Posts Tagged ‘Income Tax’


Section 90 of the Income Tax Act, 1961- Double Taxation Agreement- Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with Foreign Countries- Netherlands- Amendment in Notification No. GSR 382(E) dated 27.03.1989

Notification No. 2/2013, [F.NO.501/02/1983-FTD-I], dated 14.01.2013

WHEREAS a Protocol for amending the Convention between the Republic of India and the Kingdom of the Netherlands for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on Income and on Capital was signed at the Hague on the 10th day of May, 2012;

AND WHEREAS, the date of entry into force of the said Protocol is the 2nd day of November, 2012, being the date of later of the notifications of satisfaction of all legal requirements and procedures for entry into force of the Agreement, in accordance with Paragraph 2 of Article 3 of the said Protocol;

AND WHEREAS, Paragraph 2 of Article 3 of the said Protocol provides that the amending protocol, which shall form an integral part of the convention shall enter into force on the date of the later of the notifications referred to in paragraph 1 of said Article and its provisions shall have effect forthwith;

NOW, THEREFORE, in exercise of the powers conferred by section 90 of the Income-Tax Act, 1961 (43 of 1961), the Central Government hereby directs that all the provisions of the said Protocol, as set out in the Annexure hereto, shall be given effect to in the Union of India in respect of income and on Capital arising from the 2nd November, 2012.

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Click here to download the complete text of the above Notification in PDF Format.

Source: Income Tax Department- India.

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Section 10A, read with Sections 10AA & 10B of the Income-Tax Act, 1961- Free Trade Zone- Direct Tax Benefits- Clarification on Issues relating to Export of Computer Software

Circular No. 1/2013, [F. No. 178/84/2012-ITA.I], dated 17.01.2013

The Indian Software Industry has been the beneficiary of direct tax incentives under the provisions like sections 10A, 10AA & 10B of the Income -tax Act, 1961 in respect of their profits derived from the export of computer software. These provisions prescribe incentives to “units” or “undertakings”, established under different schemes, which are/were deriving profits from export of computer software subject to fulfilling the prescribed conditions.

2. It has been represented by the software companies that several issues arising from the above mentioned provisions are giving rise to disputes between them and the Income-tax authorities leading to denial of tax benefits and consequent litigation and, therefore, require clarification.

Various issues highlighted by the Software Industry have been examined by the Board and the following clarifications are hereby issued –

(i) (a) Whether “on-Site” development of Computer Software Qualifies as an extort activity for tax benefits under sections 10A. 10AA and 10B of the Income-tax Act, 1961; And

(b) Whether receipts from deputation or Technical Manpower for such “On-Site” Software development abroad at the Client’s place are eligible for deduction under sections 10A, 10AA and 10B.

(a) CBDT had earlier issued a Circular (Circular No. 694, dated 23-11-1994) which provided that a unit should not be denied tax-holiday under section 10A or 10B on the ground that the computer software was prepared ‘on-site’, as long as it was a product of the unit, i.e., it is produced by the Unit. However, certain doubts appear to have arisen following the insertion of Explanation 3 to sections 10A and 10B (vide Finance Act, 2001) and Explanation 2 to section 10AA (vide Special Economic Zones Act, 2005) providing that “the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India”, and a clarification has been sought on the impact of the Explanation on the tax-benefits as compared to the situation that existed prior to the amendments.

The matter has been examined. In view of the position of law as it stands now, it is clarified that the software developed abroad at a client’s place would be eligible for benefits under the respective provisions, because these would amount to ‘deemed export’ and tax benefits would not be denied merely on this ground. However, since the benefits under these provisions can be availed of only by the units or undertakings set up under specified schemes in India, it is necessary that there must exist a direct and intimate nexus or connection of development of software done abroad with the eligible units set up in India and such development of software should be pursuant to a contract between the client and the eligible unit. To this extent, Circular No. 694, dated 23-11-1994 stands further clarified.

(b) It has also been brought to notice that it is a common practice in the software industry to depute Technical Manpower abroad (at the client’s place) for software development activities (like upgradation, testing, maintenance, modification, trouble-shooting etc.), which often require frequent interaction with the clients located outside India. Due to the peculiar nature of software development work, it has been suggested that such deputation of Technical Manpower abroad should not be considered detrimental to the benefits of the exemption under sections 10A, 10AA and 10B merely because such activities arc rendered outside the eligible units /undertakings.

