<p><strong>Introduction</strong></p>
<p>In the realm of international business transactions, taxation issues often arise, particularly when it comes to determining the taxability of income received from overseas subsidiaries. One such case of significance is the dispute regarding the taxability of guarantee commission received by Johnson Matthey Public Limited Company (hereinafter referred to as "the Company") from its Indian subsidiaries. This article delves into the legal intricacies surrounding this matter and the recent judicial interpretation thereof.</p>
<p><strong>Background</strong></p>
<p>The crux of the issue revolves around the tax treatment of guarantee charges received by the <strong>Company from its Indian subsidiaries under the India-UK Double Taxation Avoidance Agreement (DTAA). The Company initially characterized the guarantee charges as interest income, subject to taxation under Article 12 of the DTAA. However, during the assessment proceedings, the tax authorities took the stance that the guarantee charges should be classified as "other income" under Article 23(3) of the DTAA, thus subjecting it to taxation in India.</strong></p>
<p><strong>Legal Analysis</strong></p>
<p>The primary contention before the court was twofold:</p>
<ol>
<li>Whether the guarantee charges received by the Company from its Indian subsidiaries can be categorized as "interest" under Article 12 of the DTAA.</li>
<li>Whether the income derived from guarantee fees can be said to arise or accrue in India.</li>
</ol>
<p>Upon careful consideration of the arguments presented, the court opined that the guarantee charges cannot be construed as "interest" under Article 12(5) of the DTAA. This conclusion stemmed from the fact that the guarantee charges were not received in connection with any debt owed to the Company by its Indian subsidiaries. Rather, they were remunerations for providing parent company guarantees and counter-indemnification services to lending entities extending credit facilities to the Indian subsidiaries.</p>
<p><strong>Judicial Ruling</strong></p>
<p>The court upheld the decision of the Income Tax Appellate Tribunal, affirming that the guarantee charges do not fall within the ambit of "interest" as defined in Article 12 of the DTAA. Consequently, the court ruled against the Company, holding that the guarantee charges are taxable under the category of "other income" as per Article 23(3) of the DTAA.</p>
<p><strong>Conclusion</strong></p>
<p>The judicial pronouncement in the case of Johnson Matthey Public Limited Company provides clarity on the tax treatment of guarantee charges received from Indian subsidiaries under the India-UK DTAA. While the court's decision sheds light on the characterization of guarantee charges, it leaves open the question of whether such income could constitute business income under Article 7 of the DTAA, to be addressed in future cases.</p>
<p>In conclusion, the case underscores the importance of carefully analyzing the nature of income in cross-border transactions to determine its taxability under relevant tax treaties and domestic laws.</p>
<p><strong>Citation:</strong> ITA 727/2018, Delhi High Court</p>

Taxability of Guarantee Commission Received by Johnson Matthey Public Limited Company from Indian Subsidiaries: A Legal Analysis

Taxability of Guarantee Commission Johnson Matthey Case India UK DTAA

<p>The Chennai Income Tax Appellate Tribunal (ITAT) recently set aside a substantial penalty of Rs. 10.92 crore imposed under Section 270A(9) of the Income Tax Act for 'under reporting of income' and 'misreporting of income.' The tribunal's decision highlights the critical need for specificity in penalty notices issued under Section 274 read with Section 270A.</p>
<h4>Background</h4>
<p>The case arose when the Revenue initiated penalty proceedings against an assessee following a search operation that uncovered unaccounted money. The Revenue accepted the additional income admitted by the assessee. However, the penalty notice issued was found to be vague, failing to specify whether the penalty was for 'under reporting of income' or 'misreporting of income.'</p>
<h4>Tribunal's Findings</h4>
<p>The ITAT held that the penalty order was unsustainable due to the Revenue's failure to specify the exact charge in the penalty notice. This omission was seen as a clear non-application of mind and a violation of the principles of natural justice. Without a specific charge, the assessee could not adequately respond to the show cause notice, compromising their ability to defend against the allegations.</p>
<p>The tribunal referenced several key judgments, including:</p>
<ul>
<li><strong>SSA's Emerald Meadows</strong> (Supreme Court)</li>
<li><strong>Babuji Jacob</strong> (Madras High Court)</li>
<li><strong>Manjunatha Cotton &amp; Ginning Factory</strong> (Karnataka High Court)</li>
<li><strong>Prem Brothers Infrastructure</strong> (Delhi High Court)</li>
</ul>
<p>These cases consistently held that a vague notice without specifying the limb of Section 270A being invoked is erroneous and arbitrary. The ITAT reinforced that 'under reporting of income' and 'misreporting of income' have distinct definitions and cannot be used interchangeably. Each term requires specific and clear satisfaction from the assessing officer (AO) before initiating penalty proceedings.</p>
<h4>Importance of Specific Charge</h4>
<p>The ITAT emphasized that without specifying the charge, the penalty proceedings are fundamentally flawed. The tribunal noted, "In absence of proper notice, which is mandatory, the AO cannot impose penalty, because, it is a clear violation of principles of natural justice." The ITAT further stated that issuing a vague notice vitiates the entire proceedings, as the assessee was not given an opportunity to explain its case on a specific charge.</p>
<h4>Conclusion</h4>
<p>The Chennai ITAT's decision underscores the importance of precise and clear communication in penalty proceedings under the Income Tax Act. The ruling ensures that the principles of natural justice are upheld, providing fair treatment to assessees and preventing arbitrary penalty impositions.</p>
<p>By quashing the penalty order, the ITAT reinforced the need for the Revenue to meticulously follow procedural requirements, thereby safeguarding the rights of taxpayers.</p>
<p><strong>Citation:</strong></p>
<p>[TS-369-ITAT-2024(CHNY)]&nbsp;</p>

