Blog # 24. AO to accept application & issue certificate for nil/lower deduction of tax via email: CBDT

Due to outbreak of pandemic COVID-19, the Assessing Officer finding difficulties in disposing of the applications for lower or nil rate of TDS/TCS. Thus, to mitigate hardship of assessees, the Central Board of Direct Taxes (CBDT) has issued following directions and clarifications:
a) In case the application is pending, the certificate issued to assessee in the Financial Year (FY) 2019-20 will be applicable for FY 2020-21 as well till June 30, 2020 or disposal of their application, whichever is earlier.
b) In case asseessee couldn’t apply for issue of lower or nil deduction of TDS/TCS certificate, he can also use certificate issued for FY 2019-20 till June 30, 2020. However, he needs to apply at the earliest giving details of the transactions.
c) In case of assessee who is not having such certificate for FY 2019-20, can apply for application for lower or nil TDS/TCS certificate vide e-mail addressed to the concerned Assessing Officer. Certificate will be issued to him via email. The Email shall contain the following documents:
i. Form-13
ii. Documents/informations required to be uploaded on TDS-CPC website while filing up Form-13
iii. Projected Balance Sheet and P&L account for FY 2020-21
iv. Provisional Balance Sheet and P&L account for FY 2019-20
v. Balance Sheet and P&L account for FY 2018-19
vi. Form-26AS for FY 2019-20 and FY 2018-19
vii. ITR pertaining to FY pertaining to FY 2018-19
d) In case payment is being made to Non-resident having Permanent Establishment in India, tax shall be deducted at the rate of 10% including surcharge and cess till June 30, 2020 or disposal of application of assessee, whichever is earlier (for assessee’s not falling in (a) or (b) category).

Order u/s 119, dated 31-03-2020

Blog # 23. Stay Under the Income Tax Act, 1961.


Sections 220 to 232 of the Income-tax Act deals with collection and recovery of taxes. These provisions will become active every year in the months of February and March. Probably each officer or Commissioner may have to report to the higher authority the taxes outstanding, and total collection of taxes in their charge. As the scope of this Article is very limited. I will not deal with various controversial issues of Recovery Proceedings and will restrict only to few provisions which are useful in our day-to-day practice.
Recovery proceedings under the Act can be started against a person only when he is in default or deemed to be in default in making payment of taxes. The assessee who is in default or is deemed to be in default in making payment of taxes may make an application, requesting the Assessing Officer not to treat him as the assessee in default in respect of the amount in dispute in the appeal preferred by the assessee. The Assessing Officer may in his discretion and with or without imposing any conditions pass an order, not treating the assessee as an assessee in default in respect of such disputed amount till the appeal is pending.
It may be noted that mere filing of an appeal does not suo motu stay the proceedings of recovery of the tax in demand. Therefore, it is necessary that as soon as an order raising the demand is received, assessee must make an application to stay and keep the demand in abeyance.
While filing Stay application before the Assessing Officer, the assessee will have to give the brief facts as under:
·         The assessment history of the assessee,
·         His conduct and co-operation with the department,
·         Points raised in the appeal,
·         The chances of recovery in case the appeal is dismissed and
·         The hardship that would be caused to the assessee by persistent demand of the tax by the department.
If an assessee’s application u/s. 220(6) is not replied by the Assessing Officer, even though the same was filed in time, the assessee can always contend before the Tax Recovery Officer that before taking any action against the assessee, his application for stay of demand should be disposed of. The Tax Recovery Officer can also consider the assessee’s applications u/s. 225(1) and grant time for the payment of any tax till the disposal of the assessee’s appeal by the First Appellate Authority.
In the event of Assessing Officer rejecting assessee’s application u/s. 220(6) of the Income-tax Act, the assessee can prefer an application to the Commissioner of Income-tax under whose jurisdiction assessee’s case falls for staying the demand of tax in dispute till the hearing and final disposal of the assessee’s appeal by the Commissioner of Income-tax (Appeals).
If the Commissioner fails to discharge his duty, the assessee may file a Writ Petition under Article 226 of the Constitution of India. However, when an appeal is pending before the Income Tax Appellate Tribunal, the assessee can file a Stay Petition before the Income Tax Appellate Tribunal to stay the recovery proceedings.
The Central Board of Direct taxes in its circular No.530 dated 6-3-1989 [176 ITR St. (240) and Circular No. 589 dated 16-1-1991, 187 ITR St. (79)] has laid down the guidelines for the Assessing Officer to exercise his jurisdiction u/s. 220(6) of the Act where an assessee has preferred an appeal. The CBDT has issued Office Memorandum dated 31st July 2017 by which it has amended the conditions stipulated in the earlier OM dated 29.02.2016 pursuant to which the AO is empowered to grant a stay of the outstanding demand till the disposal of the appeal by the CIT(A).