The matter has been examined. Explanation 3 to sections 10A and 10B and Explanation 2 to section I0AA clearly declare that profits and gains derived from “services for development of software” outside India would also be deemed as profits derived from export. It is therefore clarified that profits earned as a result of deployment of Technical Manpower at the client’s place abroad specifically for software development work pursuant to a contract between the client and the eligible unit should not be denied benefits under sections 10A, 10AA and 10B provided such deputation of manpower is for the development of such software and all the prescribed conditions are fulfilled.

(ii) Whether it is necessary to have separate master service agreement (MSA) for each work contract and to what extent it is relevant.

As per the practice prevalent in the software development industry, generally two types of agreement arc entered into between the Indian software developer and the foreign client. Master Services Agreement (MSA) is an initial general agreement between a foreign client and the Indian software developer setting out the broad and general terms and conditions of business under the umbrella of which specific and individual Statement of Works (SOW) are formed. These SOWs, in fact, enumerate the specific scope and nature of the particular task or project that has to be rendered by a particular unit under the overall ambit of the MSA. Clarification has been sought whether more than one SOW can be executed under the ambit of a particular MSA and whether SOW should be given precedence over MSA.

The matter has been examined. It is clarified that the tax benefits under sections 10A, 10AA and 10B would not be denied merely on the ground that a separate and specific MSA docs not exist for each SOW. The SOW would normally prevail over the MSA in determining the eligibility for tax benefits unless the Assessing Officer is able to establish that there has been splitting up or reconstruction of an existing business or non-fulfilment of any other prescribed condition.

iii) Whether Research and development (R & D) Activities Pertaining to Software Development would be Covered under the Definition of “Computer Software” Stipulated Under Explanation 2 to sections 10A and 10B.

The definition of “computer software” stipulated under Explanation 2 to sections 10A and 10B includes “any customized electronic data or any product or service of similar nature, as may be notified by the Board,…”. The CBDT had already issued Notification No. 890(E), dated 26-9-2000 specifying such items. The notification includes Engineering and Design but does not specifically include Research and Development activities related to software development in respect of which clarification has been sought.

After examining the matter, it is clarified that the services covered by the aforesaid Notification, in particular, the ‘Engineering and Design’ do have the in-built elements of Research and Development. However, for the sake of clarity, it is reiterated that any Research and Development activity embedded in the ‘Engineering and Design’, would also be covered under the said Notification for the purpose of Explanation 2 to the above provisions.

(iv) Whether tax Benefits under sections 10A, 10AA and 10B would continue to Remain available in case of a slump-Sale of a Unit/Undertaking.

The vital factor in determining the above issue would be facts such as how a slump-sale is made and what is its nature. It will also be important to ensure that the slump sale would not result into any splitting or reconstruction of existing business. These are factual issues requiring verification of facts. It is, however, clarified that on the sole ground of change in ownership of an undertaking, the claim of exemption cannot be denied to an otherwise eligible undertaking and the tax holiday can be availed of for the unexpired period at the rates as applicable for the remaining years, subject to fulfilment of prescribed conditions.

v) Whether it is necessary to maintain separate books of account for an assessee in respect of its eligible units claiming tax benefits under sections 10A and 10B.

Since there is no requirement in law to maintain separate books of account, the same cannot be insisted upon. However, since the deductions under these sections are available only to the eligible units, the Assessing Officer may call for such details or information pertaining to different units to verify the claim and quantum of exemption, if so required.

vi) Whether tax benefits under section10AA can be enjoyed by an eligible SEZ unit consequent to its transfer to another SEZ.

This issue relates to cases where an eligible SEZ unit is shifted from one SEZ to another SEZ on account of commercial exigencies. This shifting is permissible under Instruction No. 59 (F.No-C-4/2/2010-SEZ) issued by Department of Commerce (SEZ Division), provided approval from the Board of Approvals (BOA) has been obtained. Doubts have been raised whether such shifting of an eligible unit would deprive the unit/undertaking of tax benefits, provided there is no splitting or reconstruction of an existing business.

The matter has been examined and it is clarified that the tax holiday should not be denied merely on the ground of physical relocation of an eligible SEZ unit from one SEZ to another in accordance with Instruction No. 59 of Department of Commerce (referred to above) and if all the prescribed conditions are satisfied under the Income-tax Act, 1961. It is further clarified that the unit so relocated will be eligible to avail of the tax benefit for the unexpired period at the rates applicable to such years.

vii) Whether new Units/undertakings set up in the same location where there is an existing eligible unit/undertaking would amount to expansion of the existing unit/undertaking.

