The Ministry of Labour & Employment has issued notification dated 28th August, 2014 and clarification letters dated 29th August, 2014 amending the provisions of the Employees’ Provident Funds Scheme, 1952, the Employees’ Pension Scheme, 1995 and Employees Deposit Linked Insurance Scheme, 1976, which have come into force with effect from 1st September, 2014. Some of the relevant amendments under the said Schemes are as summarised below.

Under Employees’ Provident Funds Scheme, 1952

• The existing wage limit on which Provident Fund contributions are payable by the employer and employee on the employee pay has been increased from
Rs. 6,500/- to Rs. 1,500/-.

• Employees who are drawing basic salary above
Rs. 6,500/- and are enrolled under PF and intends to continue contributing towards PF need to submit joint undertaking.

• An employer would now be required to make mandatory PF contributions in respect of all employees whose pay is
Rs. 15,000/- or less (as opposed to Rs. 6,500/- or less). This amendment has widened the ambit of employees who would now be covered under the EPF Act.

Under Employees’ Pension Scheme, 1995

• Eligibility of employees under Pension Scheme has been increased from
Rs. 6,500/- per month to Rs. 15,000/- per month.

• Maximum Employer contribution towards pension scheme @ 8.33% has been increased from
Rs. 541/- to Rs. 1,250/-.

• New joiners drawing basic salary above
Rs. 15,000/- at the time of joining will not be eligible for EPS, 1995. However, if he/she is already a member of Pension with his/her previous employer and wishes to transfer his/her PF/EPS, he/she would continue to be a member of Pension Scheme subject to the condition that his/her pension contribution will be restricted to salary of
Rs. 15,000/- only.

• In case of existing employees, who are contributing towards pension scheme beyond the statutory limit and intends to continue contributing towards the pension scheme beyond the statutory limit, in their case they need to exercise the Fresh option of contributing towards pension scheme beyond
Rs. 1,500/-, within a period of 6 months from 1st September, 2014.

a) The employees, who opt for the aforesaid option, will have to contribute towards the Government share of contribution @ 1.16% on the salary exceeding
Rs. 15,000/- per month from his/her share of contribution.



Basic Salary of the employee

Rs. 25,000/- per month

Statutory limit for pension

Rs. 15,000/- per month

Basic Salary exceeds the Statutory limit of
Rs. 15,000/- by

Rs. 10,000/- per month


Employers Share of contribution @ 12% of
Rs. 25,000/-

Rs. 3,000/-

Out of 12% of Employers share 8.33% will be diverted towards pension i.e. 8.33% of
Rs. 25,000/-

Rs. 2,082/-

Out of 12% of Employers share 3.67% will be Employers contribution towards PF i.e. 3.67% of
Rs. 25,000/-

Rs. 917/-


Employees Share of contribution will be @ 12% of
Rs. 25,000/-

Rs. 3,000/-

Employee has to pay @1.16% of differential amount of
Rs. 10,000/- towards government share of contribution i.e.
Rs. 10,000/- 1.16%

Rs. 116/-

Employees Share of PF contribution will be
Rs. 3,000/- less Rs. 116/-i.e.

Rs. 2,884/-

b) If the employee fails to exercise the said option within 6 months from 1st Sept. 2014, it shall be deemed that the member has not opted for contribution beyond
Rs. 15,000/- to the pension fund and the contribution shall be diverted to the Provident Fund account of the member along with interest.

• The provision for contribution on higher salary has been deleted and as such no new options can be allowed to any member of the Employees’ Pension Scheme, 1995 on and after 1st September, 2014.


• The minimum pension or relief payable to any existing or future member or in case of the member’s death to his widow/widower shall not be less than
Rs. 1,000/- per month for the financial year 2014-15.

• The minimum children pension for each child has been increased from
Rs. 150/- to Rs. 250/- for the financial year 2014-2015.

• The minimum monthly Orphan pension which is payable where a deceased member is out survived by any widow or where the pension is not payable to the widow (in case of remarriage) has also been increased from
Rs. 250/- to Rs. 750/- for the financial year 2014-2015.


• The pensionable salary (i.e. the salary based on which pension is to be computed) for all the cases of exit and death, will be average monthly pay drawn during the contributory period of service in the span of 60 months (originally it was 12 months) preceding the date of the exit from membership of the pension fund. However, in case of exit/death up to 31st August, 2014, average monthly pay drawn during the contributory period of service shall be 12 months.

• The pensionable salary shall be determined on a pro-rata basis for the pensionable service up to 31st August, 2014, subject to a maximum of
Rs. 6,500/- per month and for the period w.e.f. 1-9-2014, subject to the maximum of
Rs. 15,000/- per month. The same is applicable for withdrawal benefit.


• EDLI wage limit enhanced from
Rs. 6,500/- to Rs. 15,000/-.

• Family members of the deceased member who has served in the same establishment for more than 12 months are entitled for higher EDLI benefits subject to maximum of
Rs. 3,00,000/- (20 times of Statutory limit i.e. Rs. 15,000/-) plus 20%.

• Deceased member who has served for less than 12 months, his family members are entitled for EDLI benefit subject to the maximum of
Rs. 1,00,000/- plus 20%.

Query No. 1: (Penalty u/s. 271D)

A farmer’s co-op. society, situated in a remote area which works for the benefit of farmers such as to get them seeds, fertilizers etc., the society received some amounts from some members as cash deposits exceeding ` 20,000/- which were subsequently repaid by account payee cheques by the society.

The case was under scrutiny for the A.Y. 2010-11, the Assessing Officer did not discuss anything or issue any notice to the assessee till the order passed under Section 143(3) on March 01, 2013. The Joint Commissioner of Income tax thereafter issued notice under Section 271D of the Act, on January, 2014 i.e., after 11 months.

The objection was taken for the proceedings as barred by limitation as per provision of Section 275(1)(c) of the Act along with the submission but the penalty under Section 271D of the Act was levied and order was passed. Whether JCIT was justified?


From the query, it is not clear, when the Joint Commissioner of Income tax levied the penalty under Section 271D. However, it is presumed that it is within the time prescribed under section 275(1)(c) of the Act.

Similar question arose before the Special Bench of Chandigarh in Dewan Chand Amrit Lal v. DCIT [283 ITR (AT) 203], wherein the Tribunal has held that:

“The Legislature has not considered it necessary to provide for limitation for intimation of penalty proceedings under Section 271D and 271E of the Income tax Act, 1961. The intention behind incorporation of the provisions of Sections 269SS, 269T, 271D and 271E was to counter the proliferation of black money, which when found in the course of search is sought to be explained by cash loans from various persons. There is no time limit for conducting searches. When in the course of search, some information is found about cash loans or deposits or repayment of loans or deposits or such claims are made, the necessity for initiating proceedings under Section 271D and 271E arises. If one were to compute the limitation with reference to the assessment proceedings, then in no case penalty under Sections 271D and 271E could be initiated in the cases where the information is gathered in the course of search. That would defeat the very purpose of legislating the provisions of Sections 271D and 271E. The limitation has been prescribed for imposition after its initiation by the competent authority.

Further, under Section 271, recording of satisfaction before initiation of penalty in the course of proceedings is a condition precedent for imposition of penalty for specified defaults. Under Sections 271D and 271E there is no such requirement of recording of satisfaction in the course of any proceeding”.

In Grihalakshmi vision v. ADIT [379 ITR 100 (Ker.)], the assessee challenged penalty order contending that if period of limitation prescribed in Section 275(1)(c ) was reckoned from the date of the assessment order dated November 6,2007, penalty order passed by the Joint Commissioner on July 29, 2008 was beyond time permitted

The Kerala High Court held that in the instant case, the assessment order was passed on November 6, 2007. It was relying on the last sentence in the assessment order that “Accordingly initiated penalty proceedings under Sections 271D and 271E”, the assessee contends that the Assessing Officer having initiated the proceedings vide his order dated November 6,2007, the order passed by the Joint Commissioner on July 29, 2008 levying penalty is beyond the time permitted in Section 275(1)(c). The Court observed, as already seen, although sections 271D and 271E provide, for levy of penalty for contravention of Sections 269SS and 269T, as per sub-section (2) of both these sections, any penalty imposable under sub section (1) of these provisions shall be imposed by the Joint Commissioner. The matter was referred to the Joint Commissioner who passed an order on July 29, 2008 levying penalty.

As already held, that the initiation of the penalty proceedings is not by the Assessing Officer but by the Joint Commissioner and if that be so, the order levying penalty passed by the Joint Commissioner is within the time prescribed in section 275(1)(c ).

On the basis of above decisions, the action of Joint Commissioner was justified.

Query No. 2: (Share income of a member of HUF)

Whether the exemption is available for share in income of HUF of the relevant assessment year or for lump sum payment out of past accumulated incomes. Please intimate can it come within the preview of Section 56(2)?


Heading of Chapter III of the Act, is “Income which do not form part of the total income”, which contain Section 10.

Thus, in computing the total income of a previous year of any person, any income falling within any of the classes of the said section will not be included.

Section 10(2) reads as under:

Subject to the provisions of sub section (2) of section 64, any sum received by an individual as a member of a Hindu Undivided Family, where such sum has been paid out of the income of the family, or in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family”

Thus, any sum received by a member of Hindu Undivided Family of the income of the family whether current or out of accumulated income will not be liable to be included, including Section 56(2), while computing the total income of the member.

Query No. 3: (Leave Travel Allowance)

An assessee wanted to take 2 LTC during the block of 4 years i.e. 2014-17. However, he took one in December 2015 and another he wants to take in February, 2016, in the same financial year. Can he claim exemption of one LTC in A.Y, 2016-17 and another in A.Y. 2017-18?


Section 10(5) provides for exemption from tax in the hands of an employee in respect of value of any travel concession or assistance received from his employer for himself and his family in connection with his proceeding to any place in India either on leave or after the termination of his service.

Rule 2B(2) of the Income-tax Rules, 1962 provide that the exemption shall be available to an individual in respect of two journeys performed in a block of four calendar years commencing from the calendar year 1986.

Thus, the assessee is entitled for two leave travel concession or assistance from his employer during block of four calendar years commencing from January 1, 2014 to December 31, 2017.

Now, if he has availed one LTC in December, 2015 and another in February, 2016 i.e. in one financial year. Then, he is entitled to claim only in assessment year 2016-17 and he will not be entitled to claim in assessment year 2017-18.

Query No. 4 (Return of Deceased)

Kindly enlighten up to when the return of the deceased can be filed by the executor if estate was not distributed fully?


Section 159 of the Act is meant to enable the revenue to make an assessment on legal representative in respect of income which accrued to or was received by the deceased till his death.

While Section 168 enjoins an assessment on executors in respect of the income which accrues to the deceased after his death, the estate being vested in executor.

As per Section 168(3), the executor will continue to be assessed until the estate is distributed among the beneficiaries. Thus, till the estate is completing distributed , the executors will have to file return of income of the estate.

Query No. 5: (TDS on purchase of property by NRI)

NRI (US citizen) wants to sell his ancestral property. Can the said sale proceeds be transferred from India directly or any RBI permission will be required?. At what rate TDS deductible by purchaser? Whether it would be 30% of sale consideration or 30% of LTCG,


As per Regulation 6 of Foreign Exchange Management (Remittance of Assets) (Amendment) Regulations 2014, dated October 31, 2014 the NRI / POI has been permitted to remit not exceeding US$ 1 million per year of balance held in NRO accounts or sale proceeds of assets or sale proceeds of assets acquired in India by way of inheritance / legacy without prior permission of RBI. If the remittance is in relation to sale proceeds of immovable property the condition is that the property or deposit cumulatively must have been held for a period of ten years.

The purchaser is liable to deduct tax while making payments to NRI on the amount “chargeable under the provisions of the Act” as per section 195 and as per GE India Technology Centre P. Ltd. v. CIT [327 ITR 456 (SC)].

Note: Please send your queries relating to Direct, Indirect & International taxation, Accounting & Auditing Standards and Company Law, FEMA etc. to AIFTP, having interest to the Members.

1) C Forms for purchase of items like tools, plant & machinery equipments vehicles computer etc. for use in execution of works contract – permissible

In case of works contract, articles integral to the process of manufacture such as Tools, Plant & Machinery, Equipment, for example Concrete Mixers, Pumps, Hydraulic Motor Cranes, Vehicles Computers etc. used for preparing Plans, Designs etc., Vehicles used for carrying construction materials etc., and other similar articles would be eligible for concessional rate of tax against Form C even though such goods may not actually be incorporated in execution of the contract.

M/s. Nagarjuna Construction Co. Ltd. v. ACET (Cal. HC) (2016) 67 STA 32.

2) Sale – Supply of canteen services – Meals, snacks and other food articles at agreed price – Sale not as agency

The contract for canteen services to supply meals, snacks and other food articles to the employees of Indian Oil Corporation at agreed concessional price from IOC is a contract of sale liable to vat. This is not a contract of agency as the dealer agreed to undertake the work not for any commission. However, establishment cost paid by IOC to the dealer managing the canteen establishment does not form part of sale price of means and other food articles being paid as separate items of payment.

Usha Ranjan Dutta Gupta v. ACCT & Another, (2016) 67 STA (WBTT).

3) Change in Law – For extending time limit

The cardinal principle which is accepted is that law in force in the assessment year is to be applied unless there is an amendment which comes into force having retrospective operation. In the instant case, the legislature has brought the amendment by reducing the period from eight years to six years from the end of such years or March 31, 2012 whichever is later. The amendment reducing period from eight to six years is beneficial to assessee, however, later part of amendment also specifying the date 31-3-2012 intends to protect interest of revenue in respect of cases within eight and six years provided the reassessments are completed by 31-3-2012 Thus, 2001 amendment is not fully retrospective but it is partly retrospective.

M/s. Commercial Motors v. CTT, UP, (2016) 28 STS 1 (SC).

4) Hydraulic excavator – Machinery or motor vehicles of all kinds

The definition of a particular term in a particular statute is not to be used mechanically for another statute unless it is applicable by necessary implication or otherwise some relevance is shown. In other words machinery is a general term and when some kinds of machineries are separately mentioned they would become ‘special entry’ and shall prevail over the general one. The Hydraulic Excavator may be said to be a ‘Machinery, but when specific entry is there i.e., “motor vehicles of all kinds” an excavator satisfying aforesaid entry will be governed by the same and cannot be taxed by treating it as machinery only.

CCT v. Anand Tyres Jhanji (2016) 28 STJ 20 (All.)

5) Sale price – No undervaluation when bulk sale made to Sahara Airlines much lower price than market value

In case of bulk sale, merely because the sales made to the Sahara Airlines is much lower price than the price at which it is sold at restaurant is not a ground itself that the price is undervalued. The contract is written contract and the amount received is also assessable to income tax and payments are made by cheques. In that view of the matter the view taken by the assessing authority that the sale price is undervalued and that assessing the goods at market value is untenable.

Shri Devendra Sethia v. State of Assam (2016) 28 STJ 34 (Gau.)

6) Recovery of dues of Pvt. Ltd. company in liquidation – Cannot be made from directors personally

In absence of taking any specific recourse to proceedings under Section 18 of The CST Act, 1956 and passing of any valid order for effecting recovery of CST from the director, it is not permissible in law to do so.

Subhash Goyal v. State of Haryana, (2016) 28 STJ 45 (P&H)

7) Lease of cars – Prior to vat Act – No liability under vat Act – Upon rentals received thereafter

The lease of cars for 5 years before enactment of VAT Act and receipt of rentals after VAT Act, no liability under VAT Act on those rentals received during VAT Period. The assessee had a vested right of giving cars on hire and receiving rentals which was not eligible to tax prior to vat Act. Therefore, though assessee continued to receive rentals every month after enactment of vat act, it is in pursuance of a sale which took place prior to vat Act. As no sale has taken place after enactment of Vat Act the liability to pay tax under the VAT Act does not arise.