The discretionary power conferred by section 220 (6) upon the Assessing Officer is coupled with a duty and if he does not exercise it when the occasion calls for it or if he exercise it in such a manner that it is no exercise of discretion at all, he can be compelled to discharge his duty by an order of the court.[Ladhuram Taparia vs. B. K. Bagchi, 20 ITR 51, (Cal.) Shivangi Steels P. Ltd. vs ACIT, 226 ITR 62, 63 (All)]
Protective recovery of tax is not permissible even though protective assessment can be validly made. [Sunil Kumar vs. CIT, 139 ITR 880 (Bom.)]
Representative assessee
·   Where an assessee dies before the issue of the certificate, unless his legal representatives are served with a notice of demand under section 156 and they fail to comply with that notice within 30 days from the date of receipt of the notice, they cannot be said to be “assessee in default” and consequently no recovery proceedings can be taken against them. [Satya Pal Verma vs. ITO, 106 ITR 540 (All) : Bai Chandanben Jivanlal vs. I. D. Joshi, Collector, 74 ITR 448, (Guj)]
·    A recovery certificate issued or drawn up by Tax Recovery Officer against a person who is already dead, is a nullity. The certificate must be against a defaulter who is alive. [Isha Beevi vs. TRO, 80 ITR 82, (Ker) on appeal 101 ITR 449, (SC)]. If an assessee in default dies before the issue of a certificate in his name, proceedings under Section 159 of the Act are necessary to bring on record the name or names of the legal representative or representatives.
Filing of claims
·     If any part of the property of an applicant is illegally or unjustifiably attached, an objection under rule 11(1) of the second Schedule to the Act may be filed by him before the Tax Recovery Officer who has got the jurisdiction to adjudicate upon it.
·   Rule 58(a) of the Order XXI of C.P.C. provides that the claim should be preferred before the property so attached is sold.
·   Where a claim or objection is made under rule 11 against attachment of a property in execution of a recovery certificate, it is the bounden duty of the Tax Recovery Officer to first dispose of the objection and then to proceed further. Investigation of a claim properly filed is essential. Even if the property to which the claim or objection applies has been advertised for sale, the Tax Recovery Officer ordering the sale may postpone it, pending such investigation.
·         Where a claim or an objection preferred under rule 11(1) of the Second Schedule is rejected or dismissed, the party against whom an order rejecting or dismissing the claim or objection is made may institute a suit, under rule 11(6), in a Civil Court to establish the right which he claims to the property. In Sawai Singhai vs. Union of India (AIR) 1966 SC 1968), the Supreme Court observed that the suit brought under Order 21, rule 63 (corresponding to rule 11 (6) of the Second Schedule), concerns not only with the question of possession but also with the question of title.
The Hon’ble A. P. High Court in ITO vs. Khalid Mehdi Khan (minor) 110 ITR 79, has taken the view that the Tribunal can not only stay the recovery proceedings but can also stay the proceedings before the Assessing Officer. Therefore, in a case where order under section 263 is passed and if the appeal is pending before Tribunal and in the meantime, if the Assessing Officer starts the assessment proceedings then in such circumstances, the assessee can file stay petition before the Tribunal and the Tribunal can stay the proceedings before the Assessing Officer. Please also see Ritz Hdrs Vyas, 185 ITR 311 (Bom).
The Hon’ble Supreme Court in CIT vs. Bansi Dhar & Sons 157 ITR 665 has taken the view that the Tribunal can also stay the proceedings when the reference is pending before the High Court. Therefore, in cases where the assessee has lost before the Tribunal and the reference is pending before the High Court and if the assessee is in a position to establish that he is not in a position to make the payment of tax in dispute, in such circumstances, the Tribunal can stay the proceedings till the disposal of the reference by the High Court.
