Taxation Times

December 2024

UJA | Taxation Times January - 2024
1Introduction
2Article : Conundrum in Section 115A for Non-residents 
3Case Laws 
4Circulars and Notifications: December 2023
5Tax Compliance January 2023
6Tax News from around the World
by Neha Raheja
by Neha Raheja

Partner, Direct Tax

UJA wishes you a very happy, healthy, and prosperous new year in 2024!!

In this edition of Taxation Times, we will go through the dilemma faced by non-residents due to the amendment in Section 115A of the Income Tax Act, 1961.

In this month’s Taxation Times, we cover:

  1. An article sheds light on the effect of the amendment in Section 115A of the Income Tax Act, 1961, on non-residents.
  2. Case Laws from various courts & jurisdictions;
  3. Tax Compliance Calendar: January 2024;
  4. Circulars and Notifications, December 2023;
  5. Tax News from around the world

We hope that you find this month’s edition of the Taxation Times useful. In case you have any feedback or need us to include any information to make this issue more informative, please feel free to write to us at info@uja.in

Happy Reading!
Best Regards,
UJA Tax Team

Conundrum in Section 115A for Non-residents

Non-residents' Payment: a Tedious Procedure

Those who have certain incomes in the nature of interest, dividends, royalties, and fees for technical services, and to earn them they do not have to set up a shop or establishment in India, have something to rejoice for because, in their case, there are no return filing obligations if taxes, as applicable u/s 115A of the Indian Income Tax Act, 1961, are being withheld on such amounts at the time of payment by the person responsible for making such payments. The primary duty is cast upon the deductor to follow due procedure as he is obliged under the law to follow in procuring a set of documents comprising agreements, invoices, TRC, NO PE declaration, and Form 10F, and thereupon to also obtain a certificate from the practicing Chartered Accountant in Form 15CB of the rate applicable under 115A, considering the relief available under the Double Taxation Avoidance Agreement. Besides, the deduct or is required to provide a self-declaration and undertaking to make up for any shortfalls, etc. On top of that, the deductor is required to provide information on each such payment at the income tax portal on a real-time basis. This large exercise is required to make up for the relaxation given to non-residents.

Provisions of section 115A

When we look closely to sub-section (5) of section 115A it provides forexemption from the requirement of furnishing of return of income in case of non-residents who derive only dividend or interest income as referred to in clause (a) of sub-section (1) of said section, or royalty or FTS income of the nature specified in clause (b) of sub-section (1) of section 115A subject however to the fact that taxes are deducted thereon as per the applicable provisions of Part B of Chapter XVII of the Actwhich are not lower than the prescribed rates under sub-section (1) of section 115A. Section 195 proper provides for a requirement to deduct taxes on payments to non-residents as per the rates in force. Rates in force are further defined in Section 2 (37A) as follows:

(37A) “rate or rates in force” or “rates in force”, in relation to an assessment year or financial year means—

  • For the purposes of calculating income-tax under the first proviso to sub-section (5) of section 132, or computing the income-tax chargeable under sub-section (4) of section 172 or sub-section (2) of section 174 or section 175 or sub-section (2) of section 176 or deducting income-tax under section 192 from income chargeable under the head “Salaries” or computation of the “advance tax” payable under Chapter XVII-C in a case not falling under section 115A or section 115B or section 115BB or section 115BBB or section 115E or section 164 or section 164A or section 167B, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year, and for the purposes of computation of the “advance tax” payable under Chapter XVII-C in a case falling under section 115A or section 115B or section 115BB or section 115BBB or section 115E or section 164 or section 164A or section 167B, the rate or rates specified in section 115A or section 115B or section 115BB or section 115BBB or section 115E or section 164 or section 164A or section 167B, as the case may be, or the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year, whichever is applicable ;
  • For the purposes of deduction of tax under sections 193, 194, 194A, 194B, 19[194BA], 194BB and 194D, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year ;
  • For the purposes of deduction of tax under section 194LBA or section 194LBB or section 194LBC or section 195, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax specified in an agreement entered into by the Central Government under section 90, or an agreement notified by the Central Government under section 90A, whichever is applicable by virtue of the provisions of section 90, or section 90A, as the case may be;

Interplay between the Provisions of the Income Tax Act, 1961 and Double Taxation Avoidance Agreement

India has signed Double Taxation Avoidance Agreements (DTAA) with major countries like Singapore, France, Italy, Japan, the United States of America, etc.

