Direct Tax Vista

Your weekly Direct Tax recap

Edn. 105 – 10th December 2024

By Vivek Jalan, Partner, Tax Connect Advisory Services LLP

Friends

We are pleased to put forth this issue of DTV in Three Sections as

under -

Section I - Coverage and Updates on Income Tax Act Revamp (Comprehensive

Review) from 1st February 2025 as announced by the Union Finance Minister in The
Budget (No.2) in 2024.

Section II - Video on Weekly Developments under Income Tax, International

Taxation & International Trade

Section III - Coverage of most critical issues in Income Tax, International Taxation
& International Trade in the bygone week.

We hope that this revamped DTV would assist you in your professional spheres.

Section I - Coverage and Updates on Income Tax Act Revamp

(Comprehensive Review) from 1st February 2025 as announced by the
Union Finance Minister in The Budget (No.2) in 2024.

As Shri Sanjay Malhotra, Revenue Secretary becomes the Next RBI Governor and
the MoF awaits the new Revenue Secretary, the update on the Income Tax Act
revamp is that it is possible that only a part of the Income Tax Act is revamped or
comprehensively reviewed in the upcoming Union Budget 2025. Balance may be
done going forward. Accordingly we provide few more issues which need to be
highlighted and reviewed and amended therein –

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1. Interest on Income tax refund to be allowed on the “Amounts due”
rather than only the tax amount
There is a confusion in the current law u/s 244A whether interest is eligible on
amounts due or only principal amount of tax. The same should be clarified to reduce
litigation

Section II - Video on Weekly Developments under Income Tax,

International Taxation & International Trade

https://www.youtube.com/watch?v=4mIC0FsWCTQ

Section III - Coverage of most critical issues in Income Tax, International

Taxation & International Trade in the bygone week

1. Ordered even without any appearance from appellants side...Form 67 is

directory and not mandatory to claim foreign tax credit
The provision of DTAA override the provision of Section 90 of the Income Tax Act
as they are more beneficial to the assessee, in view of judicial pronouncements in
this regard and since Rule 128(9) does not preclude the assessee from the claiming
credit for FTC in case vested right of the assessee and Form No. 67 was filed by the
assessee (even after the end of the relevant assessment year), there was no
justification for not allowing the credit for FTC was held by The Hon’ble ITAT Kolkata
in the case of JASPAL SINGH BINDRA Vs DCIT [2024-VIL-1664-ITAT-KOL] in
Nov’2024, and that too when nobody appeared from the assessee’s part. Hence, it
is high time that necessary amendments should be made in the Income Tax
Act/Rules to incorporate the process of claiming the tax credit, where the foreign
tax credit certificates are received by an assessee even after the end of the
assessment year. This would avoid hardship for the NRI assessees and will also
serve the ends of natural justice.

The background of the issue is that as per the provisions of section 90 read with
Rule 128 and Form 67, an assessee is entitled to relief of the tax paid in foreign

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country on the income which is also taxed in India, as per the prescribed guidelines.
As per Rule 128, for claiming the tax credit under section 90, the assessee needs to
file Form 67 along with the proof of payment of tax on or before the end of the
assessment year relevant to the previous year in which FTC is claimed by an
assessee [as per the recent CBDT Notification No. 100 of 2022].

In cases where the details of such foreign tax payment are available to the assessee
company only after the end of the relevant assessment year, the above timeline
prescribed for filing Form 67, continue to act as deterrent to claim the tax credit u/s
90 of the Act. Till now, When such FTC relief was being claimed during assessment,
the assessing officers are raising objections citing non filing of such additional claim
before the due date of filing the return of income & now it is said it should have
been claimed before end of the AY. As a result, the assessees are being denied tax
credit for no fault of theirs, since it is impossible to make such claims in the absence
of requisite details, for which Indian assessees are helpless and are dependent on
the tax authorities of respective foreign jurisdiction.

However, even barring the amendment, the issue is whether Form 67 is mandatory
or directory for claiming foreign tax credit. In a decision in Anuj Bhagwati vs DCIT,
in ITAs No.1844 and 1845/Mum./2022, the coordinate bench of the Tribunal vide
order dated 20/09/2022, while deciding the issue held that section 90/91 of the Act
has not been amended insofar as grant of foreign tax credit is concerned and Rules
cannot override the Act and therefore filing of Form No. 67 is not mandatory but it
is directory. Following the decision, it was held in the case of NIRMALA MURLI
RELWANI Vs ASSTT. DIRECTOR OF INCOME TAX [2022-VIL-1550-ITAT-
MUM] that mere delay in filing Form No. 67 as per the provisions of Rule 128(9),
will not preclude the assessee from claiming the benefit of foreign tax credit in
respect of tax paid outside India.