ITAT: 270A Penalty SCN Invalid Without Specific Charge; Penalty Order Quashed

Section 270A Penalty Invalid - Quashed Due to Lack of Specific Charge

<p><strong>Introduction:</strong> In a recent judgment by the High Court of Madras, the principles of natural justice took center stage in the realm of tax assessment. The case of Vijaykumar Poornima vs. Additional/Joint/Deputy/Assistant Commissioner of Income-tax sheds light on the significance of providing adequate time and opportunity to taxpayers to respond to show cause notices and draft assessment orders. Let's delve deeper into this landmark judgment and its implications.</p>
<p><strong>Overview of the Case:</strong> The petitioner challenged two assessment orders dated 30.03.2022, pertaining to the assessment years 2014-15 and 2015-16, citing a lack of compliance with the mandatory requirement of Section 143(2) of the Income Tax Act, 1961. The crux of the matter revolved around the hurried nature of the assessment proceedings, which seemingly aimed to circumvent the limitation under Section 153 of the Act.</p>
<p><strong>Violation of Natural Justice:</strong> The petitioner argued that the assessment orders were passed hastily without affording adequate opportunity to respond to the show cause notices containing draft assessment orders. Despite the petitioner's attempts to engage with the authorities, including filing returns manually due to technological constraints, the process seemed rushed and lacking in procedural fairness.</p>
<p><strong>Judicial Pronouncement:</strong> The court, upon careful consideration, upheld the petitioner's contention, emphasizing the manifest violation of principles of natural justice. It deemed the hurried assessment orders as a breach of the taxpayer's right to a fair hearing. Consequently, the impugned orders were quashed, and the case was remitted back to the assessing authority to ensure a fresh assessment with proper opportunity for the petitioner to present their case.</p>
<p><strong>Implications and Conclusion:</strong> This judgment underscores the significance of upholding principles of natural justice in tax assessment proceedings. It reiterates the importance of providing taxpayers with sufficient time and opportunity to respond to notices and present their case effectively. Moving forward, this decision serves as a reminder to tax authorities to conduct assessments in a fair, transparent, and procedurally sound manner, thus fostering trust and confidence in the tax administration system. In essence, the case of Vijaykumar Poornima vs. Additional/Joint/Deputy/Assistant Commissioner of Income-tax exemplifies the triumph of fairness and equity in the realm of taxation.</p>
<p><strong>CItation: </strong>[2024] 162 taxmann.com 394 (Madras) HIGH COURT OF MADRAS Vijaykumar Poornima v. Additional/Joint/Deputy/Assistant Commissioner of Income-tax, (NFAC)</p>

Ensuring Fairness in Tax Assessment: Vijaykumar Poornima vs. Additional/Joint/Deputy/Assistant Commissioner of Income-tax, High Court of Madras

