CA NAVEEN ND GUPTA

naveen@dassgupta.com

9810689998

Black Money (Undisclosed Foreign Income and Assets ) & Imposition of Tax Act’2015&Reassessment of Income &TDS/Reporting on “IMPORTS”

Jurisprudence of Black Money (Undisclosed Foreign Income & Assets ) & Imposition of Tax Act’2015

• India contribute 10% of billions illegally moved out of developing & emerging nations.

USD 991.2 billion was moved out of developing & emerging nations for "crime, corruption, and tax evasion", and we shipped out 1/10th of that.

• India ranks 3rd in line-up of countries with money hidden abroad. USD 94.76 billion (or Rs 6 lakh crore) was hidden abroad in 2012. So assume a bit more than that for 2015. (2014 Global Financial Integrity (GFI) research report)

• India is going through a revolutionary decade where there has been strong moves to bring black money into India

• The Finance Minister, in this pursuit, announced in his 2015 Budget Speech that a new comprehensive law will be introduced to deal with the black money abroad.

• The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act’2015 was assented by President on 26 May 2015, Black Money Law to be now effective from 01-July 2015..

• The new legislation provides for separate taxation of any undisclosed income in relation to foreign assets under the Income Tax, guided by this new legislation

Scope & Applicability • It extends to whole of India (i.e. covers J&K etc.)• It applies to all person resident in India (other than not ordinary resident in India) u/s

6(6) of Income Tax Act, 1961 (including legal heirs)• This bill covers ALL RESIDENTS, therefore also covers COMPANIES (and other

entities)• In case of companies, if it is proved that the offence has been committed with the

consent or connivance or is attributable to any neglect on the part of the manager, secretary or other officer of the company, such person will also be held guilty and liable

• There are specific provisions for making managers ( defined to include the managing director in certain instances) of a company jointly, and severally liable for payment of any amount due if the amount cannot be recovered from the company

• Intends to tax “undisclosed foreign income” and “undisclosed foreign assets(including financial interest in an entity)”

• Hence such income will not be taxed under Income Tax Act, 1961• Income taxable @ 30% (flat) without deduction/exemption.• No time limit for foreign income/assets escaping assessment

Scope and Definitions• How to determine if you are Resident and Ordinarily Resident(check your

passports)

Yes No

Yes

No

Stayed in India for 182 days or more in the relevant year? ORStayed for 60 days or more in the relevant year AND 365 days or more

in the preceding 4 previous years

Have you been a non-resident in 9 out of the 10 preceding

previous years? ORHave you during the preceding 7 years been in India for 729 days

or less?

Non Resident

Resident and Not

Ordinarily Resident

Resident and

Ordinarily Resident

This Bill is applicable only to Residents who are Ordinarily Resident and not the others

Undisclosed Foreign Income & Assets : Definitions

Undisclosed Foreign Income:- Means total amount of undisclosed income of an assessee from a source located outside India

Undisclosed Assets located outside India:- Means an asset (including financial interest in an entity) located outside India, held by the assessee in his own name or of which he is beneficial owner and he has no explanation about the source of investment or explanation given is unsatisfactory.

Total Undisclosed Foreign Income and Asset of Previous Yeara) The income from a source located outside India, which has not been disclosed in the

return of income filed within time specified u/s. 139 (1) or 139 (4) or 139(5) Income Tax Act;

b) The income, from a source located outside India, in respect of which a return is required to be furnished under section 139 (1) but no return of income has been furnished.

c) The value of an undisclosed asset located outside India.

Valuation for Taxation:- Undisclosed foreign asset shall be charged to tax at “fair market value” in the previous year in which asset comes to the notice of assessing officer.

Computation: No deduction of expenditure; allowance; or set off of any loss allowed(it may be allowable under IT Act).

Rate of Taxation of Foreign Income and Foreign Assets: Undisclosed Foreign Income & Fair Market Value of Undisclosed Foreign Assets will be taxed at a flat rate of 30% followed by penalties (100% to 300%) as may be decided by the Assessing Officer.

FAIR MARKET VALUATION

Value of Bullion, Jewellery or Precious Stone shall be HIGHER OF :• Its cost of acquisition; and

•The price that the bullion, jewellery or precious stone shall ordinarily fetch if sold in the open market on the valuation date for which the assessee may obtain a report from a Valuer recognized by the Government of a country or specified territory outside India or any of its agencies for the purpose of valuation of bullion, jewellery or precious stone under any regulation or law.

FAIR MARKET VALUATION

Valuation of Artistic Work or any work of art shall be HIGHER of :• Its cost of acquisition; and

•The price that the artistic work shall ordinarily fetch if sold in the open market on the valuation date for which the assessee may obtain a report from a Valuer recognized by the Government of a country or specified territory outside India or any of its agencies for the purpose of valuation of artistic work under any regulation or law.

FAIR MARKET VALUATION

Valuation of QUOTED Shares and Securities shall be the HIGHER OF:• The fair market value of quoted share and securitieso Its cost of acquisition; and

o The price as determined in the following manner, namely:

The average of the lowest and highest price of such shares and securities quoted on any established securities market on the valuation date; or

Where on the valuation date there is no trading in such shares

and securities on any established securities market, average of the lowest and highest price of such shares and securities on any established securities market on a date immediately preceding the valuation date when such shares and securities were traded on such securities market

FAIR MARKET VALUATION • The Fair market value of UNQUOTED equity shares shall be the HIGHER ofo Its cost of acquisition; ando The value, on the valuation date, of such equity shares as

determined in following manner:The fair market value of unquoted equity shares = {(A+B–L)/(PE) }x

(PV) where,

A= Book value of all the assets (other than bullion, jewellery, precious stone, artistic work, shares, securities and immovable property) as reduced by,-

(i)any amount of income-tax paid, if any, less amount of income-tax refund claimed, &

(ii)any amount shown as asset including the unamortized amount of deferred expenditure which does not represent the value of any asset;

B= Fair market value of bullion, jewellery, precious stone, artistic work, shares, securities and immovable property as determined in the manner provided in this rule;

FAIR MARKET VALUATION

L= Book value of liabilities, but not including the following amounts, namely:-

(i) The paid-up capital in respect of equity shares; (ii) The amount set apart for payment of dividends on preference

shares and equity shares; (iii) Reserves and surplus, by whatever name called, even if the

resulting figure is negative, other than those set apart towards depreciation;