Again, what happens incase Form 67 is not filed erroneously. In the case of DCIT,
CIRCLE – 2(2)(1), BENGALURU Vs SHRI. DEVESH M NAYEL [2024-VIL-173-
ITAT-BLR] it was held that where on realizing the mistake that Form 67 was not

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filed along with return of income and same was filed subsequently, the delay should
not be considered as fatal to claim FTC.

Hence until a consequential amendment is made, foreign tax credit can be claimed
accordingly on the basis of the decisions.

2. Guarantee fee paid to foreign Co. for financial assurance extended to

Indian financial institutions, is not taxable in India unless the assessee has
a PE in India
Guarantee fee, paid for financial assurance extended to Indian financial institutions,
is not taxable in India under the DTAA unless the assessee has a PE in India,
especially when the loan itself was from a bank outside India as was held in the case
of DAE WON KANG UP CO LIMITED Vs DCIT [2024-VIL-1658-ITAT-CHE]. The
payment could be classified as business income under Article 7 or residuary income
under Article 22, both granting exclusive taxation rights to Korea in the absence of
a PE.

However, the income could rightfully be Business Income under Article 7 of DTAA,
as this particular income does not fall under miscellaneous income at all and cannot
be brought under Article 22 under "Other Income", the said principle is clearly laid
in the High court decision in Bangkok Glass Industries Pvt Ltd Vs ACIT (257
CTR 356),

3. Writ maintainable incase AO makes a case u/s 68 for unexplained credit

ignoring documentary evidence
Receiving unsecured loans and making repayment of unsecured loans and
consequential allegation of circulating money between different parties cannot be a
ground for invoking Section 68 for unexplained credits. Documentary evidence, like
bank statements, ledger account confirmations, PAN details, and income tax returns
of lenders have to be examined in details and then only can a case under Section
68 of Income Tax Act be framed as lack of proof of genuineness and creditworthiness
of the parties as was held by The Hon’ble Gujarat High Court in the case of SHAH

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TOBACCO TRADING CO Vs ADDITIONAL /JOINT /DEPUTY /ASSISTANT
COMMISSIONER OF INCOME TAX & ANR [2024-VIL-225-GUJ-DT].

Ignoring such material documentary evidence would violate the principles of natural
justice and hence the assessee may undertake the Writ remedy under Article 227
of The Constitution.

The principles of natural justice requires the AO to evaluate and address the
documents submitted, failing which the order cannot stand. While alternative
remedies existed, such procedural lapses justified the exercise of its extraordinary
jurisdiction under Article 227 of the Constitution.

4. TDS u/s 192 on salary can be adjusted and paid at the end of the year
incase indeterminable earlier... without interest
A duty is cast on an employer to form an opinion about the tax liability of his
employee in respect of the salary income. While forming this opinion, the employer
is undoubtedly expected to act honestly and fairly. But if it is found that the estimate
made by the employer is incorrect, this fact alone, without anything more, would
not inevitably lead to the inference that the employer has not acted honestly and
fairly. Unless that inference can be reasonably raised against an employer, no fault
can be found with him. It cannot be held that he has not deducted tax on the
estimated income of the employee. Incase of expats/ staff travelling on foreign ships
it becomes virtually impossible to determine the residential status of such staff
members at the start of the year or even midyear, as the actual status becomes
apparent only towards the end of the year. Hence, in as far as levy of Interest on
TDS u/s 201(1A) of Income tax Act on Salaries, the following needs to be kept in
mind –

1. The provisions of Section 192(3) permit adjustments for excess or deficient

TDS within the financial year.

2. The assessee’s inability to determine residential status of expats/ floating

crew/other staff at the beginning of the year is a valid reason that the final

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 TDS liability is discharged at the end of the year. In such case it would be
considered as being devolved within the prescribed timelines.

Relying on judicial precedents, including CIT v. Enron Expat Services Inc.

(Uttarakhand HC) and Vinons v. ITO (Mumbai ITAT), the Tribunal in the case of THE
GREAT EASTERN SHIPPING CO.LTD Vs DCIT, TDS [2024-VIL-1683-ITAT-
MUM] also ruled that interest under Section 201(1A) could not be imposed for
shortfalls rectified within the financial year.