Fairness in Tax Assessment: A Case of Natural Justice Prevailing

<p><strong>The core issue involved in the Case:</strong></p>
<p>The core issue involved in the judgment of the Bombay High Court in the case of Hexaware Technologies Limited Vs ACIT revolves around the validity of a notice issued by the Jurisdictional Assessing Officer (JAO) on 27th August 2022. The central question was whether this notice complied with the provisions outlined in Section 151A of the Income Tax Act.</p>
<p>Specifically, the appellant argued that the notice was invalid and against the law as it was not issued by the National Faceless Assessment Centre (NFAC) as mandated by the Scheme formulated under Section 151A. This raised broader questions about the authority's adherence to statutory provisions and the framework established for conducting income tax assessments, reassessments, and recomputations in a transparent and accountable manner.</p>
<p>Therefore, the key issue at hand was the interpretation and application of Section 151A and whether the notice issued by the JAO aligned with the statutory scheme outlined in this section.</p>
<p><strong>&nbsp;</strong></p>
<p><strong>Appellant&rsquo;s Plea</strong></p>
<p>The appellant, in the case of Hexaware Technologies Limited Vs ACIT, pleaded that the notice issued by the Jurisdictional Assessing Officer (JAO) on 27th August 2022 was invalid and contrary to the law. Specifically, they argued that the notice did not adhere to the provisions of Section 151A of the Income Tax Act.</p>
<p>Their plea centered on the contention that the notice should have been issued by the National Faceless Assessment Centre (NFAC) in accordance with the Scheme formulated under Section 151A. By issuing the notice through the JAO instead of the NFAC, the appellant argued that the process deviated from the prescribed framework, thereby rendering the notice invalid and legally questionable.</p>
<p>In essence, the appellant's plea focused on ensuring compliance with the statutory scheme outlined in Section 151A, which emphasizes automated allocation and faceless proceedings for income tax assessments, reassessments, and recomputations.</p>
<p><strong>&nbsp;</strong></p>
<p><strong>Arguments by the Revenue</strong></p>
<p>The Revenue, in the case of Hexaware Technologies Limited Vs ACIT, presented several arguments:</p>
<p><strong>Validity of Notice Issued by JAO:</strong> The Revenue argued that the notice issued by the Jurisdictional Assessing Officer (JAO) was valid and in compliance with the provisions of the Income Tax Act. They contended that the notice did not need to be issued by the National Faceless Assessment Centre (NFAC) as mandated by the Scheme under Section 151A.</p>
<p><strong>Relevance of Internal Guidelines:</strong> The Revenue relied on Office Memorandum dated 20th February 2023 issued by Central Board of Direct Taxes (TPL division) to support their position, asserting that these guidelines provided the necessary framework for issuing notices and conducting income tax proceedings. They argued that these guidelines were applicable and did not contradict the provisions of the Act or the Scheme framed under Section 151A.</p>
<p><strong>Concurrent Jurisdiction:</strong> The Revenue argued for concurrent jurisdiction, suggesting that both the JAO and the NFAC could issue notices under Section 148 of the Income Tax Act. They contended that allowing both entities to issue notices would ensure flexibility and efficiency in income tax proceedings.</p>
<p><strong>Interpretation of Scheme's Applicability: </strong>The Revenue raised questions about the applicability of the Scheme formulated under Section 151A, particularly in relation to Section 144B of the Act. They argued that the Scheme should be interpreted in a manner that allows for flexibility and discretion in issuing notices under Section 148.</p>
<p><strong>No Prejudice the Assessee: </strong>The Revenue argued that there was no prejudice to the appellant due to the issuance of the notice by the Jurisdictional Assessing Officer (JAO) instead of the National Faceless Assessment Centre (NFAC). They contended that the procedural deviation did not impact the appellant's rights or legal standing in any significant way.</p>
<p>Overall, the Revenue's arguments focused on defending the validity of the notice issued by the JAO and interpreting the statutory provisions and guidelines in a way that aligns with their position.</p>
<p>&nbsp;</p>
<p><strong>What Court Held?</strong></p>
<p>The court held in favor of the appellant and ordered the following:</p>
<p><strong>Invalidity of the Notice:</strong> The court ruled that the notice issued by the Jurisdictional Assessing Officer (JAO) on 27th August 2022 was invalid and contrary to the law. They found that the notice did not comply with the provisions of Section 151A of the Income Tax Act, as it should have been issued by the National Faceless Assessment Centre (NFAC) according to the prescribed scheme.</p>
<p><strong>Adherence to Scheme Under Section 151A:</strong> The court emphasized the importance of adhering to the scheme formulated under Section 151A, which mandates automated allocation and faceless proceedings for various income tax processes. They highlighted the significance of transparency, efficiency, and accountability in income tax proceedings.</p>
<p><strong>Clarification on Jurisdiction:</strong> The court clarified that the Scheme assigns specific jurisdiction either to the JAO or the NFAC for issuing notices under Section 148. They emphasized that deviating from this framework would undermine the purpose of faceless proceedings and lead to procedural inconsistencies.</p>
<p><strong>Remedy for Procedural Irregularity:</strong> As a result of the invalidity of the notice, the court likely ordered the Revenue to take corrective measures and issue a new notice in compliance with the statutory scheme outlined in Section 151A. This would ensure that the appellant's rights are upheld, and the assessment proceedings are conducted in accordance with the law.</p>
<p><strong>Prejudice from Procedural Irregularity:</strong> The court acknowledged that while the procedural irregularity might not have directly impacted the substantive rights or interests of the appellant, it nonetheless constituted a violation of the statutory scheme under Section 151A of the Income Tax Act. They likely emphasized that adherence to procedural requirements is essential for ensuring the fairness, transparency, and legality of income tax proceedings.</p>
<p><strong>Preservation of Legal Principles:</strong> Even if the appellant did not suffer direct harm or prejudice from the procedural irregularity, the court emphasized the importance of upholding legal principles and statutory provisions. They highlighted that allowing deviations from established procedures could set a dangerous precedent and undermine the rule of law.</p>
<p><strong>Para 37: </strong>At para 37, the court observed that:</p>
<blockquote>
<p>&ldquo;When an authority acts contrary to law, the said act of the Authority is required to be quashed and set aside as invalid and bad in law and the person seeking to quash such an action is not required to establish prejudice from the said Act. An act which is done by an authority contrary to the provisions of the statue, itself causes prejudice to assessee. All assessees are entitled to be assessed as per law and by following the procedure prescribed by law. Therefore, when the Income Tax Authority proposes to take action against an assessee without following the due process of law, the said action itself results in a prejudice to assessee. Therefore, there is no question of petitioner having to prove further prejudice before arguing the invalidity of the notice.&rdquo;</p>
</blockquote>
<p><strong>Accordingly, the court concluded that the scheme outlined in the notification dated 29th March 2022 is of a mandatory nature. This means that all notices issued under Section 148 of the Income Tax Act must strictly adhere to the provisions laid out in this scheme. </strong></p>
<p>&nbsp;</p>
<p>Citation: Hexaware Technologies Limited Vs ACIT (Bombay High Court), Appeal Number: Writ Petition No. 1778 of 2023.</p>

