Significant Circulars/Notifications/Press Releases/Instructions/Office Memorandum issued by CBDT during the period 16.04.2017- 16.05.2017
I. NOTIFICATIONS
1. Rule 17CB inserted in the Income-tax Rules, 1962 prescribing method of valuation of assets and liabilities for the purposes of determining the “accreted income” for levy of exit tax - Notification No. 32/2017, dated 21-04-2017
Chapter XII-EB of the Income-tax Act, 1961 containing the sections 115TD to 115TF was introduced vide the Finance Act, 2016. The said Chapter contains provisions relating to tax on accreted income of certain trusts and institutions.
As per section 115TD(1), the accreted income of a trust or institution registered under section 12AA shall be taxable at the maximum marginal rate on –
(1) conversion of the trust or institution into a form not eligible for grant of registration under section 12AA; or
(2) merger with an entity not having similar objects and registered under section 12AA; or
(3) non-distribution of assets on dissolution to any charitable institution registered under section 12AA or approved under section 10(23C) within a period of 12 months from the end of the month in which the dissolution takes place.
This levy of exit tax shall be in addition to income chargeable in the hands of the entity.
As per section 115TD(2), “Accreted Income” means the aggregate FMV of total assets as on the specified date less total liability computed in accordance with the prescribed method of valuation
Accordingly, vide this notification, Rule 17CB providing for method of valuation of assets and liabilities has been inserted in the Income-tax Rules, 1962 from 1.6.2016.
Rule 17CB(1) provides that the aggregate fair market value of the total assets of the trust or institution, shall be the aggregate of the fair market value of all the assets in the balance sheet as reduced by—
(i) any amount of income-tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of income-tax claimed as refund under the Act, and
(ii) any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset.
Clauses (I), (II), (III) and (IV) of Rule 17CB(2) provides for the method of determination of fair market value of shares and securities, immovable property, business undertaking and any other asset, respectively .
Further, Rule 17CB(3) provides that the total liability of the trust or institution shall be the book value of liabilities in the balance sheet on the specified date but not including the following amounts, namely:—
(i) capital fund or accumulated funds or corpus, by whatever name called;
(ii) reserves or surpluses or excess of income over expenditure, by whatever name called;
(iii) any amount representing contingent liability;
(iv) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;
(v) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of income-tax claimed as refund under the Act, to the extent of the excess over the income-tax payable with reference to the income in accordance with the law applicable thereto.
2. New Form No 10-IB notified for the purposes of exercise of option u/s 115BA(4) by domestic companies - Notification No. 36/2017, dated 02-05-2017
Section 115BA has been inserted by the Finance Act, 2016 to provide a concessional rate of tax@25% in case of a domestic company for any previous year relevant to A.Y.2017-18 and thereafter, at the option of the company, if :
(i) the company has been setup and registered on or after 1st March, 2016;
(ii) the company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it; and
(iii) the company while computing its total income has not claimed any benefit under section 10AA, additional depreciation under section 32(1)(iia), investment allowance under section 32AC or section 32AD, deduction under section 33AB and section 33ABA, weighted deduction for scientific research or social science and statistical research under section 35(1)(ii)/(iia)/(iii), 35(2AA), 35(2AB), deduction under section 35AC in respect of expenditure on eligible projects and schemes, investment linked tax deduction under section 35AD, weighted deduction under section 35CCC and 35CCD in respect of expenditure incurred by a company on notified agricultural extension project and notified skill development project; further, while computing its total income, it has not claimed benefit of deduction under Chapter VI-A under the heading “Deductions in respect of certain incomes” other than the provisions of section 80JJAA.
However, for claiming benefit of this concessional rate of tax, the company has to exercise the option in the prescribed manner on or before the due date specified under section 139(1) for furnishing the first of the returns of income which the person is required to furnish under the provisions of the Income-tax Act, 1961. Further, once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.
Also, if a domestic company exercises this option, in its claim for normal depreciation as per the provisions of the Income-tax Act, 1961, the maximum rate of depreciation in respect of any asset would be restricted to 40%.
