Nishant Sejpal – [2024] 169 taxmann.com 500 (Article)

An assessee, whether an individual or a Hindu Undivided Family (HUF), can benefit from an exemption from income tax on capital gains resulting from the transfer of any long-term capital asset excluding residential house property under Section 54F of the Income-tax Act. This exemption from tax is when the proceeds are used to purchase or construct a residential property within a designated timeframe. However, it is essential to meet specific conditions outlined in Section 54F to qualify for this exemption. A key requirement is that, as of the date of the asset transfer, the assessee must not own more than 1 residential house, aside from the one for which they are seeking the exemption.

The issue under consideration comes when the assessee has to meet the specific conditions outlined in Section 54F, more specifically the limitation of ownership of another house appearing in the proviso to Section 54F “the assessee owns more than one residential house…..’

In this context, a controversy has emerged regarding situations in which the assessee is a co-owner of a residential property alongside owning one house on the transfer date. The crucial question is whether the co-owned residential property, which is not exclusively owned by the assessee but shared with another party, should be included in the tally of houses owned by the assessee as of the date of transfer of the original asset. This matter necessitates a careful interpretation of the terms ‘owns’ and ‘more than one residential house’ as stated in the relevant provision.

Currently, this divergence of opinions continues to exist at the high court level.

The issue first came up for consideration before the Madras High Court in the case of Dr. P.K. Vasanthi Rangarajan v. CIT In this case:

• The assessee was an individual, a doctor by profession. The assessee owned a property along with her husband in equal proportion. The said property consisted of a clinic on the ground floor and a residential portion on the first floor. The assessee and her husband had shown 50 per cent share with reference to the clinic and the residential portion in their respective returns.
• The assessee entered into an agreement for joint development of construction of 8 apartments in another property owned by her individually.
• As per the terms of the joint development agreement, the assessee had retained for herself, undivided share to extent of 50 per cent and the balance of 50 per cent was to be conveyed by the assessee in favour of the developer.
• The consideration for parting with 50 per cent of the undivided share consisted of four flats as well as a sum of Rs. 10 lakhs payable by the developer.
• In the returns filed for the assessment year 2001-02, the assessee claimed the benefit of exemption as provided for under Section 54F of the Income Tax Act. The said claim was sought to be rejected by the Assessing Authority on the ground that persons who own a residential house as on the date of transfer, would not be entitled to the exemption under Section 54F. The assessee being the owner of the residential house already, the proviso to Section 54F, as it then stood, would disentitle the assessee from claiming the benefit for investing the capital gains in yet another house property. Thus, the Assessing Authority held that since the assessee had used the property at 828, Poonamallee High Road and 828A, Poonamallee High Road, as residence and hospital, the conditions prescribed under Section 54F thus not being satisfied, she was not eligible for exemption.
• Aggrieved by these assessment order, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who, rejected the claim of exemption under Section 54F.
• Aggrieved by this, the assessee preferred a further appeal before the Income Tax Appellate Tribunal. A perusal of the order of the Tribunal shows that it rejected the assessee’s case on exemption claimed under Section 54F on the ground that the assessee was owning a residential property on the date of transfer, namely, September, 1999. Even though the property was not owned fully, yet, as the assessee was having 50% share in the residential property, the conditions envisaged under Section 54F not fully satisfied, the assessee was not entitled to exemption under Section 54F. The Tribunal further held that the facts of the case satisfied the ingredients of Clause (v) of Section 2(47) and hence, the assessee was liable for capital gains as per Section 45(1) for the assessment year 2000-01 and the substantial performance of the contract by the handing over of the completed flats was relevant to decide the issue.
• Aggrieved by ITAT’s order the assessee preferred an appeal before High Court wherein, the High Court reviewed the assessee’ s claim that her share in the property should only include the clinic part, not the residential portion owned by her husband. However, this argument was found to contradict the facts. Both the assessee and her husband reported a 50% share of the clinic’s income and claimed depreciation during the income tax assessment. Additionally, they each declared a 50% share of the property in wealth tax proceedings.
• It was further asserted that in order to qualify for the exemption under Section 54F, the limitation pertains only to premises classified as a residential house, which must be owned either as an individual or a Hindu Undivided Family (HUF) at the time of transfer. Co-ownership of the property cannot be regarded as ownership in the capacity of an individual or HUF. Conversely, the Revenue maintained that co-owning another house at the time of transfer, even partially, would disqualify the assessee from the benefits of Section 54F, making the proviso applicable to her situation.
• The High Court ruled that since the assessee did not solely own the house, but rather held it jointly with her husband, the stringent provisions of section 54F could not be used to deny the exemption. The court observed that a liberal interpretation of section 54F illustrates that the ownership status of the residential property at the time of transfer is crucial. Since the assessee, as an individual, did not possess any property in her name at that moment, the joint ownership of the house did not impede her right to claim an exemption under section 54F. Consequently, the High Court granted the exemption to the assessee.