Understanding the Bombay High Court Verdict: Impact of Procedural Compliance on Income Tax Notices Issued u/s 148

Bombay High Ruling on Section 151A and Section 148 Notice

<p><strong>Introduction</strong></p>
<p>The Reserve Bank of India (RBI) has introduced new guidelines under the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023. These regulations, which took effect on December 21, 2023, replace the earlier regulations from 2016. This comprehensive guide breaks down the new rules, highlighting their implications for residents and businesses in India engaging in foreign exchange transactions.</p>
<p>These regulations are referred as Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023. They became effective immediately upon their publication in the Official Gazette i.e. 21-Dec-2023.&nbsp;<strong>Further, these regulations suppress the eralier regulations: Notification No. FEMA 14(R)/2016-RB dated May 02, 2016,</strong></p>
<p>&nbsp;</p>
<p><strong>Scope of the Regulations</strong></p>
<p>The regulations stipulate that no resident of India shall make or receive payments from a non-resident except in the manner prescribed by these regulations or as otherwise provided by the Act, its rules, or specific directions issued under the Act.</p>
<p>&nbsp;</p>
<p><strong>Detailed Provisions on Receipts and Payments</strong><strong>For Trade Transactions: </strong>For trade-related transactions, the manner of receipts and payments is specified based on the countries involved:</p>
<p style="padding-left: 40px;"><strong>Nepal and Bhutan</strong></p>
<p style="padding-left: 80px;">- Payments for exports and imports are to be made in Indian Rupees (INR).</p>
<p style="padding-left: 80px;">- For exports to Nepal, if the Nepal Rashtra Bank permits, payments can be made in foreign currency.</p>
<p style="padding-left: 40px;"><strong>Member Countries of the Asian Clearing Union (ACU)</strong></p>
<p style="padding-left: 80px;">- Payments should be made through the ACU mechanism, except for Nepal and Bhutan.</p>
<p style="padding-left: 80px;">- If goods are shipped from a member country of the ACU to India, but the supplier is from a non-ACU member country, payments can be made in INR or foreign currency.</p>
<p style="padding-left: 40px;"><strong>Other Countries</strong></p>
<p style="padding-left: 80px;">- Payments can be made in INR or any foreign currency, providing flexibility for trade with countries outside the ACU.</p>
<p style="padding-left: 80px;">&nbsp;</p>
<p><strong>For Transactions Other Than Trade: </strong>For non-trade transactions, the regulations specify the following:</p>
<p style="padding-left: 40px;"><strong>Nepal and Bhutan</strong></p>
<p style="padding-left: 80px;">- Payments are generally to be made in INR.</p>
<p style="padding-left: 80px;">- For overseas investments in Bhutan, payments can be made in foreign currency.</p>
<p style="padding-left: 40px;"><strong>Other Countries</strong></p>
<p style="padding-left: 80px;">- Payments can be made in INR or any foreign currency, ensuring flexibility for various types of non-trade transactions.</p>
<p>&nbsp;</p>
<p><strong>Special Provisions for Visitors: </strong>For non-trade current account transactions involving visitors to India, the regulations mandate:</p>
<p style="padding-left: 40px;">- Payments and receipts must be made in INR.</p>
<p style="padding-left: 40px;">- Transactions can also be managed through debits or credits to a bank account maintained as per the applicable rules.</p>
<p><strong>Implications for Businesses and Individuals</strong></p>
<p>The updated regulations provide clear guidelines for businesses involved in international trade, particularly with neighboring countries like Nepal and Bhutan. This clarity is expected to streamline financial transactions related to export and import, ensuring compliance with RBI norms and reducing the risk of non-compliance penalties.</p>
<p>Link to New Regulations: <a href="https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12579&amp;Mode=0" target="_blank" rel="noopener">Click here</a></p>
<p>Link to Earlier Regulations (supressed): <a href="https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10392&amp;Mode=0" target="_blank" rel="noopener">Click here</a></p>