Whether setting up of new unit/undertaking in a location (covered by section 10A, 10AA or 10B), where an eligible unit is already existing, would amount to expansion of such already existing unit is a matter of fact requiring examination and verification. However, it is clarified that setting up of such a fresh unit in itself would not make the unit ineligible for tax benefits, as long as the unit is setup after obtaining necessary approvals from the competent authorities; has not been formed by splitting or reconstruction of an existing business; and fulfils all other conditions prescribed in the relevant provisions of law.

3. The above may be brought to the notice of all concerned.

Source: Income Tax Department- India.


Notification No. 3/2013, [F.No.142/39/2012-SO(TPL)], dated 15.01.2013

In exercise of the powers conferred by sub-section (2) of section 200A of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following scheme for centralised processing of statements of tax deducted at source, namely:-

Short title and commencement

1. (1) This scheme may be called the Centralised Processing of Statements of Tax Deducted at Source Scheme, 2013.

   (2) It shall come into force on the date of its publication in the Official Gazette.

Definitions

2. (1) In this scheme, unless the context otherwise requires,-

(a) “Act” means the Income -tax Act, 1961 (43 of 1961);

(b) “Assessing Officer” means the Assessing Officer who is ordered or directed under section 120 of the Act to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under Chapter XVII of the Act;

(c) “authorised agency” means the person authorised by the Director General to receive the statement of tax deducted at source or correction statement of tax deducted at source;

d) “Board” means the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963);

(e) “Cell” means the Centralised Processing Cell having jurisdiction over such statements of tax deducted at source as may be specified by the Board;

(f) “Commissioner” means the Commissioner of Income-tax in charge of the Centralised Processing Cell;

g) “correction statement of tax deducted at source” means the statement furnished for rectifying any mistake or to add, delete or update the information furnished in the statement of tax deducted at source furnished under sub-section (3) of section 200 of the Act;

(h) “deductor” means a person deducting tax in accordance with the provisions of Chapter XVII of the Act;

(i) “Director General” means the Director General of Income-tax (Systems) appointed as such under sub-section (1) of section 117 of the Act;

(j) “portal” means the web portal of the authorised agency or the web portal of the Cell, as the case may be;

k) “statement of tax deducted at source” means statement of tax deducted at source furnished under sub-section (3) of section 200 of the Act.

(2) The words and expressions used herein but not defined and defined in the Act shall have the meaning respectively assigned to them in the Act.

Centralised Processing Cell

3. The Board may set up as many Centralised Processing Cells as it may deem necessary and specify their respective jurisdictions.

Furnishing of Correction Statement of Tax Deducted at Source

4. (1) A deductor shall furnish the correction statement of tax deducted at source in the form specified by the Director General-

(a) at the authorised agency through electronic mode; or

(b) online through the portal.

(2) The correction statement referred to in sub-paragraph (1) shall be furnished under digital signature or verified through a process in accordance with the procedure, formats, and standards specified by the Director General.

Processing of Statements

5. (1) The Cell shall process the statement of tax deducted at source furnished by a deductor in the manner specified under sub-section (1) of section 200A of the Act after taking into account the information contained in the correction statement of tax deducted at source, if any, furnished by the deductor before the date of processing.

(2) The Commissioner may-

a) adopt appropriate procedure for processing of the statement of tax deducted at source; or

b) decide the order of priority for processing of the statement of tax deducted at source based on administrative requirements.

Rectification of Mistake

6. (1) An Income-tax authority of the Cell may, with a view to rectifying any mistake apparent from the record under section 154 of the Act, on its own motion or on receiving an application from the deductor, amend any order or intimation passed or sent by it under the Act.

(2) An application for rectification shall be furnished in the form and manner specified by the Director General.

(3) Where a rectification has the effect of reducing the refund or increasing the liability of the deductor, an intimation to this effect shall be sent to the deductor electronically by the Cell and the reply of the deductor shall be furnished in the form and manner specified by the Director General.

(4) Where an amendment has the effect of reducing a refund already made or increasing the liability of the deductor, the order under section 154 of the Act passed by an Income-tax authority of the Cell shall be deemed to be a notice of demand under section 156 of the Act.

Adjustment against outstanding tax demand

7. Where a refund arises from the processing of a statement under this scheme, the provisions of section 245 of the Act shall, so far as may be, apply.