The Income Tax Act 1961 provides that where India has entered into a DTAA with countries, the provisions of the DTAA of the Income Tax Act 1961 that are more beneficial to the assessee shall apply.

The Income Tax Act of 1961 provides relief to non-resident taxpayers and foreign companies if the following conditions are satisfied:

  • The taxpayer earns income from dividends, interest, royalties or fees for technical services.
  •  Taxes are deducted as per the Income Tax Act 1961

Before April 1, 2023, as per the provisions of Section 115A of the Income Tax Act 1961, payments like fees for technical services (‘FTS’) and royalties made to non-residents or foreign companies were liable to withholding tax at 10.92% (including surcharges and education cess). However, since April 1, 2023, the rate of withholding tax has increased to 21.84% (including surcharges and education cess).

With this amendment, in several cases, the tax rates as per the DTAA are more beneficial to non-residents. However, to avail of the beneficial rates as per the DTAA, non-residents have to file Form 10F online (w.e.f. October 1, 2023). The Income Tax Department has exempted non-residents who have to file Form 10F online from applying for a PAN. Thus, Form 10F can be filed online even without the availability of a PAN. Further, while uploading Form 10F it is mandated to upload the Tax Residency Certificate (TRC).

However, when a foreign company or non-resident avails of the benefit of a DTAA, it becomes imperative for a foreign company to file it’s tax return in India. Therefore, this is in complete contradiction to the move by the Income Tax Department regarding the non-requirement of PAN by a foreign company.

Conclusion

Hence, accordingly, with the revision in the rates of withholding taxes under the Income Tax Act 1961, since the provision of the DTAA would be more beneficial to the taxpayer, foreign companies would be mandated to file tax returns in India.

Case Laws

LG Electronics India Ltd. V/s Income Tax Officer, (TDS) (IT) [2023] 157 taxmann.com 89 (Delhi - Trib.)
Reference: Section 9, read with section 195 of the Income-tax Act, 1961 and article 5 of DTAA between India and Korea

Facts:

The assessee, a subsidiary of a Korean company (LG Korea), was engaged in trading, assembly, manufacturing, marketing, and sales of electronics and home appliances. It had entered into various international transactions with its parent Korean company and other associated non-resident companies for the purchase of raw materials, finished goods, capital goods, etc.

The Assessing Officer held that the payments made by the assessee to its parent Korean company and other non-resident associated companies were taxable in India as all the entities had permanent establishments (PE) in India. Therefore, the assessee was liable to deduct tax at source under Section 195. Accordingly, we treated the assessee as an assessee in default and raised demands under sections 201(1) and 201(1A).

On appeal, the Commissioner (Appeals) reduced the amount of demand raised by the Assessing Officer.

Finally, the assessee filed an appeal before the Hon. Tribunal.

Held:

Assessee, a subsidiary of Korean company (LG Korea), entered into various international transactions with it parent company (LG Korea) and other associated non-resident companies for purchase of raw materials, finished goods, capital goods, etc. – The assessing officer held that payments made by assessee were taxable in India as all entities had permanent establishment (PE) in India and since assessee did not deduct tax at source under section 195, he treated the assessee as an assessee in default and raised demands under section 201(1) and 201(1A) – Commissioner (Appeals) attributed profit to PE to extent of 20 percent markup on 50 per cent of salary paid to expatriate employees, thereby reducing amount of demand raised by Assessing Officer It was observed that in case of payee entities, DRP held that only LG Korea had PE and no other non-resident group entities had any PE in India Further, it was noted that assessee had not made any direct payment to LG Korea towards salary cost of expatriate employees and there was no liability on assessee to deduct tax on such notional payment; more so, when assessee had already deducted tax under section 192 in respect of salary cost of expatriate employees, Whether the basis of attribution of profit to PE was a notional income, that too, based on a methodology adopted by DRP in the case of the payee, the assessee could not be expected to   perform an impossible act of computing TDS 

on a notional payment, a part of which was to be attributed towards the profit of LG Korea. Held, yes. -Whether, in view of aforesaid, there is no obligation of the assessee to withhold tax under Section 195, the assessee could not be treated as an assessee in default under Section 201, and, therefore, the assessee was to be directed to delete demands raised.