It may be noted here that, before filing the stay petition, it is necessary that the assessee should approach the Commissioner to stay the recovery proceedings. When Commissioner refuses to stay the recovery proceedings, then only the Tribunal will exercise its power. In case the Commissioner grants installment facility but the assessee shows his inability to make payment in installment and the Commissioner rejects the stay application then the power of Tribunal can be invoked for stay. It may be further noted that the assessee must also show that he has no liquidity to pay the tax in dispute and if stay is not granted, great hardship will be caused to the assessee.
The Finance (No.2) Act, 1998 with effect from 1-10-1998 inserted sub-section (7) in section 253 prescribing for the first time a fee of five hundred rupees whenever an application for stay of demand has to be filed before the Appellate Tribunal.
The Finance Act, 2001 inserted two new proviso to sub-section (2A) of section 254 with effect from 1-6-2001. As per the first proviso, where an order of stay is made in any proceedings relating to an appeal filed under section 253(1), the Tribunal shall dispose of the appeal within a period of one hundred and eighty days from the date of such stay order.
As per the second proviso if such appeal is not so disposed of within the period specified in first proviso, the stay order shall stand vacated after the expiry of the said period.
In view of the specific language of the aforesaid second proviso, it is not only desirable but imperative on the part of the assessee to file an application for extension of the stay or granting of fresh stay, well in time before the expiry of the impugned six months period.
Rule 35A of the Income Tax Appellate Tribunal Rules, prescribes the procedure for filing the Stay Petition. As per this rule, any assessee filing an appeal under taxation Laws, before the Income Tax Appellate Tribunal may prefer stay application in the following manner.
1.
a. Every application for stay of recovery of demand of tax, interest, penalty, fine, Estate Duty or any other sum shall be presented in Triplicate by the applicant in person, or by his duly authorised agent, or sent by Registered Post to the Registrar/Deputy Registrar or the Assistant Registrar, as the case may be at the Headquarters of a Bench or Benches having jurisdiction to hear the appeals in respect of which the Stay Application arises.
b. Where the application for stay relates to demands, though for more than one assessment year but under only a single statutory enactment, then a single stay application would be sufficient in respect of the demands for which the stay is sought. However, separate applications shall be filed for stay of recovery of demands under different enactments. It may however be noted that in Wipro Ltd vs. ITO, 86 ITD 407 (Bang) the Tribunal held that reparate stay petitions should be filed seeking stay and recovery of different assessment years. But the Bombay bench of the Tribunal in Chirangilal S. Gaonkar vs. WTO, 66 TTJ 728 has held that a single afflication can be filed.
c. The application for stay should, as far as possible, be filed in the form as per specimen as at Appendix X.
2. Every application shall be neatly typed on one side of the paper and shall be in English and shall setforth concisely the following:
  • Summary of facts regarding the demand of the tax, interest, penalty, fine, Estate Duty or any other sum, the recovery of which is sought to be stayed;
  • The result of the appeal filed before the Commissioner (Appeals) or the Deputy Commissioner (Appeals), if any;
  • The exact amount of the tax, interest, penalty, fine, Estate Duty or any other sum demanded, as the case may be, and the amount undisputed therefrom and the amount outstanding;
  •  The date of filing of the appeal before the Tribunal and its number, if known;
  •  Whether any application for stay was made to the revenue authorities concerned and if so, the result thereof (copies of correspondence, if any, with the Revenue authorities to be attached);
  •  Reasons in brief for seeking the stay;
  •  Whether the applicant is prepared to offer any security in respect of the demand of tax in dispute and if so, in what form;
  •  Prayer to be mentioned clearly and concisely (stating exact amount sought to be stayed);
  • The contents of the application shall be supported by an affidavit sworn by the applicant or his duly authorized agent