State of Karnataka v. Lease Plan India Ltd (2016) 28 STJ 65 (Kar.)

The present article provides highlights of important amendments made to Central Excise legislation as well as relevant CENVAT Credit amendments vide Union Budget 2016-2017.

Important Non-tariff amendments

Rate of interest

Section 11AA of Central Excise Act, 1944 (CEA) provides for payment of interest in cases of delayed payment of duty. The rate of interest is rationalised to 15% p.a.1 with effect from 1-4-2016 as against 18%.

Annual return

Presently, specified manufacturers are required to furnish to the Superintendent of Central Excise, annually by 30th April of each financial year, a declaration about goods manufactured or to be manufactured, details of principle inputs and quantitative details of such inputs and finished goods. Also, a monthly return of principal inputs received and consumed with respect to goods manufactured has to submitted.

Now, with effect from 1-4-2016, specified manufacturers or service providers shall submit to the Superintendent of Central Excise, one single annual return for each financial year, by 30th November of succeeding year.

Revised Returns

Rule 12 of Central Excise Rules, 2002, provides for types, format of returns which are required to be filed under Central Excise Laws. Existing rules do not provide for filing of revised returns. A new sub-rule (8) has been introduced with effect from 1-4-2016 which allows assessee (including 100% EOU – Rule 17(6)) to file revised return (including annual return) by the end of the calendar month in which the original return is filed.

It has been further proposed that, the ‘relevant date’ for issuance of Show Cause Notice (SCN), will be the date of submission of revised return.

Single registration facility to interlinked manufacturing set ups:

Presently, Section 6 of CEA read with Rule 9 of Central Excise Rules, 2002, prescribes compulsory registration of manufacturers and other specified persons. As per Notification No. 36/2001-CE (NT) dated 26-6-2001, if 2 or more premises of same factory are separated by public road, railway line or canal, the Principal Commissioner/Commissioner may allow a single registration.

Now, with effect from 1-3-2016, a single registration2 would be granted if 2 or more premises are located within a close area in the jurisdiction of a Range Superintendent subject to following conditions:

o Manufacturing process are interlinked; and

o Units are not availing benefit of area based exemptions.

Increase in normal period of limitation

Hitherto, SCN may be issued within 1 year from the relevant date in bona fide cases. However, in mala fide cases, SCN may be issued within 5 years from the relevant date3. Now, it is proposed to increase the time limit of 1 year to 2 years for issuance of SCN i.e. normal period of limitation is proposed to be increased to 2 years from the relevant date.

The amendment would be effective from the date of enactment of Finance Bill, 2016.

The increase in time limit would provide more time to departmental officers to issue SCN. During the transitional period, department now has liberty to issue SCNs to assessees even for past dues which have already crossed the present time limit of 1 year.

Indirect tax Dispute Resolution Scheme, 2016

The scheme is applicable to appeals pending before Commissioner (Appeals) as on 1-3-2016 and the declaration may be made till 31-12-2016. The scheme would be effective from 1-6-2016 and the declarants shall get immunity from all proceedings under CEA subject to specified exclusions and conditions.

Since the Scheme does not appear to be attractive, the relief is expected for pending litigation of penalties only.

Other Important amendments

o Rule 11(8) of Central Excise Rules, 2002 has been amended to dispense with the requirement of carrying of self-certified copy of duplicate invoice for transportation in case the invoice is digitally signed with effect from 1-4-2016.

o Rule 26(1) of Central Excise Rules, 2002, has been amended to provide that in cases where the proceedings have been concluded against the person liable for duty then penalty proceedings initiated against other persons will also be dropped with effect from 1-4-2016.

o Presently, Notification No. 21/2004-CE (NT) dated 6-9-2004 prescribed for various conditions for claiming rebate of duty on goods used in export goods. One of the pertinent conditions for grant of rebate is that AC/DC has to verify the correctness of input-output ratio mentioned in the rebate application. With effect from 1-3-2016, AC/DC may grant permission on the basis of Certificate from Chartered Engineer.4

o The requirements for removal of goods at concessional rate of duty have been simplified and new Rules; namely; Central Excise (Removal of Goods at Concessional Rate of Duty for Mfg. of Excisable & Other Goods) Rules, 2016 have been prescribed. Now, with effect from 1-4-2016, the removals under these Rules can be made without having any approval from the Central Excise Department.

o As per Central Excise Rules, 2002, in case of provisional assessment, interest needs to be paid from the first day of the month succeeding the month for which such amount is determined, till the date of payment thereof. Now, with effect from 1-3-2016, interest would be paid for the period starting with the first day after the due date till the date of actual payment, whether such amount is paid before or after the issue of order for final assessment.

o Section 37B of CEA provides for the powers to issue instructions to departmental officers for uniformity in classification of goods or with respect to levy of excise duty. The gamut of the said Section is proposed to be expanded to cover even matters other than classification and levy. The change would be effective from the date of enactment of Finance Bill, 2016.

o Section 5A(5) of CEA prescribes that every notification has to be published & offered for sale on the date of issue by the Directorate of Publicity and Public Relations and Customs and Central Excise, New Delhi, under the Central Board of Excise and Customs. It is proposed to dispense with the requirement of publication and offer for sale of new notifications. The change would be effective from the date of enactment of Finance Bill, 2016.

Important Tariff Amendments (affecting Central Excise Duty Rate)

Introduction of Central Excise Duty on Jewellery

Duty of Excise @ 1% (without CENVAT Credit) or 12.5% (with CENVAT Credit) is introduced on articles of Jewellery (other than silver jewellery) with effect from 1-3-2016. An exemption from payment of duty has been granted to jewellery manufacturers for the initial clearances upto ` 6 crore provided the total value of clearances is less than ` 12 crore in previous financial year. For the month of March, 2016, the limit of 6 crores is proportionately kept at ` 50 lakh. Further, various facilities such as centralised registration, registration of retail shops etc. is provided for trade facilitation.

An assessee who is availing exemption on value based clearances is allowed Credit on Capital Goods in the same financial year. Now, with effect from 1-3-2016, this benefit is extended to manufacturer of articles of jewellery, other than articles of silver jewellery, falling under Tariff ID 7113.

Introduction of Central Excise Duty on Textile articles

Duty of Central Excise @ 2% (without CENVAT Credit) or 12.5% (with CENVAT Credit) is introduced on articles of textile with effect from 1-3-2016. The tariff value is fixed @ 60% of RSP5. For the month of March, 2016, the manufacturer is granted exemption for the initial clearances upto ` 12.5 lakh provided the total value of clearances in previous year is less than ` 4 crore (Small Scale Industries Exemption).

An exemption from payment of duty has been granted to goods having RSP up to ` 999/- irrespective of the fact whether the goods are bearing brand name/sold under the brand name or otherwise. Exemption in respect of unbranded goods has been continued.

Introduction of Infrastructure Cess (IC)

IC would be levied as a duty of excise and will be applicable on motor vehicles (Tariff ID 8703) with effect from 1-3-2016. Effective rate of IC will be as follows:

Rate of IC

Type of goods


3 wheeled vehicles, electrically operated vehicles, hybrid vehicles and other specially designed vehicles


Petrol/LPG/CNG driven motor vehicles, having length less than 4 m & engine capacity not exceeding 1200 cc


Diesel driven motor vehicles, having length less than 4 m & engine capacity not exceeding 1500 cc


All other categories of motor vehicles

Consequently, CENVAT Credit Rules, 2004 (CCR) are amended to provide that IC will not be eligible for credit and it cannot be paid through utilisation of credit.

• With effect from 1-3-2016, for all types of footware, the abatement rate has been increased from 25% to 30% of RSP6.

• Following goods have been added for the RSP based assessment with effect from 1-3-2016:

o Aluminium foils of thickness not exceeding 0.2 mm (Tariff ID: 7607) with an abatement of 25%

o Smart watches (Tariff ID: 851762) with an abatement of 35%

• Accessories of following goods would be taxed under RSP based taxation with effect from 1-3-2006 and accordingly, the Third Schedule to Central Excise Tariff Act, 1985 is amended with effect from 1-3-2006:

o Tyres of works truck

o Fork lift truck

o Self-propelled bulldozers, excavators, road rollers etc.

o Pile drivers & pile extractor.

Important CENVAT Credit amendments

CENVAT Credit Rules, 2004 have undergone a sea change vide Union Budget 2016-2017. Various CENVAT Credit amendments are already discussed in the article on Service tax amendments vide Union Budget 2016-2017. Some other CENVAT Credit amendments are summarised hereunder for ready reference:

Reversal of Credit for Banking sectors

Every banking company and a financial institution including a non-banking financial company has to reverse every month an amount equal to 50% of total credit availed. Now, with effect from 1-4-2016, following 3 options have been granted to these assessees:

o Pay an amount equal to 6% of exempted goods / 7% of exempted services

o Determine reversal of credit on input and input services as per formula prescribed in Rule 6 (3A) of CCR

o Pay every month an amount equal to 50% of the total credit availed.

Relevant date for refund in case of export of services

Manufacturer of exported goods or provider of output services can apply for refund of inputs and input services under Rule 5 of CCR. The relevant date for claiming refund for inputs and input services used in manufacturing of export goods and providing export services is provided in Section 11B of CEA. Section 11B of CEA only dealt with relevant date relating to manufacturer. Therefore, there is litigation with regard to interpretation of the term ‘relevant date’ for calculating period of 12 months.

Now, with effect from 1-3-2016, the ‘relevant date’ for service providers would be counted as under:

o Receipt of payment in convertible foreign exchange, where provision of service had been completed prior to receipt of such payment; or

o Issue of invoice, where payment for the service had been received in advance prior to the date of issue of invoice.

Credit of National Calamity Contingent Duty (NCCD)

Credit of all Creditable duties and cesses is available for payment of NCCD. However, for push button mobiles (Tariff ID 85171210) and accessories and parts thereof (Tariff ID 85171290), only Credit of NCCD could be utilized for payment of NCCD. Now, with effect from 1-3-2016, for payment of NCCD (leviable under Section 136 of the Finance Act, 2001) on all specified goods, Credit of NCCD can only be utilised.

Removal of goods from the factory of job worker

Normally, a principal manufacturer can clear goods from job worker’s premises with the permission of AC/DC. The permission of AC/DC is valid for a financial year. Now, with effect from 1-4-2016, the permission given by AC/DC for clearance of goods from the premises of Job worker will be valid for 3 financial years.

Credit on moulds, dies, jigs, fixtures etc. when sent directly to other manufacturer or job-worker:

Credit is allowed in respect of inputs and capital goods sent directly to another manufacturer or to a job worker without bringing the same in his factory. Now, with effect from 1-4-2016, Credit will also be allowed on moulds, dies, jigs, fixtures, etc. sent directly to other manufacturer or job-worker without bringing the same to his factory.

Credit on inputs and capital goods for pumping of water for captive use:

Inputs and Capital Goods must be used within the factory premises except where such goods are used in production of electricity outside the factory premises which is to be captively consumed. Now, with effect from 1-4-2016, Credit of inputs and Capital Goods used for pumping of water for captive use in the factory is also allowed where such capital goods are installed outside the factory.


Present article deals with certain prominent amendments made/proposed in the Customs Act, 1962 (“Act”) and certain rules laid thereunder.

Number of Tribunals increased

In the last Budget, in order to reduce burden of stay applications on Tribunals, certain measures were taken. Such measures included, a pre-fixed amount of pre-deposit. In this Budget, Government has proposed to establish 11 (Eleven) new Benches of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) so that justice can be rendered faster. This step would definitely help speedy disposal of large number of pending cases.


Exemption from Duty

Section 25 of the Act granted discretionary power to the Government for exempting certain duties, if Government is of the opinion that such exemption of tax is required in public interest. Finance Bill, 2016 has amended this Section, stating that such exemption if notified by the Government shall come into effect on the date of such publication in the official gazette and shall not be required to be published or offered for sale on the date of its issue by the Directorate of Publicity and Public Relations of the Board, New Delhi as was a requirement prior to the amendment. Sub-section 5 of Section 25, which elaborated this process has now been deleted. Therefore, the amendment aimed to omit the requirement of publishing and offering for sale any notification issued, by the Directorate of Publicity and Public Relations of CBEC.

Extension of time limit to issue Show Cause Notice (Section 28)

Due to various reasons, the officers were not able to issue SCN within the stipulated period of one year. Also, there is provision in this Section, which provides grace period up to five years in extraordinary circumstances. However, the same can be invoked only if the assessee is involved in certain mala fide activities like: wilful misstatement, fraud, collusion, suppression of facts or wilful contravention of law to evade duty. In such cases, the onus is on the Department to prove mala fides on the part of the assessee. In order to raise SCNs beyond one year, though Departmental Officers used to allege such mala fides rampantly, it was difficult to prove such allegations resulting in failure of such SCNs raised belatedly.

Now, with the proposed amendment, the notice to be served to defaulter for duties not levied or not paid or short-levied or short-paid, the officer in-charge has been granted an extension of a year from the original section for providing the notice of Show-Cause (SCN). Therefore, the in-charge officer shall have two years at his disposal for serving the notice on the person chargeable with the duty or interest from the relevant date.

Interest rates reduced

Interest rate in case of delayed payment of duty has been reduced from 18% to 15%.

Deferred Payment

Section 47 of the Act lays down the procedure for payment of duty on goods used for home consumption.

The amendment has provided additional benefit of deferred payment to certain class of importers for any duty or charges laid down by the Government on them. The insertion of 47 (1) shall permit certain class of importers to make deferred payment of duty and additionally there shall be negative or reduced rate of interest upon the issuance of notification by the relevant department.

Similarly, the deferred payment, for duty or charges bestowed upon them, has been permitted for certain class of exporters by insertion of Section 51(1) in the Act. These classes of exporters shall be Notified by the Government from time to time.

Exemption of duty during transit of certain goods

Conveyance of goods mentioned in the import manifest or import report shall be permitted to be transported without payment of duty. The amendment has introduced certain criteria for transaction of goods without payment of duty. The authorised officer may lay down certain conditions as may be deemed fit for availing the advantage for non-payment of the duty.


Budget has given significant importance to the provisions relating to warehouse under Chapter XI of the Act. The physical control pertaining to private/public warehouses have been eased out and warehouse keepers shall be made more responsible via this amendment. The concept of special warehouses has been introduced in cases where the specific goods require physical control of the Government.

The definition of the warehouse under Section 2 (43)1 of the Act has undergone a change and has inserted the provision of Section 58 A in relation to licensing of special warehouse. These special warehouses will store specific goods under physical control of the department. The public and private warehouses will be controlled by warehouse keepers themselves under authority

Warehousing Station

Further, the Section 2(45) which defined the term warehousing station2 and Section 93 which lays down the provision in relation to warehouse station has been deleted. Section 9 had elaborately laid down the power of the concerned officer to declare the places to be warehousing stations at which alone public/private warehouses may be set up.

Therefore, private/public warehouses can be established at any place, as there is no need of having a declared warehouse station.

However, post removal of requirement pertaining to “warehousing station”, power to grant license for a public/private warehouse has been shifted from Assistant Commissioner of Customs or Deputy Commissioner of Customs, to Principal Commissioner or Commissioner of Customs.