Demystifying the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023: A Comprehensive Guide

RBI's New Foreign Exchange Regulations Explained

<h2>Introduction:</h2>
<p>The Central Board of Indirect Taxes and Customs (CBIC) has issued Instruction No. 05/2023-GST on 13th December 2023, addressing the ramifications of the Hon&rsquo;ble Supreme Court's landmark judgment dated 19th May 2022 in the case of CC, CE &amp; ST, Bangalore (Adj.) etc. Vs. Northern Operating Systems Private Limited (NOS). This article delves into the key instructions provided by CBIC in relation to Section 74(1) of the Central Goods and Services Tax Act, 2017 (CGST Act).</p>
<p>&nbsp;</p>
<h2>1. Background of the NOS Judgment:</h2>
<p>The focal point of CBIC's instruction lies in the aftermath of the NOS case, where the Supreme Court examined the nature of secondment of employees by overseas entities to Indian firms and its Service Tax implications. The judgment emphasized a nuanced examination based on the unique characteristics of each arrangement, rejecting a one-size-fits-all approach.</p>
<p>&nbsp;</p>
<h2>2. Nuances in Tax Implications:</h2>
<p>2.1 The CBIC, after a meticulous examination, notes that the NOS judgment, while primarily focusing on Service Tax, has implications in the realm of GST. The court's emphasis on a nuanced examination implies that each case of secondment must be scrutinized based on its specific terms and conditions.</p>
<p>&nbsp;</p>
<p>2.2 Citing the Hon'ble Supreme Court's observation in the Commissioner of Central Excise, Mumbai Vs. M/s Fiat India(P) Ltd, the CBIC underscores the need to avoid mechanical application of legal principles. Each case, as the court emphasized, depends on its unique facts, and a broad resemblance to another case is not decisive.</p>
<p>&nbsp;</p>
<p>2.3 Considering the diverse nature of secondment arrangements, the CBIC clarifies that the NOS judgment should not be mechanically applied to all cases. Instead, the tax implications must be determined based on the distinct factual matrix, including the terms of the contract between the overseas company and the Indian entity.</p>
<p>&nbsp;</p>
<h2>3. Caution Against Mechanical Invocation of Section 74(1):</h2>
<p>3.1 The CBIC addresses concerns raised by the industry regarding the mechanical invocation of the extended period of limitation under Section 74(1) of the CGST Act in cases involving secondment.</p>
<p>&nbsp;</p>
<p>3.2 Section 74(1) reads, "Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilized by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax..."</p>
<p>&nbsp;</p>
<p>3.3 The CBIC clarifies that Section 74(1) can only be invoked if there is evidence of fraud, wilful misstatement, or suppression of facts to evade tax. Mere non-payment of GST without these elements cannot trigger Section 74(1). The CBIC emphasizes that the provision should only be invoked when there is concrete evidence of fraudulent activities, and such evidence should be included in the show cause notice.</p>
<p>&nbsp;</p>
<h2>4. Recommendations for Investigation and Show Cause Notices:</h2>
<p>In light of the above, the CBIC advises field formations to consider the unique aspects of each case involving secondment. Investigation should focus on the distinct factual matrix, terms of contracts, and evidence of fraud or wilful misstatement before invoking Section 74(1). The CBIC emphasizes the need for a meticulous examination, aligning with the principles laid down by the Hon&rsquo;ble Supreme Court in the NOS case.</p>
<p>&nbsp;</p>
<h2>Conclusion:</h2>
<p>CBIC's Instruction No. 05/2023-GST serves as a guiding beacon for GST investigations concerning secondment in the post-NOS judgment era. The nuanced approach advocated by the CBIC aligns with the Supreme Court's emphasis on a case-specific examination. It also provides a cautionary note against the mechanical application of Section 74(1), ensuring that its invocation is warranted only in cases involving fraud or wilful misstatement. Field formations are encouraged to undertake thorough investigations, taking into account the unique facets of each secondment arrangement.</p>

