Taxation & Accountancy

The Bombay Chamber submitted its Pre-budget Memorandum to the Finance Ministry on 14 October 2021. We are grateful to the CBDT for granting us an audience on 22 October 2021 to explain some of our key recommendations in person through a video conference.

In continuation of the pre-budget consultation, we would like to submit a detailed representation on two key issues of special significance to the service sector which plays a very significant role in the Indian economy. We do not seek any new concession or incentive considering the current Government’s policy of keeping the tax regime simple by lowering tax rates and doing away with concessions or incentives. Our representations are for (a) clarifying that the existing provisions of section (s.) 2(19AA) of the Income Tax Act (‘Act’) apply to demerger of business by divestment of shares in operating subsidiary and (b) extension of benefit of s.72A to service sector. The detailed representations on these two issues are attached herewith.

We believe the above amendments will address, albeit partially, inherent bias in the Act towards the manufacturing sector and remove the tax hurdles in achieving a seamless business reorganisation in the service sector.

We shall be pleased to explain the representations in person and/or to provide any further information or clarifications which the Government requires to implement the above representations.

We are writing to you to highlight certain serious concerns being faced by taxpayers regarding Rule 11UAE introduced by Notification No. 68/2021 dated 24 May 2021.

Please find attached a detailed representation that explains the unintended impact of the new Rule 11UAE and the consequent hardships being faced by the taxpayers. The new Rule results in a capital gains liability that is based on a higher notional value as against the actual lump-sum cash consideration. This is despite the fact that the deal was publicly announced, much prior to the notification of Rule 11UAE. The deal was with unrelated party at commercially negotiated value supported by independent valuers and approved by all stakeholders. The provisions also do not provide any opportunity to the taxpayer to rebut the normative valuation.

It is requested that :
· Relief may be granted from retrospective application of Rule 11UAE for transactions which were publicly announced before 24 May 2021 but are consummated after 24 May 2021; and

· An opportunity may be provided to the taxpayer to rebut normative FMV as per Rule 11UAE.

We believe the above would create conducive business atmosphere by mitigating unintended hardships to taxpayer and foster the government’s agenda of ‘Tax Certainty’ and ‘Ease of Doing Business’.

We have also attached herewith the copy of earlier representation filed on June 18, 2021, for your ready refer

Based on the suggestions received from our members, we submit herewith the Pre-Budget Memorandum on Direct Tax for the year 2022-23 for favour of your kind consideration. Accordingly, we are attaching the following :

1) Part-A – Issues requiring legislative amendments

2) Part-B – Non-legislative issues which can be addressed by CBDT through amendment in Rules or issue of Notifications or Circulars

The representatives of the Chamber would be privileged to participate in any meetings to be held with the members of your esteemed Department to provide any clarifications on its suggestions made in the attached Memorandum.

We enclose for favour of your consideration, the Bombay Chamber of Commerce and Industry’s Pre-Budget Memorandum [Indirect Tax] for the Financial Year 2022-23.

We trust our suggestions, which have been formulated after a detailed analysis of the Statutory provisions and the Operational Rules, will receive your consideration and provide inputs for bringing about cohesive improvements in the substantive and procedural tax laws. It would be our privilege to provide further inputs on any of these issues.

Our members would deem it a privilege to participate in any meeting/s organised by the Ministry, to make a presentation on our key suggestions and also to provide further clarification to our suggestions, if any.

Monetary assistance and other support provided by the industry to the employees and society at large for COVID-19 care related expenses
– Request for exemption from Income-tax in hands of recipients and business expense deduction for industry

The second wave of COVID-19 pandemic in India has been more severe and devastating than the first wave, affecting many more human lives and causing significant stress on the healthcare services. In the words of the Hon’ble Prime Minister, it is a storm which has shaken the nation.

Whilst both Central and State Governments are doing their best to tide over the crisis, the challenge is humongous, and all stakeholders have stepped forward to provide every possible support to the affected people. The corporate sector has remained committed to supporting the Government in this fight. It has extended itself in many ways in providing assistance to the society.

Businesses are complementing government endeavours in fighting the pandemic, by providing essential and life survival items such as medical oxygen, oxygen concentrators, ventilators, setting up Covid care centres, free meals, accommodation to frontline workers, etc.

Besides contributing to the society at large, businesses have been actively taking care of their employees across all levels, and their immediate family members, to protect lives and livelihoods. The employer(s) have stepped in to provide financial support to employees to meet COVID-19 care related expenses actually incurred by the employee for self and for his / her immediate family or ex-gratia compensation to family of deceased employee. To the extent support is provided by the employers, the burden on the Government is reduced.

However, the initiative of the employer or other persons, by providing monetary assistance and other support to the employees to meet COVID 19 care related expenses could result in unintended tax burden on the employees and reduce the much needed aid that is required at this critical stage. This is because the current provisions of the Income-tax Act, 1961 have very restrictive exemptions for such assistance.

Given the unprecedented, extraordinary circumstances and genuine hardship faced by the employees and their immediate family members, it is humbly submitted that tax relief may be provided to the individuals by providing an exemption from Income-tax on various forms of COVID 19 support received from employers and other persons. We also take this opportunity to reiterate our representation to allow full deduction for any direct expenditure incurred towards combating COVID 19 crisis, while computing taxable income for the year in which such expenditure is incurred regardless of whether such expenditure is classified as Corporate Social Responsibility (CSR) expense for the purposes of Companies Act 2013.

A detailed note on the taxation difficulties faced by employers and employees and our representations for tax relief is enclosed herewith for your kind consideration.

We trust our concerns and suggestions shall be favourably considered. Your immediate intervention to provide this tax relief will provide much needed impetus to the efforts of the industry to stand by with their employees in this hour of need. The support from the employers will also supplement, in some measure, the Government’s efforts.

We are of the view that the Direct-tax Vivad Se Vishwas Act, 2020 (‘VSV Scheme’) is an extremely thoughtful scheme and goes a long way in demonstrating Government’s sincere intent to reduce pending litigation and to promote a non-adversarial tax regime under its motto of easing of doing business.

However sufficient time needs to be given to taxpayer to understand and take benefit of the scheme.

For the reasons set out below, we earnestly request for extension of time-line of 31st December 2020 for filing declaration under the scheme to 31st March 2021 to enable taxpayers to take full benefit of this exemplary scheme :

1. As your Honour is aware the debilitating situation faced by tax payers on account of Covid-19 Pandemic still continues in large part. Metro cities like Mumbai, Delhi, Bangalore etc – where a majority of the large taxpayers like MNCs are situated – still are facing the brunt of the impact and do not have offices functioning to full capacity. Further, taxpayers all over India are presently focussed on resuming their business operations to the fullest extent and hence, have not been able to look into the VSV Scheme and understand its intricacies to the full extent possible.

2. Too many deadlines are there for taxpayers to comply by 31st December 2020 like finalising of accounts for year ending March 2020 for corporate tax payers, filing of Returns for non-corporate taxpayers and completion of Tax Audits and Transfer Pricing Audits being also 31 December 2020, therefore all the taxpayers and consultants are busy with the same and have not been able to able to study and digest the nuances of the Scheme and Clarifications issues there under to the fullest.

3. Though further clarifications have been issued on 4th December 2020, there are various positions that need to be clarified.

4. Further, several associations have made representations with Finance Ministry and CBDT. Also, there were many issues raised during ICAI conference on Direct Tax -Vivad Se Vishwas Bill, 2020 on 16th March, 2020 attended by Hon’ble Ma’am along with Shri Piyush Goyal (Hon’ble Minister of Commerce & Industry), during which your Honours had ensured that necessary clarifications will be issued to make VSV Scheme a success. Also, Shri Piyush Goyal had addressed several conferences and had given assurance that issues under the VSV Scheme shall be clarified.

5. It is to be noted that the Clarifications issued by CBDT vide circulars dated 22nd April 2020 and 4th December 2020 still leave several issues open, which is one of the reasons why large taxpayers like MNCs are not in a position to settle issues under VSV Scheme.

6. Clarifications on VSV Scheme were issued only on 4 December. Hence, it would be very difficult for large taxpayers like MNCs having multiple years and multiple issues under litigation, to understand and digest them and take a call on how to opt for VSV scheme.

7. Also, as your Honours are aware that many large MNCs having headquarters in US, UK, Germany etc are operating in India. The Headquarters of these MNCs are severely impacted by the COVID pandemic and also, the headquarters will be shut on account of Christmas Holidays from next week onwards, hence, getting directions from Headquarters has been even more difficult.

On account of above-mentioned issues, several large taxpayers including MNCs, whose huge tax amounts have been locked in litigations, have not been able to come forward to settle dispute under VSV Scheme.

For all these reasons we request Hon’ble Ma’am to take decision and make announcement for extension of timeline to file declaration under the VSV Scheme at the earliest. We also request Hon’ble Ma’am to inform the CBDT officials and CCIT’s across locations to resolve taxpayers’ grievances on timely basis, so that taxpayers have full clarity for coming forward to settle disputes under the VSV Scheme.

We trust that the issues highlighted above would draw your kind attention and necessary measures would be taken at the earliest to make VSV Scheme a grand and deserving success by extending the deadline for filing of declarations under the VSV Act to 31st March 2021.

Based on the suggestions received from our members, we submit herewith the Pre-Budget Memorandum on Indirect taxes for the year 2021-22 for favour of your kind consideration. Accordingly, we enclose the following :

1) GST Tax Policy and Procedural recommendations

2) Recommendations on Customs

3) Recommendations on Central Excise and Service Tax

4) Recommendations on Decriminalisation of offences under Customs

The representatives of the Chamber would be privileged to participate and interact with the members of your esteemed Department to provide any clarifications on its suggestions made in the enclosed Memorandum.

Representation on behalf of the Bombay Chamber and its Members, made in lieu of SEBI’s notification dated 29th September 2020 regarding disclosure of information related to forensic audit of listed entities.