(iv) Any amount representing provision for taxation, other than amount of income-tax paid, if any, less the amount of income-tax claimed as refund, if any, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;

(v) Any amount representing provisions made for meeting liabilities, other than ascertained liabilities;

(vi) Any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;

PE = total amount of paid up equity share capital as shown in the balance-sheet;

PV= the paid up value of such equity shares;

FAIR MARKET VALUATION

Fair market value of an IMMOVABLE PROPERTY shall be higher of:o Its cost of acquisition; and

o The price that the property shall ordinarily fetch if sold in the open market on the valuation date for which the assessee may obtain a valuation report from a valuer recognized by the Government of a country or specified territory outside India in which the property is located or any of its agencies for the purpose of valuation of immovable property under any regulation or law

FAIR MARKET VALUATION

Value of an ACCOUNT with a BANK shall be:o The sum of all the deposits made in the account with the

bank since the date of opening of the account; or o Where a declaration of such account has been made under

Chapter VI and the value of the account as computed under sub-clause (I) has been charged to tax and penalty under that Chapter, the sum of all the deposits made in the account with the bank since the date of such declaration:

Provided that where any deposit is made from the proceeds of any withdrawal from the account, such deposit shall not be taken into consideration while computing the value of the account.

FAIR MARKET VALUATION Value of an interest IN PARTNERSHIP FIRM OR AOP OR

LLP (Such Entity)o The Net Asset of Such Entity on valuation date shall first be

determined as under:

• Portion of Net Asset of Such Entity as is equal to the amount of its capital shall be allocated among its partners in proportion of capital contribution

• Residual Net Asset shall be allocated among the partners in the proportion of Profit Sharing Ratio

(SUM TOTAL OF AMOUNT SHALL BE VALUE OF INTEREST OF PARTNER IN SUCH ENTITY)

Explanation- For purposes of this clause Net Asset of Such Entity shall be (A + B – L), which shall be determined in the manner provided in sub-clause (II) of clause (c).

FAIR MARKET VALUATION

Value of any OTHER ASSETS shall be higher of:

o Its cost of acquisition or the amount invested; and

o The price that the asset would fetch if sold in the open market on the valuation date in an arm’s-length transaction.

Compliance Scheme• In Compliance Scheme assessee has to pay 30% tax & 30% penalty 30th Sep 2015 is date on or before which Person may make

Declaration in respect of an Undisclosed Foreign Asset & Income in Form No. 6

The CIT (International Tax)-2, Pratyaksh Kar Bhavan, S.P.M. Civic Centre, Minto Road, New Delhi-110002 has been designated to receive the declarations.

CIT inform the declarant by 31.10.2015 whether the competent authority already has any information in respect of the asset(s) declared under Sec 90 or 90A of the Income Tax Act’1961.

The declarant may revise his declaration excluding such assets within 15days of receipt of intimation.

The declarant not liable for any consequences under the Black Money Act in respect of assets which has been declared but found ineligible for declaration due to prior information on such assets. However such information may be used under provisions of Income Tax Act’1961.

PAN No. must for declaration of undisclosed asset outside India Tax and penalty in respect of the undisclosed foreign assets so declared to be paid by 31st Dec 2015 Upon payment of tax and penalty, CIT will issue an acknowledgement in

Form 7

COMPLIANCE SCHEME : FORM 6 WHOM TO BE SIGNED

Status of Declarant

Declaration to be Signed By

Individual Individual, where absent from India, person authorized by him, where mentally incapacitated, his guardian or other person competent to act on his behalf.

HUF Karta, where absent from India or mentally incapacitated from attending to affairs, by ant other adult member of HUF

Company Managing Director, where for any unavoidable reason managing director is not able to sign or there is no managing director, by any director

Firm Managing partner; for any unavoidable reason managing partner is not able to sign, or where there no managing partner, by any major partner.

Any other association

Any member of the association or the principal officer.

Any other person

That person or by some other person competent to act on his behalf.

Declaration not eligible in certain cases• As per Sec 71 no declaration under Compliance window which has

been acquired from income chargeable to tax for A.Y 2015-16 or any earlier assessment year in following cases:

1. Where a notice U/s 142 or Sec 143(2) or Sec 148 or Sec 153A or Sec 153C of the Income-tax Act’1961 has been issued in respect of such assessment year and the proceeding is pending before the AO. Person not eligible if any notice referred above has been served on or before 30th June 2015

2. Where a search has been conducted U/s 132 or requisition has been made under Sec 132A or a survey has been carried out under Sec 133A of the Income-tax Act’1961 in a previous year and the time for issuance of a notice U/s 143 (2) or Sec 153A or Sec 153C for the relevant assessment year has not expired. In Form 6 the declarant will also verify that these facts do not prevail in his case

Declaration not eligible in certain cases3. Where any information has been received by the

competent authority under an agreement entered into by the Central Government under section 90 or section 90A of the Income-tax Act’ 1961 in respect of such undisclosed asset.

4. A person in respect of whom proceedings for prosecution of any offence punishable under Chapter IX (offences relating to public servants) or Chapter XVII (offences against property) of the Indian Penal Code or under the Unlawful Activities (Prevention) Act or the Prevention of Corruption Act are pending shall not be eligible.

5. A person in respect of whom provisions of Sec 71(a) in respect of Conservation of Foreign Exchange & Prevention of Smuggling Activities Act’1974 or not notified under Sec 3 of Special Court (Trial of Offences relating to Transactions in Securities) Act’1992.

Circumstances where Declaration shall be invalid

1. If declarant fails to pay the entire amount of tax and penalty upto 31.12.2015

2. Where declaration has been made by misrepresentation or suppression of facts or information.

Consequences Of Invalid Declaration 1. Where the declaration is held to be void for any of

reasons, it shall be deemed never to have been made and all the provisions of the Act, including penalties and prosecution shall apply

2. Any tax or penalty paid in pursuance of the declaration shall not be refundable under any circumstances.

Effect of Valid Declaration The amount of Undisclosed Investment in the assets declared

shall not be included in the total income under the Income Tax Act for any assessment year.

The contents of the declaration shall not be admissible in evidence against the declarant in any penalty or prosecution proceedings under Income Tax Act, Wealth Tax Act, The Foreign Exchange Management Act, Companies Act or Customs Act

The value of assets declared in declaration shall not be chargeable to Wealth Tax for any assessment year or years.

