in timelines amid covid-19 pandemic to ease the tensions of missing dead-lines under various statutory laws. For details of relaxations now enacted, please refer to our newsflash on Ordinance introduced in March 2020. Read more »
Other key highlights of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 are as follows:
Pursuant to the launch of platform, “Transparent Taxation – Honouring the Honest” and with an objective to enable greater efficiency, transparency and accountability, an E-Assessment Scheme was notified in September 2019. Now, the Indian Government vide notification no. 60/2020 dated 13 August 2020 amended the E-Assessment Scheme, 2019 to new ‘Faceless Assessment Scheme, 2019’.
The key amendments of the Faceless Assessment Scheme 2019 inter alia include extending the scope of e-assessments to best judgement assessments, amendments in procedural aspects, levying penalty and transfer of concluded penalty proceedings to the jurisdictional officer for further action, provides option for requesting personal hearing subject to approval by Chief Commissioner or Director General of Income Tax (specified circumstances for personal hearing yet to be prescribed).
Further, the Indian Government had introduced a new provision vide the Finance Act, 2020 for conducting faceless appeal proceedings before the Commissioner (Appeals). On 25 September 2020 vide notification no. 76 & 77, the Indian Government has provided the procedure of the Faceless Appeal Scheme, 2020 wherein it notified, inter alia, cases that shall be covered under the Faceless Appeal Scheme. Further, it is envisaged that all the communications under this Scheme shall be made electronically; there shall be no physical interface between the taxpayer or their counsel and the tax department. However, the appellant may request for personal hearing (subject to approval).
Considering the genuine difficulties faced by the taxpayers due to the outbreak of covid-19 pandemic, the Central Board of Direct Taxes (‘CBDT’) has further extended due-date for filing belated/revised return for FY 2018-19 to 30 November 2020.
In order to encourage digital economy and move towards a less-cash economy, Finance (No. 2) Act, 2019 introduced a new section 269SU ITA, whereby every person carrying on business and having total sales, turnover or gross receipts of more than INR 500 million during the preceding financial year (“specified person”) shall mandatorily provide facilities for accepting payments through prescribed electronic modes.
Further, a new provision was also introduced in Payment and Settlement Systems Act 2007 (PSS Act), which provides that no Bank or system provider shall impose any charges on a payer making payments or a beneficiary receiving payment through the electronic modes prescribed under section 269SU ITA (effective from 1 January 2020).
However, representations were received that some banks were still imposing and collecting charges on transactions made through the prescribed electronic modes. In this regard, CBDT vide circular no. 16 of 2020 dated 30 August 2020 has clarified that such practice on part of banks is a breach of the provisions of PSS Act and section 269SU ITA, attracting penal provisions under both PSS Act and ITA. Banks were advised to refund any charges collected on transactions carried out through prescribed electronic modes, on or after 1 January 2020 and not to impose any charges on such transactions.
MasterCard Asia Pacific Pte. Ltd. (MasterCard) had filed a writ petition before the Delhi High Court (Delhi HC) against the 2018 ruling of Authority of Advance Ruling (AAR). The 2018 ruling of AAR had held that MasterCard has a Permanent Establishment (PE) in India.
Earlier this year, the Indian Government has widened the scope of Equalisation Levy (EL) to include “e-commerce supply or services” provided by a non-resident e-commerce operator, under its purview. A non-resident e-commerce operator is required to pay two per cent EL on value of e-commerce supply or service, on quarterly basis. Further, if a non-resident e-commerce operator, providing the specified service, has a PE in India and the specified service is effectively connected with such PE, no EL shall be charged.
Pending disposal of writ petition filed by MasterCard on PE issue, it approached Delhi HC to avail stay on payment of EL, since AAR had already held that MasterCard has a PE in India. In response to the notice issued by Delhi HC tax department filed an affidavit stating that it is bound by the AAR ruling and as such, it has no authority or desire to collect EL from MasterCard, since MasterCard would pay tax on income effectively connected to the PE upheld by AAR. Further, it was also made clear that MasterCard would be liable to pay EL along with statutory interest for the period of delay, in case it is finallyheld by Delhi HC that MasterCard does not have a PE in India.
The tax dispute between the Indian Government and Vodafone Group dates back to 2007, when Vodafone acquired the Indian mobile assets from Hutchison Whampoa. Due to this acquisition, the Indian Government insisted Vodafone to pay certain taxes, which Vodafone Group challenged. In 2012, the Supreme Court of India (SC) ruled in favor of Vodafone Group. However, the Indian Government, in the same year, introduced retrospective amendments in law, which made the SC ruling redundant.
