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Domestic and Direct Tax Updates

published on 31 July 2023 | Reading time approx. 4 minutes

Notifications and Circulars

1. E-appeal scheme 2023 notified

Vide Finance Act 2023, a new appellate authority, viz Joint Commissioner (Appeals) was constituted. Taxpayers preferring an appeal against orders passed by tax officers below a certain rank [were required to appeal against that order to Joint Commissioner (Appeals)].

The Central Board Of Direct Taxes (‘CBDT’) has now notified the “E-Appeal Scheme 2023” for prescribing the procedures to be followed in appeals filed before Joint Commissioner (Appeals). The Notification broadly covers several aspects relating to conduct of appeal, condonation of delay, admission of additional grounds of appeal or evidences, etc. It is expressly stated that no taxpayer will be required to appear personally in connection with any appeal proceedings and facility for hearing via video conferencing shall be provided.

2. Clarification regarding tax deduction at source (‘TDS’) on salaries under Simplified Personal Income Tax Scheme

The Simplified Personal Income Tax Scheme was introduced vide Union Budget 2020 to apply to individuals and other taxpayers. Under this new regime, income tax was to be calculated based on prescribed rates, subject to the condition that specified exemptions and deductions need to be foregone. Earlier this scheme was optional. Finance Act 2023 made the new tax regime as the default scheme for eligible individuals, but provided an option to opt out of it, particularly for those without business or professional income. The CBDT issued Circular dated 5 April 2023 directing employers to gather information from employees about their intended tax regime, and to make deductions in salary computations accordingly. If employees fail to provide this information, provisions of the default tax regime shall be applied.

3. Extension of time limits for first quarter TDS / TCS statements

Due dates to file statement of deduction of tax (Form 26Q or 27Q) and statement of collection of tax (Form 27EQ) TCS statements* for the first quarter of FY 2023-24 (i.e., covering the period from April to June 2023) are extended by the CBDT until September 30, 2023.

Revised due dates are summarised as follows:

Form	Description of forms	Original Due date	Revised Due Date
Form 26Q	Statement for TDS on all payments except salaries	31 July 2023	30 September 2023
Form 27Q	Statement in respect of payments except salary made to non-residents	31 July 2023	30 September 2023
Form 27EQ	Statement of tax collected at source under Sect. 206C	15 July 2023	30 September 2023

It is important to note that due date for submitting Quarter 1, Statement of TDS on Salaries in Form No. 24Q has not been extended and still remains 31 July 2023.

Further, the Circular does not make a mention of all other TDS Statements viz. in Forms 26QB, 26QC, etc and the original due dates remain.

4. Other Circulars, Notifications, Press Releases

In view of limited applicability to our readers, we have summarised in very brief some sector specific Circulars, and Notifications etc. Please contact us if you would like us to detail any aspects.

4.1 Circular and Press Release to remove difficulties in implementation of TCS on Liberalised Remittance Scheme (‘LRS’) and purchase of Overseas Tour Program Package:

Finance Act, 2023 amended Sect. 206C(1G), wherein it increased TCS rates from 5 per cent to 20 per cent for remittance under LRS as well as for Overseas Tour Packages with effect from 1 July 2023. In order to ease difficulties faced, a Circular is issued to inter-alia provide for the following:

Effective date for increased TCS rates extended to 1 October 2023 earlier date of 1 July 2023.
Threshold of INR 7 lakh per financial year per individual for LRS reintroduced.
Clarifications in the form of FAQs issued to address various ambiguities.

4.2 Increased exemption limit in respect of Leave Encashment notified:

In the Finance Budget 2023, an announcement was made to increase exemption limit of leave encashment from existing INR 3 Lakhs to INR 25 lakhs. A Notification has been issued to this effect in May 2023. Thus, leave encashment would be exempt subject to an upper cap of INR 25 lakhs from AY 2023-24 onwards.

Domestic Tax Rulings

1. Bombay High Court allows write-off of irrecoverable intragroup advances and loans, in view of commercial expediency

In the case of Mahindra and Mahindra Ltd. (‘Mahindra Ltd.'), the Bombay High Court allowed write-off of irrecoverable intra-group advances, loans and expenditure incurred for a group entity, citing commercial expediency. The High Court observed that expenditure/debts should be treated as having been incurred for the purpose of business and thus eligible for deduction in Mahindra Ltd.’s return of income. The commercial rationale for incurring the expenditure was Mahindra Ltd. was keen in the preservation of the group entity and wanted to maintain its going concern status and thus, pursuant to a rehabilitation scheme had incurred the expenditure and losses.

2. Indian Supreme Court on no disallowance on account of non-tax deduction for Indian payer since income of Dutch payee was not concluded as taxable yet

In the case of Van Oord Acz India Pvt. Ltd., the tax department contended that reimbursements made by the taxpayer to its holding company Van Oord ACZ Marine Contractors BV (VOAMC) was disallowable as no tax was deducted at source by the taxpayer.

The Delhi HC noted that in the give case, tax was deducted as per certificate received from tax department for lower deduction of tax, it was implied that no tax was liable to be paid. The Delhi HC inter-alia, also observed that in case during reassessment proceedings of VAOMC, if it is held that the amount received from the taxpayer was chargeable to tax, the taxpayer may be treated as “assessee in default” and would consequently lead to disallowance. The taxpayer objected to these observations.

On further appeal, the Hon’ble Supreme Court held that, once the taxpayer is held to be not liable for tax deduction and merely because upon conclusion of re-assessment proceedings, the payee is held liable to be taxed in India, the taxpayer cannot be treated as assessee in default and no disallowance is to be made under Section 40 (a) (i) for non-deduction of tax.

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