Declaration of Undisclosed Foreign Asset will not affect the finality of completed assessment. The declaration will not be entitled to claim re-assessment of any earlier year or revision of any order or any benefit or set-off or relief in any appeal or proceeding under the Act or Income Tax Act in respect of declared undisclosed asset located outside India or any tax paid thereon.

Source of Information & Power to make enquiry (Sec 10).The AO may:

a. On receipt of information from income tax authority under Income Tax Act’1961

b. Any other authority under any law for the time being in force

c. On coming of any information to his notice

Serve on any person a notice requiring him to produce such :

a. accounts or

b. documents or

c. evidence

as the AO may require for the purpose of this Act.

Penalty and Prosecution (1/2)Nature Penalty Prosecution(if

any)Non Disclosure of Foreign Income or Asset

300% of the Tax Payable

Failure to disclose the foreign asset or income in the return of income or furnished inaccurate particulars or failure to furnish return in respect of foreign asset

Rs.10 Lakhs 6 months – 7 years – if default can be proved to be wilful

If person wilfully attempts to evade any tax, penalty or interest

3 years – 10 years

Continuing default by assessee in making payment of tax

Amount of arrears of tax

If assessee fails to answer any question, sign a statement he is legally bound to or fails to produce books and supporting evidences

Rs.50,000 to Rs.2,00,000

Penalty and Prosecution (2/2)Nature Penalty Prosecution(if

any)

Person makes false statement or delivers false evidences

6 months – 7 years

Abetment to make and deliver false return, account, statement or declaration relating to tax payable

6 months – 7 years

Subsequent offences under this act – where a person commits the second(or more) offence under this act

Rs.5 lakhs – Rs.1 crore

3 years – 10 years

But Asset, being one or more bank accounts having aggregate balance not exceeding Rs. 5 lacs at any time during previous year; then EXEMPTION from Above Penalties.

Black Money Compliance Scheme – Q&A.TheQuestion: If firm has undisclosed foreign assets, can the partner file declaration in respect of such asset?

Answer: The declaration can be made by the firm which shall be signed by the person specified in sub-section (2) of section 62 of the Act. The partner cannot make a declaration in his name. However, the partner may file a declaration in respect of an undisclosed asset held by him. Question : Whether immunity in respect of declaration made under the scheme is provided in respect of Acts other than those mentioned in section 67 of the Act?

Answer : Section 67 provides immunity from prosecution under the five Acts viz. the Income-tax Act, Wealth-tax Act, FEMA, Companies Act and the Customs Act. It does not provide immunity from prosecution under any other Act. For example- if the undisclosed asset has been acquired out of the proceeds of sale of protected animals the person will not be eligible for immunity under the Wildlife (Protection) Act, 1972.

Black Money Compliance Scheme – Q&A.TheQuestion: Whether the person making the declaration will be provided immunity from the Prevention of Money Laundering Act, 2002?

Answer: The offence under the PMLA arises while laundering money generated from the process or activity connected with the offences specified in the schedule to the PMLA. Therefore, the primary requirement under PMLA is commission of a scheduled offence. With the enactment of the Act, the offence of willful attempt to evade tax under section 51 of the Act has become a scheduled offence under PMLA.

However, where a declaration of an asset has been duly made under section 59 of the Act the provisions of section 51 will not be applicable in respect of that asset. Therefore, PMLA will not be applicable in respect of the scheduled offence of wilful attempt to evade tax under section 51 of the Act in respect of assets for which declaration is made under section 59 of the Act.

Black Money Compliance Scheme – Q&A.TheQuestion: Where an undisclosed foreign asset is declared under Chapter VI of the Act and tax and penalty is paid on its fair market value then will the declarant be liable for capital gains on sale of such asset in the future? If yes, then how will the capital gains in such case be computed?

Answer: Yes, the declarant will be liable for capital gains under the Income-tax Act on sale of such asset in future. As per the current provisions of the Income-tax Act, the capital gains is computed by deducting cost of acquisition from the sale price.

However, since the asset will be taxed at its fair market value the cost of acquisition for the purpose of Capital Gains shall be the said fair market value and the period of holding shall start from the date of declaration of such asset under Chapter VI of the Act.

Black Money Compliance Scheme – Q&A.TheQuestion : Where an undisclosed foreign asset has acquired partly during a previous year relevant to assessment year which is pending for assessment and partly during other years not pending for assessment then whether such asset is eligible for declaration under Chapter VI of the Act?

Answer: In the case where proceedings are pending before an AO in pursuance of a notice U/s 142, 143(2), 148, 153A or 153C served on or before 30-06-2015, the declarant may declare the undisclosed asset under Chapter VI of the Act. However, while computing the amount of declaration the investment made in the asset during the previous year relevant to the assessment year for which such notice is issued needs to be deducted from the fair market value of the asset for which the person shall provide a computation along with the declaration. Further, such investment which is deducted from the fair market value shall be assessable in the assessment of the relevant assessment year pending under the Income-tax Act and the person shall inform the Assessing Officer the investment made during the relevant year in such asset. Also to clarify, where a notice under section 142, 143(2), 148, 153A or 153C of the Income-tax Act is issued on or after 30-06-2015, the declarant shall be eligible to declare full value of asset even if such asset (or part of such asset) is acquired in the previous year relevant to the assessment year for which such notice is issued.

Black Money Compliance Scheme – Q&A.Question : Can a declaration be made of undisclosed foreign assets which have been assessed to tax and the case is pending before an Appellate Authority?

Answer: As per section 65 of the Act, the declarant is not entitled to re-open any assessment or reassessment made under the Income-tax Act. Therefore, he is not entitled to avail the tax compliance in respect of those assets.

However, he can voluntarily declare other undisclosed foreign assets which have been acquired or made from income not disclosed and consequently not assessed under the Income-tax Act. Question : Where a search/ survey operation was conducted and the assessment has been completed but the undisclosed foreign asset was not taxed, then whether such asset can be declared under Chapter VI of the Act?

Answer: Yes, such undisclosed asset can be declared under Chapter VI of the Act.

Black Money Compliance Scheme – Q&A.TheQuestion : Can a person against whom a search/ survey operation has been initiated file voluntary declaration under Chapter VI of the Act?

Answer: (a) The person is not eligible to make a declaration under Chapter VI if a search has been initiated and the time for issuance of notice under section 153A has not expired, even if such notice for the relevant assessment year has not been issued. In this case, however, the person is eligible to file a declaration in respect of an undisclosed foreign asset acquired in any previous year in relation to an assessment year which is prior to assessment years relevant for the purpose of notice under section 153A.