Blog # 22. S.56(2)(vii) : Property Acquired


Assessing officers in case of property being acquired by an assesse, for a cost less than the stamp valuation have started issuing show cause notices, in order to add such difference u/s 56(2)(vii) of the Act. (Stamp Valuation - Consideration). However, in order to understand the provisions, the same are reproduced as under for your ready reference :-
(vii)  where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,—
     (a)  any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;
 [()  any immovable property, without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;]
      (c)  any property, other than immovable property,—
      (i)  without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;
     (ii)  for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration :
                 Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections :
                 Provided further that this clause shall not apply to any sum of money or any property received—
     (a)  from any relative; or
     (b)  on the occasion of the marriage of the individual; or
      (c)  under a will or by way of inheritance; or
     (d)  in contemplation of death of the payer or donor, as the case may be; or
      (e)  from any local authority as defined in the Explanation to clause (20) of section 10 ; or
      (f)  from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
     (g)  from any trust or institution registered under section 12AA.
                 Explanation.—For the purposes of this clause,—
     (a)  "assessable" shall have the meaning assigned to it in the Explanation 2 to sub-section (2) of section 50C;
     (b)  "fair market value" of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed 38c ;
      (c)  "jewellery" shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2 ;
     (d)  "property" 38d [means the following capital asset of the assessee, namely:—]
      (i)  immovable property being land or building or both;
     (ii)  shares and securities;
    (iii)  jewellery;
     (iv)  archaeological collections;
      (v)  drawings;
     (vi)  paintings;
   (vii)  sculptures; 38e [*** ]
  (viii)  any work of art; 38f[ or]
38f [(ix )  bullion; ]
      (e)  "relative" shall have the meaning assigned to it in the Explanation to clause (vi) of sub-section (2) of this section;
      (f)  "stamp duty value" means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property;]

The legislature has clearly used the words “received” in the context of provisions of S.56(2)(vii) and not acquired. The Hon’ble Supreme Court in the case of CIT v. Dharamdas Hargovandas reported in [1961] 42 ITR 427 (SC) has observed that the words ‘is received’ are not terms of art and their meaning must receive colour from the context in which they are used.
In order to understand the context in which the word “receives” has been used in the provisions of S.56(2)(vii), I would like to draw your attention towards the brief history of the provisions of S.56(2)(vii), its insertion in to the Act and intentions.
The Hon’ble Finance Minister in its Budget Speech for F.Y 2004-05 inserted S.56(v) of the Act. S.56(v) of the Act as introduced are as under for your ready reference :-
 (v )  where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1st day of September, 2004, the whole of such sum :
                 Provided that this clause shall not apply to any sum of money received—
      ()  from any relative; or
     ()  on the occasion of the marriage of the individual; or
      ()  under a will or by way of inheritance; or
     ()  in contemplation of death of the payer.
                Explanation. —For the purposes of this clause, "relative" means—
      ()  spouse of the individual;
     (ii )  brother or sister of the individual;
    (iii )  brother or sister of the spouse of the individual;
    (iv )  brother or sister of either of the parents of the individual;
     ()  any lineal ascendant or descendant of the individual;
    (vi )  any lineal ascendant or descendant of the spouse of the individual;
       (vii )  spouse of the persons referred to in clauses (ii ) to (vi).

The relevant part of the Hon’ble Finance Ministers Speech is reproduced as under :-
102. Hon’ble Members are aware that I abolished the gift tax in 1997. That decision remains, but a loophole requires to be plugged to prevent money laundering. Accordingly, purported gifts from unrelated persons, above the threshold limit of Rs.25,000, will now be taxed as income. Gifts received from blood relations, lineal ascendants and lineal descendants, and gifts received on certain occasion like marriage will continue to be totally exempt
Perusal of the same it can be seen that the purpose of inserting S.56(v) of the Act, was to tax purported gifts from unrelated persons, above the threshold limit of Rs.25,000. {Purport: appear to be or do something, especially falsely}.
Thereafter, the provisions were amended, vide Taxation Laws (Amendment) Act, 2006, w.e.f. 1-4-2007 and clause vi was inserted in place of Clause (iv) of the Act, the same read as under :-
[(vi)  where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received without consideration, by an individual or a Hindu undivided family, in any previous year from any person or persons on or after the 1st day of April, 2006, the whole of the aggregate value of such sum:
                 Provided that this clause shall not apply to any sum of money received—
      ()  from any relative; or
     ()  on the occasion of the marriage of the individual; or
      ()  under a will or by way of inheritance; or
     ()  in contemplation of death of the payer; or
      ()  from any local authority as defined in the Explanation to clause (20) of section 10; or
      ()  from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10 ; or
     ()  from any trust or institution registered under section 12AA .
                
