Significant Circulars/Notifications/Press Releases/Instructions/Office Memorandumissued by CBDT during the period 16.01.2017- 15.02.2017
I.NOTIFICATIONS
- Procedure for registration and submission of statement of financial transactions(SFT) as per section 285BA of Income-tax Act, 1961 read with Rule 114E of Income-taxRules, 1962- Notification No. 1/2017, dated 17-01-2017
Section 285BA requires specified reporting persons to furnish statement of financial transaction (SFT). Rule 114E specifies that the SFT required to be furnished under section 285BA(1) shall be furnished in Form No. 61A. The nature and value of transaction to befurnished by the reporting person under Rule 114E is enclosed as an Annexure to this notification.
As per Rule 114E(6)(a), every reporting person/entity shall communicate to the Principal Director General of Income-tax (Systems) {PDGITS} the name, designation, addressand telephone number of the Designated Director and the Principal Officer and obtain aregistration number. The procedure for registration for SFT was specified in Notification No. 13/2016, dated 30.12.16. The functionality forsubmission of SFT has now been enabled and the earlierinstruction is being updated on the e-filing portal.
As per Rule 114E(4)(a), the SFT shall be furnished through online transmission of electronic data to a server designated for thispurpose under the digital signature of the person specified in Rule 114E(7) and in accordancewith the data structure specified in this regard by the PDGITS. The Post Master General or a Registrar or an Inspector General have theoption to furnish the statement in a computer readable media, being a Compact Disc orDigital Video Disc (DVD), alongwith verification in Form-V on paper. The SFT shall be furnished on or before the 31st May, immediately following thefinancial year in which the transaction is registered or recorded. The SFT in respect of cash deposits during the period 1.4.16 to 8.11.6 and 9.11.16 to 30.12.16 shall be furnished on or before the31.1.17.
As per Rule 114E(4)(b),PDGITS shall specify the procedures, data structures and standards for ensuring securecapture and transmission of data, evolving and implementing appropriate security, archivaland retrieval policies.
In exercise of the powers delegated by the CBDT under Rule 114E(4)(a)/ (4)(b), the PDGITShas laid down the detailed procedures covering the following:
a) Registration and Generation of Income Tax Department Reporting Entity Identification Number (ITDREIN)
b) Registration of designated director and principal officer
c) Submission of Form 61A
d) Submission of correction statement
e) Security, archival and retrieval policies
- Application for allotment of PAN and TAN through a common application form to be notified by the Central Government in the Official Gazette- Notification No. 9/2017, dated 09-02-2017
Section 139A provides for various situations wherein an assessee is mandatorily required to apply for Permanent Account Number (PAN). Similarly section 203A provides that every person, deducting tax or collecting tax, who has not been allotted a tax deduction account number (TAN) or, as the case may be, a tax collection account number, shall, within such time as may be prescribed, apply to the Assessing Officer for the allotment of a "tax deduction and collection account number".
Accordingly Rule 114 and 114A provides for the time limit, form no and other conditions governing applicationof PAN and TAN.
Rule 114 provides that application for allotment of PAN would be in Form 49A or 49AA. Similarly, rule 114A provides that application for allotment of TAN would be in form 49B.
Vide this notification, it has now been provided that an applicant may apply for allotment of permanent account number/ tax deduction and collection account number through a common application form notified by the Central Government in the Official Gazette, and the Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems) shall specify the classes of persons, forms and formats along with procedure for safe and secure transmission of such forms and formats in relation to furnishing of permanent account number/ tax deduction and collection account number.
The complete text of the above Notifications can be downloaded from the link below:
II.CIRCULARS
- Clarifications on the Taxation and Investment Regime for Pradhan Mantri GaribKalyan Yojana, 2016- Circular No. 2/2017, Dated 18-01-2017
The Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016 has commenced on 17.12.16 and is open for declarations up to 31.3.17. The CBDT received queries from stakeholders seeking clarifications about various provisions of the Scheme and after examination of the same, a set of twelve FAQs has been issued on 18.01.2017 vide this circular. The aforesaid Circular inter alia provides clarifications on issues such as the deposits eligible for being declared under the Scheme, eligibility for making a declaration under the Scheme, adjustment of seized cash against the payment of tax, surcharge and penalty under the Scheme, non-availability of credit for advance tax paid, TDS and TCS in respect of an income declared under the scheme etc.