(b) In case of survey operation the person is barred from making a declaration under Chapter VI in respect of an undisclosed asset acquired in the previous year in which the survey was conducted. The person is, however, eligible to make a declaration in respect of an undisclosed asset acquired in any other previous year.

Black Money Compliance Scheme – Q&A.Question : What are the consequences if no declaration under Chapter VI is made in respect of undisclosed foreign assets acquired prior to the commencement of the Act?

Answer: As per section 72(c), where any asset has acquired prior to commencement of Act and no declaration is made then such asset shall be deemed to have been acquired in the year in which it comes to the notice of the AO.India is expected to start receiving information through Automatic Exchange of Information (AEOI) route under FATCA from USA later in year 2015. Further, under multilateral agreement India will start receiving information from other countries under AEOI route from 2017 onwards. As at 18.03.15, 58 jurisdictions (including India) have committed to share information under AEOI by 2017 and 36 jurisdictions have committed to share by 2018, including jurisdictions which have beneficial tax regime. The multilateral agreement is expected to cover all the countries in the near future. The information under the AEOI will include information of controlling persons (beneficial owners) of the asset. The possibility of discovery of undisclosed asset may arise at any time in future; say for example, information of an immovable property can be unearthed if any utility bills/property tax or even gardener’s/ caretaker’s salary has been paid through an existing or closed bank account. Therefore, if any information of an undisclosed foreign asset acquired earlier, say in the year 1975, for $ 100,000 comes to the notice of an AO later, say in year 2020, when its value becomes, say, $ 5 Million, the liability under the Act amounting to 120 % of FMV of asset on valuation date may arise in year 2020, besides prosecution and other consequences. In this case if the valuation date is in the year 2020 the amount of tax and penalty under the Act will be $ 6 Million.

Black Money Compliance Scheme – Q&A.Question : A person has some undisclosed foreign assets. If he declares those assets in the Income-tax Return for assessment year 2015-16 or say 2014-15 (in belated return) then should he need to declare those assets in the voluntary tax compliance under Chapter VI of the Act?

Answer: As per the Act, the undisclosed foreign asset means an asset which is unaccounted/ the source of investment in such asset is not fully explainable. Since an asset reported in Schedule FA does not form part of computation of total income in the Income-tax Return and consequently does not get taxed, mere reporting of a foreign asset in Schedule FA of the Return does not mean that the source of investment in the asset has been explained. The foreign asset is liable to be taxed under the Act (whether reported in the return or not) if the source of investment in such asset is unexplained.

Therefore, declaration should be made under Chapter VI of the Act in respect of all those foreign assets which are unaccounted/ the source of investment in such asset is not fully explainable.

Black Money Compliance Scheme – Q&A.TheQuestion : A person holds certain foreign assets which are fully explained and acquired out of tax paid income. However, he has not reported these assets in Schedule FA of the Income-tax Return in the past. Should he declare such assets under Chapter VI of the Act?

Answer: Since, these assets are fully explained they are not treated as undisclosed foreign assets and should not be declared under Chapter VI of the Act.

However, if these assets are not reported in Schedule FA of the Income-tax Return for assessment year 2016-17 (relating to previous year 2015-16) or any subsequent assessment year by a person, being a resident (other than not ordinarily resident), then he shall be liable for penalty of Rs. 10 lakhs under section 43 of the Act. The penalty is, however, not applicable in respect of an asset being one or more foreign bank accounts having an aggregate balance not exceeding an amount equivalent to Rs. 5 lakhs at any time during the previous year.

Black Money Compliance Scheme – Q&A.TheQuestion : A person has a foreign bank account in which undisclosed income has been deposited over several years. He has spent the money in the account over these years and now it has a balance of only $500. Does he need to pay tax on this $500 under the declaration?

Answer: Section 59 provides for declaration of an undisclosed asset and not income. In this case Bank account is an undisclosed asset which may be declared. Tax on undisclosed asset is required to be paid on its fair market value. In case of bank account the FMV is the sum of all the deposits made in the account computed in accordance with Rule 3(1)(e). Therefore, tax and penalty needs to be paid on such fair market value and not on the balance as on date.

Question : A person is a resident now. However, he was a non-resident earlier when he had acquired foreign assets (which he continues to hold now) out of income which was not chargeable to tax in India. Does the person need to file a declaration in respect of those assets under Chapter VI of the Act?

Answer: No. Those assets do not fall under the definition of undisclosed assets under the Act.

Black Money Compliance Scheme – Q&A.TheQuestion : A person held a foreign bank account for a limited period between 1994-95 and 1997-98 which was unexplained. Since such account was closed in 1997-98 does he need to declare the same under Chapter VI of the Act?

Answer: Section 59 of the Act provides that the declaration may be made of any undisclosed foreign asset which has been acquired from income which has not been charged to tax under the Income-tax Act.

Since the investment in the bank account was unexplained and was from untaxed income the same may be declared under Chapter VI of the Act.

The consequences of non-declaration may arise under the Act at any time in the future when the information of such account comes to the notice of the Assessing Officer.

Black Money Compliance Scheme – Q&A.TheQuestion : A person inherited a house property in 2003-04 from his father who is no more. Such property was acquired from unexplained sources of investment. The property was sold by the person in 2011-12. Does he need to declare such property under Chapter VI of the Act and if yes Page 9 of 13 then, what will be the fair market value of such property for the purpose of declaration?

Answer: Since the property was from unexplained sources of investment the same may be declared under Chapter VI of the Act. However, the declaration in this case needs be made by the person who inherited the property in the capacity of legal representative of his father. The fair market value of the property in his case shall be higher of its cost of acquisition and the sale price as per Rule 3(2) of the Rules.

Question: In respect of the undisclosed foreign assets referred to in answer to question No. 15 above, where the proceedings under the Income-tax Act are initiated, can the options of settlement commission etc. under the Income-tax Act be availed in respect of such assets?

Answer: All the provisions of the Income-tax Act shall be applicable in respect of those assets.

Black Money Compliance Scheme – Q&A.TheQuestion : A person acquired a house property in a foreign country during the year 2000-01 from unexplained sources of income. The property was sold in 2007-08 and the proceeds were deposited in a foreign bank account. Does he need to declare both the assets under Chapter VI of the Act and pay tax on both the assets?