Period for which goods can be stored in warehouse

Position prior to amendment:

i. Capital goods intended for use in any 100% (Hundred Percent) export oriented undertakings (EOU), till the expiry of 5 years

ii. Goods other than capital goods intended for use in any 100% EOU, till the expiry of 3 years.

Position post amendment

i. Capital goods intended for use in any 100% EOU/STP/EHTP/warehouse in which manufacturing is permitted, till their clerance from the warehouse.

Goods other than capital goods intended for use in any 100% EOU/STP/EHTP/warehouse in which manufacturing, till their consumption/clearance from the warehouse after the date of order permitting deposit of goods in warehouse.

Prior to the amendment goods intended to be used for export oriented undertaking only were permitted. The scope has broadened the facility for goods which can easily be placed in the warehouse. Now, the goods used for electronic hardware technology park (EHTP) unit or software technology park (STP) unit or any warehouse wherein manufacture or other operations have been permitted under Section 65, till their clearance from the warehouse can remain in the warehouse or till the consumption or clearance from the warehouse.

Responsibilities of the owner and customs officer over the warehouse

As per Section 62, customs officer was the managerial in-charge for the inflow and outflow of goods and the entire control over the warehoused goods vested upon him. Further, in case, the owner of the warehouse fails to make payment within 10 (ten) days from the due date to the warehouse keeper as obliged under Section 63 of the Act then the warehouse keeper is permitted to sell the warehoused good.

These two onerous Sections have been deleted while additional responsibilities have been carved out for warehouse keeper under Section 73 of the Act.

Responsibilities of Warehouse Keeper

The warehouse keeper has to be vigilant in following the legislation with respect to storage and transit of goods. After the amendment, the strict liability shall apply to warehouse keeper and the goods stored in the warehouse shall be considered in the custody of licensee or warehouse keeper. The licensee shall be liable for payment of duty, interest, fine and penalties without prejudice to any other action that may be taken against the licensee for improper removal of goods.

Section 73 has raised additional accountability on the warehouse keeper with regards to goods kept in the warehouse and he can’t evade the responsibilities conferred by the Act

Baggage Rule

Baggage Rules, 1998 will be replaced by the new Baggage Rules, 2016. These novel rules, shall come into effect on 1st April, 2016, propose the applicability of the Customs Baggage Declaration Regulations, 2013 only to those passengers who carry dutiable or prohibited goods. Amidst all these new rules, Government also proposes to simplify the provisions relating to restriction of baggage for international passengers. This rule shall be relaxed so as to enable the international passenger with more free baggage allowance. The filing of baggage declaration will be required only for those passengers who carry dutiable goods.


National Dialysis Services Programme

Under National health mission Government has proposed to exempt certain parts of dialysis equipment from basic customs duty, excise/ countervailing duty and special additional duty to provide dialysis services in all district hospital.

Further, the exemption on customs duty is proposed to be granted on braille paper to give it equal standing with other assistive devices like rehabilitation aids and other goods used by differently abled (Divyang) persons who attract nil basic customs duty.

Make in India

This flagship event of the Government has carved its way in the Budget as well. The Finance Bill, 2016 introduced certain inputs to reduce costs and improve competitiveness of domestic industry in sectors like Information Technology hardware, capital goods, defence production, textiles, mineral fuels & mineral oils, chemicals & petrochemicals, paper, paperboard & newsprint, maintenance repair and overhauling of aircrafts and ship repair. Moreover, Government has taken a number of steps to reduce the cargo release time and the transaction costs of EXIM trade.

The Customs Tariff Act, 1975

Government has proposed to amend the First Schedule to the Customs Tariff Act, 1975 so as to make it exhaustive and it shall include editorial changes in the Harmonized System of Nomenclature (HSN).


It appears that the amendments introduced in customs legislation are progressive and have tried to provide ‘ease’ of doing business in India, speed in litigation resolution, and simplify the procedures. However, whether it gets percolated to grassroot level of each citizen, only time will be able to depict.

The Finance Minister, Shri Arun Jaitley while presenting the Union Budget for 2016-17 on 29th February, 2016 has proposed the following changes.

1. Levy of Krishi Kalyan Cess

W.e.f. 1st June, 2016 notified taxable services shall be subjected to the levy of Krishi Kalyan Cess. The rate of Krishi Kalyan Cess will be 0.5% of the value of taxable services. However, credit of Krishi Kalyan Cess paid on input services will be allowed to be used for payment of Krishi Kalyan Cess only by a service provider.

2. Changes in the Negative List

a) Educational Services : Clause (l) of Section 66D (negative list) which covered specified educational services has been omitted from the negative list. However, the immunity from tax granted to such services will be continued as these services have been specifically covered in the Mega Exemption Notification (No. 25 of 2012). This amendment will be effective from the date of enactment of Finance Bill, 2016.

b) Services of Transportation of Passenger: Service of transportation of passenger by stage carriage covered by negative list [Clause(o)(i) of Section 66D] is proposed to be deleted w.e.f. 1-6-2016. As a result, above services become taxable effective from 1-6-2016. However, such services, if provided by a non-air-conditioned contract carriage, will continue to be exempt by virtue of Mega Exemption Notification No. 25/2012-ST. The service of transportation of passenger by air-conditioned stage carriage will be taxed after allowing abatement @ 60%. However, such service provider will not be eligible for Cenvat credit.

c) Transportation of goods by aircraft or vessels: Services by way of transportation of goods by an Aircraft or a vessel from a place outside India up to the Customs Station of clearance [Section 66D(p)(ii)] is proposed to be omitted effective w.e.f. 1-6-2016. However, such transportation by an aircraft will continue to be exempt by way of Mega Exemption Notification No. 25/2012. The Domestic Shipping Lines registered in India will pay service tax as a service provider while the service availed from Foreign Shipping Lines by a business entity in India will be taxed under reverse charge at the hands of the recipient. The service tax paid will be available as credit to the Indian Manufacturer or service provider availing such services. Cenvat credit will be allowed for providing the service by way of transportation of goods by a vessel from the Custom Station of clearance in India to a place outside India.

3. Amendment in Finance Act, 1994 (effective from the date of enactment of the Finance Bill, 2016)

a) Lottery:– Explanation–II in Section 65B(44) (definition of service) is amended to clarify that activity carried out by the lottery distributor or selling agent of the State Government under the provisions of the lotteries (Regulation Act, 1998) will be liable to service tax.

b) Declared Service: Assignment by the Government of the right to use the Radio Frequency Spectrum and subsequent transfers thereof is declared as a service liable to service tax.

c) Amendment in Section 67A: Section 67A is amended to obtain specific rule making powers in respect of Point of Taxation Rule, 2011.

d) Amendment in Section 73 of the Finance Act, 1994: The limitation period for recovery of service tax short levied/not levied/erroneously refunded in cases not involving fraud, suppression etc. is at present of 18 months. With the amendment it will get enhanced to 30 months.

e) Amendment in Section 75:– The rate of interest on service tax collected but not deposited with the Government Treasury in time will attract interest @ 24% per annum. In other cases interest will be charged @15% per annum. In case of small assessees (whose taxable services in the preceding year is less than
Rs. 60 lakh, the rate of interest on delayed payments will be 12%).

f) Amendment in Section 78 A of the Finance Act, 1994: The penalty proceeding U/s. 78A will be deemed to be closed in cases where the main demand and penalty proceeding have been closed U/s. 76 or 78.

g) Section 89 of the Finance Act, 1994: The monetary limit for filing complaints for punishable offence is proposed to be enhanced to Rs. 2 crore from the existing Rs. 50 lakh.

h) Sections 90 and 91 of the Finance Act, 1994 : The power to arrest is proposed to be restricted where the tax collected but not deposited is above Rs. 2 crore.

4.a) Retrospective effect to Notification No. 01/2016: W.e.f. 3rd February, 2016 refund of service tax on services used beyond the factory or other place or premises of production or manufacture of the goods for export is allowed. The said amendment is given a retrospective effect from 1-7-2012. A one month period will be allowed to the exporters to claim refund whose earlier refund claim was rejected in absence of amendment carried out by Notification No. 01/2016 dated 3-2-2016.

b) Exemption to Canal, Dam or other Irrigation Work: Definition of ‘Governmental Authority’ was amended w.e.f. 30-1-2014 so as to exempt services provided by way of construction, erection, maintenance etc. of canal, dam or other irrigation work provided to entities set-up by the Government but not necessarily by an Act of Parliament or State Legislature. However, services provided prior to 30-1-2014 were taxable. The benefit of exemption is now extended to services provided during the period from 1-7-2012 to 29-1-2014. Refund of service tax paid on the said services during the period from 1st July, 2012 to 29-1-2014 will also be allowed subject to unjust enrichment. For refund, application should be filed within 6 months from the date on which the Finance Bill, 2016 receives the assent of the president.

c) Restoration of certain Exemption for Project/Contract entered before the date of withdrawal: Exemption from service tax on services provided to the government, Local Authority or a governmental Authority by way of Construction, erection etc. of a civil structure or other original work meant predominantly for non-commercial uses, meant for use as educational, clinical or art or cultural establishment etc. was withdrawn w.e.f. 1-4-2015. This is being restored till 31-3-2020 provided, contract had been entered prior to 1-3-2015.

d) Restoration of Exemption for construction, erection of port etc.: Exemption from service tax on services by way of construction, erection etc. pertaining to an airport, port was withdrawn w.e.f. 1-4-2015. Exemption is being restored till 31-3-2020 provided, contract had been entered prior to 1-3-2015 and on such contract appropriate stamp duty has been paid. This exemption will be subject to production of certificate from the Ministry of Civil Aviation or Ministry of Shipping to the effect that the contract has been entered into prior to 1-3-2015.

5.a) Changes in Exemption : Exemption in respect of services provided by a Senior Advocate, to an advocate or partnership firm of advocates and a person represented on Arbitral Tribunal to an Arbitral Tribunal is being withdrawn. The service provider will be required to pay service tax on the above services. However, services provided by an advocate or firm of advocate other than Senior advocate will continue to be exempt. This change is effective form 1st April, 2016.

b) Exemption on Transport of Passengers with or without accompanied belonging by Ropeway, Cable Car or Aerial Tram-way is withdrawn. This will be effective 1st April, 2016.

c) Exemption on Construction, Erection, Commissioning or Installation of original works pertaining to Mono-rail or Metro is withdrawn in respect of contract entered on or after 1st March, 2016.

d) Services of LIC business by way of Annuity under National Pension System will be exempt from service tax w.e.f. 1st April, 2016.

e) Services provided by SEBI by way of protecting the interest of investors and to promote the development of the security market will be exempt from service tax w.e.f. 1st April, 2016.

f) Services provided by Employees Provident Fund organisation to employees will be exempt w.e.f. 1st April, 2016.

g) Services provided by Bio-technology Industry Research Assistance Council (BIRAC) approved Bio-technology incubators to incubatees will be exempt from 1st April, 2016.

h) Services by National Centre for Cold Chain Development under Department of Agriculture, Co-operation and Farmers Welfare, Government of India by way of knowledge dissemination will be exempt from 1st April, 2016.

i) Services by Insurance Regulatory and Development Authority of India will be exempt w.e.f. 1st April, 2016.

j) Services of General Insurance provided under ‘Niramaya’ Health Insurance Scheme launched by National Trust in collaboration of Private/Public Insurance Company will be exempt w.e.f. 1st April, 2016.

k) Services provided by a performing artist in folk or classical art forms of music, dance or theatre will be exempt up to
Rs. 1.5 lakh per performance effective from 1st April, 2016. Earlier this exemption was up to
Rs. 1 lakh per performance.

l) Services provided by way of skill/vocational training by Dindayal Upadhyay Gramin Kaushalya Yojna will be exempt w.e.f. 1st April, 2016.

m) Services of Assessing Body Empanelled Centrally by Directorate General of Training, Ministry of Skill Development and Entrepreneurship will be exempt from tax w.e.f. 1st April, 2016.

n) Services by way of construction, erection etc of civil structure or other original work pertaining to “In-situ rehabilitation of existing slum-dwellers using land as a resource through private participation” component of housing for all (HFA) (Urban) mission/Pradhan Mantri Aawas Yojna (PMAY) will be exempt from service tax w.e.f. 1st March, 2016.

o) Services by way of construction, erection, office civil structure or any other original work pertaining to the “beneficiary-led individual house construction/enhancement” component of housing for all (HFA)(Urban) mission/Pradhan Mantri Aawas Yojna (PMAY) is exempt w.e.f. 1st March, 2016.

p) Services by way of construction/erection etc. of original work pertaining to low cost house up to a carpet area of 60 sq. mtr. per house in a housing project approved under “affordable housing in partnership” component of PMAY or any housing scheme of State Government will be exempt from tax w.e.f. 1st March, 2016.

q) Services provided by Indian Institute of Management by way of two year full time post graduate programme of management, 5 years integrated programme in management and fellowship programme in management will be exempt from tax w.e.f. 1st March, 2016. This exemption is effective for past period as well.

6. Changes in Abatement (effective from 1-4-2016)

a) Where tour operator provides services only of arranging or booking accommodation in relation to a tour abatement of 90% cannot be claimed where such invoice, bill or challan only includes the service charges for arranging or booking accommodation (and does not include the cost of such accommodation).

b) Abatement in respect of services by a tour operator in relation to a tour operation other than where the services are of solely of booking of accommodation, the percentage of abatement will be restricted to 70%. Earlier it used to range between 60% and 75%.

c) Services provided by a foreman to chit fund will be subject to an abatement of 30%, on the condition that Cenvat Credit of input, input services and capital goods has not been availed.

d) In case of renting of motor cabs abatement of 60% on the gross value will be available only if the cost of fuel is included in the consideration charges for providing such services.

e) The services of construction of complex, building, civil structure or a part thereof will be taxed after a uniform abatement of 70%.

f) Earlier service of transport of passengers by rail was subject to an abatement of 70% without Cenvat Credit of input, input services and capital goods. Now, Cenvat Credit of input services will be allowed.

g) Service of transport of goods by rail is continued to get abatement of 70%. However cenvat credit of input services will be available.

h) Transport of goods in containers by rail by any person other than Indian Railway will be subject to an abatement of 60% with credit of input services only.

i) Service of transport goods by vessel with abatement of 70% is taxable without Cenvat Credit of input, input services and capital goods. Now, Cenvat Credit of input services will be available.

j) The GTA services will continue to be taxed after abatement of 70% without availment of Cenvat Credit of input, input services and capital goods. However transport of used household goods by GTA will be subjected to an abatement of 60% without availment of Cenvat Credit of input, input services and capital goods.

7. Reverse Charge Mechanism (effective from 1-4-2016)

a) Earlier the mutual fund agents/distributors on their services provided to an asset management company were not paying any tax. However, tax was paid under reverse charge by asset management company. Now, the services provided by mutual fund agents/distributors to mutual fund or asset management company will be subjected to tax in the hands of service provider i.e. mutual fund agent.

b) Sub-clause (iv) of clause (a) of Section 66D (negative list) relating to specified support services provided by Government or Local Authorities to business entities is omitted. As a result all services provided by the Government or Local Authorities to business entities, except the services that are specifically exempted, or covered by any other entry in the negative list, shall be liable to service tax.