5. Double claim of interest on House property u/s 24(b) and 48 allowed

before 1st April 2024, i.e. before AY 24-25
The amount of any interest payable on borrowed capital for acquiring, renewing or
reconstructing a property is allowed as a deduction under the head “Income from
house property” under section 24 of the Act.

Further Section 48 of the Act, inter alia, provides that the income chargeable under
the head “Capital gains” shall be computed, by deducting the cost of acquisition of
the asset and the cost of any improvement thereto from the full value of the
consideration received or accruing as a result of the transfer of the capital asset.

It was observed that some assessees claimed double deduction of interest paid on
borrowed capital for acquiring, renewing or reconstructing a property. Firstly, in the
form of deduction from income from house property under section 24, and in some
cases the deduction was also being claimed under other provisions of Chapter VIA
of the Act. Secondly while computing capital gains on transfer of such property this
same interest also forms a part of cost of acquisition or cost of improvement under
section 48 of the Act.

In order to prevent this double deduction, a proviso after clause (ii) of the section
48 as inserted so as to provide that the cost of acquisition or the cost of
improvement shall not include the amount of interest claimed under section 24 or
Chapter VIA. This amendment is proposed to take effect from the 1st day of April,

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2024 and applied in relation to the assessment year 2024-25 and subsequent
assessment years.

However, what about the periods before that? The defenses for claiming double
deduction are as follows –

1. There are favorable judgments, including CIT v. K. Raja Gopala Rao and
CIT v. Mithlesh Kumari which allows interest as part of the cost of acquisition.

2. Section 24(b) and section 48 operate under different heads of income,

permitting claims under both.

3. Additionally, the Finance Act, 2023 introduced a provision explicitly

disallowing such deductions under section 48 from April 1, 2024, confirming
the absence of such restriction for earlier periods.

4. Following the principle of beneficial interpretation as laid down in CIT v.

Vegetable Products Ltd. by the Supreme Court, the ITAT in the case of DCIT
3(2)(1) Vs MR. NEVILLE TULI [2024-VIL-1671-ITAT-MUM] ruled in
favor of the assessee, allowing the indexed interest cost deduction under
section 48.

6. AMP Expenses allowed u/s 37... even incase it benefitted Group Co./
director
Advertisement, Marketing, and Promotion (AMP) expenses may enhance the brand
value of products of a group Company, owned by directors. as well as the company
rendering such services. Can it be disallowed u/s 37 of Income Tax Act as say
personal benefit to the director.

The ITAT Bangalore in the case of THE DY. COMMISSIONER OF INCOME TAX Vs
SARASOULE PVT LTD [2024-VIL-1674-ITAT-BLR], allowed such AMP expenses
incurred by the assessee due to the following –

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 1. AMP expenses were wholly and exclusively for business purposes, satisfying
the conditions of section 37(1)

2. Incidental benefits to a third party (group Co/the director) do not justify

disallowance if the expenditure promotes the assessee’s business.

3. Commercial expediency governs such deductions.

7. Pan 2.0 – Precursor to Income Tax Act Revamp

PAN will serve as a universal identifier across government digital systems, as
announced in the Union Budget 2023. To take this forward, the Cabinet Committee
on Economic Affairs (CCEA) approved the Income Tax Department’s Permanent
Account Number (PAN) 2.0 project. The salient features are as follows -

A. PAN-related services are currently spread across three portals (e-Filing, UTIITSL,
and Protean e-Gov).

B. The PAN 2.0 Project will unify all PAN/TAN services on a single ITD portal,
covering allotment, updates, corrections, online PAN validation, AADHAAR-PAN
linking, PAN verification, e-PAN requests, and re-print requests.

C. TAN can be searched with PAN and vice-versa possibly after this merger.

D. PAN allotment, updation, and correction will be paperless and free, with e-PAN
sent to the registered email.

E. The PAN card under PAN 2.0 will feature an enhanced dynamic QR code,
displaying the latest PAN data. PAN holders with old cards can apply for a new one
with a QR code.

F. Strengthening anti-evasion measures: The integration of PAN as a common

identifier for financial transactions and its linkages to other regulatory systems will

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strengthen India’s ability to detect and prevent tax evasion. For several businesses,
this ensures level playing field by holding fraudulent entities accountable.

(The author is a CA, LL.M & LL.B and Partner at Tax Connect Advisory Services
LLP. The views expressed are personal. The author is The Lead - Indirect Tax Core
Group of CII-ER and The Chairman of The Fiscal Affairs Committee of The Bengal
Chamber of Commerce. He has Authored more than 15 books on varied aspects of
Direct and Indirect Taxation. E-mail - [email protected])

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