Answer: The declaration may be made in respect of both the house property and the bank account at their fair market value. The fair market value of the house property shall be higher of its cost and the sale price, less amount deposited in bank account. If the cost price of the house property is higher the declarant will be required to pay tax and penalty on (cost price – sale price) of the house. If the sale price of the house property is higher the fair market value of the house property shall be nil as full amount was deposited in the bank account. The fair market value of the bank account shall be as determined under Rule 3(1)(e) and tax and penalty shall be paid on this amount. (Please also refer to the illustration under Rule 3(3) for computation of fair market value.) Further, it is advisable to declare all the undisclosed foreign assets even if the fair market value as computed in accordance with Rule 3 comes to nil. This may avoid initiation of any inquiry under the Act in the future in case such asset comes to the notice of the Assessing Officer.

Black Money Compliance Scheme – Q&A.TheQuestion : A person is a non-resident. However, he was resident of India earlier and had acquired foreign assets out of income chargeable to tax in India which was not declared in return of income or no return was filed in respect of that income. Can that person file a declaration.

Answer: Section 59 provides that a declaration may be made by any person of an undisclosed foreign asset acquired from income chargeable to tax under the Income-tax Act for any assessment year prior to assessment year 2016-17. Since the person was a resident in the year in which he had acquired foreign assets (which were undisclosed) out of income chargeable to tax in India, he is eligible to file a declaration under section 59 in respect of those assets under Chapter VI of the Act.

Question : If a person has 3 undisclosed foreign assets and declares only 2 of those under Chapter VI of the Act, then will he get immunity from the Act in respect of the 2 assets declared?

Answer: It is expected that one should declare all his undisclosed foreign assets. However, in such a case the person will get immunity under the provisions of the Act in respect of the two assets declared under Chapter VI of the Act and no immunity will be available in respect of the third asset which is not declared.

Black Money Compliance Scheme – Q&A.TheQuestion : A resident earned income outside India which has been deposited in his foreign bank account. The income was charged to tax in foreign country when it was earned but the same was not declared in return of income in India & consequently not taxed in India. Does he need to disclose such income under Chapter VI? Will he get credit of foreign tax paid?

Answer: Declaration under Chapter VI is to be made of an undisclosed foreign asset. In this case, the person being a resident of India, the foreign bank account needs to be declared under Chapter VI as it is an undisclosed asset and acquired from income chargeable to tax in India. The fair market value of the bank account shall be determined as per Rule 3(1)(e).

No credit of foreign taxes paid shall be allowable in India as section 84 of the Act does not provide for application of sections 90(1)(a)/90(1)(b)/ 90A(1)(a)/ 90A(1)(b) of the Income-tax Act (relating to credit of foreign tax paid) to the Act. Further, section 73 of the Act does not allow agreement with foreign country for the purpose of granting relief in respect of tax chargeable under the Act.

Black Money Compliance Scheme – Q&A.TheQuestion: If a foreign asset has been acquired partly out of undisclosed income chargeable to tax and partly out of disclosed income/exempt income (tax paid income) then whether that foreign asset will be treated as undisclosed? Whether declaration under Chapter VI needs to be made in respect of such asset? If yes, what amount should be disclosed?

Answer: As per section 5 of the Act, in computing the value of an undisclosed foreign asset any income which has been assessed to tax under the Income-tax Act from which that asset is acquired shall be reduced from the value of the undisclosed foreign asset. Only part of the investment is such foreign asset is undisclosed (unexplained) hence declaration of such foreign asset may be made under Chapter VI of the Act. The amount of declaration shall be the fair market value of such asset as on 1st July, 2015 as reduced by the amount computed in accordance with section 5 of the Act.

Question : Whether for the purpose of declaration, the undisclosed foreign asset should be held by the declarant on the date of declaration?

Answer: No, there is no such requirement. The declaration may be made if the foreign asset was acquired out of undisclosed income even if the same has been disposed off and is not held by the declarant on the date of declaration.

Black Money Compliance Scheme – Q&A.TheQuestion : Whether at the time of declaration under Chapter VI, will the Principal Commissioner/Commissioner do any enquiry in respect of the declaration made?

Answer: After the declaration is made the Principal Commissioner/ Commissioner will enquire whether any information has been received by the competent authority in respect of the asset declared. Apart from this no other enquiry will be conducted by him at the time of declaration. Question : A person was employed in a foreign country where he acquired or made an asset out of income earned in that country. Whether such asset is required to be declared under Chapter VI of the Act?

Answer: If the person, while he was a non-resident in India, acquired or made a foreign asset out of income which is not chargeable to tax in India, such asset shall not be an undisclosed asset under the Act.

However, if income was accrued or received in India while he was non-resident, such income is chargeable to tax in India. If such income was not disclosed in the return of income and the foreign asset was acquired from such income then the asset becomes undisclosed foreign asset and the person may declare such asset under Chapter VI of the Act.

Re-Assessment of

Income

Re-Assessment of Income If the Assessing Officer has reason to believe that any income chargeable to

tax has escaped assessment for any assessment year, he may, subject to the provisions of section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year)

Scope of reassessment• Can assess or reassess any income which has escaped assessment • Can recompute the loss or depreciation allowance • Can assess or reassess any other income (which is not the subject matter of any

appeal or revision) which has escaped assessment • Cannot reduce the income below what has already been assessed in the original

assessment

Procedure For Re-assessment Proceedings (GKN Drive Shafts (I) Ltd. 259 ITR 19 (SC))

Issue of Notice - Check limitation

File the Return of Income

Application for certified copy of “Reason to Believe”

File the objections for deficiencies in “Reason”

AO to dispose off “Objections” by speaking order

Proceedings – Issue of notice u/s 143(2) / 142(1)

Maintainability of Writ Petition challenging Reassessment Proceedings ?• CALCUTTA DISCOUNT CO. LTD. 41 ITR 191 (SC) : A Writ Petition is maintainable to challenge invocation of

reassessment even though it is open to assessee to challenge same before AO during assessment and also before appellate authority.

• Samsung India Electronics P. Ltd. 362 ITR 460 (DEL): In view of procedure laid down by SC in GKN Driveshaft India Ltd.; the Assessee directed to file objections before AO and in case objections are rejected, it would be open to assessee to approach the High Court.

Aroni Commercials Ltd 367 ITR 405 (Bombay)

Reopening u/s 147 on the basis of change of opinion hits the validity to enter into the jurisdiction to reopen completed assessment.

Distinguishes jurisdiction facts(JF) with adjudicatory facts(AF).