Appeal

8. (1) Where a statement of tax deducted at source is processed at the Cell, the appeal proceedings relating to the processing of the statement shall lie with the Commissioner of Income-tax (Appeals) having jurisdiction over the Assessing Officer who has jurisdiction over the deductor and any reference to Commissioner of Income-tax (Appeals) in any communication from the Cell shall mean such jurisdictional Commissioner of Income-tax (Appeals).

(2) The Assessing Officer who has jurisdiction over the deductor shall submit the remand report and any other report to be furnished before the Commissioner of Income-tax (Appeals) and an order, if any, giving effect to appellate order shall be passed by such Assessing Officer.

No Personal appearance at the Cell

9. (1) No person shall be required to appear personally or through authorised representative before the authorities at the Cell in connection with any proceedings.

(2) The Cell may call for such clarification, evidence or document as may be required for the purposes of the processing of statement of tax deducted at source or for the purposes of the rectification of any order or intimation passed or sent by the Cell under the provisions of the Act.

(3) The deductor shall furnish the reply to any communication under sub-paragraph (2) in such format as may be specified by the Director General.

Service of Notice or Communication

10. (1) The service of a notice or order or intimation or any other communication by the Cell may be made by delivering or transmitting a copy thereof to the deductor,-

(a) by electronic mail; or

(b) by placing such copy in the registered electronic account of the deductor on the portal of the Cell; or

(c) by any mode mentioned in sub-section (1) of section 282 of the Act.

(2) The date of posting of any communication under sub-paragraph (1) in the electronic mail or electronic account of the deductor in the portal of the Cell shall be deemed to be the date of service of such communication.

(3) The intimation, orders and notices shall be computer generated and need not carry physical signature of the person issuing it.

Power to specify Procedure and Processes

11.The Director General may specify procedures and processes, from time to time, for effective functioning of the Cell in an automated and mechanised environment, including specifying the procedure, formats, standards and processes in respect of the following matters, namely:-

(a) form of correction statement of tax deducted at source;

(b) the manner of verification of correction statement of tax deducted at source;

(c) receipt of correction statement of tax deducted at source;

(d) form of rectification application;

(e) the manner of verification of rectification application;

(f) receipt and processing of rectification applications in the Cell;

(g) the mode and format of the acknowledgement to be issued by the Cell for the receipt of any document;

h) the mode of authentication of any document or information submitted to the Cell, including authentication by digital signature or electronic signature;

(i) validation of any software used for electronic filing of correction statement of tax deducted at source or rectification application;

(j) provision of web portal facility including login facility, tracking status of correction statement of tax deducted at source or statement of tax deducted at source, display of relevant details of tax deduction or refunds to the taxpayer or deductor, as the case may be, and facility of download of relevant information;

k) call centre to answer queries and provide taxpayer services, including outbound calls to a deductor requesting for clarification to facilitate the processing of the statement of tax deducted at source filed;

(l) provision of grievance redressal mechanism in the Cell;

m) managing tax administration functions such as receipt, scanning, data entry, processing, storage and retrieval of statement of tax deducted at source and documents in a centralised manner or receipt of paper documents through authorised intermediaries.

Source: Income Tax Department- India.


Press release, dated 14.01.2013

A number of countries have provided for General Anti Avoidance Rules (GAAR) in matters relating to taxation. While tax mitigation is recognized, tax avoidance is frowned upon. International literature describes tax avoidance as the legal exploitation of tax laws to one’s own advantage and an arrangement entered into solely or primarily for the purpose of obtaining a tax advantage.

2. The principle of GAAR was incorporated in the Direct Taxes Code which was introduced as a Bill in Parliament on August 30, 2010.

3. Pending consideration of the Bill, the Income-tax Act, 1961 was amended by Finance Bill, 2012 to add Chapter X-A titled ‘General Anti-Avoidance Rule’. It became part of the law when the Finance Bill was passed by Parliament. Draft GAAR guidelines were also published. Under the current provisions, Chapter X-A would come into force with effect from April 1, 2014.

4. A number of representations were received against the provisions contained in Chapter X-A. Hence, on July 13, 2012, the Prime Minister approved the constitution of an Expert Committee on GAAR to undertake stakeholder consultations and finalize the guidelines for GAAR. Accordingly, an Expert Committee consisting of Dr. Parthasarathi Shome and three others was constituted on July 17, 2012 with broad terms of reference including consultation with stakeholders and finalizing the GAAR guidelines and a roadmap for implementation.

5. The Expert Committee submitted its draft report on August 31, 2012 which was placed in the public domain on September 1, 2012. After examining the responses to the draft, the Expert Committee submitted its final report on September 30, 2012.