- Explanatory Notes tothe provisions of the Finance Act, 2016 - Circular No. 3/2017, Dated 20-01-2017
Explanatory notes to the provisions of Finance Act, 2016 as assented by President on 14th May, 2016 have been given by way of this circular. This circular thus explains the substance of the direct tax provisions of the Act contained in the Finance Act, 2016.
- Circular No. 41/2016 [F. No. 500/43/2012-FT&TR] dated 21.12.2016 dealing with clarification on indirect transfer provisions under the Income-tax Act, 1961to be kept in abeyance for the time being - Circular No.4/2017, Dated 20-01-2017
Circular No. 41/2016, issued on 21.12.2016, dealt with clarification on indirect transfer provisions. After the issue of the aforementioned circular, representations were received by the CBDT from various FPIs, FIIs, VCFs and other stakeholders. The stakeholders have presented their concerns stating that the circular does not address the issue of possible multiple taxation of the same income. The representations made by the stakeholders are currently under consideration and examination. Pending a decision in the matter, the operation of the above mentioned CBDT circular is kept in abeyance for the time being
- Measures for reducing litigation - Clarification on Circulars 21/2015 and 8/2016 - Circular No. 5/2017, Dated 23-01-2017
Instructions were issued vide CBDT Circular No. 21/2015 dated 10-12-2015, to the effect that appeals/SLPs, should not be filed in cases where tax effect does not exceed the monetary limits specified under para 3 of the said Circular. It was also clarified therein that an appeal should not be filed merely because the tax effect in a case exceeds the monetary limits prescribed in the said Circular.
In para 8 of the aforesaid Circular No. 21/2015, it has been unambiguously and expressly provided that adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in Circular or even if there is no tax effect:
a.Where the Constitutional validity of the provisions of an Act or Rule are under challenge, or
b.Where Board's order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or
c.Where Revenue Audit Objection in the case has been accepted by the Department
d.Where the addition relates to undisclosed foreign assets/bank accounts.
The direction to 'contest on merits' negates the mechanical filing of appeals in these cases.
However, it was noticed by the CBDT that para 8(c) of Circular No. 21/2015, regarding cases where addition made on account of Revenue Audit Objection is deleted, is being erroneously interpreted and appeals are being mechanically filed by the Department without proper examination of the case on merits. This is contrary to the instructions contained in Circular No. 21/2015 and Circular No. 8/2016. It is, therefore, clarified that the import and intent of para 8 of the Circular No. 21/2015 is that even on issues mentioned in the said para, appeals against the adverse judgment should only be filed on merits.
Accordingly, henceforth, appeals should not be filed by the Department in violation of instructions mentioned above. Further, appeals that may have been filed in violation of these instructions may be withdrawn.
- Guiding Principles for determination of Place of Effective Management (POEM) of a Company - Circular No. 6/2017, Dated 24-01-2017
The concept of POEM for deciding the residential status of a company is effective from 01.04.2017and accordingly shall apply fromassessment year 2017-18 onwards. The guidelines for determining the POEM has beenissued vide this Circular. Theseguidelines of POEM have been finalised, after placing draft guidelines in public domain forseeking comments from stakeholders and general public, and with extensive consultationsthereafter.
The final guidelines on POEM contain some unique features. Active Business OutsideIndia (ABOI) test has been provided, so as not to cover companies outside India which areengaged in active business. The intent is not to target Indian Multi Nationals which are engagedin business activity outside India. The intent is to target shell companies and companies whichare created for retaining income outside India although real control and management of affairsis located in India.