8. Cenvat Credit Rules (effective from 1-4-2016)

a) Wagons (sub-heading 8606 92 of the Central Excise Tariff) and equipment and appliance used in an office located within a factory are included into definition of capital goods. Now Cenvat Credit can be taken on these purchases.

b) Cenvat Credit of Rs. 10,000/- per piece of items falling under the definition of ‘Capital Goods’ are being included in the definition of inputs. Now assessee can take whole credit on such capital goods in the same year in which they are received, instead of 50%.

c) Service of transportation of goods by a vessel from customs station of clearance in India to a place outside India is excluded from the definition of “exempted service”. This would allow shipping lines to take credit on inputs and input services used in providing the said service.

d) CENVAT credit on amount charged for assignment by Government or any other person of a natural resource such as radio-frequency spectrum, mines etc., shall be spread over the period of time for which the rights have been assigned. If manufacturer of goods or provider of output service further assigns such right to use assigned to him by the Government or any other person, in any financial year, to another person against a consideration, balance CENVAT credit not exceeding the service tax payable on the consideration charged by him for such further assignment, shall be allowed in the same financial year i.e., year of assignment. However CENVAT credit of annual or monthly user charges payable in respect of such assignment shall be allowed in the same financial year.

e) i. A manufacturer who exclusively manufactures exempted goods or a service provider who exclusively provides exempted services shall pay (i.e., reverse) the entire credit and effectively will not be eligible for credit of any inputs and input services used.

ii. When a manufacturer manufactures both exempted goods and taxable goods or when a service provider provides exempted services and taxable services, then the manufacturer or the provider of the output service shall have two options as below:

a. Pay an amount equal to six per cent of value of the exempted goods and seven per cent of value of the exempted services, subject to a maximum of the total credit taken or

b. Pay an amount as determined in below (iii).

iii. Where a manufacturer/service provider opts for second option in (b) above, following steps are to be followed:

a. No credit of inputs or input services used exclusively in manufacture of exempted goods or for provision of exempted services shall be available;

b. Full credit of input or input services used exclusively in final products excluding exempted goods or output services excluding exempted services shall be available;

c. Whatever balance remains after above is common credit and shall be attributed towards exempted goods and exempted services in the following ratio:

Total exempted goods manufactured or exempted services provided

Total turnover of exempted + non exempted goods and exempted + non exempted services

(above figures should be of previous financial year)

Final reconciliation and adjustments are provided for after close of financial year by 30th June of the succeeding financial year, as provided in the existing rule.

iv. No CENVAT credit shall be allowed on capital goods in case it is used for the manufacture of exempted goods or provision of exempted service only for two years from the date of commencement of commercial production or provision of service.

f) Now Input Service Distributer can distribute the input service credit in addition to its own manufacturing units to an outsourced manufacturing unit also i.e. either a job-worker who is required to pay duty on the value determined under the provisions of Rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, on the goods manufactured for the Input Service Distributor or a manufacturer who manufactures goods, for the Input Service Distributor under a contract, bearing the brand name of the Input Service Distributor and is required to pay duty on value determined under the provisions of Section 4A of the Central Excise Act, 1944.

g) It is now being provided that an Input Service Distributor shall distribute CENVAT credit in respect of service tax paid on the input services to its manufacturing units or units providing output service or to outsourced manufacturing units subject to following conditions :

i. Credit attributable to a particular unit shall be attributed to that unit only.

ii. Credit attributable to more than one unit but not all shall be to attributed to those units only and not to all units.

iii. Credit attributable to all units shall be attributed to all the units.

iv. Balance credit shall be distributed pro rata on the basis of turnover as is done in the present rules.

h) Rule 7B is being inserted in Cenvat Credit Rules, 2004 so as to enable manufacturers with multiple manufacturing units to maintain a common warehouse for inputs and distribute inputs with credits to the individual manufacturing units. Such factories shall be allowed to take credit on inputs received under the cover of an invoice issued by a warehouse of the said manufacturer, which receives inputs under cover of an invoice towards the purchase of such inputs.

Procedure applicable to a first stage dealer or a second stage dealer would apply, mutatis mutandis, to such a warehouse of the manufacturer.

i) Now invoice issued by a service provider for clearance of inputs or capitals goods shall also be a valid document for availing CENVAT credit.

j) As per Rule 14(2) whether a particular credit has been utilised or not shall be ascertained by examining whether during the period under consideration, the minimum balance of credit in the account of the assessee was equal to or more than the disputed amount of credit.

9. Changes in Service Tax Rules (effective from 1-4-2016)

a) In addition to individual and partnership firms, one Person Company and HUF will also be eligible to make quarterly payment of service tax. One Person Company shall also be permitted payment of service tax on receipt basis.

b) Services provided by senior advocate will be taxed in the hands of service provider i.e. senior advocates will be liable to pay service tax.

c) In case of single premium insurance policies service tax will be payable @ 1.4% of total premium charged under composition scheme.

d) The receiver of service from foreign shipping line by a business entity located in India will be taxed under reverse charge i.e., business entity receiving such services will be liable to pay tax under reverse charge w.e.f. 1st June, 2016.

10. Annual Return

Service tax assessees above a certain threshold limit will be required to file an annual return for the period 1st April, 2016 onwards by the 30th day of November of the succeeding year in the Form as specified by the Board.

11. Indirect Tax Dispute Resolution Scheme, 2016

For cases pending before the Commissioner (Appeals), the assessee, after paying duty interest and penalty equal to 25% of duty can file a declaration. In such cases, the proceedings against the assessee will be closed andno prosecution will be launched against them. This scheme will not apply in certain specified cases.

Ease of doing business

The provisions of Finance Bill, 2016 relating to direct taxes seeks to amend the Income-tax Act, 1961 inter alia in order to provide for widening of tax base and anti-abuse measures, and ease of doing business and dispute resolution. The amendments in presumptive taxation scheme have been proposed under this head by the Finance Bill, 2016.

Presumptive taxation scheme for persons having income from business background

Sections 44AD and 44AE were inserted by the Finance Act, 1994 with effect from April 1, 1994. The object for introducing this scheme had been explained by the Central Board of Direct Taxes (CBDT) in its Circular No. 684 dated June 10,1994. Wherein, it is stated that the Estimated Income Method of assessment for certain categories of business is prevalent in several countries. The Tax Reforms Committee has also recommended gradual introduction of the Estimated Income Method in certain areas to facilitate better tax compliance. Accordingly, a section 44AD had been inserted in the Income- tax Act with a view to providing for a method of estimating income from the business of civil construction or supply of labour for civil construction work. The section was applicable to all the assessee whose gross receipts from the above mentioned business did not exceed
Rs. 40/- lakhs. The income from the above mentioned business was estimated @ 8% of the gross receipts paid or payable to an assessee. Further, section 44AE provided for a method of estimating income from the business of plying, hiring or leasing trucks owned by a tax payer owning not more than 10 trucks. Both schemes were optional. Furthermore a proviso to sub-section (2) of Section 44AD as well as to sub-Section (3) of Section 44AE was inserted by the Finance Act, 1997 with effect from April 1, 1994 to provide that in case of firm, the normal deduction on account of salary / interest paid to partners would be allowed, subject to conditions and limits specified in clause (b) of Section 40.

Thereafter, the Section 44AD was amended by the Finance (No. 2) Act, 2009 w.e.f. April 1, 2011, which provided applicability of this section to “eligible assessee” and for “eligible business”. As per Explanation to said section “eligible assessee” means:

i) An individual, HUF or a partnership firm (other than LLP), who is resident, and

ii) Who has not claimed deduction under any of the sections 10A, 10AA, 10B, 10BA or deduction under any provisions of chapter VIA under the heading “Deductions in respect of certain income” in the relevant assessment year.

Similarly, “eligible business” means:

i) Any business except the business of plying, hiring or leasing goods, carriages referred to in section 44AE and

ii) Whose total turnover or gross receipt in the previous year does not exceed an amount of one crore rupees

However, existing Section 44AD, is not applicable to:

a) A person carrying on profession as referred to section 44AA(1);

b) A person earning income in the nature of commission or brokerage; or

c) A person carrying on any agency business.

Success of Section 44AD

The success of this section is judged from the Budget speech of the Hon’ble Finance Minister Shri Arun Jaitley. In para 120 of his speech, he states that:

“Presumptive taxation scheme under Section 44AD of the Income-tax Act is available for small and medium enterprises i.e., non-corporate businesses with turnover or gross receipt not exceeding one crore rupees. At present about 33 lakh small business people avail of this benefit, which frees them from the burden of maintaining detailed books of account and getting audit done. I propose to increase the turnover limit under this scheme to Rupees two crores which will bring big relief to a large number of assessee in the MSME category”.

The Finance Bill, 2016

In pursuance to that the Finance Bill, 2016 provides that in order to reduce the compliance burden of the small taxpayers and facilitate the ease of doing business, it is proposed to increase the threshold limit of one crore rupees specified in the definition of “eligible business” to two crore rupees.

However, it is not comprehensible, why proviso to sub-section (2) of Section 44AD is proposed to be omitted, which reads:

“Provided that where the eligible assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of Section 40”.

This will discourage the small eligible assessee firm to take the benefit of this section as, no amount would be deducted towards remuneration / interest to partners.

Further, sub-sections (4) and (5) of present Section proposes to be substituted by new sub-sections (4) and (5). The Memorandum explaining the provisions of the Finance Bill, 2016 explains the changes, which reads as under:

“It is also proposed that where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five consecutive assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1). For example, an eligible assessee claims to be taxed on presumptive basis under Section 44AD for assessment year 2017-18 and offers income of
Rs. 8 lakh on the turnover of Rs. 1 crore. For assessment year 2018-19 and assessment year 2019-20 also he offers income in accordance with the provisions of section 44AD. However, for assessment year 2020-21, he offers income of
Rs. 4 lakh on turnover of Rs. 1 crore. In this case since he has not offered income in accordance with the provisions of section 44AD for five consecutive assessment years, after assessment year 2017-18, he will not be eligible to claim the benefit of section 44AD for next five assessment years, i.e. from assessment year 2021-22 to 2025-26.

Further as the turnover limit of presumptive taxation scheme has been enhanced to rupees two crore, it is proposed to provide that eligible assessee shall be required to pay advance tax. However, in order to keep the compliance minimum in his case, it is proposed that he may pay advance tax by 15th March of the financial year”.

It is to be seen whether the above amendments except increasing the threshold limit of eligible business, would benefit small and medium enterprises; because once an assessee opts under this section, he has to declare 8% profits on the gross receipts for continuous period of five years. Further, in case of eligible firm, no remuneration / Interest paid to partners would be allowed as deductions. Hence many assessees would prefer not to opt under this section and would prefer to maintain the books of account and get them audited. This is a retroactive or backward step in “widening the tax base” and “ease of doing business”.

Presumptive taxation for professionals

The existing scheme of taxation provides for a simplified presumptive taxation scheme for certain eligible persons engaged in certain eligible business only and not for persons earning professional income. In order to rationalise the presumptive taxation scheme and to reduce the compliance burden of the small tax-payers having income from profession and to facilitate the ease of doing business, it is proposed to provide for presumptive taxation regime for professionals.

In this regard, new Section 44ADA is proposed to be inserted in the Act to provide for estimating the income of an assessee who is engaged in any profession referred to in sub-section (1) of Section 44AA such as legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette and whose total gross receipts does not exceed fifty lakh rupees in a previous year, at a sum equal to fifty per cent of the total gross receipts, or, as the case may be, a sum higher than the aforesaid sum earned by the assessee. The scheme will apply to such resident assessee who is an individual, Hindu undivided family or partnership firm but not Limited Liability partnership firm.

Under the scheme, the assessee will be deemed to have been allowed the deductions under Section 30 to 38. Accordingly, the written down value of any asset used for the purpose of the profession of the assessee will be deemed to have been calculated as if the assessee had claimed and had actually been allowed the deduction in respect of depreciation for the relevant assessment years.

It is also proposed that the assessee will not be required to maintain books of account under sub-section (1) of Section 44AA and get the accounts audited under Section 44AB in respect of such income unless the assessee claims that the profits and gains from the aforesaid profession are lower than the profits and gains deemed to be his income under sub-section (1) of Section 44ADA and his income exceeds the maximum amount which is not chargeable to Income-tax.

This is welcome measure for small professionals who are not required to maintain books of account and offer straightway their income @ 50% of gross receipt. An interesting situation would arise in case of a partner of professional firm wherefrom he receives remuneration/interest. The same would be assessable under the head “Profits and Gains of Business or Profession” as per Section 28(v) of the Act. Now can he claim that he is engaged in the profession and his gross receipts from salary/interest from the firm is less than rupees. fifty lakh, hence he is entitled to claim benefit of Section 44ADA.

Threshold limit under Section 44AB

Under the existing provisions of Section 44AB of the Act every person carrying on a profession is required to get his accounts audited if the total gross receipts in a previous year exceed twenty five lakh rupees.

In order to reduce the compliance burden, it is proposed to increase the threshold limit of gross receipts, specified under Section 44AB for getting accounts audited, from twenty five lakh rupees to fifty lakh rupees in the case of persons carrying on profession.

Thus, it is to be noted that there is increase in the threshold limit of total gross receipts of
Rs. fifty lakh in case of professionals for tax audit under Section 44AB. But there is no increase in threshold limit of total sales, turnover or gross receipts in case of a person carrying on business.

So, a person carrying on business and not opting for presumptive taxation under Section 44AD, would have to maintain books of account and get them audited, if his total turnover, exceeds rupees one crore.

Last but not least, a professional who does not opt to offer profit @ 50% of gross receipts under Section 44ADA has to maintain books of account and get them audited if his income exceeds maximum amount not chargeable to tax under Section 44ADA(4) provided his gross receipts from profession does not exceed fifty lakh rupees. As soon as his gross receipts increases rupees fifty lakh, he has to maintain the books of account and get them audited under section 44AB.

I. Equalisation levy

Electronic commerce

In the last ten years, electronic commerce (or e-commerce) in India has burgeoned exponentially. E-commerce has been broadly defined by the Organisation for Economic Co-operation and Development (OECD) Working Party on Indicators for the Information Society as “the sale or purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving and placing of orders”. Colloquially, it is the trading or facilitation of trading in products or services using the internet. An e-commerce transaction can be between enterprises, households, individuals, Government and other public or private organisations.

India’s e-commerce market was worth about $3.9 billion in 2009, it went up to $12.6 billion in 20131. The digital economy is growing at 10% per year. With the incursion of the cost-effective data services, geopolitical boundaries have become irrelevant for businesses. Countries across continents have telescoped in one global village connected through the ubiquitous internet. E-commerce has made it possible to conduct many types of businesses at greater scale and longer distances than ever before. The Memorandum Explaining the Provisions of the Finance Bill, 2016 (the “Memorandum”) has also acknowledged the uniqueness of e-commerce in the following terms:

“Persons carrying business in digital domain could be located anywhere in the world. Entrepreneurs across the world have been quick to evolve their business to take advantage of these changes. It has also made it possible for the businesses to conduct themselves in ways that did not exist earlier, and given rise to new business models that rely more on digital and telecommunication network, do not require physical presence, and derives substantial value from data collected and transmitted from such networks.”

E-commerce – The game changer

The immateriality of the location of the seller or the service provider and the buyer of goods and services in a common-for-all and nebulous electronic platform has transformed the way in which businesses are conducted. Some of the features that have become prominent in e-commerce transactions and which are potentially relevant even from a tax perspective are as follows:

(a) Reach – Internet makes it easier for sellers to locate buyers in different countries and vice versa.

(b) Mobility – Users are increasingly able to carry on commercial activities remotely while travelling across borders.

(c) Identity – The fact that interactions on the internet remain anonymous may add to the difficulty of identity and location of users. Use of virtual personal networks or proxy servers can further disguise (intentionally or unintentionally) the location of ultimate sale.

(d) Lack of physical presence – A lack of physical presence in the country of source of income leads to further difficulties in transactions being reported and taxed.