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The post [Opinion] Section 54F Unlocked | Ownership Battles Decoded? appeared first on Taxmann Blog.

Case Details: Rahul Dinesh Bajpai vs. Deputy Director of Income-tax - [2024] 169 taxmann.com 456 (Mumbai-Trib.)

Judiciary and Counsel Details

• Saktijit Dey, Vice President & Amarjit Singh, Accountant Member
• Ms Soniya Bhatiya for the Appellant.
• R.R. Makwana for the Respondent.

Facts of the Case

During the year under consideration, the assessee and his wife sold an immovable property jointly owned by them. The assessee and his wife offered the capital gain arising from such sale in equal proportion. However, since the TDS on sale consideration was deposited in the name of the assessee alone, in the return of income filed for the assessment year under dispute, the assessee claimed the entire TDS.

While processing the return of income filed by the assessee, the Centralized Processing Centre (CPC) granted credit for TDS in proportion to the capital gain income declared by the assessee. It disallowed the claim for the balance of TDS.

On appeal, the CIT(A) upheld the order passed by the CPC. Aggrieved by the order, an appeal was filed with the Mumbai Tribunal.

ITAT Held

The Tribunal held that it was undisputed that the entire TDS on the sale consideration was remitted to the Government account in the assessee’s name. This fact was clearly evident from Form No. 26AS and the corresponding TDS certificate. Accordingly, the assessee claimed credit for the entire TDS. However, in the return of income for the assessee’s wife, no TDS was claimed. The aforesaid factual position remains uncontroverted.

The sole reason for disallowing the assessee’s claim regarding TDS credit cannot be that the property was jointly owned by him and his wife, and the capital gain from its sale was equally shared by the joint owners. Furthermore, when the assessee claimed that his wife had not claimed credit for TDS, this additional information should have been considered.

Accordingly, the Assessing Officer was directed to factually verify whether the assessee’s wife claimed any part of the TDS. In case the assessee’s claim that his wife did not claim any part of the TDS is correct, the assessee should be allowed the entire TDS credit.

The post No Proportionate TDS Share on Joint Property Sale If the Entire TDS Has Been Deposited in One’s PAN | Mumbai ITAT appeared first on Taxmann Blog.

Case Details: ACIT vs. Vireet Investments (P.) Ltd. - [2024] 169 taxmann.com 379 (Delhi-Trib.)

Judiciary and Counsel Details

• S. Rifaur Rahman, Accountant Member & Sudhir Kumar, Judicial Member
• Manish Jain, CA for the Appellant.
• Ms Sapna Bhatia, CIT DR for the Respondent.

Facts of the Case

The assessee-company was engaged in business of dealing in shares, stocks, debentures, etc. in the line of securities transactions. It claimed expenditure of general administration and Portfolio Management Services (PMS) towards maintenance of securities against income declared under capital gains. The Assessing Officer (AO) rejected the same contending that there was no provisions in section 48 to claim such expenses.