It is emphasised that these guidelines are not intended to cover foreigncompanies or to tax their global income, merely on the ground of presence of PermanentEstablishment or Business connection in India.Adequate administrative safeguards have been incorporated in the guidelines bymandating that the Assessing officer, before initiating inquiry for POEM in a case of ataxpayer, will seek approval from Principal Commissioner of Income Tax/ Commissioner ofIncome-tax. The Assessing Officer shall also obtain approval from Collegium of Principal Commissioners ofIncome-tax before holding that POEM of a non-resident company is in India.
It has been further decided that the POEM guidelines shall not apply to companieshaving turnover or gross receipts of Rs. Fifty crore or less in a financial year.
The guidelines also contain illustrations to clarify the situations whether POEM shall orshall not apply.
- Clarifications on implementation of GAAR provisions under the Income-tax Act, 1961 - Circular No. 7/2017, Dated 27-01-2017
The provisions of General Anti Avoidance Rule (GAAR) are contained in Chapter X-A of the Income-tax Act, 1961. The GAAR provisions shall be effective from assessment year 2018-19 onwards, i.e. financial year 2017-18 onwards. The necessary procedures for application of GAAR and conditions under which it shall not apply, have been enumerated in Rules 10U to 10UC of the Income-tax Rules, 1962.
Stakeholders and industry associations had requested for clarifications on implementation of GAAR provisions and a Working Group was constituted by CBDT to examine the issues raised. Accordingly, CBDT has issued the clarifications on implementation of GAAR provisions on 27th January, 2017 vide this Circular.
Amongst others, it has been clarified that if the jurisdiction of FPI is finalized based on non-tax commercial considerations and the main purpose of the arrangement is not to obtain tax benefit, GAAR will not apply. GAAR will not interplay with the right of the taxpayer to select or choose method of implementing a transaction. Further, grandfathering as per IT Rules will be available to compulsorily convertible instruments, bonus issuances or split / consolidation of holdings in respect of investments made prior to 1st April 2017 in the hands of same investor. It has also been clarified that adoption of anti-abuse rules in tax treaties may not be sufficient to address all tax avoidance strategies and the same are required to be tackled through domestic anti-avoidance rules. However, if a case of avoidance is sufficiently addressed by Limitation of Benefits (LoB) provisions in the tax treaty, there shall not be an occasion to invoke GAAR.
It has been clarified that if at the time of sanctioning an arrangement, the Court has explicitly and adequately considered the tax implications, GAAR will not apply to such an arrangement. It has also been clarified that GAAR will not apply if an arrangement is held as permissible by the Authority for Advance Rulings. Further, it has been clarified that if an arrangement has been held to be permissible in one year by the PCIT/CIT/Approving Panel and the facts and circumstances remain the same, GAAR will not be invoked for that arrangement in a subsequent year.
The proposal to apply GAAR will be vetted first by the Principal Commissioner of Income Tax / Commissioner of Income Tax and at the second stage by an Approving Panel headed by a judge of High Court. The stakeholders have been assured that adequate procedural safeguards are in place to ensure that GAAR is invoked in a uniform, fair and rational manner.
Vide Press Release dated 27.1.2017, the Government has reinstated its commitment to provide certainty and clarity in tax rules. The Government has also assured that further clarifications, if any, on doubts of stakeholders regarding GAAR implementation, will also be provided.
The detailed circulars can be downloaded from the link below:
III.PRESS RELEASES/INSTRUCTIONS/OFFICE MEMORANDUM
- India participates in JITSIC meeting on ‘Panama Papers’ – Press Release, dated 20-01-2017
India participated in the Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) meeting held in Paris on 16th and 17th January 2017 where 30 Revenue Authorities shared their findings on investigations arising from the Panama Papers including the role of tax intermediaries such as financial institutions, advisers etc., who facilitate tax evasion. The meeting included sharing of best practices and information between participating member countries based on legal instruments under the tax treaties and OECD and Council of Europe Multilateral Convention. The sharing of this information within a group of this size is unique and sets the basis for greater cooperation amongst tax administrations.