Accordingly, vide this notification, Rule 21AD has been inserted in the Income-tax Rules, 1962. This Rule requires the option to be be exercised by the domestic company in Form No 10-IB. Accordingly, the application for exercise of option under section 115BA(4) has to be in Form No.10-IB. The option in Form No 10-IB has to be furnished electronically either under digital signature or electronic verification code. The Principal Director General of Income-tax (Systems) or DGIT(S) has to specify the procedure for filing of Form 10-IB and specify the data structure, standards and manner of generation of electronic verification code for purpose of verification of the person furnishing the form. He would also be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to Form 10-IB
3. Central Government notifies the individuals who are eligible for exemption from quoting Aadhaar / Enrolment Id - Notification No. 37/2017, dated 11-05-2017
Section 139AA, inserted by the Finance Act, 2017, requires every person who is eligible to obtain Aadhar number to mandatorily quote Aadhaar number/ Enrolment ID of Aadhaar application form issued at the time of enrolment in the return of income and in the application form for allotment of Permanent Account Number with effect from 1st July, 2017.
Section 139AA(3) empowers the Central Government to notify such person or class or classes of persons to whom, or any State or part of any State, to which, the requirement of mandatory quoting of Aadhaar Number / Enrolment ID of Aadhar application form shall not apply.
Accordingly, the Central Government has, vide this notification, notified that the requirement of quoting of Aadhaar Number / Enrolment ID of Aadhar application form shall not apply to the following individuals if they do not possess the Aadhar Number or Enrolment ID:-
(i) An individual who is residing in the state of Assam, Jammu and Kashmir and Meghalaya.
(ii) An individual who is a non-resident as per the Income-tax Act, 1961.
(iii) An individual of the age of eighty years or more at any time during the previous year.
(iv) An individual who is not a citizen of India.
This notification shall come into force with effect from 1.7.2017.
The complete text of the above Notifications can be downloaded from the link below:
http://www.incometaxindia.gov.in/Pages/communications/notifications.aspx
II. CIRCULARS
1. Clarification on removal of Cyprus from the list of notified jurisdictional area under section 94A of the Income-tax Act, 1961 - Circular No. 15/2017, Dated 21-04-2017
Cyprus was specified as a "notified jurisdictional area" (NJA) under section 94A of the lncome-tax Act, 1961 vide Notification N0. 86/2013 dated 01.11.2013. The said Notification No. 86/2013 was subsequently rescinded vide Notification No. 114 dated 14.12.2016 and Notification No. 119 dated 16.12.2016 with effect from the date of issue of the notification.
The CBDT has, vide this Circular, clarified that Notification No. 86/2013 has been rescinded with effect from the date of issue of the said notification, thereby, removing Cyprus as a notified jurisdictional area with retrospective effect from 01 .11.2013.
2. Lease rent from letting out buildings/developed space along with other amenities in an Industrial Park /SEZ - to be treated as business income - Circular No. 16/2017, Dated 25-04-2017
The issue whether income arising from letting out of premises/developed space along with other amenities in an Industrial Park/SEZ is to be charged under head 'Profits and Gains of Business' or under the head 'Income from House Property' has been subject matter of litigation in recent years. Assessees claim the letting out as business activity, the income arising from which to be charged to tax under the head 'Profits and Gains of Business', whereas the Assessing Officers hold it to be chargeable under the head 'Income from House Property'.
The CBDT has considered the matter. Income from the Industrial Parks/SEZ established under various schemes framed and notified under section 80-IA(4)(iii) is liable to be treated as income from business provided the conditions prescribed under the schemes are met.
In the case of Velankani Information Systems Pvt Ltd (NJRS Citation [2013-LL-0402-44]), the Hon'ble Karnataka High Court observed that any other interpretation would defeat the object of section 80-IA and government schemes for development of Industrial Parks in the country. SLPs filed in this case by the Department have been dismissed by the Hon'ble Supreme Court.