On appeal, the CIT(A) allowed the assessee’s claim. Aggrieved by the order, an appeal was filed to the Delhi Tribunal.

ITAT Held

The Tribunal held that it was observed that the assessee was dealing in the business of shares and securities. The assessee incurred certain expenses on PMS to monitor such securities. Thus, this expenditure was directly related to the securities transaction. The nature of the transaction demands such expenditures.

Relying on the decision of Pune Tribunal in Deputy Commissioner of Income-tax vs Serum Institute of India Ltd.* [2016] 72 taxmann.com 361 (Pune – Trib.) and Mumbai Tribunal in Nadir A. Modi vs JCIT, Tax 11(3), Mumbai [2017] 88 taxmann.com 868 (Mumbai – Trlb.), wherein it was held that the ‘PMS’ fees paid by the assessee is an allowable deduction from the capital gains, the Tribunal allowed the claim of the assessee.

With respect to general administrative expenses, it was observed that the assessee has incurred these expenditures on salaries, administration, depreciation etc,. and claimed these expenses in its profit and loss account. In the income tax computation, the assessee computed the income under the head income from business as well as capital gain. The income tax provisions allow the assessees to compute the income under different heads of income and the assessee was allowed to claim the expenses based on the relevant heads of income.

In the instant case, the assessee can claim the general expenses of running the business only under the head business income. Even if there is no income declared under the head business income, the assessee is allowed to claim these expenses as business expenditure, if there is no business income and the assessee is allowed to carry forward the same in case the assessee does not have income under other heads of income other than loss under the head capital gains.

Since the assessee has declared profit under the head capital gains, the assessee is allowed to adjust the same under section 71. Hence, the general administrative expense cannot be claimed under the head capital gains under section 48.

The post Expenses Incurred on Portfolio Management Services Directly Related to Securities Transaction Allowed While Computing Capital Gains | ITAT appeared first on Taxmann Blog.

Notification No. 128/2024, dated 19-12-2024

Section 197A prescribes that no deduction of tax shall be made, or deduction of tax shall be made at such lower rate, from such payment to such person or class of persons, including institution, association or body or class of institutions, associations or bodies, as may be notified by the Central Government in the Official Gazette, in this behalf.

In this regard, the Central Board of Direct Taxes (CBDT) has notified that no TDS shall be deducted under Chapter XVII on any payment received by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). The notification has been issued in exercise of the powers conferred by section 197A(1F).

Click Here To Read The Full Notification

The post No TDS on Payments to Credit Guarantee Fund Trust for MSEs Referred in Section 10(46B) | CBDT appeared first on Taxmann Blog.

Case Details: Mahindra and Mahindra Ltd. vs. Assistant Commissioner of Income-tax - [2024] 169 taxmann.com 333 (Bombay)

Judiciary and Counsel Details

• G.S. Kulkarni & Advait M. Sethna, JJ.
• Devendra Jain & Shashank Mehta, Advs. for the Petitioner.
• N.C. Mohanty, Adv. for the Respondent.

Facts of the Case

The assessee was issued a show cause notice under section 148A(b). The assessee filed an appeal and a review application before the Principal Chief Commissioner under section 264, and both the proceedings were pending. The assessee contended that the impugned order and the impugned notice would stand covered by the decision of this Court in Hexaware Technologies Limited v. Assistant Commissioner of Income Tax (2024) 464 ITR 430 as also the decision of the division Bench in Siemens Financial Services Pvt. Ltd. v. Deputy Commissioner of Income Tax [2024] 160 taxmann.com 243 (Bombay) in regard to the applicability of section 151 of the provisions of the Act as the sanction had not been granted by the appropriate authority as specified under the said provisions.

Considering the decision of this Court being of the jurisdictional High Courts, the assessee filed a writ petition before the Bombay High Court.