Explanation. —For the purposes of this clause, "relative" means—
      ()  spouse of the individual;
     (ii )  brother or sister of the individual;
    (iii )  brother or sister of the spouse of the individual;
    (iv )  brother or sister of either of the parents of the individual;
     ()  any lineal ascendant or descendant of the individual;
    (vi )  any lineal ascendant or descendant of the spouse of the individual;

Upon reading, it can be seen that the provisions were amended so as to increase the threshold limit to Rs.50,000/- from Rs.25,000/-. However, the purpose of brining in the clause itself was clear on the part of the Legislature that it was done so as to tax purported gifts from unrelated persons and thus legislature consciously used the words “receives” instead of “obtains”. The words “obtained” as well as “received” are not defined under the Income Tax Act, 1961. However, both being the verbs differ on a conceptual level so far as its use in interpretation is concerned. Obtain means to get hold of; to gain possession of, to procure; to acquire, Whereas the word “receive” means to take something that is given or to be given something just like to receive Gifts. 
Thereafter, the provisions were again amended, and clause vii was insterted Vide Finance Act, 2010 so as to further increase the tax base in case of gifts of immovable property and S.56(2)(vii) was inserted. The relevant Amended provisions are as under for your ready reference:-
(vii)  where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,—
     (a)  any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;
 [()  any immovable property, without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;]
      (c)  any property, other than immovable property,—
      (i)  without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;
     (ii)  for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration :
                 Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections :
                 Provided further that this clause shall not apply to any sum of money or any property received—
     (a)  from any relative; or
     (b)  on the occasion of the marriage of the individual; or
      (c)  under a will or by way of inheritance; or
     (d)  in contemplation of death of the payer or donor, as the case may be; or
      (e)  from any local authority as defined in the Explanation to clause (20) of section 10 ; or
      (f)  from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
     (g)  from any trust or institution registered under section 12AA.
                 Explanation.—For the purposes of this clause,—
     (a)  "assessable" shall have the meaning assigned to it in the Explanation 2 to sub-section (2) of section 50C;
     (b)  "fair market value" of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed 38c ;
      (c)  "jewellery" shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2 ;
     (d)  "property" 38d [means the following capital asset of the assessee, namely:—]
      (i)  immovable property being land or building or both;
     (ii)  shares and securities;
    (iii)  jewellery;
     (iv)  archaeological collections;
      (v)  drawings;
     (vi)  paintings;
   (vii)  sculptures; 38e [*** ]
  (viii)  any work of art; 38f[ or]
38f [(ix )  bullion; ]
      (e)  "relative" shall have the meaning assigned to it in the Explanation to clause (vi) of sub-section (2) of this section;
      (f)  "stamp duty value" means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property;]

Thereafter, the provisions of S.56(2)(vii) was amended vide Finance Act 2013, w.e.f 01/04/2014 so as to tax the purported gifts received for inadequate considerations. However in case when an assesse acquirs a property, the same cannot be claimed to have been received the properties and thus provisions of S.56(vii)(b) of the Act are not at all applicable to the facts of the case.
Let us examine this view from a slightly different angle. The transfer of property (capital assets) by way of gifts are not taxable because the same are not treated as transfers by virtue of S.47(iii) of the Act. The relevant provisions of the Act are as under for your ready reference :-
“47. (iii)  any transfer of a capital asset under a gift or will or an irrevocable trust :
Provided that this clause shall not apply to transfer under a gift or an irrevocable trust of a capital asset being shares, debentures or warrants allotted by a company directly or indirectly to its employees under any Employees' Stock Option Plan or Scheme of the company offered to such employees in accordance with the guidelines issued by the Central Government in this behalf;

In order to tax such receipts ie. by way of gifts the legislature has introduced S.56(2)(vii) and the recipient of such gift is taxed. It is further well settled that the same income cannot be taxed twice. Thus, when an assesse acquires a property the amount of income ie. such difference, will be taxed in the hands of the seller by way of S.50C of the Act under the head capital gain if the seller has treated such property as a capital asset or if the asset has been treated as a stock in trade then the same shall be taxed by way of S.43CA of the Act.
Accordingly, if the assessing officer treats the difference as income in the hands of an acquirer of property, then the same shall amount to taxing the same income twice ie. in the hands of a seller as well in the hands of purchaser.

Disclaimer : The opinions expressed in this article are completely mine. I assume no liability or responsibility for any errors or omissions in the contents contained herein neither does it give any guarantee of completeness or accuracy. The information and data contained herein may be used at your sole risk after ensuring its accuracy, correctness or completeness.