Decoding CBIC Instructions on Section 74(1) Post NOS Judgment

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<p>If any NRI&rsquo;s PAN is still inoperative, he/she is requested to intimate his/her NRI status along with supporting documents to respective jurisdictional Assessing Officer.</p>
<p>List of supporting documents required for making PAN operative for NRI&rsquo;s is as under:</p>
<p>A.&nbsp;&nbsp; &nbsp;Copy of PAN Card; and<br />B.&nbsp;&nbsp; &nbsp;Any of the following documents:<br />a.&nbsp;&nbsp; &nbsp;Copy of passport showing stay confirming NRI, or<br />b.&nbsp;&nbsp; &nbsp;Copy of Person of Indian Origin (PIO) card issued by Government of India, or<br />c.&nbsp;&nbsp; &nbsp;Copy of Overseas Citizen of India (OCI) card issued by Government of India, or<br />d.&nbsp;&nbsp; &nbsp;Copy of other national or citizenship Identification Number or Taxpayer Identification Number duly attested by &ldquo;Apostille&rdquo; (in respect of countries which are signatories to the Hague Convention of 1961) or by the Indian Embassy or High Commission or Consulate in the country where the applicant is located or authorized officials of overseas branches of Scheduled Banks registered in India.</p>
<p>Further for information regarding Jurisdictional Assessing Officer (JAO), please visit e-filing home page and go to tab &ldquo;know your AO&rdquo; to find out your JAO.</p>
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Inoperative PAN of Non Resident-Steps to Make it Operative

Inoperative PAN of Non Resident

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<p>Non-resident Indians (NRIs) and Overseas Citizenship of India (OCIs) are facing a significant issue with their PAN cards becoming inoperative, despite being exempted from linking PAN with Aadhaar. This development has caused widespread concern among affected individuals, especially in terms of the consequences they might face. Fortunately, the Income-tax Department has taken steps to address these concerns and has shared helpful clarifications on its Twitter handle.</p>
<p>The first clarification pertains to NRIs. The Income Tax Department has mapped the residential status of NRIs based on their filed income tax returns (ITR) in the last three assessment years. Alternatively, if NRIs have informed their Jurisdictional Assessing Officer (JAO) about their residential status, it has also been taken into account. However, if any of these criteria are not met, PAN cards have been rendered inoperative. To rectify this situation, NRIs with inoperative PAN cards are requested to inform their respective JAOs about their current residential status and submit supporting documents for an update in the PAN database.</p>
<p>Similarly, PAN cards of OCIs and foreign citizens who may have applied for PAN under the resident status but have not corrected or updated their residential status with the JAO or filed ITR in the last three assessment years have been rendered inoperative. To resolve this issue, OCIs and foreign citizens are urged to inform their respective JAOs about their current residential status and provide supporting documents for an update in the PAN database.</p>
<p>It's important to note that an inoperative PAN is different from an inactive PAN. Despite PAN becoming inoperative, individuals can still file their Income Tax Returns (ITR). However, there are a couple of consequences associated with inoperative PANs. Firstly, pending refunds and the corresponding interest on such refunds will not be issued to individuals with inoperative PANs. Additionally, tax deductions or collections will be required to be made at a higher rate for inoperative PANs, in accordance with section 206AA/206CC.</p>
<p>Staying informed about these clarifications and following the guidelines provided by the Income-tax Department is crucial for NRIs and OCIs to ensure a smooth income tax filing process. By updating their residential status with the Jurisdictional Assessing Officer (JAO) and providing the necessary documents, individuals can rectify the inoperative PAN situation and avoid potential complications.</p>
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Clarifications on Inoperative PANs for NRIs and OCIs-Clarifications provided by Income Tax on Twitter Handle