JF are facts which gives jurisdiction to enter upon enquiry, while AF activated after valid invocation of jurisdiction .

If JF itself matter of factual enquiry ; Then Court in its discretion may not entertain the writ petition.

In this case, challenge is to JF ie pre-condition for issuing notice u/s. 147 is not satisfied, i.e., notice should not be basis change of opinion. Hence, only when JF are satisfied AO acquire the authority to deal with the matter on adjudicatory facts. In this case JF not satisfied hence notice quashed.

MATTERS REGARDING ISSUE OF NOTICE Issue of notice & recording of reason to believe by same AO• HYNOUP FOOD AND OIL INDUSTRIES LTD. 307 ITR 115 (Guj.) : Assessing Officer recording

reasons under section 148(2) and Assessing Officer issuing notice under section 148(1) has to be same person; successor Assessing Officer cannot issue notice under section 148 on basis of satisfaction recorded by predecessor Assessing Officer, because reason to believe that income liable to tax for assessment year has escaped assessment within meaning of section 147 has to be of Assessing Officer concerned, viz., Assessing Officer issuing notice under section 148

Issue : Where reopening made by AO not having jurisdiction over assessee (i.e notice by non-jurisdictional AO) and final assessment by non-jurisdictional AO as proceedings are transferred mid way is valid?

No Paramjeet Singh 220 ITR 446 (P&H) : Assessee's original assessment was completed at Pune -

Thereafter he shifted to Jalandhar - His assessment records had not been transferred to Assessing Officer at Jalandhar by passing an order under section 127 - On basis of complaints received from assessee's relative Assessing Officer at Jalandhar initiated reassessment proceedings by issuing notice under section 148 - Whether Assessing Officer at Jalandhar had no jurisdiction to re-open assessment and, therefore, notice issued under section 148 was liable to be quashed

Anjali Dua 219 CTR 183 (Del) Ranjit Singh 120 TTJ 517 (Del)

Issue of Notice for re-assessment Issue in 147 Vs. Serve in 143(2)

Sec 149 - No notice U/s 148 shall be issued for re-assessment

• Sec 148 – Before making assessment/reassessment U/s 147 AO shall serve on assessee a notice requiring him to furnish Return of Income.

Time limit is for ‘issue’ & not ‘service’ of notice U/s 148 (within 6 years from end of AY) Section 149 (Mayawati vs. CIT (2010) 321 ITR 349 (Del.)) Where petitioner-assessee declined to accept notice under section 148 three times at three addresses which belonged to assessee at relevant time, service of notice was to be presumed under section 27 of General Clauses Act, 1897

Condition Limitation Period

If escaped amount likely to be Rs. 1 lakh or more

Notice be issued with in six years from the end of relevant assessment year

If escaped amount likely to be less than Rs. 1 lakh

Notice be issued with in four years from the end of relevant assessment year

CONNECTED ISSUES TO NOTICE

Sec. 282 Service of notice generally.

282.(1) The service of a notice or summon or requisition or order or any other communication under this Act (hereafter in this section referred to as “communication”) may be made by delivering or transmitting a copy thereof, to the person therein named,—

(a)by post or by such courier services as may be approved by the Board; or

(b)in such manner as provided under the Code of Civil Procedure, 1908 (5 of 1908) for the purposes of service of summons; or

(c)in the form of any electronic record as provided in Chapter IV of the Information Technology Act, 2000 (21 of 2000); or

(d)by any other means of transmission of documents as provided by rules made by the Board in this behalf.

CONNECTED ISSUES TO NOTICESec 292B Return of income, etc., not to be invalid on certain grounds.

No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.]

 Sec 292BB Notice deemed to be valid in certain circumstances.

Where an assessee has appeared in any proceeding or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was—

(a) not served upon him; or

(b) not served upon him in time; or

(c) served upon him in an improper manner:

Provided that nothing contained in this section shall apply where the assessee has raised such objections before the completion of such assessment or reassessment.

SECTION 282 SERVICE OF NOTICE GENERALLY RAJESH KUMAR SHARMA 165 TAXMANN 488 (DEL) : (282) : Where revenue not been able to

show that envelope containing notice under section 148 was correctly addressed, revenue’s case that envelope did not return with any remark to effect that it was undelivered and so it must be presumed that it was actually served upon assessee was unsustainable. Assessee entered into appearance, after receiving notices under sections 142(1) and 143(2) and categorically denied receipt of notice under section 148, argument of revenue that his appearance was in response to notice under section 148 did not advance case of revenue that notice under section 148 was actually served upon assessee.

HOTLINE INTERNATIONAL 161 TAXMANN 104 (DEL) : 282 : As per order V, rule 12 of the Code of Civil Procedure that wherever it is practicable, the service has to be effected on defendant in person or on his agent. Admittedly, in the instant case, notice under section 148 was not tendered to the assessee nor the same was refused at all by the assessee. It was an admitted case of the revenue that when the officials of the Department went to serve the notice under section 148 for the relevant assessment year, the security guard informed them that the company was closed for the Holi festival holidays. The security guard by no stretch of imagination could be said to be the agent of the assessee and, admittedly, no notice was tendered either to the assessee or his agent nor the same was refused either by the assessee or his agent.

• Under order V, rule 17 of the Code of Civil Procedure, the affixation can be done only when the assessee or his agent refused to sign the acknowledgement or could not be found. In the instant case, no effort was made by the Income-tax Department to serve the notice upon the assessee, since the company of the assessee was closed due to Holi festival holidays, and, admittedly, no effort was made by the serving officer to locate the assessee.

MATTERS REGARDING ISSUE OF NOTICE Issue : Participation by assessee in assessment proceedings on receipt of copy of

notice can be deemed to be service of notice u/s 148(1)

CIT v Three Dee Exim(P)Ltd.(2012) 20 taxman 146 (Del)

Assessment of assessee-company was completed under section 143 - Thereafter, on receipt of an information a notice under section 148 was issued at address other than present address of assessee - In response to said notice counsel for assessee appeared before Assessing Officer and sought adjournment and on that date a photo copy of said notice was given - By a letter assessee stated that return originally filed be treated as return filed in response to said notice - On second appeal, Tribunal held that notice was sent at address other than present address of assessee and hence service of notice was not valid - Whether participation of assessee in assessment proceedings on receipt of copy of notice can be deemed to be service of notice within meaning of section 148(1) - Held, yes - Whether therefore, Tribunal was not correct in annulling assessment framed by Assessing Officer

Issue : Sec 143(2) v Sec 148:

ALSTOM T&D INDIA LIMITED 45 TAXMAN.COM 424 (MAD.) : Where Assessee requested AO to treat Original Return as one in response to Sec 148, notice U/s 143(2) was mandatory otherwise re-assessment would be bad in law.