(e) Lack of fully-developed regulations – Since e-commerce is a relatively new area of commerce, it is not fully regulated. For example, the Drugs and Cosmetic Rules, 1945, which regulates the sale and distribution of drugs in India but does not distinguish between conventional and over-the-internet sale of drugs.

Direct taxation issues in e-commerce

In Addressing Base Erosion and Profit Sharing (February 2013), the OECD has identified minimisation of taxation in the market country by avoiding a taxable presence as one of the strategies to be countered. The e-commerce economy cannot be restricted to borders of the seller alone and absence of physical presence in the market country often comes in the way of taxation of such transaction. Hence, it requires a co-ordinated international response for their effective taxation. Simultaneous with the Base Erosion and Profit Sharing Actions, several countries have also looked into this area of taxation and have attempted to secure their tax bases. In the Action Plan on Base Erosion and Profit Sharing, the OECD apprehended that inaction in providing clarity on taxation of e-commerce transactions could have disastrous effects. It has been stated as follows:

“Inaction in this area would likely result in some Governments losing corporate tax revenue, the emergence of competing sets of international standards, and the replacement of the current consensus-based framework by unilateral measures, which could lead to global tax chaos marked by the massive re-emergence of double taxation. In fact, if the Action Plan fails to develop effective solutions in a timely manner, some countries may be persuaded to take unilateral action for protecting their tax base, resulting in avoidable uncertainty and unrelieved double taxation. It is therefore critical that Governments achieve consensus on actions that would deal with the above weaknesses.”

For instance, in July 2015, a 10% tax on digital services came into effect in South Korea. Similarly, in October 2015, Japan started imposing 8% consumption tax on digital services.

It appears that the Government of India has taken cue from other countries and has sought to introduce provisions under the domestic law to tax such transactions. Even the Memorandum has, in the following terms, identified e-commerce as a distinct class of transactions requiring specific rules for taxation to meet new tax challenges:

“These new business models have created new tax challenges. The typical direct tax issues relating to e-commerce are the difficulties of characterizing the nature of payment and establishing a nexus or link between a taxable transaction, activity and a taxing jurisdiction, the difficulty of locating the transaction, activity and identifying the taxpayer for income tax purposes. The digital business fundamentally challenges physical presence-based permanent establishment rules. If permanent establishment (PE) principles are to remain effective in the new economy, the fundamental PE components developed for the old economy i.e. place of business, location, and permanency must be reconciled with the new digital reality.”

Proposed provisions and analysis

The Finance Bill, 2016 has sought to introduce a new Chapter VIII titled “Equalisation Levy” in the Income-tax Act, 1961 (the “Act”) as a levy for additional resource mobilisation purportedly to address the challenges of taxation of e-commerce transactions. The Chapter constitutes a code in itself providing for the charge of levy, its exceptions, consequences of default, appellate remedy, penalties etc. The purpose behind the introduction of this Chapter appears to be to bring within the tax net transactions whose source is in India and the benefit therefrom is received by the service recipient in India, though the service provider is situated outside India.

Important definitions – Clause 161(d) defines Equalisation Levy as the tax leviable on consideration received or receivable for any specified service under the provisions of Chapter VIII. Specified service means online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government in this behalf. Thus, currently, the levy is restricted to online/ digital advertisement and related services. However, in the future, additional services may be notified by the Government for the levy.

Charge of levy – As per clause 162, there shall be charged an equalisation levy at the rate of 6% of the amount of consideration for any specified service received or receivable by a non-resident from a resident for the purpose of his business/profession or from a non-resident having a permanent establishment (PE) in India (hereinafter such residents and non-residents are collectively referred to as the “Liable Persons”). However, Equalisation Levy will not be charged if the non-resident providing the specified service has a PE in India and the specified service is effectively connected with such PE. This is perhaps because in such a case, the profits and gains of the non-resident from such PE would already be taxable in India. An exemption from the levy is provided to small digital players where aggregate amount of consideration for the specified service received or receivable in a previous year by the non-resident from the Liable Persons does not exceed one lakh rupees. Furthermore, this Chapter VIII is not applicable to the State of Jammu and Kashmir as per clause 160(1). In other words, when the service recipient is situated in the State of Jammu and Kashmir, the provisions of this Chapter should not apply.

Collection and recovery – Clause 163, which deals with collection and recovery of the levy, places the onus on the Liable Persons to deduct the amount of levy from the amount paid or payable to a non-resident in respect of the specified service and pay the levy so collected during a calendar month to the Government by the 7th day of the immediately following month. It has also been provided that the liability to pay the Equalisation Levy shall trigger whether or not the Liable Person deducts the same from the payment of the non-resident. As per clause 167, simple interest @ 1% per month or part thereof shall be paid by the Liable Person for delay in making the payment of Equalisation Levy.

It is important to note that the liability to pay Equalisation Levy is not on the recipient-payee of income but on the payer. It cannot be regarded as tax on the recipient’s income as the recipient is in no way liable under this chapter. If the levy would have been introduced as tax on the income of the recipient non-resident, the same, in my view, would not have covered most non-residents belonging to countries with which India has entered into Double Taxation Avoidance Agreements (DTAA). This is because in the absence of a PE in India, the non-residents would not have been liable to tax in India in respect of income from online advertising as held by the Income-tax Appellate Tribunal (the “Tribunal”) in the following cases:

– Pinstorm Technologies (P.) Ltd. v. ITO [2013] 154 TTJ 173 (Mum.);

– Yahoo India (P.) Ltd. v. DCIT [2011] 140 TTJ 195 (Mum.);

– ITO v. Right Florists (P.) Ltd. [2013] 143 ITD 445 (Kol.).

Thus, the Government has, in a way, sought to overcome these Tribunal decisions by bringing online advertising services under the revenue net.

Furthermore, if the non-resident would have been made liable to pay the Equalisation Levy from the income earned by them, the same, in my view, could have been said to be inconsistent with the Non-Discrimination clause of India’s DTAAs with other countries. Therefore, the Government has sought to introduce this levy as an additional burden on the resident-payers. However, since the levy is to be deducted from the payment of the non-resident, it is possible that the consideration of specified services is increased by the non-resident to avoid taking any hit due to the levy.

There is no provision whereunder the non-residents can claim the amount of equalisation levy so deducted as refund or adjust the same against their tax liability in India. One aspect that is not clear is whether the liability to deduct equalisation levy would arise on date of invoice, on due date or on the date of actual payment. This, in my view could lead to some litigation in the future, unless clarified.

Furnishing of statement of specified services – As per clause 164, the Liable Person is liable to furnish a statement in respect of all specified services during a financial year within the time prescribed. If such statement is not furnished within that time, the Assessing Officer (AO) may serve a notice upon the Liable Person requiring him to furnish the statement within such time as may be prescribed, failing which and subject to any reasonable cause, the latter shall be liable to pay a penalty of one hundred rupees for each day during which the failure continues (clauses 169 and 170).

Also, if a person makes a false statement in any verification under this Chapter or any rule made thereunder, or delivers an account or statement, which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable with imprisonment for a term which may extend to three years and with fine. The impugned offence will be deemed to be non-cognizable. As per clause 174, prosecution cannot be instituted except with the previous sanction of the Chief Commissioner of Income-tax.

Processing of statement – As per clause 165, the statement of specified services so furnished shall be processed after adjusting for arithmetical errors, recomputing interest (if any) and redetermination of the amount of demand/refund. Thereafter, an intimation shall be prepared and sent to the Liable Person. However, such intimation shall not be sent after the expiry of one year from the end of the financial year in which the statement is furnished.

Rectification of mistake – As per Clause 166, the AO may amend any intimation, either suo motu or application by the Liable Person, within one year from the end of the financial year in which the intimation sought to be amended was issued with a view to rectifying any mistake apparent from the record.

Penalty for failure to deduct or pay Equalisation Levy – As per Clause 168, every Liable Person who fails to deduct the whole or any part of the Equalisation Levy as required shall be liable to pay a penalty equal to the amount of Equalisation Levy that he failed to deduct.

A Liable Person who, having deducted the Equalisation Levy, fails to pay such levy to the Government within the specified time shall, subject to a maximum of the amount of Equalisation Levy he failed to pay, be liable to pay a penalty of one thousand rupees for every day during which the failure continues.

Appeal against order imposing penalty – Within 30 days of receipt of order of the AO imposing penalty, the Liable Person is entitled to file an appeal with the Commissioner of Income-tax (Appeals) [the “CIT(A)”] as per clause 171. The appeal fees is
Rs. 1,000/- and the provisions of sections 249-251 of the Act, as far as may be, shall accordingly apply.

The aggrieved Liable Person or the AO, as the case may be, may file an appeal with the Tribunal within 60 days of receipt of the CIT(A)’s order and the provisions of section 253- 255 of the Act, as far as may be, shall accordingly apply.

As per clause 175, the provisions regarding appeals to the High Court are governed by section 260A while those to the Supreme Court are governed by section 261 and section 262. Omission of reference to section 260B of the Act in Clause 175, in my view, suggests that appeals to the High Court can be heard by one-judge Bench as well.

It is important to note that intimation issued under clause 165 or an order rejecting an application by the Liable Person to get a mistake apparent from the record rectified cannot be appealed against by such Liable Person. Also, the powers vested on the Commissioner of Income-tax under section 263 or under section 264 cannot be exercised in respect of Equalisation Levy.

Miscellaneous provisions – For carrying out the provisions of this chapter, the Central Government is empowered to make rules. Furthermore, within a period of two years from the date on which the provisions of this chapter come into force, the Central Government may, by order published in the Official Gazette, not inconsistent with the provisions of this Chapter, remove the difficulty if any difficulty arises in giving effect to the provisions of this chapter.

Amendments to other provisions – In section 10 of the Act, clause 50 has been proposed to be introduced which provides that any income arising from any specified service provided on or after the date on which the provisions of chapter VIII of the Finance Act, 2016 comes into force and chargeable to Equalisation Levy under that Chapter shall not be included in the total income of the non-resident.

Also section 40 of the Act is sought to be amended to provide that expenditure in respect of whose consideration, Equalisation Levy was deductible but such levy has not been deducted or after deduction, has not been paid on or before the due date specified in section 139(1) shall not be allowable as deduction. However, the deduction would be allowed in such year in which it is subsequently paid.

Allowability of Equalisation Levy in the hands of payer – The allowability of expenditure is governed by the provisions of section 37 of the Act. The liability to deduct and pay Equalisation Levy is nothing but a statutory duty which, in my view, should be eligible for deduction. This is because it can be said to be expended wholly and exclusively for the purpose of business or profession. The fact that the levy is attracted only if the specified services are procured for the purposes of carrying out business or profession further substantiates this view.

II. Tax deducted at source (TDS)

Proposed amendments

Rationalisation measures – As a rationalisation measure, the Finance Bill, 2016 has proposed amendments to the aggregate limits beyond which TDS provisions apply and also to the rates of deduction. A summary of the proposed rates and aggregate limits vis-à-vis the existing ones is as follows:

Nature of payment

Existing provisions


Revised (proposed) by Finance Bill, 2016

Threshold limit (Rs.)

Rate of deduction

Threshold limit (Rs.)

Rate of deduction

Payment of accumulate balance due to an employee (Section 192A)





Winnings from horse races (section 194BB)


Rates in force


Rates in force

Payment to contractors (section 194C)

75,000 (annual)

1% / 2%

1,00,000 (annual)

1% / 2%

Insurance commission (section 194D)




5% 2

Payment in respect of Life Insurance Policy (section 194DA)





Payments in respect of National Savings Scheme deposits (section 194EE)





Commission on sale of lottery tickets (section 194G)





Commission or brokerage (section 194H)





Payment of compensation on acquisition of certain immovable property (section 194LA)





Payment of income in respect of units of investment fund (section 194LBB):

– Payee is resident

– Payee is non-resident







10% Rates in force

Insertion of new section 194LBC – A new section 194LBC is sought to be introduced to provide for deduction of tax at source on any income payable by a securitisation trust to an investor. As per proposed section 194LBC, the person responsible for making payment of any income to an investor in respect of an investment in a securitisation trust, such person shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct tax thereon, at the rate:

(i) Of 20%, if the payee is a resident individual or a resident Hindu Undivided Family;

(ii) Of 30%, if the payee is any other resident person;

(iii) In force, if the payee is a non-resident.

Reduction of compliance burden – In order to reduce compliance burden of assessees in whose cases the tax payable on recipient’s total income, including rental payments will be nil, it is proposed to extend the provisions of section 197A for making the recipients of payments referred to in section 194-I also eligible for filing self-declaration in Form no. 15G/15H for non-deduction of tax at source.

Omission of non-operational provisions – The following provisions are proposed to be omitted w.e.f. 1st June, 2016:

– Section 194K – Tax deduction at source on income payable to resident in respect of units of mutual fund;

– Section 194L – Tax deduction at source on sum payable to resident in the nature of compensation or consideration or enhanced compensation or consideration for compulsory acquisition of capital asset.

Amendment to provision requiring furnishing of Permanent Account Number (PAN)
– The existing provision of section 206AA provides that any person who is entitled to receive any sum or income or amount on which tax is deductible under Chapter XVIIB of the Act shall furnish his PAN to the person responsible for deducting such tax, failing which tax shall be deducted at the rate mentioned in the relevant provisions of the Act or at the rate in force or at the rate of 20%, whichever is higher.

A controversy existed as to whether the penal rate of 20% or higher will be applicable in case of a non-resident whose income is chargeable to tax in India at a lower rate or is not taxable at all. Contrary views of the co-ordinate benches of the Tribunal existed on this issue.

While the Tribunal has, in the cases of
DDIT v. Serum Institute of India Limited [2015] 40 ITR (T) 684 (Pune) and DCIT (IT) v. Infosys BPO Ltd. [2015] 154 ITD 816 (Bang.),
held that where tax has been deducted in respect of payments made to non-residents (who do not furnish their PAN) on the strength of provisions of DTAA and such rate is lower than 20%, provisions of section 206AA cannot be invoked to insist on tax deduction at rate of 20%, having regard to overriding nature of provisions of section 90(2), the Tribunal in the case of Bosch Limited v. ITO (IT) [2013] 141 ITD 38 (Bang.) held that the provisions of section 206AA clearly override the other provisions of the Act and failure to obtain and furnish PAN by a non-resident would attract provision of section 206AA. Currently, the provisions of section 206AA also apply to non-residents with an exception in respect of payment of interest on long-term bonds as referred to in section 194LC.

It appears that the Government has accepted the view of the Tribunal in the cases of Serum Institute of India Limited (supra) and Infosys BPO Ltd. (supra). In order to reduce compliance burden on non-resident assessees, it is proposed to amend section 206AA so as to provide that the provisions of this section shall also not apply to any other payment as well, subject to such conditions as may be prescribed.

This, in my view, is a welcome provision as it would substantially reduce the compliance burden of non-residents by doing away with the need for obtaining a PAN.

In the Finance Bill introduced by the Finance Minister in the Parliament, a Scheme called “The Direct Tax Dispute Resolution Scheme, 2016” has been introduced with the intention to reduce the litigation. Recently CBDT vide Circular dated 10-12-2015 had enhanced the limit of tax effect for which appeals have to be filed by the Government from
Rs. 4 lakh to Rs. 10 lakh in the case of Tribunal and from Rs. 10 lakh
Rs. 20 lakh in case of High Court. In the aforesaid Circular, it was also provided that the enhanced limits will apply to pending appeals and appeals having tax effect less than the prescribed limit will be withdrawn by the department. As a result, quite good number of appeals filed by the department have been disposed of by various benches of the Tribunal and High Courts on the ground of low tax effect. In continuation of the intention of the Government to reduce litigation, the proposed scheme has been brought in vide Sections 197 to 208 of the Finance Bill, 2016.Salient features of the proposed Scheme are as stated hereinafter.