6. The Government has carefully considered the report of the Expert Committee.

7. The major recommendations of the Expert Committee have been accepted, with some modifications, and the following decisions have been taken by Government:

(i) An arrangement, the main purpose of which is to obtain a tax benefit, would be considered as an impermissible avoidance arrangement.

The current provision prescribing that it should be “the main purpose or one of the main purposes” will be amended accordingly.

(ii) The assessing officer will be required to issue a show cause notice, containing reasons, to the assessee before invoking the provisions of Chapter X-A.

iii) The assessee shall have an opportunity to prove that the arrangement is not an impermissible avoidance arrangement.

iv) The two separate definitions in the current provisions, namely, ‘associated person’ and ‘connected person’ will be combined and there will be only one inclusive provision defining a ‘connected person’.

(v) The Approving Panel shall consist of a Chairperson who is or has been a Judge of a High Court; one Member of the Indian Revenue Service not below the rank of Chief Commissioner of Income-tax; and one Member who shall be an academic or scholar having special knowledge of matters such as direct taxes, business accounts and international trade practices. The current provision that the Approving Panel shall consist of not less than three members being Income-tax authorities or officers of the Indian Legal Service will be substituted.

vi) The Approving Panel may have regard to the period or time for which the arrangement had existed; the fact of payment of taxes by the assessee; and the fact that an exit route was provided by the arrangement. Such factors may be relevant but not sufficient to determine whether the arrangement is an impermissible avoidance arrangement.

vii) The directions issued by the Approving Panel shall be binding on the assessee as well as the Income-tax authorities. The current provision that it shall be binding only on the Income-tax authorities will be modified accordingly.

viii) While determining whether an arrangement is an impermissible avoidance arrangement, it will be ensured that the same income is not taxed twice in the hands of the same tax payer in the same year or in different assessment years.

ix) Investments made before August 30, 2010, the date of introduction of the Direct Taxes Code, Bill, 2010, will be grandfathered.

(x) GAAR will not apply to such FIIs that choose not to take any benefit under an agreement under section 90 or section 90A of the Income-tax Act, 1961. GAAR will also not apply to non-resident investors in FIIs.

xi) A monetary threshold of Rs. 3 crore of tax benefit in the arrangement will be provided in order to attract the provisions of GAAR.

xii) Where a part of the arrangement is an impermissible avoidance arrangement, GAAR will be restricted to the tax consequence of that part which is impermissible and not to the whole arrangement.

xiii) Where GAAR and SAAR are both in force, only one of them will apply to a given case, and guidelines will be made regarding the applicability of one or the other.

xiv) Statutory forms will be prescribed for the different authorities to exercise their powers under section 144BA.

xv) Time limits will be provided for action by the various authorities under GAAR.

xvi) Section 245N(a)(iv) that provides for an advance ruling by the Authority for Advance Rulings (AAR) whether an arrangement is an impermissible avoidance arrangement will be retained and the administration of the AAR will be strengthened.

xvii) The tax auditor will be required to report any tax avoidance arrangement.

8. Further, having considered all the circumstances and relevant factors, Government has also decided that the provisions of Chapter X-A will come into force with effect from April 1, 2016 (as against the current provision of April 1, 2014).

9. The final report of the Expert Committee has been put on the website of the Ministry of Finance today.

Source: Income Tax Department- India.


Notification No. 01/2013 under CPR Scheme 2011, F. No. DIT(S)-III/ITR-V Extension/ 2012-13, dated 07.01.2013.

In exercise of its powers under clause (ii) of Para 14 read with clause (7) of Para 4 of the ‘Centralized Processing of Returns Scheme, 2011’, issued vide CBDT Notification No. SO 16(E), dated 04.01.2012, the Director General of Income Tax (System) hereby extends the time limit for filing ITR-V forms relating to Income Tax Returns filed electronically (without digital signature Certificate) for A.Y. 2010-11 [Filed during F.Y. 2011-12] and for ITRs of A.Y. 2011-12 [filed on or after 01.04.2011] till 28th February, 2013. In respect of returns filed for A.Y. 2012-13 for which ITR-V forms are yet to be received at CPC and time of 120 days has also elapsed, time limit for filing of ITR-V is extended upto 31st March, 2013 or 120 days from the date of uploading of the electronic return data, whichever is later.

This direction is issued to mitigate the hardship and grievance of the tax payers who have been prevented by reasonable causes to file the ITR-V in time.

Source: Income Tax Department- India.