Opinion Of Eminent Legal Luminaries On Controversial Issues

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QUERY: Share application money which is taxed as Undisclosed in the hands of a private company can also be taxed as undisclosed income in the hands of applicants by issuing notice u/s. 148?
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The broad scheme of the Act is to charge all income to tax but only in the hands of the same person.
So share application money received by Private Limited Company has to be taxed in whose hands? The Supreme Court in CIT v. Steller Investment Ltd. [251 ITR 263] has given answer by stating that even if it be assumed that the subscribers to the increased capital are not genuine, under no circumstances could the amount of share capital be regarded as undisclosed income in the hands of the company.

QUERY: In case of Income from Profession Cash system is followed. However income from Other Sources (interest on FD etc.) is declared up to 31-3-2016 (A.Y. 2016-17) following mercantile system.
Assessee desires to follow cash system since 1-4-2016 (A.Y. 2017-18) even in respect of Income from Other Sources.
Assessee is liable to get his accounts audited u/s. 44AB r.w.s. 44ADA of the Act.
It appears that the change in method of accounting is necessitated for bringing uniformity in respect of two heads of Income and as such must be held to be bona fide.
In Form No. 3CD what type of disclosure should be made ? In A. Y. 2017-18 if no interest income is actually received. Income to be offered to tax would be ` NIL. Is it correct?
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The Finance Act, 1995 amended section 145 of the Income-tax Act, 1961 with effect from assessment year 1997-98 to provide that income chargeable under the heads “Profits and Gains of Business or Profession” or “Income from Other Sources” must be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The hybrid system of accounting viz mixture of cash and mercantile is not permitted from assessment year 1997-98 and own wards. However, assessee may adopt mercantile system of accounting for business and cash system of accounting for income from other sources.

QUERY: X require certified copy of entire file of assessment, recovery proceeding and prosecution proceeding including proceeding sheet.
But the authority is of the opinion that certified copy of proceeding sheet cannot be issued as the same is confidential.
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You should ask authority under which law or rule or circular it is confidential, when you are seeking details about your own assessment records.

QUERY: Assessing Officer ascertaining the defect in the books, as to accounting for Cost of Construction refer it to “Valuation Officer” u/s. 142A.
Can Assessing Officer refer it, without finding any defect in books as to the Cost of Construction?
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CIT v. Bhavani Shankar Vyas [311 ITR 8] the Uttarakhand High Court held that, section 142A was inserted in the Income-tax Act, 1961 by the Finance Act of 2004, with retrospective effect from November 15, 1972. Under section 142A of the Act, full power has been given to the Assessing Officer to call for a report from Valuation Officer. A perusal of section 144 read with sections 145, 142A and 131(1)(d) make it clear that it is not mandatory for the Assessing Officer to reject the books of account first before making reference under section 131(1)(d) of the Act or calling for a report of the valuer under section 142A

QUERY: Can the Assessing Officer disallow the amount in the hands of charitable trust, particularly when, the trust has given donation directly to hospitals with instructions that particular amount should be used only for treatment of a particular patient. In all cases the trust takes a printed application form duly filled and signed by patient or his kin and in the said form the complete address is available of the patient. In no case the copy of PAN card or Aadhaar Card is available with hospital.
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If a charitable trust give donation to a hospital for a particular patient, then, the hospital would issue receipt for the said amount with its PANo.. In such case, it is not necessary for the trust to produce a copy of the PAN card or Aadhaar card of the patient.

QUERY: A Ltd. appoints a commission agent in UK for getting export orders for garments. The commission agent does not have any office in India and has produced a tax residency certificate. The commission agent does not have a PAN. Whether by virtue of section 206AA tax has to be deducted even though under the Double Taxation Avoidance Agreement the business profits are not taxable in the absence of a permanent establishment in India.
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The Supreme Court in GE India Technology Centre Pvt. Ltd. [327 ITR 456] has held as under:
“The most important expression in section 195(1) of the Income-tax Act, 1961 dealing with deduction of tax at source consists of the words “chargeable under the provisions of the Act”. A person paying interest on any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the Act. Section 195 contemplates not merely amounts, the whole of which are pure income payments; it also covers composite payments which have an element of income imbedded or incorporated in them. The obligation to deduct tax at source is, however, limited to appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident. It is for this reason that the CBDT has clarified in Circular No. 728 dated October 31,1995, that the tax deductor can take into consideration the effect of the DTAA in respect of payments of royalties and technical fees while deducting tax at source.
The expression “chargeable under the provisions of the Act” in section 195(1) shows that the remittance has got to be a trading receipt, the whole or part of which is liable to tax in India. If tax is not so assessable, there is no question of tax at source being deducted”.
Thus, it is clear that if income is not chargeable to tax in India in the hands of payee, then, no tax is required to be deducted. Therefore, payee need not obtain PAN under section 206AA of the Act.
The aforesaid view gets support from the judgment of Karnataka High Court in Smt. A. Kowsalya Bai & Others [346 ITR 156]. Wherein, it has been held that it is not necessary for such persons whose income is below the taxable limit to obtain permanent account number. Section 139A and section 206AA are made inapplicable to such persons.

QUERY: In the new ITR forms provision has been made to mention aggregate amounts deposited in the banks during November 9, 2016 to December 30, 2016:
1. Whether only deposits of specified bank notes (SBN) or all types of notes has to be mentioned?
2. Whether aggregate of deposits in all bank accounts or in a single bank account i.e. Rs. 2/- lakh and above.
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ITR, details of all bank accounts held in India at any time during the previous year (excluding dormant accounts) are to be given, wherein details in respect of cash deposited during November 9, 2016 to December 31, 2016 of aggregate cash deposits during the period Rs. 2/- lakh or more is required to be given.

QUERY: Are Provisions of section 50CA and section 56(2)(x) applicable to buyback of shares? i.e., is it possible to buy back the equity shares, at a price which is lower than the fair market value, without any incidence of tax?
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Section 115QA(1) starts with non-obstante clause. Therefore for buyback of shares, section 50CA or section 56(2)(x) will not apply. Section 115QA provides for levy of tax @ 20% on the difference between amount paid by the company for purchase of shares from its shareholders and the amount paid for subscription of the shares. The tax would be payable by the company on the distributed income. In the hands of shareholders the same shall be exempt under section 10(34A) of the Act, Rule 40BB of the Income tax Rules, 1962 provides for determination of fair market value of the shares of unlised company. So, the company will have to pay tax on the fair market value of shares as determined under the said rule.

Credit: Several of the queries and answers are reproduced with permission from the AIFTP Journal. We thank AIFTP for generously allowing us to host their research material.
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