Commencement and scope of the Scheme

– Declaration can be filed under the Scheme on or after 1-6-2016 but before the date to be notified before the Designated Authority, who has been defined to be the officer of the rank of Commissioner of Income-tax.

– The scheme is applicable to two category of cases i.e. relating to:-

(i) ‘Tax arrears’ in respect of which appeal is pending before the Commissioner of Income-tax (Appeals) or Commissioner of Wealth-tax (Appeals) as on 29-2-2016.

(ii) ‘Specified tax’ in respect of which appeal, writ or any other proceedings are pending as on 29-2-2016.

– ‘Tax arrears’ has been defined u/s. 198(1)(h) to mean the amount of tax, interest or penalty determined under the Income-tax Act or Wealth-tax Act, 1957.

– ‘Specified tax’ has been defined in Section 198(1)(g) to mean the tax determined consequent upon, validation or retrospective amendment of a provision of Income-tax Act or Wealth-tax Act relating to the period prior to the date of amendment.

Amount payable under the Scheme

– In the case where appeal is relating to tax arrear involving amount of tax and interest and disputed tax does not exceed
Rs. 10 lakh, the assessee is liable to pay the disputed tax and interest on the same till the date of assessment or re-assessment, as the case may be.

– In case appeal relating to tax arrears involves amount of disputed tax of
Rs. 10 lakh or more, the assessee has to pay disputed tax and interest thereon till the date of assessment or reassessment, as the case may be, and also 25% of minimum penalty leviable.

– In case appeal is relating to penalty, assessee is liable to pay 25% of the minimum penalty leviable apart from tax and interest payable on the total income finally determined.

– In a case relating to specified tax, the assessee is liable to pay the amount of tax determined.

Filing of Declaration, determination of amount payable and passing of order by Designated Authority

– As provided u/s. 200(1), a declaration is to be filed before the Designated Authority in such form and verified in such manner as may be prescribed. The Government has yet to prescribe the forms, etc.

– Section 201 provides that Designated Authority i.e., CIT shall within a period of sixty days from the date of receipt of the declaration will determine the amount payable by the declarant in accordance with the provisions of this scheme and grant a certificate in the prescribed form to the declarant setting forth therein the particulars of tax arrear or the specified tax as the case may be, and the sum payable after such determination.

– Sub-section (2) of Section 201 provides that the declarant shall pay the sum determined by the Designated Authority as per the certificate within 30 days of the date of the receipt of the certificate and shall intimate the fact of making the payment along with proof thereof to the Designated Authority.

– On receipt of such intimation the Designated Authority shall pass an order stating that the declarant has paid the sum as per the scheme.

– Order passed by the Designated Authority shall be conclusive as regards the settlement of dispute relating to disputed income covered by the order and such dispute shall not be reopened in any proceeding under the Income-tax Act or Wealth-tax Act or under any law for the time being in force.

Withdrawal of litigation

– In accordance with Section 200(2) where a declaration has been filed in respect of tax arrears appeal pending before CIT(A) or CWT(A), as the case may be, relating to disputed income or disputed wealth shall be deemed to have been withdrawn.

– In a case relating to specified tax, the assessee is required to firstly withdraw such appeal or writ pending before any appellate authority or the court and has to furnish proof of such withdrawal along with the declaration to be filed. In a case where the assessee has initiated any proceedings for arbitration, conciliation or mediation or has given any notice thereof under any law, he has to withdraw such proceedings or notice or claim, and proof of such withdrawal has to be submitted along with the declaration to be made. The assessee has also to make a declaration waiving his right to seek or pursue any remedy or any claim in relation to the specified tax which may be available to him under any law for the time being in force.

– It has also been provided in sub-section (6) of Section 200 that no Appellate Authority or Arbitrator, conciliator or mediator shall proceed to decide any issue relating to specified tax mentioned in the declaration and in respect of which an order has been passed by the Designated Authority or the sum payable under the scheme has been determined.

Immunity Granted

– It has been provided u/s. 202 of the Finance Bill that on filing the declaration the Designated Authority shall grant immunity from institution of any proceeding in respect of offence under the Income-tax Act or Wealth-tax Act, meaning thereby, immunity will be granted from initiating prosecution proceedings in a case where declaration has been filed and tax payable as per the scheme has been paid.

– Immunity shall also be granted from levy of penalty in excess of penalty payable under the scheme.

– Immunity will also be granted from payment of interest, except the amount of interest payable in accordance with the scheme.

– Section 204 of the Finance Bill also provides that except the waiver of liability and immunity granted from penalty or prosecution as provided in the scheme, no other benefit, concession or immunity shall be construed to have been granted.

Amount paid not refundable

– It has been provided in Section 203 that any amount paid in pursuance to declaration shall not be refundable under any circumstances.

Effect of false declaration

– Sub-section (5) of Section 200 provides that where any material particular furnished in the declaration is found to be false or the declarant violates any of the conditions of the scheme or the declarant acts in a manner which is not in accordance with the undertaking given by him under sub-section (4) of Section 200, it shall be presumed that as if the declaration was never made under the scheme and all the consequences under the Income-tax Act or Wealth-tax Act, as the case may be, will follow and appeal or other proceedings shall be deemed to have been revived.

Scheme not applicable

Section 205 of the Finance Bill provides that the scheme shall not be applicable in the cases relating to:-

– Assessment made pursuant to search.

– Assessment made pursuant to survey conducted by the department.

– Assessment in respect of which prosecution proceedings have been instituted on or before the date of filing the declaration.

– Tax liability relating to undisclosed income from a source located outside India or undisclosed asset located outside India.

– Assessment or reassessment made on the basis of information received by the Government of India under the agreement for exchange of information with any other country.

– In the case of a person in respect of whom an order of detention has been passed under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 and the order has not been revoked or set aside by the competent Court.

– In case of a person in respect of whom prosecution has been instituted on or before filing of declaration or such person has been convicted of any offence punishable under the provisions of Indian Penal Code, The Unlawful Activities (Prevention) Act, 1967, The Narcotic Drugs and Psychotropic Substances Act, 1985, The Prevention of Corruption Act, 1988 or for enforcement of any civil liability.

– In case of a person notified u/s. 3 of The Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.

Powers of Central Government to issue directions/orders to authorities and frame rules for implementation of scheme

– Sections 206 to 208 of the Finance Bill provides powers to Central Government to issue such directions or orders to the authorities as may be deemed fit for proper administration of the scheme and also frame required rules for the purpose of effecting the scheme.

Analysis of the Scheme

The scheme proposed by the Government is a welcome step and it will definitely have an impact on reduction of litigation. There are, however, certain issues in regard to the scheme which are being discussed hereunder:

Whether declaration can be made where tax demand stands full or partly paid?

– The pre-condition for filing the declaration is that there should be ‘tax arrears’ or ‘specified tax’ and dispute should be pending as on 29-2-2016. The term ‘tax arrears’ as defined in Section 198(1)(h) refers to the amount of tax, interest or penalty determined under the Income-tax Act or Wealth-tax Act. It does not provide that there should be tax outstanding either on 29-2-2016 or on the date of declaration. Similarly, ‘specified tax’ defined u/s. 198(1)(g) refers to determination of tax consequent upon retrospective amendment relating to period prior to the date of amendment. There is no condition provided that there should be outstanding tax payable as on the date of declaration. In this connection reference can also be made to provisions of sub-section (1) of Section 201 of the Finance Bill, which provides that Designated Authority on receipt of the declaration shall determine the amount payable by the declarant in accordance with the scheme setting forth therein the particulars of tax arrears or specified tax, as the case may be, and the sum payable after such determination. In other words in the certificate to be issued by the Designated Authority, after determining the amount payable under the scheme and giving particulars of tax arrears and specified tax, shall also determine the amount payable after such determination. It would mean that it is not necessary that always there should be a positive sum payable after determination, there may be nil amount payable after such determination on account of tax had already been paid by the declarant.

– Similar is the position in regard to filing of declaration in a case where appeal pending relates to penalty. In such a case the assessee is liable to pay penalty to the extent of 25% of minimum penalty leviable whereas the declarant might have already made payment against demand of penalty more than 25% of the amount.

– It is well-known that after raising demand the department pressurises for the payment of the same and stay is granted very reluctantly or for a part of the demand. As a result in large number of cases amount of demand stands paid notwithstanding that assessee is disputing the liability in appeal.

– The important question for consideration is that if for any reason the Government’s intention is to allow benefit of scheme only in the cases where demand is outstanding it would be unfair to the assessees who have already made payment of tax either under the pressure of the department or otherwise. Therefore, the benefit of the scheme should be available to all the assessees irrespective of the fact whether the demand has been paid by the assessee or not.

– If reference is made to Kar Vivad Samadhan Scheme, 1998, there it was specifically provided that the scheme was applicable with reference to unpaid tax as on the date of declaration and on that basis disputed income was to be determined on which the amount payable under the scheme was to be determined. Under the above scheme benefit was granted not only in respect of penalty and interest but also in regard to part of the tax payable. Therefore, it was restricted to the disputed income determined with reference to unpaid tax. In the present scheme basically the waiver is being granted in respect of penalty, partly or fully. Therefore, benefit should be available to all the assessees where disputes are pending, which will reduce the litigation at the cost of waiver of penalty.

– If declaration can be filed even in a case where either there is no demand or the assessee has made payment which is more than the amount payable as per the scheme, the assessee will be entitled to refund of the excess amount paid by the assessee.

How the amount payable under the scheme is to be determined where the disputed tax is less than the tax payable as per assessment?

– Section 199 of the Finance Bill provides that in a case where disputed tax does not exceed
Rs. 10 lakh, the assessee has to pay whole of the disputed tax and interest on disputed tax and where disputed tax is more than
Rs.10 lakh, he has to pay disputed tax, interest thereon and also the penalty to the extent of 25%. There may be cases where the AO has made certain disallowances in the assessment order in respect of which tax demand has been raised but the assessee might not have challenged all the additions / disallowances in appeal. Accordingly, there can be cases where tax arrears might be more than
Rs. 10 lakh but disputed tax does not exceed Rs. 10 lakh. The issue will arise in such a case, how the liability for tax, interest or penalty is to be determined. It may be that declaration will be effective only in respect of disputed income and disputed tax, which is a subject matter of appeal and liability with reference to other additions is to be dealt with separately. Position, however, needs to be clarified in this regard.

Liability for penalty payable in a case where penalty proceedings have not been initiated?

– In the assessment order the AO might not have initiated penalty proceedings. In such a case no penalty will be leviable under the law and therefore, the assessee will not be liable to pay any amount of penalty. The position needs to be clarified by the Govt.

Whether the amount paid under the scheme will be refundable in case declaration is presumed to be non-est?

– Section 200(5) provides for certain circumstances in which it will be presumed that as if the declaration was never made under the scheme and consequently all proceedings will revive. Section 203 of the Finance Bill provides that any amount paid pursuant to any declaration shall not be refundable under any circumstances. Though it goes without saying that once it has been presumed that as if no declaration has been filed the amount paid by the assessee is to be considered as payment against the outstanding tax liability, the position, however, needs to be clarified.

Whether the assessee can file a declaration in respect of disputed tax as per the assessment made other than pursuant to search for the same year?

– Clause (i) of sub-section (a) of Section 205 of the Finance Bill provides that the scheme shall not apply in respect of tax arrears or specified tax “relating to an assessment year in respect of which assessment has been made u/s. 153A or 153C”. As per provisions of Income-tax Act an assessment might have been made in case of an assessee in the normal way and certain additions might have been made. Thereafter, search would have taken place resulting in another assessment order passed u/ss. 153A and 153C of the Act. Since the word used in the clause is “assessment year” as per the reading of the clause the assessee will be totally excluded from availing the scheme for that particular year notwithstanding that there may be two orders of assessment, one in the normal course and another pursuant to the search. The position in this regard needs to be clarified.

Stage of withdrawal of litigation

– In terms of Section 200(2) appeal pending before CIT(A) shall be deemed to be withdrawn on filing declaration in case of tax arrears. In a case of specified tax litigation has to be withdrawn before filing declaration. Principally appeal etc. should be deemed to be withdrawn only on passing the order by the Designated Authority on payment of tax as per the scheme. This is what has been provided in the scheme for Indirect Tax also in Section 213(1). An undertaking can be taken in declaration form that the declarant will withdraw the appeal etc. non acceptance of declaration.

Whether the assessee will not be able to claim immunity from penalty and prosecution in respect of assessment orders passed henceforth till AY 2016-17?

– Though this particular issue is not directly related to the scheme under reference, the issue, however, is arising for the reason that a new Section 270AA is proposed to be inserted in Income-tax Act providing an option to the assessee that he can make payment of tax and interest liability and can file an application before the AO to grant immunity from imposition of penalty and initiation of prosecution proceedings and the AO will grant the immunity and the assessee will not file the appeal in such a case before the CIT(A). The aforesaid section is in line with the scheme being inserted to reduce the litigation. The important issue, however, in this regard is that present scheme is applicable in respect of appeals pending before CIT(A) as on 29-2-2016. New Section 270AA will come into force w.e.f. 1-4-2017 and will apply to AY 2017-18 onwards. Provisions of old section 271(1)(c) will be applicable up to AY 2016-17. Accordingly, there is a gap, which appears to be unintentional. The Govt. has, accordingly, to clarify the position and if need be necessary amendment should be made in the Finance Bill.

Comparison of scheme for direct tax with scheme for indirect tax.

– It is quite interesting in going through the similar scheme introduced in respect of indirect tax disputes vide sections 209 to 215 of the Finance Bill and make comparison of language of the two schemes. Though the purpose and effect of both the schemes is the same but there is wide difference between the language used in two schemes and time span provided. Scheme for indirect tax disputes is having quite simple language and easy process. The Designated Authority under the scheme of Indirect tax is the Asst. Commissioner whereas in the scheme for direct tax the Commissioner is the Designated Authority. The scheme for indirect tax specifically provides the end date also i.e., 31-12-2016. As per the scheme for indirect tax the declarant has to file the declaration and on the receipt of the acknowledgement for the same he is required to make payment within 15 days and intimation of making payment is to be given within 7 days. Thereafter, the order is required to be passed by the Designated Authority within 15 days from receipt of the proof of payment. The scheme for direct tax provides that after declaration has been filed the Designated Authority shall within 60 days will determine the sum payable under the scheme and will issue a certificate. Thereafter the assessee has to make payment within 30 days. Intimation about the payment to the Designated Authority has to be given thereafter for which no time limit has been provided. Then an order will be issued by the Designated Authority, again for the same no time limit is provided as against 15 days in the scheme for Indirect Tax. There is also a wide difference in the language of Section 205 of the direct tax scheme as compared to language of Section 212 of indirect tax scheme which sections provide exclusion of similar category of assessees.

– This point is being made only to bring out an issue that the drafting and the procedure in relation to direct tax scheme has been made quite cumbersome whereas same purpose is being served by the simpler language used in scheme for indirect tax.

Finance Bill 2016 has recommended various amendments to the Income-tax statute. These amendments are spread over various facets of the Act right from definitions to penal provisions. Among these amendments, the Finance Ministry recommends some of the far reaching amendments in international tax space. We have deliberated on few of them crafted into three portions below:

Part A: Is Equalisation Levy a tax? [By CA. P Shivanand Nayak]

The rise of machines is making a deep impact and inroads into the global economy. Business acumen is getting digitised. The dawn of digital age has transformed the experience of working or shopping. Software has replaced labour. Physical stores and exhibition is replaced by smart web-portals. Human interface is reduced to mouse clicks and key-tapping. The aura of digital economy has hijacked the business dynamics in a new direction. Innovation in the digital leads to mushrooming of niche and complex business models. Many such new business models are in vogue. E-commerce, app stores, online advertising, cloud computing, high speed trading, e-payments are today’s business necessity.