High Court Held

The High Court held that once the assessee availed of an alternate remedy as provided under the Income Tax Act, and if the assessment order as also the notices are contrary to the substantive provisions of section 151A and section 151, as interpreted by Court in Hexaware Technologies Limited and Siemens Financial Services Pvt. Ltd., the Appellate Authority as also the Revisionary Authority being bound by the said decisions of the jurisdictional High Court, need to consider such legal position.

Thus, the assessee was not precluded from raising all such contentions, as raised in the present proceedings, before the said authority.

Accordingly, it was opined that the proceedings which were pending before the CIT(A) as also the Revisionary proceedings, be decided considering the contentions of the petitioner, namely as to whether the impugned assessment order as also the notice under section 148 was illegal when tested on the law as declared by this Court in the decisions mentioned above.

An approach shouldn’t be followed when the appellate authority is already involved in proceedings. Writ petitions should be entertained only to adjudicate matters that can be decided by the appellate authority, considering the Court’s decisions. As rightly pointed out, entertaining writ petitions in such circumstances would require the Court to entertain all pending matters involving the applicability of its decisions, which is impractical.

Hence, it would be appropriate that the assessee pursues the pending proceedings as filed before the appropriate Appellate Authority. Accordingly, the present proceedings that assail the assessment order are not entertained when an appeal is already filed by the assessee, which is pending. Hence, the petition was disposed of.

List of Cases Reviewed

• Hexaware Technologies Limited v. Assistant Commissioner of Income Tax [2024] 464 ITR 430
• Siemens Financial Services Pvt. Ltd. v. Deputy Commissioner of Income Tax [2024] 160 taxmann.com 243 (Bombay) [Para 11] – followed.

List of Cases Referred to

• Hexaware Technologies Ltd. v. Asstt. CIT [2024] 162 taxmann.com 225/464 ITR 430 (Bombay) (para 3)
• Pr. CIT v. Maruti Suzuki India Ltd. [2019] 107 taxmann.com 375/265 Taxman 515/416 ITR 613 (SC) (para 5).

The post Assessee to Pursue Pending Proceedings Before Appellate Authority Instead of Filing Writ Petition | HC appeared first on Taxmann Blog.

Case Details: Ghanyashyam Anil Dhanani vs. Income-tax Officer Ward 17(1)(1) - [2024] 169 taxmann.com 327 (SC)[28-11-2024]

Judiciary and Counsel Details

• Mrs. B.V. Nagarathna & Nongmeikapam Kotiswar Singh, JJ.
• Prateek K. Chadha, AOR, Mihir Naniwadekar, Sreekar Aechuri, Aniket Chauhaan & Arjun Nayyar, Advs. for the Petitioner.
• Raghavendra P. Shankar, A.S.G., Raj Bahadur Yadav, AOR, Udai Khanna, Sanjay Kumar Yadav, Karan Lahiri & Navanjay Mahapatra, Advs. for the Respondent.

Facts of the Case

A notice under section 148A(b) was issued in the name of the original assessee who had died prior thereto. In response to the said notice, a reply was given by the son of the original assessee stating that his father, the assessee, had passed away.

Thereafter, another communication was issued seeking details of the original assessee’s legal representatives. The Chartered Accountant of the legal representative responded to the same. On becoming aware of the legal representatives of the deceased original assessee, an order was passed under section 148A(d).

Subsequently, another order was passed under section 148A(d) in the name of the legal representatives of the deceased-original assessee. Aggrieved by the said order, the legal representatives of the deceased-original assessee filed a Writ Petition contending that the original assessee had died and accordingly, the proceedings for reassessment were vitiated as they were commenced against a dead person.

High Court Held

The High Court disposed of the Writ Petition by holding that the legal representatives could take all contentions available to them except the fact that the initial notice was issued in the name of a dead person.

