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Income Tax Returns for AY 2020-21: Ready Referencer

With the extended time limit for filing of Income Tax Return (for AY 2020-21), u/s. 139(1), without late fees, for Non-Audit cases and for Non-Corporate assessees of 31st December 2020 fast approaching, given below is a quick guide for ready reference of some key changes that have been made in the respective Income tax return forms for this year.

Further, the conditions and features for eligibility of forms that are applicable for filing the correct income tax returns are also specified as follows:

Key Procedural Changes:

  • ITR 1 to ITR 4 can be filed using PAN or Aadhar by Individuals.
  • The submitted ITR forms display the ITR-V with a watermark ‘Not Verified’ until the same is verified either electronically by EVC or by sending the same via post after manual signing.
  • The unverified form ITR-V will not contain any income, deduction and tax details. The unverified form will only contain basic information, E-filing Acknowledgement Number and Verification part.
  • The unverified acknowledgement is titled as ‘INDIAN INCOME TAX RETURN VERIFICATION FORM’ & final ITR-V is titled as ‘INDIAN INCOME TAX RETURN ACKNOWLEDGEMENT’.
  • Return filed in response to notice u/s. 139(9), 142(1), 148, 153A, and 153C must have DIN.
  • There is a separate disclosure for Bank accounts in case of Non-Residents who are claiming income tax refund and not having a bank account in India.

COVID related Changes:

  • The Government had extended the time limit for claiming tax deduction u/CH VIA to 31st July 2020, and the details of the same need to be reported in Schedule DI (details of Investment).
  • The time limit for investing the proceeds or capital gains in other eligible assets, so as to claim exemptions u/s 54/ 54B/ 54F/ 54EC, had been extended to 30th September 2020.
  • Penal interest u/s. 234A @ 1% p.m., where the payments were due between 20-03-20 to 29-06-20 and such amounts were paid on or before 30-06-20, had been reduced to 75%, vide ordinance dated 31-03-20.
  • Period of forceful stay in India, beginning from quarantine date or 22-03-20 in any other case up to 31-03-20, is to be excluded, for the purpose of determining residential status in India.[1]

Consequences of Late filing of Return of Income:

  • Late Fees u/s. 234F of INR. 5,000 up to 31.12.20 and INR. 10,000 up to 31.03.21. In case of total income up to 5 Lacs, the penalty is INR. 1,000.
  • Penal Interest u/s. 234A @ 1% per month
  • Reduced to 75%. vide Ordinance dated 31.03.20, where the payments were due between 20.03.20 to 29.06.20, and such amounts were paid on or before 30.06.20.
  • Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.
  • In case of a belated return, loss under any head of Income (except unabsorbed depreciation) cannot be carried forwarded.
  • Deduction claims u/s. 10A, 10B, 80-IA, 80-IB, etc would not be allowed.

Consequences of Late filing of Return of Income:

  • Late Fees u/s. 234F of INR. 5,000 up to 31.12.20 and INR. 10,000 up to 31.03.21. In case of total income up to 5 Lacs, the penalty is INR. 1,000.
  • Penal Interest u/s. 234A @ 1% per month
  • Reduced to 75%. vide Ordinance dated 31.03.20, where the payments were due between 20.03.20 to 29.06.20, and such amounts were paid on or before 30.06.20.
  • Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.
  • In case of a belated return, loss under any head of Income (except unabsorbed depreciation) cannot be carried forwarded.
  • Deduction claims u/s. 10A, 10B, 80-IA, 80-IB, etc would not be allowed.

Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.

  1. Section 5A: Apportionment of income between spouses governed by the Portuguese Civil Code.
  2.  115BBDA: Tax on dividend from companies exceeding Rs. 10 Lakhs; 115BBE: Tax on unexplained credits, investment, money, etc. u/s. 68 or 69 or 69A or 69B or 69C or 69D.
  3. Inserted in sec 139(1) by Act No. 23 of 2019, w.e.f. 1-4-2020:

Provided also that a person referred to in clause (b), who is not required to furnish a return under this sub-section, and who during the previous year:

  • has deposited an amount or aggregate of the amounts exceeding one crore rupees in one or more current accounts maintained with a banking company or a co-operative bank; or
  • has incurred expenditure of an amount or aggregate of the amounts exceeding two lakh rupees for himself or any other person for travel to a foreign country; or
  • has incurred expenditure of an amount or aggregate of the amounts exceeding one lakh rupees towards consumption of electricity; or
  • fulfils such other conditions as may be prescribed,

Shall furnish a return of his income on or before the due date in such form and verified in such manner and setting forth such other particulars, as may be prescribed.

4. Section 57: Deduction against income chargeable under the head “Income from other sources”.

5. Schedule DI: Investment eligible for deduction against income (Ch VIA deductions) to be bifurcated between paid in F.Y.19-20 and during the period 01-04-20 to 31-07-20.

6.High-value Transaction: Annual Cash deposit exceeding Rs. 1 crore or Foreign travel expenditure exceeding Rs. 2 Lakhs, Annual electricity expenditure exceeding Rs. 1 Lakh.
7.Schedule 112A: From the sale of equity share in a company or unit of equity- oriented fund or unit of a business trust on which STT is paid under Section 112A.

8. 115AD(1)(iii) proviso: for Non-Residents – from the sale of equity share in a company or unit of equity-oriented fund or unit of a business trust on which STT is paid under Section 112A.
9. Section 40(ba): any payment of interest, salary, bonus, commission or remuneration paid to a member in case of Association of Person (AOP) or Body of Individual (BOI).

10. Section 90 & 90A: Foreign tax credit in cases where there is a bilateral agreement; Section 91: Foreign tax credit in cases of no agreement between the countries.

[1] Circular No 11 of 2020 dated 08th May 2020.

References

Image Credits: Photo by Markus Winkler from Pexels

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Extended Filing of Tax Returns – Some Issues

Due to the country’s ongoing COVID pandemic situation and the resultant disruption in normal business operations, several representations from professional bodies and other stakeholders, were made to the Hon’ble Finance Minister to further extend the due dates for Income Tax Audit, GST Audit and filing of Income tax returns.

In response, the Government has, through its Press Release dated 30th December 2020, agreed to extend the various due dates, key details of which are tabulated below:

Direct Tax:

Description Extended due date1 Further extended due date
Income tax return (Non audit cases) 31st December 2020 10th January 2021
Income tax return where Audit is applicable (Including partner of the firm) 31st January 2021 15th February 2021
Tax audit, Transfer pricing audit or any other audit 31st December 2020 15th January 2021
Declaration under ‘Vivad se Vishwas Scheme’ 31st December 2020 31st January 2021

Indirect Tax:

Description Extended due date Further extended due date
GST Annual return in GSTR 9 for F.Y. 2019-20 31st December 2020 28th February 2021
GST Audit report in GSTR 9C for F.Y. 2019-20 31st December 2020 28th February 2021

Some practical issues that arise post this extension:

  1. The further extension granted is certainly a relief measure from the Government. However, keeping in mind the severity of the disruption that continues to be impacting the business operations of the country at large, this short extension, when compared with the representations that were made before the CBDT, is unlikely to satisfy the needs and expectations of many stakeholders and professionals.
  2. It is likely that despite the extension announced by the Government, professionals and stakeholders would be keenly awaiting the outcome of the writ filed before the Mumbai High Court 2 and Gujarat High Court 3 appealing for further extension.
  3. The waiver of interest u/s. 234A for interest on late filing of return, granted in the earlier Press Release, dated 24th October 2020, shall also stand extended till the new due dates i.e., 10th January 2021 and 15th February 2021. However, it may be noted that this benefit has been extended only for small assessees having self-assessment tax liability (i.e., after reducing TDS/TCS, advance tax, etc) up to Rs. 1,00,000 and that too, only if the same is paid within the extended due date.
  4. In case of senior citizens (above 60 years of age) and super senior citizens (above 80 years of age) if their tax liability exceeds Rs 1 lac, the interest u/s. 234A would be charged, even if the return is filed within the extended due date. Ideally, the interest waiver should have been extended to all senior and very senior citizens, as practically, it is difficult for them to venture out during the ongoing pandemic and arrange for the required documents etc, so as to be able to compute and pay their taxes within the original due date.
  5. Further, the Government has not reduced the fee u/s. 234F for belated filing of a return, which would have been only Rs. 5,000 in case the return was filed after the original due date but within 31st December 2020. However, currently, since the December period has elapsed, assessees would have to pay an increased fee of Rs. 10,000 in case there is further delay in filing the return beyond the extended dates. In case of assessees having total income up to 5,00,000, the maximum late fees will be Rs. 1,000.
  6. It would be worthwhile to see if the Government extends the due date for filing of “belated return” and “revised return” for FY 19-20 (AY 20-21), the statutory due date for which is 31st March 2021. Considering the revised extended deadlines now, there is hardly any time left for filing revised or belated returns. Ideally, this date should have also been pushed by 6 – 9 months (30th September 2021 or 31st December 2021). However, the Government has been silent on this issue.
  7. The Government has also not addressed the issues concerning assesses who may still be stranded outside India and hence are unable to e-file their Income tax returns for FY 19-20 on time.

Some key issues on which clarity from Government is still awaited are as follows:

  1. Although the Government has extended Income tax return filing dates both for audit and non-audit cases, however, no similar extension has been announced by the Ministry of Company Affairs (MCA), vis-à-vis compliances under the Companies Act. This makes the income tax extension less meaningful or severely dilutes the essence of income tax extension relief in case of companies and LLPs.
  2. Considering that the country-wide lockdown norms are not yet lifted and with the prevailing disruption in carrying normal business activities, it has been difficult for stakeholders to pay advance tax for F.Y. 2020-21. However, the Government has not yet announced any relaxations, either with respect to payment of Advance tax or waiver of penal interest for any non-payment or short payment of advance tax.
  3. The CBDT had, vide Circular no 11/2020, clarified some tax residency issues arising for F.Y. 2019-20. However, no such clarification has been issued till date for F.Y. 2020-21 impacting determination of residential status and related Permanent Establishment (PE) or Place of effective management (POEM) issues getting triggered.
  4. The extension of statutory filing deadlines for F.Y. 2019-20 has resulted in the overlapping of limited time for F.Y. 2020-21 compliance; as such, there would be a need for the Government to reconsider the statutory time limits with respect to TDS compliances, assessments, re-assessments, audits etc.

With respect to GST annual return and GST audit for F.Y. 2019-20, professionals and stakeholders have raised serious concerns for time limit being extended only up to 28th February 2021; as the utility for GST annual return and that for reconciliation statement, is made available only in the month of December 2020 and secondly the same overlaps with the extended time limit for income tax audit return, which is 31st January 2021.

With respect to GST annual return and GST audit for F.Y. 2019-20, professionals and stakeholders have raised serious concerns for the time limit being extended only up to 28th February 2021; as the utility for GST annual return and that for reconciliation statement, is made available only in the month of December 2020 and secondly the same overlaps with the extended time limit for income tax audit return, which is 31st January 2021.

References

  1.  Notification No 88/2020/F. No. 370142/35/2020 – TPL dated 29th October, 2020.
  2. The Chamber of Tax Consultants & Another Vs Union of India & Another (Bombay High Court)
  3. The All-Gujarat Federation of Tax Consultants Vs. Union of India (Gujarat High Court); Filing (Stamp) Number: Special Civil Application – No. 23375 of 2020

Image Credits: Nattanan Kanchanaprat on pixabay.com

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AAR: Subscription Fee for Online Scientific Database is Business Income, Not Royalty

IN BRIEF:

In the case of Elsevier B.V., a company incorporated in the Netherlands (the applicant), the Authority for Advance Ruling, Mumbai (AAR) held that subscription fees received from the Indian subscribers and customers for accessing a database containing e-books/e-journals/e-articles is not taxable as ‘Royalty’ as per section 9(1)(vi) of the Income Tax Act, 1961 (the Act) and Article 12 of the India-Netherlands Double Tax Avoidance Agreement (‘DTAA’) but is in the nature of ‘Business Income’.

THE CASE: 

The Applicant owns a database wherein a host of information on subject/topics relating to science, technology and health science is stored in the form of books, journals and articles. The applicant charges two different types of subscription fees from customers:

(i) ‘Pay-per-view’, and

(ii) ‘Subscription’ agreement.

Pay-per-view Agreement – The pay per view arrangement allows the customer in India to purchase a particular book, article or journal which exists in electronic format on the applicant’s website. After the online payment is made, the customer is entitled to view, download and print the content for its personal, non-commercial use, on a pre-condition that the customer will keep intact all copyright and other proprietary notices.

Subscription Agreement – The subscription model grants the customer non-exclusive, non-transferable right to access books, articles, and journals during the subscription period and the access is terminated once the subscription period concludes. The copyright notices as displayed by the Applicant have to be kept intact.

In essence, both the above transactions are similar in nature as the content being offered remains the same i.e., books, articles, and journals in electronic format. In both the above transactions, the customer cannot copy, display, distribute, modify, publish, reproduce, store, transmit, create derivative works from, or sell or license all or any part of the content obtained from this site, to ensure that the exclusive proprietary right, title, and interest of the Applicant are kept intact.

QUESTION BEFORE THE AAR:

The key question before the AAR was determining the taxability of the subscription fees received from Indian subscribers and customers for e-books/e-journals/e-articles as:

  • Royalty, as defined under section 9(1)(vi) of the Act and Article 12 of the DTAA; or
  • Business Income under section 28 of the Act and Article 7 of the DTAA.

APPLICANT’S CONTENTION:

The contentions of the Applicant are summarized below:

  • Exclusive proprietary right, title, and interest in the subscribed product remain with the applicant.
  • Several restrictions are placed on the subscribers/customers on the usage of content to ensure that the customers cannot venture into the business of distributing the data downloaded by it or providing access to it to others.
  • Both the transactions, in essence, are similar to the purchase of books, journals or articles in electronic format. The Applicant merely collects and collates the data and uses its experience and expertise to present the information/ data in a presentable manner to facilitate easy and convenient reference to the user.
  • In view of the above, the subscription fees received from the Indian customers for providing access to e-books/e-journals/e-articles is not taxable as ‘Royalty’ as per section 9(1)(vi) of the Act and Article 12 of the DTAA.
  • Further, the Applicant contended that the consideration received as subscription fees are taxable as ‘Business Profits’, but due to the absence of any Permanent Establishment in India, the subscription fee received by the Applicant would not be chargeable to tax in India.

REVENUE DEPARTMENT’S CONTENTION:

The contentions of the Revenue Department are summarized below:

  • The Applicant has intellectual property ownership (copyright) over the host of information relating to science, technology and health science in the database, hence subscription received by the Applicant falls under the ambit of ‘Royalty’ as per Explanation 2(i) to section 9(1)(vi) of the Act.
  • Further, the information which is made available to the subscribers is taxable as ‘Royalty’ under the DTAA, which includes “consideration for information concerning industrial, commercial or scientific experience”.

THE RULING:

The AAR dismissed the Revenue Department’s contention and upheld that of the Applicant, stating that the payments made to access a database containing books/ journals/ articles in electronic format with a limited right of printing, making e-copies, and storing information, is not ‘Royalty’ under Article 12 of the DTAA, but is in the nature of ‘Business Income’.

The AAR agreed to the Applicant’s contention that purchasing books, journals, articles online are akin to buying books from a bookstore. Thus, it does not tantamount to the use of any copyright in a scientific/literary work.

Further, the AAR held that the term ‘scientific experience’ referred to in Article 12(4) of the DTAA refers to the scientific experience of the recipient and not the scientific experience which is contained in the content put up on the portal, to be accessed electronically by the subscribers. By giving online access, there is no transfer of the know-how or the experience by the Applicant to its subscribers. Thus, the AAR held that the receipts from Indian subscribers for accessing the content do not tantamount to the transfer of any information concerning the scientific experience. Hence, the same is not taxable as royalty as per the DTAA.

Moreover, the AAR held that the earlier rulings in the case of Elsevier Information System, American Chemical Society and Dun & Bradstreet Espana, as relied upon by the Applicant, have similar facts as in the present case. In the aforesaid rulings, the subscription fee paid by Indian customers for information concerning “commercial experience” was not treated as royalty and concluded that subscribers have no withholding obligation u/s 195 of the Act.

ANALYSIS:

The taxation of royalty has been a vexed issue in the Indian context. There have been conflicting rulings on the issue relating to the characterization of payments made for cross-border services, especially for the use of software, online facilities or IT infrastructure. This ruling is a welcome decision given all the above complexities and conflicting views on this subject and has laid down a good precedent for cases that provide web access to compiled information on an electronic platform. However, with the recent introduction of the Equalization levy in the statute, going forward, such transactions of subscription fee would also need to be evaluated from the perspective of the Equalization levy, before deciding on the complete impact.

In essence, both the above transactions are similar in nature as the content being offered remains the same i.e., books, articles, and journals in electronic format. In both the above transactions, the customer cannot copy, display, distribute, modify, publish, reproduce, store, transmit, create derivative works from, or sell or license all or any part of the content obtained from this site, to ensure that the exclusive proprietary right, title, and interest of the Applicant are kept intact.

References

Authored by Sandip Mukherjee – Director International Tax, with inputs from Preeti Kothari & Piyush Milani

TS-696-AAR-2020

Image Credits: Gerd Altmann on Pixabay

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