Taxation & Accountancy

Amendments introduced vide Finance Act 2020
1.0 The Finance Act 2020, among others, has amended following sections to change the due dates 139, Section 44AB and Section 92F of the Income Tax Act, 1961 (“the Act”).

1.1 Due date of filing of Income Tax Return in case of a company (not having transfer pricing cases) has been extended to 31st October from the earlier 30th September 2020. However, due date of 30th November applicable in case of a company (having transfer pricing cases) has not been amended.

1.2 Due date for furnishing of Tax Audit Report and Transfer Pricing Audit Report has been preponed by one month prior to the date of filing of the Return of income as mentioned above i.e. 30th September and 31st October (for assesses covered by Transfer Pricing provision).

Relaxation measures introduced due to COVID-19
2.0 The CBDT as part of relaxation measures due to COVID-19 vide Notification[1], has extended due date for filing of Return of Income for Assessment Year 2020-21 to 30th November. The extended due date shall be applicable for all persons. Consequent to the aforesaid extension, due date for filing of Tax Audit Report and Transfer Pricing Audit Report has been consequently extended till 31st October. In effect, no relaxation for a class of corporate assesses (ones covered by Transfer Pricing provision), for whom the dates remain unchanged.

Issues being faced by Companies
3.0 It is pertinent to note that companies having transfer pricing cases, are usually large corporates having global as well as PAN India presence.

3.1 COVID-19 has necessitated prolonged lockdown in the Country. Companies have adopted work from home, which has caused disruption in the office routine. Government has announced various relaxations, including extension of time limit in the Income Tax Act to counter unprecedented economic turbulence.

3.2 Similar extension of time limit has been provided by the SEBI and MCA for submission of annual financials, which has resulted in delay of completion of statutory audit and publishing annual results vis-à-vis normal years. This has direct impact on availability of contemporaneous data for benchmarking the transactions with Associated Enterprises for Arm’s Length Price (ALP). It may be noted that due date for TP audit returns is fixed beyond the normal due date for non-TP returns so as to enable the taxpayers and Chartered Accountants access the latest financial statements filed by different companies to perform benchmarking analysis.

3.3 It is to be noted, spate of new provisions introduced vide Finance Act, 2020, namely WHT on Dividend, TCS on sale of goods, Equalization Levy etc. require detailed preparation. Needless to mention, compliance of these provisions is not only onerous but requires changes in IT infrastructure coupled with training of personnel. Corporates have labored to comply with the new provisions. Almost all these amendments are applicable to the companies under consideration.

3.4 Further, faceless assessment and appeals launched in August 2020 too will require resource allocation by corporates as they struggle to meet deadlines in accordance with the laws framed.

3.5 The past one year is witness to historic changes being made in the field of Direct Taxes. Corporates are gearing up to meet the demands of changed architecture, while the pandemic rages on.

3.6 Due to COVID 19, the Government has also extended due dates for TDS returns, AIR filings etc. The Format of Form 26AS has also been modified to include various additional reporting. It is necessary to carefully consider Form 26AS and reconcile the information required to be submitted in the income tax return with that of Form 26AS. This will require additional efforts and time for many of the corporate entities having voluminous transactions.

3.7 Please note that due to bunching of due date for filing return for all taxpayers on 30th November whether individuals, corporate or non-corporates and/or regardless of requirement of tax audit or TP audit will cause significant administrative difficulty for Chartered Accountants responsible for issuing Tax Audit and TP Audit reports amidst the prevalent circumstances of significant restrictions on travel and office attendance. Even in past years when there were other special circumstances like late issue of new return forms or changes in audit report format, while extending due dates, the CBDT had maintained proper time interval between due dates for non-corporate, corporate and TP audit cases to avoid bunching of return filing compliance for all taxpayers on same date. The current year is an unprecedented extraordinary year which deserves even more liberal considerations.

Our Prayer
4.0 Considering genuine hardship being faced by the companies, we humbly pray that due date for filing Return of Income as an exception, only for this year, is extended by at least one month i.e. till December 31st, 2020 specifically for corporates having transfer pricing cases. Accordingly, the due date for filing Tax audit Report and TP Audit Report for such taxpayers may be extended till 30th November 2020.

4.1 Hope to receive your immediate attention and kind consideration.

Note on ambit of Arm’s Length Pricing Principles under the Income Tax Act, 1961, Companies Act, 2013 and Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘SEBI LODR’).

This has reference to the webinar organised by the Bombay Chamber on Related Party Transactions on 21st August, 2020 in which you had provided SEBI perspective on the subject. During the panel discussion, you had requested Mr. Parikshit Datta, Partner, Ernst & Young LLP to send a note to you on the ALP principles under the Income tax Act and how it can be of relevance for Regulation 23 of the SEBI LODR /Section 188 of the Companies Act, 2013.

Accordingly, the said note prepared by Mr. Parikshit Datta, perused by our President, Mr. Sudhir Kapadia and Mr. Bharat Vasani, Chairman of our Legal Affairs & IPR Committee, is enclosed herewith for your kind reference. Please also find attached the annexures referred in the said note viz. (a) Text of Rules 10A to 10CA of Income tax Rules (b) ICSI Guidance Note which recommends income tax TP methods and (c) ICAI Guidance Note on Transfer Pricing audit under Income tax Act.

May I request you kindly get in touch with us, in case you need any further information or clarifications in this regard.