Aggrieved by such action of the Indian Government, the Vodafone Group initiated arbitration proceedings against the Indian Government and it filed a claim in Hague-based International Court of Justice (“ICJ”) against the Indian Government with respect to retrospective amendments to the ITA. Vodafone contended that India Government violated the India-Netherlands Bilateral Investment Promotion & Protection Agreement (“BIPA”).
ICJ ruled that the India Government, by not following the SC ruling, has breached “the guarantee of fair and equitable treatment” of BIPA. Accordingly, there is an obligation on India to cease seeking dues from Vodafone. Also, India Government should reimburse the legal representation cost to Vodafone.
The taxpayer company (Resident in France) paid dividends to its parent company (Based in Luxembourg) without withholding the tax at source by availing the Parent-Subsidiary Directive (PSD) exemption. However, French revenue authorities denied such exemption.
The PSD, inter alia, provides that the withholding tax exemption is only available for profit distributions made by qualifying EU subsidiaries to their qualifying EU parents.
The Supreme Administrative Court (SAC) noted that, the French law implementing the PSD prescribes that the withholding tax exemption applies, if the EU recipient is the beneficial owner of the dividends. SAC referred to the decision of Court of Justice of the European Union (CJEU) in a so called Danish case, wherein it was explicated that directives such as the PSD are designed to ensure that the profits distributed by the subsidiary company to its parent company are not subjected to double taxation. However, the CJEU had stated that such mechanisms are not intended to apply, when the beneficial owner of the dividends is a company having its tax residence outside the EU. It also referred to sub-clause 3 of Article 1 of the PSD, which states that “The provisions of 1 do not apply when the dividends distributed benefit a legal person controlled directly or indirectly by one or more residents of States which are not members of the Community, unless this legal person justifies that the chain of participations does not have as main object or as one of its main objects to take advantage of the provisions of 1”.
SAC noted that in the present case, the distribution was made to a Swiss bank account; however, the taxpayer failed to provide minimum substantive evidence such as a bank identity statement, establishing that the parent company was indeed the holder of the Swiss bank account. Hence, upholding the order of the lower authorities, SAC denied the PSD exemption.
In light of increased thrust of tax authorities across the globe on anti-abuse provisions and implementation of Multilateral Instrument in terms Base Erosion and Profit Shifting measures, this ruling holds importance.
Recently, the SC adjudicated a 44-year-old case of National Co-operative Development Corporation vs. Commissioner of Income tax (Civil Appeal Nos. 5105-5107 of 2009).
While delivering the verdict as a postscript, the SC recommended to the Govern-ment to revamp the Advance Ruling system on account of ever-increasing number of dockets. Taxation is one of the largest area for litigation for the Government, wherein the petition rate before the SC by the tax authorities is 87 per-cent. The SC recommended to the Indian Government to consider the efficacy of the advance ruling system and make it more comprehensive as a tool for settlement of disputes.
The increasing number of applications pending before AAR on account of its low disposal rate due to lack of adequate number of presiding officers to deal with the cases. Since the time taken by the AAR on an average basis is 4 years, the basic purpose of providing an advance ruling is defeated.
As per the SC, a vibrant system of Advance Ruling can be helpful in reducing taxation litigation. Further, SC also suggested reconsidering the ceiling limit of INR 100 million set in for making any application by a resident to AAR.
The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) in the case of ABB AB v. DCIT (ABB AB) [ITA No. 464/Bang/2018 and 2878/Bang/2019] held that the taxpayer is eligible for refund of taxes deducted from payments for non-taxable offshore supplies.
ABB AB, a tax resident of Sweden, claimed a refund of tax deducted at source (TDS) from payment for offshore supply contract, on the basis that offshore supply was not taxable in India. The tax officer, considering provisions of section 199 ITA read with Rule 37BA of the Income Tax Rules (Rules), denied the credit for TDS on the basis that corresponding income (i.e. income from the offshore supply) was not offered to tax. Section 199 ITA provides that any deduction made as per the provisions of the ITA would be treated as payment of tax on behalf of the person from whose income the deduction is made. Rule 37BA provides that credit for TDS shall be given for the year, in which such income is assessable.
The ITAT noted that receipts under the offshore supply contract were not chargeable to tax in India. Therefore, ABB AB was eligible for refund of TDS on the offshore supply receipts.
This reaffirms the principle that the taxpayer is entitled to claim refund of any TDS suffered in respect of income not taxable in India.
Martin Wörlein
Partner, Head of India practice
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Rödl & Partner in India