The physical gap between the vendor and consumer is no more a concern. The virtual proximity has narrowed the physical gap. In this e-age, the target customers are reached through internet. Online advertising is a manifestation of the transformation. Today advertising is not just information dissemination tool but has significant influence on consumer’s decision making. It is not just a medium of marketing, but provides precision in monitoring performance of ads, tracking consumer loyalty and analysing customer interests/preferences. Online advertising takes various forms. Some of them are display ads (wherein advertiser pays to display ads linked to particular content); search engine ads (advertiser pays to appear among internet search results); ads on social websites (such as facebook, twitter etc.).

Internet advertising is rapidly growing both in terms of revenue and share in the total advertising market. The volume of internet advertising reached USD 135.4 billion in 2014. The market for internet advertising is projected to grow at a rate of 12.1% per year during the period 2014 to 20192. As the stakes started rocketing, taxing such virtual transactions attained prominence. The existing provisions of the income-tax statute were unable to tie the noose around these transactions. Perhaps the reason is Indian income-tax legislation is still governed by Quill Rule3 (physical presence test). The search for new basis of taxation became inevitable. The question was whether the tax should be on consumption or income?

The first statutory initiative in this direction is now proposed. Finance Bill 2016 seeks to charge an Equalisation Levy of 6% on certain specified services. This levy is reflected in Chapter VIII of the Finance Bill. The objective was clearly to tax the online transactions which was nebulous and having no physical presence which made their taxation in the service country difficult.

The clarity in the objective has not correspondingly translated into the provisions of the Equalisation Levy. There appears to be a slip in the intent and literal translation of the provisions housed in Chapter VIII of Finance Bill. It is already hounded by varied issues which makes a levy of this nature unworkable (some of the issues pointed at the end of this write-up).

Before dwelling into the merits of a particular legislation, any provision has to pass the litmus test of constitutional validity. Legislative power in India is divided into three lists of the Constitution [Schedule VII read with Article 245 of the Indian Constitution]. In pith and substance it has to fall into one of the entries therein. Precise affirmation of whether the impost christened as Equalisation Levy would fall within Entry 82 of the Union list (as a variant of income-tax) or Entry 97 (under the residuary entry) is critical. Constitutionally, whether it has to be construed as a tax on income or levy on service? Reckoning the Constitutional validity is thus the starter. However, in this write-up, we have focused on a larger aspect of whether amounts paid as ‘Equalisation Levy’ can be construed to be a part of ‘income-tax’?

The term ‘Equalisation Levy’ has been defined in Section 161(d) of the Finance Bill to mean a tax leviable on consideration received or receivable for any specified service under the provisions of this Chapter. The definition defines Equalisation Levy to be a ‘tax’. The term ‘tax’ has not been defined in the Chapter. Clause (j) to Section 161 provides that words or expressions used but not defined in the said Chapter and which are specifically defined in the Income-tax Act; shall have the meanings respectively assigned to them in the Income-tax Act. In other words, terms which are undefined in Chapter VIII (to Finance Bill) have to mandatorily borrow their meaning from Income-tax Act. Section 2(43) of the Income-tax Act defines tax as under:

“”Tax” in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date and in relation to the assessment year commencing on the 1st day of April, 2006, and any subsequent assessment year includes the fringe benefit tax payable under Section 115WA”

The section inter alia defines tax to mean ‘income-tax chargeable under the provisions of this Act’. From an Income-tax Act standpoint, tax means ‘income-tax’ (including other taxes mentioned in the definition which are not relevant in the present context). As mentioned earlier, Section 161(j) mandates that undefined words in the Chapter shall have meanings assigned to them in Income-tax Act. The impost is unqualified. Such meaning is not subject to any qualifications or caveats. Accordingly, the term ‘tax’ in Chapter VIII of the Finance Bill should mean ‘income-tax’. It cannot be restricted to mean a levy which is distinct from income-tax.

If the legislature wanted to give a different meaning to the term, it could have either defined it in Section 161. Alternatively, the closing portion of clause (j) could have been supplemented by the words “unless there is something in the subject or context inconsistent with such construction”. If these words were employed in clause (j) one could have argued that tax in Chapter VIII is not ‘income-tax’ having regard to the context of the charge. Nothing prevented the legislature from employing such language. The Chapter employs an unqualified language for an unrestricted import of words from Income-tax Act. Accordingly, going by the literal interpretation of the definition of Equalisation Levy, it should constitute income-tax.

The linkage of Equalisation Levy to Income-tax Act appears undisputable (apart from and in addition to the nexus already discussed above). Section 175 enlists various provisions of Income-tax Act which are applicable in relation to Equalisation Levy. The assessing and appellate authorities are the same for the two statutes. Thus, the two imposts are closely intertwined and operate in the same field.

It is interesting to note that the term ‘Equalisation Levy’ is proposed to be used twice in the Income-tax Act. The intent and placement of these sections appear to indicate that ‘Equalisation Levy’ is synonymous to ‘income-tax’.

Section 10(50): The section provides that any income from any specified services (as defined in Chapter VIII) and which is chargeable to Equalisation Levy is exempt from tax. Thus, if consideration received or receivable for specified services suffers Equalisation Levy, no income-tax would be charged on such income. Such exemption negates ‘double taxation’. The memorandum to Finance Bill reiterates this rationale in the following words –

In order to avoid double taxation, it is proposed to provide exemption under Section 10 of the Act for any income arising from providing specified services on which Equalisation Levy is chargeable.

Double taxation is generally a phenomenon when the same income is taxed twice under the same statute. Two different statutes levying taxes (even though on same income) cannot amount to double taxation. This is because, object of every legal framework is different. However, a reference to double taxation in the context of Section 10(50) indicates that Equalisation Levy and income-tax cannot be levied simultaneously. They are mutually exclusive. If the nature of charge is different, the plea of double taxation can never survive. By inference therefore, it is suggestive of the two (income-tax and Equalisation Levy) being the same.

Section 40(a)(ib): The section provides that the levy paid or payable by the assessee towards specified services (on which Equalisation Levy is chargeable) shall not be allowed as a deduction in case of failure of the assessee to deduct and deposit the Equalisation Levy to the credit of Central government.

It is pertinent to observe the placement of this section in Section 40(a). If Equalisation Levy was a tax other than income-tax, the same would have been covered within the provisions of Section 43B(a). Clause (a) to Section 43B provides deduction for any sum paid as tax, duty, cess or fee within the stipulated time provided therein. The payment of Equalisation Levy would have been thus an allowable expenditure on actual payment basis. There was therefore no necessity of a separate amendment in Section 40(a). The legislature has found it fit to place this in Section 40(a). This is possibly because, Section 40(a)(ii) provides that any sum paid on account of tax on profits or gains shall be disallowed. The new sub-clause (ib) seeks to create an exception to the Section 40(a)(ii). It therefore became necessary to insert the new provision within Section 40(a) itself. Consequently, the income-tax and Equalisation Levy do not appear to be different.

The legislative intention of the proposed Equalisation Levy can be gathered from the budget speech of the Hon’ble Finance Minister (while presenting Finance Bill 2016). At para 151 of his speech he said:

151. In order to tap tax on income accruing to foreign e-commerce companies from India, it is proposed that a person making payment to a non-resident, who does not have a permanent establishment, exceeding in aggregate Rs. 1 lakh in a year, as consideration for online advertisement, will withhold tax at 6% of gross amount paid, as Equalisation Levy. The Levy will only apply to B2B transactions.”

The opening portion of the para amply clarifies the objective is to create a charge on income accruing to overseas e-commerce entities. The focus is thus to tax ‘income’. The proposed charge is on the income of non-residents engaged in the specified services. Equalisation levy is thus arguably a variant of income-tax.

However, this conclusion is not sacrosanct. A contrary view is also in evidence. Income-tax is argued to be distinct and separate from the Equalisation Levy. The following aspects draw a distinction between Equalisation Levy and Income-tax:

(a) Equalisation levy is proposed to be inserted into the statute vide a separate Chapter in the Finance Bill. If the Levy and Income-tax were the same, the provisions could have been introduced within the contours of the Income-tax itself (similar to fringe benefit tax). The proposal to introduce it as a separate chapter of Finance Bill is indicative of this intent to regard this levy as not the same as income-tax.

(b) Chapter VIII of the Finance Bill appears to be an attempt to create an independent code by itself. There is a separate charging section, scope, levy, collection and penal mechanisms. It borrows certain provisions from the Income-tax statute to further strengthen its machinery provisions. Section 175 states that several provisions of the Act shall apply to Equalisation Levy, as they apply to income-tax. Such clarification is not required if the two imposts were identical. Further, Chapter VIII extends to whole of India except Jammu & Kashmir. The scope is thus different from Income-tax Act (which is applicable pan India). These factors are therefore suggestive of the fact that the two are not the same.

(c) Chapter VIII of the Finance Bill fastens the liability of deduction and payment of Equalisation Levy on the payer. The onus is on the payer to ensure appropriate and timely collection of taxes on behalf of the exchequer. The assessment procedures and penal provisions are directed at the payer. The payee is only the stimulus. Income of such non-resident payee is the trigger for this Levy. However, he remains untouched by the tax collection and compliance mechanisms. Being the income earner, he is never the focus of tax collection. Such modus operandi is not evident in Income-tax statute which never absolves the income earner/ recipient from tax compliance. This is a stark difference in the two provisions which darken the line of separation between income-tax and Equalisation Levy.

(d) Equalisation levy has been defined to mean tax. In the absence of the definition in Chapter VIII, one would resort to Section 2(43). However, there are no corresponding provisions in the Income-tax Act to accommodate or house the Equalisation Levy within its ambit. There is not a single instance in the Income-tax Act which explicitly acknowledge Equalisation Levy to be income-tax.

(e) BEPS Action Plan 1 deliberated on four options to address the direct tax challenges raised by digital economy. They were: (i) modifications to the exceptions to Permanent Establishment; (ii) creation of new nexus through significant economic nexus; (iii) imposition of withholding tax on certain digital transactions; or (iv) introduction of excise tax or other levy. The Indian legislature seeks to implement the last option. It is thus not a withholding tax. This is suggestive of Equalisation Levy being different from income-tax.

Thus, contradictory views are in evidence. An answer to this through clarification or appropriate amendment is extremely critical. This ambiguity leaves many other associated questions unanswered. One among them is whether an Equalisation Levy can be claimed as a foreign tax credit while claiming relief under the Double taxation avoidance agreement? The answer would be obvious if the Equalisation Levy is confirmed to be a part of income-tax. If divorced from income-tax, such Equalisation Levy is a tax on the online transaction/ activity.

The Mumbai Tribunal in the case of ADIT v. Chiron Behring GmbH & Co (2008) 24 SOT 278 (Mum) had an occasion to examine the applicability of India-Germany Double Taxation Avoidance Agreement. In the said case, the assessee was liable to pay ‘trade tax’ under the German domestic tax provisions. The Revenue authorities argued that such tax is not covered within the tax treaty. The Mumbai Tribunal rejected this argument by observing that Article 6 of the German Trade Tax Act states ‘The basis of taxation for Trade Tax is the income from the business’. From this finding, it concluded that the trade tax is not a turnover tax, but only is tax on the income from business. Such tax was thus held to be eligible for tax treaty purposes.

The basis for Equalisation Levy is also income from business. This cannot be disputed. The question is can one extend the dictum of Mumbai Tribunal in the present case? Possibly it can be applied only when the definition of Indian tax in the treaties are suitably widened to house Equalisation Levy. Some answer is also available in the roots of such levy. The BEPS Action Plan 1 dealing with Digital Economy appears to be the source for such proposed levy by the Indian legislature. At para 307 of the Action point, there is a discussion on relationship of Equalisation Levy with corporate income-tax which is as under:

“ Relationship with corporate income tax

307. Imposing an Equalisation Levy raises risks that the same income would be subject to both corporate income tax and the levy. This could arise either in the situation in which a foreign entity is subject to the levy at source and to corporate income tax in its country of residence or in the situation in which an entity is subject to both corporate income tax and the levy in the country of source. In the case of a foreign entity, for example, if the income is subject to corporate income tax in the country of residence of the enterprise, the levy would be unlikely to be creditable against that tax. To address these potential concerns, it would be necessary to structure the levy to apply only to situations in which the income would otherwise be untaxed or subject only to a very low rate of tax.” (emphasis supplied)

Action Plan 1 thus expresses its doubts with regard to claim of such levy against corporate income-tax. BEPS Action Plan being the source of Equalisation Levy, the doubt in the action point can form the basis for denying foreign tax credit by the Indian legislature/ judiciary.

The focus of this write-up has only been to address the above discussed ‘uncertainty in characterization’ of this levy. The legislature has several other complex issues (in this levy) to cure. Some of them are as under:

(a) Can Equalisation Levy create a territorial nexus with India which Income-tax could not establish?

(b) Whether the threshold of
Rs. 1lakh is a standard deduction or a threshold? Is it to be examined from vendor or consumer perspective?

(c) Is the present online payment system geared up to permit ‘deduction’ of levy on payment or ‘grossing up’ is the only recourse? Further, will grossing up shield the payer from penal consequences?

(d) Should such transactions pass through form 15CA and 15CB certification?

To conclude, it is of primary importance that the nature of this levy be abundantly clarified. There is presently an ambiguity in the legislative semantics. The memorandum to Finance Bill clarifies that Equalisation Levy owes its origin to BEPS Action Plan. Equalisation levy therein (in the Action Plan) was a suggested means of taxing economic nexus. Although the Levy was introduced, the Finance Bill does not explain the manner in which such Levy justifies ‘economic nexus’. Neither the budget speech nor the memorandum to Finance Bill clarifies why the option of Equalisation Levy was chosen as the most appropriate method of taxing online transactions. The rationale behind such levy is thus obscure. The Finance Bill seeks to arrest every online advertising transaction above rupees one lakh. Such low threshold seeks to capture even those transactions whose Indian nexus is fragile.

With the emergence of Digital India as the Indian household sermon, online and real time transactions are only on the rise. Online advertisement is the inseparable portion of these virtual transactions. They cannot be left grappling with uncertainty. The stakes are high. Clarity in this regard is inevitable to ensure the Government’s goal of ‘reducing litigation’. The ghost of uncertainty in taxation should not eclipse the digitization process.

Part B: Deferral of POEM [By CA. Prem Raj Rathod]

The residential status of a company is determined by the tests enunciated in Section 6(3) of the Income-tax Act, 1961 (hereinafter referred as ‘Act’). Prior to Finance Act, 2015, a foreign company was held to be a resident in India if during that year, the control and management of its affairs was situated wholly in India. Finance Act, 2015 amended Section 6(3), to provide that a company would be resident in India in any previous year if it is an Indian company or its Place of Effective Management (POEM) in that year was in India.

The amended sub-section (3) to Section 6 read as under:

“(3) A company is said to be resident in India in any previous year, if—

(i) It is an Indian company ; or

(ii) Its place of effective management, in that year, is in India.

Explanation – For the purposes of this clause “place of effective management” means the place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made.”