REASONS TO BELIEVE : CHANGE OF OPINION (1)1. (19.04.02) KELVINATOR OF INDIA LIMITED 123 TAXMANN 433 (DEL): Whether

even after amendment of section 147 with effect from 1-4-1989, a mere change in opinion would not confer jurisdiction upon Assessing Officer to initiate a proceeding under section 147 - Held yes - Whether Circular No. 549 allay fears that omission of expression ‘reason to believe’ from section 147 would give arbitrary powers to Assessing Officer to reopen past assessments on mere change of opinion - Held, yes - Whether by reason of section 147 if ITO exercises its jurisdiction for initiating a proceeding for reassessment only upon mere change of opinion, same may be held to be unconstitutional - Held, yes - Whether, however, if ‘reason to believe’ of Assessing Officer is founded on an information which might have been received by Assessing Officer after completion of assessment, it may be a sound foundation for exercising power under section 147, read with section 148 - Held, yes

2. (23.05.07) RAJESH JHAVERI STOCK BROKERS PVT. LTD. 161 TAXMAN 316 (SC): Intimation under section 143(1)(a) cannot be treated to be an order of assessment. As also, no opinion is expressed therein.

3. (08.08.08) BATRA BHATTA COMPANY 174 TAXMAN 444 (DEL): In the absence of anything new on record merely to scrutinize information available in return section 148 cannot be resorted and has observed that Rajesh Javeri has not diluted this legal position and has rather vindicated it.

REASONS TO BELIEVE : CHANGE OF OPINION (2)4.(18.01.10) KELVINATOR OF INDIA LIMITED 187 TAXMANN 312 (SC): Assessing

- , Officer has power to re open provided there is ‘ ’tangible material to come to conclusion that ; there is escapement of income from assessment reasons must have a live link with formation

of belief

5. O.P CHAWLA 114 ITD 69 (DEL)(TM): The fact that the notice of reopening was not prompted by a mere change of opinion cannot save the notice if the Assessing Officer had no ‘reason to believe’ but had only ‘reason to suspect’ that income chargeable to tax had escaped assessment. Secondly, a ‘change of opinion’ - a re-look or review of the facts without any further facts or a change in the law - does not exhaust the meaning and content of the expression ‘reason to believe’. It is only one facet or illustration of what does not amount to ‘reason to believe’. There may be several other facets or cases or illustrations or fact-situations of what cannot be construed as ‘reason to believe’. For example, there can be a case of reopening based merely on suspicion, gossip or rumour. There can be a case of a mere pretence and masquerading as a reason to believe. A change of opinion on the same facts and legal position is only one instance of what is not ‘reason to believe’. Therefore, merely because the instant case for whatever reason was not covered by the yardstick of a mere change of opinion, it did not automatically follow that it fulfilled all the requirements of the expression ‘reason to believe’.

REASSESSMENT PROCEEDINGS - PROCEDURE• “Reasons to believe” not furnished to the assessee before completion

of assessment, held reassessment not valid

  CIT v. Videsh Sanchar Nigam Ltd. (2011) 340 ITR 66 (Bom.)

  Where reasons recorded for reopening of assessment, though repeatedly asked by assessee, were furnished only after completion of assessment, reassessment order could not be upheld

Tata International Ltd. vs. DCIT (2012) 52 SOT 465

Reasons actually recorded by Assessing Officer for reopening of assessment were not furnished to assessee despite repeated requests and demands - In notice, only gist of reasons was furnished to assessee - Whether mere gist of reason could not be treated as reasons actually recorded as per section 148(2) and, as a consequence, reassessment proceedings initiated in pursuance of said notice were to be set aside

REASSESSMENT PROCEEDINGS - PROCEDURE• Reassessment framed by the assessing officer invalid and to be set aside

Without disposing of the objection :

Rabo India Finance Ltd vs DCIT (2012) 27 taxman 163(Bom)

Order of reassessment passed without disposing of objections of assessee would be invalid  

IOT Infrastructure and Eng Services Ltd vs ACIT (2010) 329 ITR 547 (Bom)

  Where Assessing Officer did not deal with objections filed by assessee to reopening of assessment, in view of decision of Supreme Court in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19, matter was to be remitted to Assessing Officer to pass fresh order on objections raised by assessee to proposed reassessment

Principles from Sun Engineering Works P Ltd. 64 TAXMAN 442 (SC)1.On reassessment u/s 147,original assessment is not wiped off but it remains.

2.Matters lost in original assessment proceedings which have since acquired finality (i.e. against which no appeal / rectification application / revision application filed) cannot be claimed in reassessment proceedings. Hence, expenses disallowed / incomes taxed in original assessment against which no appeal / revision / rectification application filed cannot be claimed as allowable / non-taxable in the reassessment proceeding u/s 147.

3.Expenses not claimed in original assessment cannot be claimed in reassessment proceedings u/s 147. But, the expenses pertaining to income which has escaped assessment can be claimed.

4.U/s 147 the income cannot be reduced below the income originally assessed. Similarly, u/s 147 the losses cannot be assessed above the losses originally assessed.

5.Section 147 is for the benefit of revenue and not for the benefit of the assessee. Therefore, if no return was filed earlier and no assessment was made earlier, then u/s 147, the AO cannot compute the loss of the assessee.

Finance Act 2015 Re-Assessment u/s 147 (w.e.f. 01.06.2015)

Section Existing Proposed

151 r/w 148

Complicated sanctioning mechanism u/s 151 for issuing re assessment notice u/s 148 based on:1.Whether earlier scrutiny u/s 143(3) or 147;2.Whether notice within or after 4 years from end of relevant AY3.The rank of AO proposing to issue notice.

Simplicity proposed to substitute existing section 151:

No notice u/s 148 by AO upto 4 years from end of relevant AY who is below the rank of JCIT unless JCIT satisfied on reasons recorded by AO that its fit case for notice.

No notice u/s 148 by AO beyond 4 years from end of relevant AY unless prior approval of CCIT or CIT on reasons recorded by AO that its fit case for notice.