In a subsequent judgment dated 30.4.2014 in ITA No. 76 & 78/2012 in the case of CIT v. Information Technology Park Ltd. (NJRS Citation [2014-LL-0430-141], the Karnataka High Court has reaffirmed its earlier views. It has held that, since the assessee-company was engaged in the business of developing, operating and maintaining an Industrial Park and providing infrastructure facilities to different companies as its business, the lease rent received by the assessee from letting out buildings along with other amenities in a software technology park would be chargeable to tax under the head "Income from Business" and not under the head "Income from House Property". The judgment has been accepted by the CBDT.
In view of the above, it is now a settled position that in the case of an undertaking which develops, develops and operates or maintains and operates an industrial park/SEZ notified in accordance with the scheme framed and notified by the Government, the income from letting out of premises/developed space along with other facilities in an industrial park/SEZ is to be charged to tax under the head 'Profits and Gains of Business'.
Accordingly, henceforth, appeals will not be filed by the Department on the above settled issue and those already filed would be withdrawn/not pressed upon.
The detailed circulars can be downloaded from the link below:
http://www.incometaxindia.gov.in/Pages/communications/circulars.aspx
III. PRESS RELEASES/INSTRUCTIONS/OFFICE MEMORANDUM
1. Signing of two more Unilateral Advance Pricing Agreements by CBDT – Press Release, dated 28-04-2017
The CBDT entered into two Unilateral Advance Pricing Agreements (APAs) on 27th April, 2017, with Indian taxpayers. Both the agreements also have a “Rollback” provision in them.
The APA Scheme was introduced in the Income-tax Act in 2012 and the Rollback provisions were introduced in 2014. The scheme endeavours to provide certainty to taxpayers in the domain of transfer pricing by specifying the methods of pricing and determining the arm’s length price of international transactions in advance for the maximum of five future years. Further, the taxpayer has the option to rollback the APA for four preceding years. Since its inception, the APA scheme has attracted tremendous interest among Multi National Enterprises (MNEs) and that has resulted in more than 800 applications (both unilateral and bilateral) having been filed in just five years.
The two APAs signed on 27.4.17 pertain to Information Technology and Banking & Finance sectors of the economy. The international transactions covered in these agreements include Software Development services, IT enabled services and KPO services.
With these, the total number of APAs entered into by the CBDT has reached 154. This includes 11 bilateral APAs and 143 unilateral APAs. The CBDT expects more APAs to be concluded and signed in the near future. The progress of the APA Scheme strengthens the Government’s commitment to foster a non-adversarial tax regime.
2. CBDT publishes first ever Annual Report of its Advance Pricing Agreement (APA) Programme – Annual Report (2016-17), April 2017
This Annual Report is an initiative of the CBDT to bring into the public domain various statistical and qualitative aspects of India’s APA programme, with a view to encouraging discussion and debate amongst taxpayers, policy makers, media, economists, etc. on the strengths and weaknesses of the programme. This is the first such Annual Report by CBDT on one of its programmes and that lends uniqueness to the report. The first Annual Report on the APA programme could not have been published for a year better than 2016-17, a year in which the CBDT managed to enter into 88 APAs. This is a phenomenal achievement by the CBDT and its officers working in the Foreign Tax & Tax Research Division and in the APA teams at the field level [comprising the Principal CCIT (IT & TP), APA Commissioners, Additional/Joint Commissioners and Deputy/Assistant Commissioners]. The CBDT acknowledges the cooperation and efforts of the applicants and their consultants in making the APA programme a success. The said report is available at the link
file:///C:/Users/user13/Desktop/d/E-Newsletter%206th%20Edition%20May%202017.pdf
3. Income Tax Department simplifies linking PAN with Aadhaar – Press Release, dated 11-05-2017
The Income Tax Department has made it easy for taxpayers to link their PAN with Aadhaar. Responding to grievances of taxpayers regarding difficulties in linking PAN with Aadhar as their names did not match in both systems (Eg. Names with initials in one and expanded initials in another), the Department has come out with a simple solution now.
Taxpayers can go to www.incometaxindiaefiling.gov.in and click on the link on the left pane-> Link Aadhaar, provide PAN, Aadhaar no. and ENTER NAME EXACTLY AS GIVEN IN AADHAAR CARD (avoid spelling mistakes) and submit. After verification from UIDAI, the linking will be confirmed.