The amended provisions of Section 6(3) were to come into effect from Assessment Year 2016-17. The Finance Bill, 2016 proposes to defer the implementation of POEM as test of residency by one year to apply from Assessment Year 2017-18 onwards. The Finance Minister in his speech stated that “The determination of residency of foreign company on the basis of Place of Effective Management (POEM) is proposed to be deferred by one year.” This is to be achieved by omitting clause (ii) of Section 4 of the Finance Act 2015 with effect from 1-4-2016. The amendment to Finance Act 2015 is to be carried out vide Part XV of the Finance Bill 2016. Thus, for assessment year 2016-17, the test of residency for foreign companies continues to be on the touch stone of “control and management’’ of its affairs.

The concept of POEM as introduced by Finance Act 2015 had given rise to certain issues, to a company incorporated outside India which had not earlier been assessed to tax in India. The issues related to:

1. Applicability of advance tax provisions;

2. Applicability of withholding provisions;

3. Computation of total income;

4. Computation of depreciation when in earlier years foreign company has not been subject to computation under the Act;

5. Treatment of unabsorbed depreciation;

6. Set off or carried forward of losses;

7. Collection and recovery of taxes;

8. Special provisions relating to avoidance of tax;

9. Applicability of Transfer Pricing provisions.

The Memorandum explaining the provisions in the Finance Bill, 2015 had stated that, a set of guiding principles to be followed in determination of POEM would be issued for the benefit of the taxpayers as well as, tax administration. The Government released draft guidelines on December 23, 2015 providing various factors /principles which would be considered in determining the POEM of a company. The response to the guidelines by the stakeholders were to be received by a set date, which was thereafter extended. The guidelines incorporating the responses are not notified by the CBDT till date.

The Finance Act, 2015 received the assent of the President on 14-05-2015. In effect, the amended Section 6(3) had become applicable to the foreign companies for the financial year 2015-16. If the revenue had to give effect to the amended law, it was imperative that the guidelines spoken of in the memorandum were in place.

A foreign company, satisfying the test of residency on the basis of POEM for the assessment year 2016-17, would have been required to comply with various provisions of the Act attaching the subject listed above. Non- compliance would have invited adverse consequences. Problems would have aggravated if the company was held to be a resident under the POEM test during the course of assessment. Such determination would have been after the closure of the previous year inviting a non compliance of many procedural requirements. Representations were made before the Central Board of Taxes to address the above issues.

The Government’s stated goal is to create a stable and consistence tax environment so as to give taxpayers confidence in the tax regime. The Finance Minster on various occasions has reiterated that the Government will not venture into retrospective taxation.

Adhering to the above principles and in order to address the concerns raised, the Finance Minister in his Budget 2016-17 speech said that the determination of residency of foreign company on the basis of Place of Effective Management (POEM) is proposed to be deferred by one year i.e. to financial year starting from April 1, 2016. A transition mechanism for a foreign company which is considered, for the first time, as a resident in India under the POEM test is envisaged. The Memorandum to the Finance Bill outlines the contours of the transitionary provisions.

Section 115JH is proposed to be introduced to provide immunity to foreign companies from certain compliances if such companies are held to be resident in India for the first time. Sub-Section (1) of Section 115JH provides that the provisions relating to computation of income, treatment of unabsorbed depreciation, set off or carry forward of losses, collection and recovery and special provisions relating to avoidance of tax shall apply with such modifications and exceptions as may be notified by the Government. The modified/transitional provisions would also apply to all the intervening years upto the date of determination of POEM in assessment proceedings. The same has been explained through an illustration below:





Assessment proceedings for AY 18-19 commences by issue of notice under Section 143(2)



Order under Section 143(3) is passed concluding that POEM of the company is in India.


Consequence: Transitional provisions would apply for AY 18-19, 19-20, 20-21 (For AY 2021-22, the transitional provisions would not apply despite the assessment being completed during the course of the assessment year – Proviso to Section 115JH(1).

The relief or the modified provisions shall be applicable to the foreign company subject to compliance of the conditions as may be notified. The conditions could be one time or could be recurring. Default in compliance with conditions of the notification shall result in re-computation of income as if the modified provisions/transitional provisions did not apply to these companies. The Assessing Officer is empowered to invoke powers under Section 154. The period of four years for such rectification shall be computed from the end of the previous year in which the failure to comply with the notified conditions takes place.

The deferral of the POEM will give the Government time to finalise the guidelines pursuant to further consultation with stakeholders. The draft guidelines issued lack objectivity although the stated attempt is to impart so. The guidelines leave a lot of scope for mischief. Guidelines would now additionally have to cover the various topics outlined. It is only after the final guidelines are in place that one may have to determine whether they impart clarity or the cobwebs continue. The persistence of rooms for doubt is likely to dampen the “Ease of doing business” that the Government professes to accomplish. Such doubts are likely to discourage people to wholeheartedly look to India as an investment destination.

PART C: Introduction of BEPS into Indian domestic law [By: CA. Mohit A Parmar]

The Finance Minster in the Budget for the year 2016-17 has initiated a process to incorporate, atleast partially, the recommendations /suggestions of Base Erosion and Profit Shifting (BEPS) Action Plans 1,5 &13. In July 2013, the Organisation for Economic Co-operation and Development (OECD) published its “Action Plan on BEPS”. This publication addressed the concerns of various stake holders against the growing tax planning by multinational enterprises (MNEs) that makes use of gaps in the interaction of different tax systems to artificially reduce taxable income or shift profits to low-tax jurisdictions in which little or no economic activity is performed. In its final report of October 2015, BEPS has identified 15 Action Plans addressed them in a comprehensive manner, and set deadlines to implement those actions.

India having been a keen participant in the recommendations/suggestions of the BEPS- Action Plans has acted promptly to implement some of the recommended measures. A new Chapter VIII is introduced in the Finance Bill, 2016 proposing an Equalisation Levy on transactions in digital economy. This is following the suggestions of the OECD in BEPS project under Action Plan 1. Secondly, a new Section 115BBF is introduced to address taxation of patent developed and registered in India following BEPS Action Plan 5. Thirdly, a new Section 286 is proposed to be inserted for adoption of standardised approach to transfer pricing documentation following the suggestions of BEPS Action Plan 13.

BEPS Action Plan–5 – Countering Harmful Tax Practices more Effectively, taking into account Transparency and Substance

In order to encourage indigenous research and development (R&D) activities and to make India a global R& D hub, the Finance Bill has proposed a concessional tax regime on any income by way of royalty in respect of a patent developed and registered in India. The aim of the concessional taxation regime is to provide an additional incentive for companies to preserve and promote existing patents and to develop new innovative patented products. This regime will motivate companies to establish high income jobs in relation to development, manufacture and exploitation of patents in India.

The concessional regime would align the taxation of patents with the recommendation of the OECD. BEPS Action Plan 5 suggests the nexus approach and prescribes that income arising from exploitation of Intellectual property (IP) should be attributed and taxed in the jurisdiction where substantial research & development (R&D) activities are undertaken rather than in the jurisdiction of legal ownership only.

The above stated reasons for the introduction of “Taxation of Income from Patents” are emanating from the memorandum explaining the provisions to Finance Bill 2016, the relevant extract of which is as reproduced below-

In order to encourage indigenous research & development activities and to make India a global R&D hub, the Government has decided to put in place a concessional taxation regime for income from patents. The aim of the concessional taxation regime is to provide an additional incentive for companies to retain and commercialise existing patents and to develop new innovative patented products. This will encourage companies to locate the high-value jobs associated with the development, manufacture and exploitation of patents in India. The Organization for Economic Cooperation and Development (OECD) has recommended, in Base Erosion and Profit Shifting (BEPS) project under Action Plan 5, the nexus approach which prescribes that income arising from exploitation of Intellectual property (IP) should be attributed and taxed in the jurisdiction where substantial research & development (R&D) activities are undertaken rather than the jurisdiction of legal ownership only.

To achieve the above, a new Section 115BBF is proposed to be inserted to provide that any income by way of royalty received in respect of a patent developed and registered in India shall be taxable at a concessional rate of ten per cent (plus applicable surcharge and cess).No expenditure or allowance in respect of such royalty income shall be allowed. The income would thus be taxable on a gross basis.

To be entitled to this concessional regime the taxpayer engaged in development of IP should be a resident in India and also a true and first inventor of the invention, whose name is entered on the patent register as the patentee in accordance with Patents Act, 1970. The amendment is to be applicable from 1st April, 2017 and shall apply for Assessment Year 2017-18 and onwards.

The concerns expressed in BEPS was regarding preferential regimes being used for artificial profit shifting and about a lack of transparency connected to certain rulings. To address these concerns the Forum on Harmful Tax Practices (FHTP) was committed to frame a methodology to define the substantial activity requirement to assess preferential regimes, looking first at intellectual property (IP) regimes and then other preferential regimes. The work of the FHTP was also to focus on improving transparency through the compulsory and spontaneous exchange of certain rulings that could give rise to BEPS concerns in the absence of such exchanges.

As per the recommendations of the BEPS- Action Plan 5, the substantial activity requirement to assess preferential regimes should be strengthened in order to realign taxation of profits with the substantial activities that generate them. The various approaches considered were :-

a) Value creation approach;

b) Transfer pricing approach;

c) Nexus approach.

The Indian Government has adopted the “nexus approach”. In order to avail benefit under this approach the taxpayer has to incur expenditure towards research and development that give rise to the IP income.

Under the nexus approach, ‘expenditure’ is used as factor for activity. This approach is built on the principle that the taxpayer who is benefitted should have carried out the research and development activity and has incurred actual expenditure on such activities. This ensures that tax payer satisfies the substantial activity requirement. These IP regimes are designed to encourage R&D activities and to foster growth and employment.

In the area of transparency, a framework covering all rulings that could give rise to BEPS concerns in the absence of compulsory spontaneous exchange has been agreed. The framework covers six categories of rulings: (i) rulings related to preferential regimes; (ii) cross-border unilateral advance pricing arrangements (APAs) or other unilateral transfer pricing rulings; (iii) rulings giving a downward adjustment to profits; (iv) permanent establishment (PE) rulings; (v) conduit rulings; and (vi) any other type of ruling.

India has traditionally been known for its imports in the area of technology or intellectual property rights. Our service sector is largely engaged in the research and development activities on behalf of the foreign principals. The efforts in the development of patent happen in India, but the registrations are made outside India. In order to encourage more Indian companies to develop and register these patents in India the aforesaid amendments are proposed. As a result of this amendment, we could see more research and development activities being conducted and more inventors and patentee holders emerging in our country. However the success of this change would to a large extent depend upon the IP protection norms in India.

BEPS – Action plan 13 – Transfer Pricing Documentation and Country-by – Country Reporting

BEPS -Action Plan 13 report contains revised standards for transfer pricing documentation and a template for Country-by-Country Reporting of income, taxes paid and certain measures of economic activity. In this report, a three-tiered standardised approach to transfer pricing documentation has been developed and suggested. Firstly, multinational enterprises (MNEs) are to provide tax administrations with high-level information regarding their global business operations and transfer pricing policies in a “master file” that is to be available to all relevant tax administrations. Secondly, transactional details are to be provided in a “local file” specific to each country, identifying material related party transactions, the amounts involved in those transactions, and the company’s analysis of the transfer pricing determinations made with regard to those transactions. Thirdly, large MNEs are required to file a Country-by-Country Report that will provide annually and for each tax jurisdiction in which they do business the amount of revenue, profit before income tax and income tax paid and accrued. This is driven by the need to have transparency on the part of taxpayers in sharing all facts relevant to international transactions. In all interactions Indian tax authorities have been indicating that they are serious about implementing the suggestions by the OECD to the extent possible.

In line with the above recommendations, a new Section 286 is proposed to be inserted requiring maintenance and furnishing of the CbC report by multinational enterprises (MNE’s) having prescribed annual consolidated revenues. The salient features of Section 286 are as follows:

i. The CbC reporting requirement would mandatorily apply to multinational enterprise (‘MNE’) Group having annual consolidated revenues exceeding INR 5,395 crore (equivalent to € 750 million) in the previous year 2015-16

ii. The resident parent entity of an MNE Group, would be required to furnish the CbC report to the prescribed authority, on or before the due date of furnishing the return of income.

iii. Every constituent entity of an MNE Group having a non-resident parent entity, would provide information regarding the country or territory of residence of the parent entity

iv. The Indian constituent would be required to furnish the CbC report to the prescribed authority, if the parent entity is resident:

– in a country with which India does not have an arrangement for exchange of the CbC report; or

– in a country which is not exchanging information with India even though there is an agreement and this fact has been intimated to the entity by the prescribed authority

v. In case an MNE Group having a non-resident parent entity has designated an alternate entity for filing the CbC report with the tax jurisdiction in which the alternate entity is a resident, then the Indian constituent entities, would not be under an obligation to furnish the CbC report, if the same can be obtained under the agreement for exchange of such reports by the Indian tax authorities

vi. In case there is more than one entity of the MNE Group in India (having a non-resident parent entity), then the MNE Group can nominate in writing the entity which would furnish the report on behalf of the MNE Group.

vii. The CbC report would be required to be furnished in a prescribed manner and in the prescribed form and would be based on the template provided in the OECD BEPS report on Action Plan 13

viii. The prescribed authority may also call for such document and information from the entity furnishing the CbC report, for the purpose of verifying the accuracy, as it may specify in the notice. In such cases, the entity would be under an obligation to make the required submission within a period of thirty days from the date of receipt of notice, which could be further extended by a period not beyond thirty days.

The report mentions that taken together, these three documents (country-by-country report, master file and local file) will require taxpayers to articulate consistent transfer pricing positions and will provide tax administrations with useful information to assess transfer pricing risks. It will facilitate tax administrations to make determinations about where the resources were effectively deployed, whether the profits are consistent with the deployment of resources, and, in the event audits are called for, provide information to commence and target audit enquiries.

To ensure proper reporting of the international group in compliance with Section 286, a new Section 271GB is proposed to be inserted for levy of penalty where there is failure in furnishing of such report. The quantum of penalty is
Rs. 5,000 per day when the failure does not exceed one month and the quantum would be
Rs. 15,000 per day when the failure continues beyond a period of one month.

Where the reporting entity fails to produce information and documents sought by the prescribed authority within the time allowed under Section 286, the penalty under Section 271GB could be levied at
Rs. 5,000 to Rs. 50,000 for every day of such failure. For inaccurate information in the report furnished under Section 286(2) and if the entity fails to inform the incorrectness and furnish correct report within a period of 15 days of such discovery, the prescribed authority may impose a penalty of
Rs. 5 lakhs.

BEPS Implementation: The CbC reporting requirement Action 13 of BEPS Action Plan entails easy availability of information to tax authorities and helps them to identify the risk areas in transfer pricing cases and get an overview of the operations of multi-national groups. For this reasons, the CbC reporting has been widely implemented by various jurisdictions across the world. The amendments proposed in the Finance Bill, 2016 are to the ease the work of tax authorities in the area of transfer pricing. Requirement of furnishing this requisite information and reports before the due date of filing return of income is likely to be an onerous compliance burden. The burden of the penalties is also significant, especially considering that for multinational groups having hundreds of group entities, the available information may not technically meet the requirements of law.

The rules or forms in regard the transfer pricing law are awaited. This Cbc reporting requirement apart from increasing the compliance burden on the tax-payer; will add to increased costs. To expect fair appreciation of such information from the tax department is to belie the current reality and experience. There could be many reasons for an entity to have a non-uniform transfer pricing practice across regions. This could be for example the uniqueness of the business; diversified costs involved in a transaction; differences in the volume of the transactions; and ease of doing business among various jurisdictions. These unique features mandate a studied approach by the revenue authorities. In India at least, from the current experience whether this would happen is unlikely. Government is likely to use information that is favourable to them and ignore the rest.