SANCTIONS & APPROVALS SEC 151 (2) • CHHUGAMAL RAJPAL 79 ITR 603 (SC) Whether ITO had not even come to a prima

facie conclusion that transactions to which he referred were not genuine transactions and conclusion arrived on a vague feeling that they might be bogus transactions did not fulfil requirements of section 151(2) Held, yes – Whether his conclusion that there was a case for investigating as to truth of alleged transactions, was not same thing as saying that there were reasons to issue notice under section 148 – Held, yes – Whether report submitted by ITO under section 151(2) did not mention any reason for coming to the conclusion that it was a fit case for issue of a notice under section 148 and Commissioner had mechanically accorded permission – Held, yes – Whether important safeguards provided in sections 147 and 151 were lightly treated by ITO as well as by Commissioner and, therefore, impugned notice was invalid and had to be quashed.

• VINITA JAIN 163 TAXMANN 325 (DEL) From the decision of the Supreme Court in Chhugamal Rajpal v. S.P. Chaliha [1971] 79 ITR 603, it is clear that a mere statement of facts in the form of a report is not a substitute for reasons that are required to be recorded before issuing a notice under section 148. The Supreme Court also noted that substance cannot be substituted by form and it is in that context that the Supreme Court expressed the view that by merely saying ‘Yes’, the Commissioner did not fulfil the duty cast upon him.

REASSESSMENT PROCEEDINGS - PROCEDURE

Any other income comes to notice during the assessment proceeding – [Expln. 3 to sec. 147]

CIT v Bestwood Industries & Saw mills (2011) 11 Taxmann.com 278 (Ker)(FB)

Whether in course of income escaping assessment, if it comes to notice of Assessing Officer that any other item or items of income, other than item of escaped income for assessment of which assessment originally completed was reopened, also have escaped from original assessment, he is bound to assess such item or items of income also in course of reassessment under section 147

REASSESSMENT PROCEEDINGS - PROCEDUREIf income for which reasons were recorded not assessed, any other income can’t be assessed

CIT vs. Jet Airways (I) Ltd. (2011) 331 ITR 236(Bom)

Whether an Explanation to a statutory provision is intended to explain its content and cannot be construed to override it or to render substance and core nugatory - Held, yes - Whether after insertion of Explanation 3 to section 147 by Finance (No. 2) Act, 2009, with effect from 1-4-1989, section 147 has an effect that Assessing Officer has to assess or reassess income ('such income') which escaped assessment and which was basis of formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during course of proceedings - Held, yes - Whether, however, if after issuing a notice under section 148, he accepts contention of assessee and holds that income, for which he had initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income; if he intends to do so, a fresh notice under section 148 would be necessary, legality of which would be tested in event of a challenge by assessee

REASSESSMENT PROCEEDINGS - PROCEDUREReassessment Proceedings can be dropped [Sec 152(2)]

• Not filed an appeal or revision application against original assessment order; and • Already been assessed at a higher rate than what he would be liable to when escaped income is also

taken into account  

Time limit for completion of reassessment under section 153(2)  Notice served:• Before 1 April 2011 - To be completed within 9 months from the end of the FY in which notice

served • After 1 April 2011 - To be completed within 1 year from the end of the FY in which notice served   

In case of transfer pricing proceedings• Notice served after 1 Apriil 2010 - To be completed within 24 months from the end of financial year in

which notice served • If reference to TPO is made before 1.07.2012 but order under section 92CA(3) is not made or ; • In case reference is made after 1.07.2012

– Otherwise, To be completed within 21 months from the end of financial year in which notice served

TDS/Reporting

U/s

195(6) + Rule 37 BB + Form 15 CA&15CB

ON

Amendment to SEC. 195(6) r/w Rule 37BB & Form 15CA & 15CB

Sec 195(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) [or section 194LD] or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries")

Before Amendment After Amendment

The person referred to in sub-section (1) shall furnish the information relating to payment of any sum in such form and manner as my be prescribed by the Board

The person responsible for paying to a non-resident, (not being a company), or to a foreign company, any sum, whether or not chargeable or not-chargeable to tax under the provisions of this Act, shall furnish the information relating to payment of such sum, in such form and manner as may be prescribed

RULE 37BB

Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or salary or any other sum chargeable to tax under the provisions of the Act, shall furnish the following, namely:—

(i) the information in Part A of Form No.15CA, if the amount of payment does not exceed fifty thousand rupees and the aggregate of such payments made during the financial year does not exceed two lakh fifty thousand rupees;

(ii) the information in Part B of Form No.15CA for payments other than the payments referred in clause (i) after obtaining—

• (a) a certificate in Form No. 15CB from an accountant as defined in the Explanation below sub-section (2) of section 288; or

• (b) a certificate from the Assessing Officer under section 197; or

• (c) an order from the Assessing Officer under sub-section (2) or sub-section (3) of section 195.

TAXABILITY OF PAYMENT TO NON-RESIDENT FOR IMPORTS

Sec 195 only machinery provision chargeability of non resident income as per Sec 5(2) r/w Sec 9(1)

Income from imports is “Business Income” as per Sec 9(1)(i)

Judicial precedents on Taxability of payments for import

Vodafone International Holdings BV (2012) 204 TAXMAN 408 (SC)

GE Technology Pvt. Ltd. (2010) 193 TAXMAN 234 (SC)

Conclusion : Import of Goods not liable to tax (IF)o The contract between the parties are on “principal to principal basis”

and at “arm’s length basis”,o Contracts to sell are made by the non-resident outside India.,o Delivery of the goods are taken outside India on FOB basis and,o The non-resident exporter of goods does not have any business

connection or permanent establishment in India.

LIST OF DOCUMENTS FOR IMPORTS Tax Residency Certificate

Form 10F signed by the vendor

A declaration from vendor stating he does not have business connection or permanent establishment (PE) in India.

The contract of sale is entered on principal to principal at arm’s length with non-resident signed outside India.

Penalty U/s 271-Io If a person, who is required to furnish information U/s 195(6), fails to

furnish such information; or furnishes inaccurate information, AO may direct by way of penalty, a sum of one lakh rupees.

o Presently Rule 37BB & Form 15CB require if remittance chargeable to tax o Hence CBDT not yet prescribed anything for reporting payments not

chargeable to tax

o Though, when conflict between “Act” & “Rules” Rules prevail BUT Rules not yet prescribed.

o When two interpretations possible one in favor of Assessee is preferred. Poddar Cement Ltd. 226 ITR 625 (SC) Vegetable Products Ltd. 88 ITR 192 (SC)

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