Accordingly, the matter reached before the Supreme Court. The legal heir contended that the main impediment in the case was that the High Court curtailed the right of legal heirs to take a contention that the impugned Notices were initially issued in the name of a dead person. Solely because the appellant, as a legal representative, subsequently responded to the notices would not imply that the proceeding initiated was valid. It was sought to be contented that the proceedings in fact were vitiated on account of the initial Notices being issued in the name of a dead person and the subsequent participation of the legal representatives in the proceedings before the Assessing Officer would not have cured the initial defect.

The Apex Court held that it was found that the said request made to the Court was reasonable and in accordance with law and therefore, ‘paragraph 4’ of the impugned order contending that all rights and contentions other than the notice issued to a dead person, is kept open, was set aside and the appellant was permitted therein to take the contention with regard to the initial Notice being issued in the name of a dead person-original assessee being defective and also take all other contentions available to the appellant before the Assessing Officer. Consequently, the impugned orderwas set aside to that extent.

Thus, the appeal was allowed and disposed of in the aforesaid terms.

List of Cases Reviewed

• Ghanshyam Anil Dhanani v. Income Tax Officer [2024] 169 taxmann.com 326 (Bom.) [Para 10] Partly set aside

The post Legal Heirs Can Raise Contention That Notice Was Issued in Name of Deceased Person | SC appeared first on Taxmann Blog.

CA Naresh Kumar Kabra & Shailly Chordia – [2024] 169 taxmann.com 353 (Article)

When someone makes a donation without revealing their identity, how does the law treat it? Are such contributions entirely private, or do they fall under specific rules to ensure transparency and accountability? In exploring these questions, we gain insight into the legal and financial framework that governs anonymous donations, particularly in the context of charitable and religious trusts, and how these contributions are treated under the law?

Let’s begin by understanding what an anonymous donation actually means?

1. What is Anonymous Donation?

Under the Income Tax Act, 1961 (ITA), an anonymous donation is defined in Sec 115BBC(3) as a voluntary contribution which mentioned in sub-clause (iia) of clause (24) of section 2, where the recipient of the contribution does not keep a record of contributor’s identity, including their name, address, and any other details that may be specified.

Essentially, it means that an anonymous donation is one where the organization receives a contribution but does not track or retain sufficient details about who the donor is.

2. Taxability of Anonymous Donation

Anonymous donations are regulated by Section 115BBC of the Income Tax Act, 1961. The taxation and exemptions for these donations depend on the nature of the receiving trust.
Before examining the taxability aspect, let us first gain an understanding of the various types of trusts.

• Charitable Trusts: Charitable trusts are established with the primary aim of serving social, educational, medical, or other public welfare objectives.
• Religious Trusts: Religious trusts are created for the promotion or practice of religion, including rituals, worship, or maintenance of places of worship.
• Partly Charitable and Partly Religious Trusts: These trusts serve both charitable and religious purposes, such as running schools or hospitals alongside promoting religious activities.

Having understood the different types of trusts, let us now delve into their taxability.

Click Here To Read The Full Article

The post [Opinion] Anonymous Donations All Aspects | Accounting, Record Keeping, Taxation, etc. appeared first on Taxmann Blog.

Circular No. 19 of 2024, dated 16-12-2024

The Finance (No. 2) Act 2024 reintroduced the Direct Tax Vivad Se Vishwas Scheme 2024 to expedite the resolution of income-tax disputes, specifically targeting the large volume of pending appeals. The scheme aims to streamline dispute settlements for appeals pending as of July 22, 2024.

To facilitate the various queries raised by the stakeholders following the enactment of the Scheme, the Central Board of Direct Taxes (CBDT) issued Guidance Note 1/2024, dated 15-10-2024, in the form of Frequently Asked Questions (FAQs). These FAQs are designed to provide clarity and assist taxpayers in better understanding the scheme’s provisions.

Now, the CBDT has issued another Guidance Note 2/2024 and modified a FAQ on the eligibility cases and various FAQs on Set-aside appeal, prosecution, Computation of Amount payable, Disputed Penalty, APA/MAP Cases, Taxes paid before filing declaration, TDS-related queries were incorporated.