In Favour of: The Assessee

Sad Bhawna V/s Deputy Commissioner of Income Tax [2023] 157 taxmann.com 565 (Delhi - Trib.)
Reference: Section 153C, read with sections 254 and 144 of the Income-tax Act, 1961

Facts

The assessee submitted that in the orders of the Assessing Officer passed under Section 254/153C/144, which were the subject matter of appeal before the Commissioner (Appeals), there was no mention of the Document Identification Number (DIN) in the body of the assessment order(s). He further submitted that perusal of the order(s) would also reveal that there was no mention of any reason for the non-issuance of DIN. The requisite condition mentioned in Paragraph 3 of CBDT Circular No. 19/2019, dated August 14, 2019, had also not been complied with.

The revenue, however, submitted that the DIN was generated simultaneously with the assessment order(s). Each assessment order was accompanied by a covering letter in which the DIN for the order was mentioned, and the covering letter was of the same date on which the assessment order was framed. Therefore, an inference may be drawn that the assessment order contained the DIN.

Held :

Assessment of another person (DIN): Assessment years 2007-08 to 2010-11, 2012-13 and 2013-14: Whether in terms of CBDT Circular No. 19/2019, dated 14-8-2019, in order to maintain audit trail of all communication, no communication shall be issued by any income-tax authority to assessee or any other person on or after 1-10-2019 unless a computer-generated Document Identification Number (DIN) has been allotted and is duly quoted in body of such communication. Whether where assessment orders were only accompanied by a covering letter which contained DIN and letter number for said letter but mention of DIN was conspicuous by its absence in body of assessment orders and there was no material on record mentioning reason for non-issuance of DIN , there was clear violation of specific requirement under CBDT Circular No. 19/2019 to quote DIN in body of assessment orders – Held, yes – Whether therefore, impugned assessment orders were to be treated as invalid and non-est in eye of law.

In Favour of: The Assessee (the matter is remanded).

Circulars and Notifications December 2023

Notifications

CBDT notifies amendments to the Safe Harbor Rules for Intragroup Loans

CBDT notifies ITR 1-Sahaj and ITR 4-Sugam for AY 2024-25

Circulars

CBDT releases guidelines for deduction of tax under Section 194-O

Press Release:

Gross Direct Tax collections for FY 2023–24 register a growth of 17.01%

Tax Compliance: January 2023

07 January 2024

  • Due date for deposit of tax deducted/collected for the month of November 2023. However, all sum deducted/collected by an office of the government shall be paid to the credit of the Central Government on the same day that tax is paid without production of an Income-tax Challan.

14 January 2024

  • Due date for issue of TDS Certificate for tax deducted under section 194-IB/194-IA/194M/194S in the month of November, 2023

15 January 2024

  • Quarterly statement of TCS for the quarter ending December 31, 2023

    Due date for furnishing of Form 15G/15H declarations received during the quarter ending December 2023

30 January 2024

  • Due date for furnishing of challan-cum-statement in respect of tax deducted under section 194-IA/194-IB/194M/194S in the month of December, 2023.

31 January 2024

  • Quarterly statement of TDS for the quarter ending December 31, 2023

    Exercising the option to opt for alternative tax regime under Section 115BAA by a domestic company for assessment year 2021–22

    Note: The CBDT, via Circular No. 19/2023, dated October 23, 2023, extended the due date for filing of Form no. 10-IC till January 31, 2024

Tax News from Around the World

Bermuda tables corporate tax legislation, outlining the introduction of 15% corporate income tax

UAE amends Corporate Tax Law to introduce Global Minimum Tax

Belgian Chamber of Representatives Approves Public CbC Reporting

SSA between Brazil and India Entering into Force

International tax reform: OECD/G20 Inclusive Framework releases new information on key aspects of the Two-Pillar Solution

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