Since the last JITSIC meeting of this group, significant achievements have been made including the development of uniform approaches to requesting information between treaty partners, clearer understanding of the evasion typologies adapted by intermediaries, and new techniques for collating intelligence. JITSIC will continue to draw on the best intelligence capabilities from tax authorities around the world and share best practices for data analysis and collaboration on intelligence. The tax administrations will, accordingly, continue to share information under existing legal frameworks for exchange.
- Transfer of unlisted shares by SEBI registered Category I & II Alternative Investment Funds - Directions (F.No.225/12/2016/ITA.II), dated 24-01-2017
Vide order dated 02.05.2016 in F.No.225/12/2016/ITA.II, the CBDT had clarified the position regarding tax treatment of income arising from transfer of unlistedshares. It was communicated that income from such a transfer would be taxable as 'Capital Gains'irrespective of the period of holding of the unlisted shares. However, certain situations were provided inpara 3 of the said order where the Assessing Officers were required to take appropriate view in thematter. In this regard, a representation was received that the exception in clause (iii) ofpara 3 regarding transfer of unlisted shares along with 'control and management of the underlyingbusiness' should not be made applicable in case of certain Alternative Investment Funds ('AIFs').
Considering that SEBI registered Category I & II AIFsprimarily invest in unlisted shares of ventures, many of which are new set-ups or start-ups, and thus, some form of'control and management of the underlying business' may be required to be exercised by such AIFs tosafeguard the interest of the investors, the CBDT has further clarified that exception in clause (iii) ofpara 3 of order dated 02.05.2016 in file of even number, would not be applicable in cases of SEBIregistered Category I & II AIFs only.
- Income Tax Department (ITD) launches Operation Clean Money [स्वच्छधनअभियान]–Press Release, dated 31-01-2017
Income Tax Department (ITD) has initiated Operation Clean Money on 31.1.17. Initial phase of the operation involves e-verification of large cash deposits made during 9th November to 30th December 2016. Data analytics has been used for comparing the demonetisation data with information in ITD databases. In the first batch, around 18 lakh persons have been identified in whose case, cash transactions do not appear to be in line with the tax payer’s profile.
ITD has enabled online verification of these transactions to reduce compliance cost for the taxpayers while optimising its resources. The information in respect of these cases is being made available in the e-filing window of the PAN holder (after log in) at the portal The PAN holder can view the information using the link “Cash Transactions 2016” under “Compliance” section of the portal. The taxpayer will be able to submit online explanation without any need to visit Income Tax office.
Email and SMS will also be sent to the taxpayers for submitting online response on the e-filing portal. Taxpayers who are not yet registered on the e-filing portal (at should register by clicking on the ‘Register Yourself’ link. Registered taxpayers should verify and update their email address and mobile number on the e-filing portal to receive electronic communication.
A detailed user guide and quick reference guide is available on the portal to assist the taxpayer in submitting online response. In case of any difficulty in submitting on line response, help desk at 1800 4250 0025 may be contacted.
Data analytics will be used to select cases for verification, based on approved risk criteria. If the case is selected for verification, request for additional information and its response will also be communicated electronically. The information on the online portal will be dynamic getting updated on receipt of new information, response and data analytics.
The response of taxpayer will be assessed against available information. In case explanation of source of cash is found justified, the verification will be closed without any need to visit Income Tax Office. The verification will also be closed if the cash deposit is declared under Pradhan Mantri Garib Kalyan Yojna (PMGKY).
The taxpayers covered in this phase should submit their response on the portal within 10 days in order to avoid any notice from the ITD and enforcement actions under the Income-tax Act as also other applicable laws.
- Salient Direct Tax Proposals in Union Budget 2017–Press Release, dated 1-02-2017
The Union Budget 2017 was laid before the Parliament on 1.2.17 by the Hon’ble Finance Minister of India. The salient features of Direct Tax proposals are summarised below:
I. Affordable Housing:
1.Three concessions in the scheme of Income Tax exemption for affordable housing: