Mazars Tax Update | Edition 22.20

Direct Tax News

Income tax deadlines – ending on 31^st July 2020

Considering the Corona outbreak, the Government of India had extended below stated timelines for filing the income tax returns and claiming investment linked deductions, which are ending on 31^st July 2020.

• Belated filing of Income-tax return u/s 139(4) for the Assessment Year 2019-20.
• Deduction u/s 80C (investment linked deduction up to 1.5 lacs etc.) and 80D (Mediclaim)
• Deduction u/s 80 CCD(1B) by investing funds in NPS.
• Opening of Sukanya Samriddhi account in the name of a girl child who has attained the age of 10 years during the period from 25^th March 2020 to 30^th June 2020.

CBDT and CBIC sign MoU to facilitate the exchange of data 

CBDT press release dated 21st  July 2020

A Memorandum of Understanding (MoU) has been signed between the Central Board of Direct Taxes (CBDT) and the Central Board of Indirect Taxes and Customs (CBIC) on 21^st July 2020 to facilitate the smoother bilateral exchange of data between the two organizations. This MoU supersedes the MoU signed between CBDT and the erstwhile Central Board of Excise and Customs (CBEC) in the year 2015 as significant developments have taken place since the signing of earlier MoU in 2015 including introduction of GST, incorporation of GSTN, etc.

This MoU will facilitate the sharing of data and information between the two organizations on a regular, automatic, request, and spontaneous basis. CBDT and CBIC may also share any information available in their respective databases, which may be useful for the other organization. A Data Exchange Steering Group has also been constituted which will meet periodically to review the data exchange status & to improve the effectiveness of the data sharing mechanism.

Income-tax Department may crack the whip on tax evaders

The Income Tax Department is all set to crack the whip on evaders which had been kept on hold because of the coronavirus outbreak. The information received from whistle-blowers and informers during the earlier quarter of the year 2020 may now be acted upon. The move will help the department to shore up revenue, clear backlogs, and resume probe in pending matters. The source says that CBDT has also directed its officials to start scrutinizing information from tax evasion petitions (TEPs) on a priority basis.

Income-tax Department to share taxpayer info with 10 Central Intelligence Agencies

The Income-tax Department will be signing an MoU with counter-terrorism platform, National Intelligence Grid (NATGRID), to facilitate the exchange of information like Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), Bank Account details, summary of IT Returns and Tax Deducted at Source (TDS) and any other information as mutually agreed will be shared with 10 agencies namely Central Bureau of Investigation (CBI), Directorate of Revenue Intelligence (DRI), Enforcement Directorate (ED), Central Board of Indirect Taxes & Customs (CBIC), Cabinet Secretariat, Intelligence Bureau (IB), Directorate General of GST Intelligence (DGGI), Narcotics Control Bureau (NCB), Financial Intelligence Unit (FIU), National Investigation Agency (NIA). The MoU would include the mode of transfer of data, maintenance of confidentiality, mechanism for safe preservation of data, weeding out after usage, etc.

Judicial Pronouncements

The Supreme court held that the compensation received for the loss of management and control is a revenue receipt whereas the compensation attributable to a negative/restrictive covenant is a capital receipt.

(Shiv Raj Gupta Versus CIT dated 22-07-2020; CIVIL APPEAL NO. 12044 OF 2016)
The taxpayer and his family members were registered holders of 57.29% of paid-up equity share of company CDBL out of which controlling block of shares was sold at the price of Rs. 30 per share. Additionally, the taxpayer gave a restrictive covenant to and in favour of SWC for consideration of a non-competition fee of Rs. 6.60 crores as per which the taxpayer shall not carry on directly or indirectly any manufacturing or marketing activities, whatsoever, relating to Indian Made Foreign Liquor (IMFL) or Beer for a period of 10 years.

The issue under consideration was whether the said Deed of Covenant can be said to contain a restrictive covenant as a result of which payment is made to the tax payer, or whether it is, in fact, part of a sham transaction which, in the guise of being a separate Deed of Covenant, is really in the nature of payment received by the appellant as compensation for terminating his management of CDBL, in which case it would be taxable under Section 28(ii)(a) of the Income Tax Act, 1961.

The Apex Court held that Rs. 6.6 crores received by the taxpayer from the company was not taxable under section 28(ii) and it was exempt as capital receipt being the non-competition fee received on the execution of the deed of covenant.

Mumbai Tribunal held that period of holding for the purpose of capital gains to be considered from the date of allotment of flat and not from the date of possession of flat

(Yogesh Mavjibhai Gala v. PCIT [2020] 117 taxmann.com 783 (Mumbai - Trib.)
The brief facts are that in the Financial Year (FY) 2013-14, the taxpayer sold two flats. Allotment letter for said flats was issued by the builder in the year 2010 whereas the ‘agreement of purchase’ was executed in the financial year 2013-14 i.e. the year in which flats were sold. The taxpayer calculated period of holding based on the letter of allotment and claimed deduction u/s 54 of the Income-tax Act.
 
The Hon’ble Tribunal noted that “Payment of balance installments, identification of a particular flat and delivery of possession are consequential acts which arise from rights conferred by allotment letter” and therefore the holding period is to be decided from the date of allotment and not from the date of an agreement of purchase.

Bombay High Court held that Obsolete stocks of laptops & motherboards which could not be sold is allowable as revenue expenditure

(CIT v. Gigabyte Technology (India) Ltd - [2020] 117 taxmann.com 670 (Bombay)

The taxpayer claimed Rs. 56.54 lacs as losses towards stock obsolescence which could not be disposed-off or sold. The assessing officer held that the laptops and the motherboards which have long shelf life cannot be considered as obsolete and disallowed the losses.

Dismissing the appeal of the revenue the Hon’ble Court held that the Tribunal is justified in holding that write-off of losses towards stock obsolescence in respect of Laptops and motherboards, and the same is held to be allowable as revenue expenditure.