Clarifications on Inoperative PANs for NRIs and OCIs

<h2>Introduction to Disclosure of Foreign Income and Assets in Income Tax Returns:</h2>
<p>In today's globalized world, individuals and businesses often have financial interests and assets located outside their home country. It is important to understand the legal obligations surrounding the disclosure of foreign assets, as failure to comply can have severe consequences. This article explores the provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (in short Black Money Act, 2015), and highlights the significance of disclosing foreign assets for transparency and accountability.</p>
<h2>The Importance of Disclosing Foreign Assets:</h2>
<p>The Finance Act of 2012 made it mandatory to disclose foreign assets in income tax returns. This requirement aims to promote transparency and prevent tax evasion. Non-disclosure of foreign assets can lead to prosecution as upheld by various High Courts. Disclosing foreign assets is not only a legal obligation but also crucial for ensuring transparency and accountability in financial matters. By complying with the disclosure requirements, individuals and entities can avoid penalties and legal implications.</p>
<h2>Section 139 of Income tax Act-Foundation step to make Disclosure:</h2>
<p>The proviso to Section 139 of the Income Tax Act imposes an important disclosure mandate on residents who hold assets or have financial interests outside India. Even if their total income is below the threshold of Rs. 2,50,000 (for individuals), residents must furnish a return before the due date if they meet any of the following conditions:</p>
<ul>
<li><strong>Holding assets or financial interests abroad: </strong>If a resident holds any asset, including financial interests in any entity, located outside India, or has signing authority in any account located abroad, they are required to disclose these details by filing a return within the specified timeline.</li>
<li><strong>Beneficiary of foreign assets: </strong>The disclosure obligation also applies to individuals who are beneficiaries of assets located outside India, including financial interests in entities abroad. It is important for beneficiaries to fulfill their disclosure obligations to maintain compliance with the law.</li>
</ul>
<h2>Scope of Foreign Income and Assets:</h2>
<p>The scope of foreign assets encompasses a wide range of assets held outside the jurisdiction of India. Under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, the term "undisclosed asset located outside India" is defined to include various types of assets. Here is an overview of the scope of foreign assets:</p>
<ul>
<li><strong>Income from a foreign source: </strong>Any income generated from a source located outside India that has not been disclosed in the income tax return falls within the scope of foreign assets.</li>
<li><strong>Unreported income: </strong>If an individual is required to furnish an income tax return under Section 139 of the Income-tax Act, but fails to do so within the specified time frame (as per Explanation 2 to sub-section (1), sub-section (4), or sub-section (5) of Section 139), the income from a foreign source that remains unreported is considered a foreign asset.</li>
<li><strong>Value of undisclosed assets: </strong>The scope of foreign assets also includes the value of assets located outside India that have not been disclosed. This includes movable assets (such as bank accounts, investments, and valuable possessions), immovable assets (such as properties and real estate), intangible assets (such as intellectual property rights and patents), and any other asset held abroad and even a signing authority is also included.</li>
</ul>
<p>It is important to note that the scope of foreign assets is comprehensive and encompasses a wide range of holdings and income streams situated outside India. Compliance with the disclosure requirements is crucial to avoid penalties and legal implications under the Black Money Act.</p>
<h2>Understanding the Consequences of Non-Disclosure:</h2>
<p>Non-disclosure of foreign assets can have severe consequences. The Black Money Act of 2015 addresses undisclosed foreign income and assets. Section 4(1) of the Act defines the scope of undisclosed foreign income and assets, including unreported income, unfiled returns, and the value of undisclosed assets located outside India.</p>
<p>To avoid penalties and lethal consequences, it is important to note that while fully explained foreign assets acquired from tax-paid income are not considered undisclosed foreign assets, their non-disclosure in previous income tax returns can result in a penalty of Rs. 10 lakhs under Section 43 of the Act.</p>
<h2>Concluding Remark on Disclosure of Foreign Income and Assets:</h2>
<p>The disclosure of foreign assets is a significant legal obligation that individuals and entities must fulfill to maintain transparency and compliance with the law. Non-disclosure can lead to severe consequences under the Black Money Act, including penalties and tax implications. By understanding the provisions of the Act and the scope of undisclosed foreign income and assets, individuals can take the necessary steps to comply with the disclosure requirements.</p>
<h2>Contact us:</h2>
<p>If you have any question or need assistance regarding the disclosure of foreign assets, compliance with tax regulations, or any other related matter, our team of experts is here to help. Feel free to <a href="https://harchandani.in/contact">contact us.</a></p>
<p><strong>Note: This article is for informational purposes only and should not be considered as legal or financial advice.</strong></p>

The Importance of Disclosing Foreign Assets in Income Tax Returns: A Comprehensive Guide