A few key clarifications issued by the CBDT are as follows:

(1) The benefit of the Scheme is available if an appeal is disposed of before filing the declaration

The earlier guidance note mentioned that if the taxpayer is eligible to apply for the DTVSV Scheme 2024, his appeal is pending as of 22.7.2024. But subsequently, before the taxpayer could file a declaration, his appeal was disposed of on merits or dismissed as withdrawn for the purposes of the Scheme; such cases will not be eligible.

However, the revised guidance note clarified that even in these cases, the assessee is still eligible to avail the benefit of the Vivad Se Vishwas Scheme.

(2) Appeal filed against Intimation under section 143(1) is eligible under the scheme

The board has clarified that any appeal filed against intimation u/s 143(1) of the Act and pending as of 22nd July 2024 is eligible for settlement under the Scheme.

(3) Set aside appeals

Guidance Note 1/2024 clarified that set-aside matters to the AO, whether fully set-aside or partially set-aside, are not covered under the Scheme. Further, this Guidance Note clarifies that where an appeal has been set aside entirely to ITA TICIT(A)/DRP, such appeals will be eligible for settlement.

(4) Scheme not eligible for disputes pertaining to non-APA/MAP adjustments

The Scheme envisages settling disputes in full. The Scheme does not envisage settling issues in part. Therefore, whatever issues are in a pending appeal are to be settled in full, whether they pertain to APA/MAP adjustments or otherwise.

(5) If the scheme is availed for transfer pricing adjustments, section 92CE provisions are applicable separately

The board has clarified that secondary adjustment under section 92CE will be applicable if the taxpayer avails DTVSV Scheme, 2024 for Transfer Pricing adjustment. However, the provision of secondary adjustment as contained in section 92CE of the Act is not applicable for primary adjustment made in respect of an assessment year commencing on or before the 1st day of April 2016.

Click Here To Read The Full Circular

The post CBDT Modifies and Issues New FAQs on DTVSV Scheme appeared first on Taxmann Blog.

Press Release, dated 17-12-2024

CBDT launches an electronic campaign to help taxpayers resolve income and transaction mismatches between AIS and ITRs for financial years 2023-24 and 2021-22. The campaign targets individuals with taxable income or high-value transactions but no filed ITRs.

As part of this campaign, informational messages have been sent via SMS and email to taxpayers and non-filers with mismatches between AIS and ITRs. These messages remind individuals to file revised or belated ITRs for FY 2023-24 by December 31, 2024. For FY 2021-22, taxpayers can file updated ITRs by March 31, 2025. Taxpayers can provide feedback, including disagreeing with AIS information, through the AIS portal (https://www.incometax.gov.in/iec/foportal/).

Click Here To Read The Full Press Release

The post CBDT Launches E-Campaign to Resolve AIS and ITR Mismatch for FY 2023-24 & 2021-22 appeared first on Taxmann Blog.

News, dated 11-12-2024

Switzerland suspended the Most Favoured Nation (MFN) clause in its double taxation avoidance agreement (DTAA) with India, effective January 1, 2025.

Following the MFN status suspension, Switzerland will no longer give the benefit of beneficial tax treatment to Indian residents. This implies that tax on income earned by Indian residents will be withheld at the rates specified in the India-Switzerland tax treaty only. For instance, dividends earned by Indian residents will be taxed at 10% in Switzerland under Article 10 of the DTAA instead of the current rate of 5%.

On December 11, 2024, the Swiss Finance Department announced that an Indian Supreme Court ruling in the Nestle from last year influenced this decision. The Supreme Court ruling in the case Nestle SA [2023] 155 taxmann.com 384 (SC)ruled in favour of Indian Tax authorities. It rejected the automatic application of the MFN clause under the India-Switzerland Tax Treaty.

Click Here To Read The Full Update

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