The Finance (No.2) Act 2019 increased the surcharge rate for individuals, Hindu Undivided Families (HUFs), Body of Individuals (BOIs) and Association of Persons (AOPs) as a measure to raise resources from ‘super rich’ taxpayers, from erstwhile maximum rate of 15% (for income above Rs. 1 Cr) to 25% (for income between Rs. 2 Cr to Rs. 5 Cr) and 37% (for income above Rs. 5 Cr).

Such increase has unintentionally adversely impacted AOPs formed by Indian companies for bidding and executing infrastructure projects. Infrastructure is the fundamental enabler for growth and has been identified by the Government as one of the five significant economic pillars for ‘Aatmanirbhar Bharat’ with a National Infrastructure Pipeline of Rs. 100 lakh crore. As AOP is a preferred mode of operation for several infrastructure companies which operate in India and abroad, higher surcharge on AOPs is counter-productive and adversely dampens the efforts to attract investments in the infrastructure space. AOP being a business entity, it seems a levy of higher surcharge intended for ‘super rich’ taxpayers is an unintentional anomaly which needs to be corrected.

Therefore, we request the Government to reduce the surcharge on AOPs to a level of 10%/15% as it was prior to enhancement by Finance (No.2) Act 2019. However, if a complete rollback is not possible, a specific carve out for infrastructure sector or relief to Indian Companies, in their capacity as member of AOP, by allowing their share of income in the AOP to be subject to surcharge rate applicable to Indian companies (i.e. 7% / 12%) instead of the enhanced surcharge rate for AOPs i.e. 25% / 37% may be considered.

A detailed representation on the issue is attached herewith for your kind consideration.

We welcome the proactive steps taken by the Government to provide relief to taxpayers on various direct tax compliances by issuing Notification No.35/2020 dated 24 June 2020 under the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020.

The Notification has extended the due dates for several compliances falling due between 20 March 2020 and 31 December 2020. In particular, the time limit for filing return for non-corporate taxpayers and taxpayers liable to audit (other than Transfer Pricing cases) has been extended to 30 November 2020. However, there is no relaxation from payment of interest under section 234A for delayed filing of return except where the self-assessment (SA) tax payable is less than Rs. 1 lakh.

The levy of interest under s.234A for filing of return within the extended due date of 30 November 2020 where SA tax payable is more than Rs. 1 lakh will cause great hardship to many taxpayers (especially senior citizens) who are unable to compile the relevant information in timely manner for computing the SA tax due to disruption caused by COVID-19 pandemic. Since interest under s.234A is for delayed filing of return for which due date is extended till 30 November 2020 and the Government is otherwise compensated for delay in payment of taxes by levy of interest under s.234B, we believe that it is incorrect to levy interest under s.234A amidst the unprecedented and extraordinary circumstances caused by COVID-19 pandemic. We sincerely request for review of the Notification on this aspect.

Our detailed representation on the issue is attached herewith for your kind consideration and remedial action.

The Finance Bill 2020 was passed by both houses of Parliament on 24 March 2020 without any discussion or debate and received Presidential assent on 27 March 2020. There were many amendments at the enactment stage of Finance Bill 2020, including the introduction of a new Equalisation Levy on e-commerce transactions with effect from 1 April 2020.

While many of our suggestions in Post Budget Memorandum on Direct Taxation were addressed in the amendments (like duplicated tax on dividends from REITs/Invits, extending s.80M deduction to foreign dividends, deferring dates of new TDS under section 194-O and TCS under sections 206C(1G)/(1H), etc), the enacted provisions give rise to many practical challenges/ implementation issues to the stakeholders. These will need to be addressed through legislative changes or issue of Notifications or clarificatory Circulars, as may be appropriate to the context.

In the wake of Covid-19 pandemic lockdown, the Government notified Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 on 31st March 2020 to give effect to various Direct/Indirect Tax and Statutory Compliance relaxation announced on 24th March 2020. The Ordinance will need to be regularised through an Amendment Bill when the Parliament next convenes for monsoon session post lifting of Covid 19 lockdown. Our members feel that the passing the Amendment Act, to regularise the said Ordinance, will provide a window to make legislative changes to address some of the pressing difficulties arising out of enactment stage changes.

While deferring the applicable date of new TDS under s.194-O for e-commerce transactions and TCS under s.206C(1G)/(1H) for Liberalised Remittance Scheme, overseas tour package and sale of goods from 1 April 2020 to 1 October 2020, the enactment stage changes give CBDT power to issue guidelines for removing difficulties faced in implementation of the new TDS/TCS provisions.

In view of the same, the Bombay Chamber is pleased to submit a memorandum on enactment stage changes in Finance Bill, 2020 on Direct Taxation for your kind consideration. It broadly covers the following :-

• Issues on new residency rules and perquisite taxation for contributions to PF, NPS and ASF in excess of Rs. 7.50 lakhs
• Issues related to TDS on dividends
• Issues related to TDS and TCS provisions including suggestions on issues on which guidelines can be issued on TDS u/s. 194-O and TCS u/s. 206C(1G)/(1H)
• Issues related to Equalisation Levy on e-commerce transactions through non-resident e-commerce operator.

We trust our suggestions shall be duly considered and appropriate notifications/clarifications will be announced at the earliest. If required, we shall be happy to elaborate on any of the issues in the representation.