The Importance of Disclosing Foreign Assets in Income Tax Returns ITR

<h2>Introduction:</h2>
<p>Double Taxation Avoidance Agreements (DTAA) play a significant role in international taxation, aiming to prevent the double taxation of income earned by taxpayers in two different countries. However, the requirement of a Tax Residency Certificate (TRC) for claiming DTAA benefits has become a subject of legal complexities and practical challenges. In this article, we will delve into the various aspects surrounding TRCs, including their differentiation from other registration certificates, the legal issues surrounding Section 90(4) of the Income Tax Act, the absence of TRC provisions in India's DTAA agreements, and the implications for businesses.</p>
<h2>TRC vs. Incorporation Certificate and Other Registration Certificates:</h2>
<p>It is crucial to clarify that a TRC cannot be equated with an incorporation certificate or any other registration certificates. The provision stated in Section 90(4) of the Income Tax Act explicitly mandates the production of a TRC, along with other relevant information (in Form 10F), for claiming DTAA benefits. While obtaining a TRC can be challenging, especially for individuals, it is vital to comply with the law's mandate.</p>
<h2>Legal Issues Surrounding Section 90(4):</h2>
<p>One of the key legal issues arises from the potential contradiction between Section 90(4) and Section 90(2) of the Income Tax Act, as well as various judgments of the High Court, including the Supreme Court. These judgments establish that, in case of conflict between the Income Tax Act and the provisions of the DTAA, the provisions of the DTAA should prevail. This raises questions about the absolute necessity of a TRC as mandated by Section 90(4).</p>
<h2>Skaps Industries India Pvt Ltd vs ITO, International Taxation, Ahmedabad ITAT</h2>
<p>In this case, the ITAT held that Section 90(2) of the Income Tax Act, 1961 in India provides a unique and unqualified "treaty override" provision. This means that regardless of the provisions in the Income Tax Act, if a person is covered by an agreement under Section 90(1), the provisions of the Act will only apply to the extent that they are more beneficial to the taxpayer. The Act cannot impose a greater burden on the taxpayer than what is specified in the applicable tax treaty.</p>
<p>However, the only limitation to this unqualified treaty override provision is that the provisions of Chapter X-A, which deals with the General Anti Avoidance Rules, will apply to the taxpayer even if they are not beneficial. This exception is stated in Section 90(2A), which is the only provision in the Income Tax Act, 1961 that starts with a non-obstante clause in relation to Section 90(2). Therefore, it is the only restriction on the superiority of tax treaty provisions over the provisions of the Indian Income Tax Act, 1961.</p>
<p>ITAT also observe that:</p>
<blockquote>
<p><em>8. In the light of our this analysis, when we turn to Section 90(4), as indeed other sub sections of Section 90, we find that these provisions do not start with a obstante clause vis-&agrave;vis Section 90(2) and, therefore, these sub sections cannot be construed as limitation to, or rider to, somewhat unqualified treaty override stipulated in Section 90(2). Whatever interpretation one assigns to this sub section, essentially the fundamental approach has to be that this sub section will be applicable only when the same are more beneficial to the assessee vis-&agrave;-vis the provisions of the applicable tax treaty; that principle of treaty override, as set out in Section 90(2), remains unaffected by these provisions. As we hold so, we make it clear that whether the same position will also apply with respect to Explanations to Section 90 or not is still an open question, uninfluenced by these discussions, as Explanations to Section 90 may perhaps not have the same legal connotations as the sub sections to Section 90. We leave it that for the time being.</em></p>
</blockquote>
<p>The above decision was also cited and relied by Hyderabad ITAT in the case of Sreenivasa Reddy Cheemalamarri [TS-158-ITAT-2020(HYD)].</p>
<h2>A Unilateral Attempt to Deny Treaty Benefits:</h2>
<p>Furthermore, Section 90(4) can be seen as a unilateral attempt to deny treaty benefits, potentially conflicting with international law and the principles of reciprocity and mutual benefits that underpin international tax treaties. The timing of the insertion of Section 90(4) through the Finance Act 2012, which came after the conclusion of various DTAA agreements, adds to the complexity and requires careful evaluation.</p>
<p>In the realm of international law, the position on unilateral modification of treaties is guided by the principle of <em>pacta sunt servanda</em>, which means that treaties must be observed and complied with in good faith by all parties involved. This principle serves as the cornerstone of the international legal system and promotes stability, predictability, and trust among nations.</p>
<p>Under customary international law, a treaty can only be modified or terminated by the consent of all parties involved. This principle of consent ensures that the rights and obligations established by a treaty are protected and that no party can unilaterally alter or disregard the provisions of a treaty without the agreement of others.</p>
<p>Unilateral modification of a treaty by one party without the consent of the other parties is generally considered a violation of the treaty and may be viewed as a breach of international law. Unilateral modifications can undermine the integrity of the treaty and erode the trust and confidence among the parties.</p>
<h2>Non-Inclusion of Mandatory TRC Requirement in India's DTAA Agreements:</h2>
<p>A noteworthy observation is that none of India's DTAA agreements with other countries contain provisions specifically requiring the mandatory submission of a TRC for availing DTAA benefits. If the TRC were universally mandated, it would necessitate countries to enter into agreements clarifying that benefits can only be availed upon producing a TRC. However, the absence of such provisions in the DTAA agreements raises questions about the absolute necessity of a TRC for claiming DTAA benefits.</p>
<h2>Navigating the Way Forward:</h2>
<p>Considering the legal complexities and practical challenges surrounding TRCs, businesses are advised to make diligent efforts to obtain TRCs from payees. However, in cases where obtaining a TRC is not feasible, businesses must carefully assess the facts and circumstances of each case. This assessment should consider the legal issues discussed earlier, the absence of TRC provisions in DTAA agreements, and the potential risks and consequences of proceeding without a TRC.</p>
<p>It is essential to weigh the available legal avenues and evaluate the potential litigations that may arise from deviating from the TRC requirement. Seeking professional guidance is recommended to ensure compliance with prevailing regulations while balancing the practical challenges faced in obtaining TRCs.</p>
<h2>Conclusion:</h2>
<p>The requirement of a TRC for claiming DTAA benefits presents businesses with a complex and intricate landscape to navigate. While the legal issues surrounding Section 90(4) and the absence of explicit TRC provisions in India's DTAA agreements raise valid concerns about the essential nature of a TRC, businesses must still endeavor to obtain TRCs whenever possible. In cases where TRCs cannot be procured, a meticulous evaluation of the specific circumstances, coupled with expert guidance, is crucial to making informed decisions that ensure compliance and mitigate potential litigations.</p>

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