CBDT's guidelines for Place of effective management would lead to increase in tax litigation

Place of effective management - "concept is one of substance over form"

CBDT has issued certain guidelines, providing clear rules to establish if a company has effective management in India. This has to be determined on the basis of facts and circumstances of each case depending whether or not the company is engaged in active business outside India. The place of effective management in case of a company engaged in active business outside India shall be presumed to be outside India if the majority meetings of the Board of Directors of the company are held outside India. 

Sec-6(3) of the Income Tax Act, 1961 provided that a company is said to be a resident in India in any previous year if it is an Indian company or if during that year the control and management of its affairs is situated wholly in India. This allowed companies to avoid paying tax in India by artificially escaping the residential status by shifting insignificant or isolated events related with control and management outside India. Finance Act, 2015 amended the existing provision of Sec-6(3) w.e.f. 1st April 2016. The concept of 'effective' management has been incorporated into the provision. Now the provision provides that a company will be said to be a resident in India in any previous year if it is an Indian company or its place of effective management in that year is in India. 

"Place of effective management" means a 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. 

As per the guidelines, a company shall be said to be engaged in "active business outside India" if the passive income is not more that 50% of the its total income and less than 50% of its total assets situated in India, less than 50% of total number of employees are situated in India or are resident in India and the payroll expenses incurred on employees is less than 50% of its total payroll expenditure. 

The determination of place of effective management would be a two stage process which would include the identification and ascertainment of  the person/ or persons who actually make the key management and commercial decision for conduct of the company's business as a whole and secondly the determination of place where such decisions are made. Hence, its the place where these management decisions are made would be more important than the place where such decisions are implemented.

Mere formal holding of Board meetings at a place would not be conclusive for determination of place of effective management being at that place. If the key decisions of the directors are taken in a place other than the place where formal meetings are held then such other place would be relevant for place of effective management. 

Location of company's head office is an important factor in determination of company's place of effective management. There are some deciding factors that determines the location of the head office of the company; such as, if company's senior management and the staffs are based in a single location and that location is held out to the public as company's principle place of business then that place would be considered as location where the head office is situated.

Another interesting fact is that, since 'residence' is determined for each year, place of effective management will also be required to be determined on year to year basis. The guidelines emphasizes that determination of PoEM will be based on the relevant facts related to the management and control of the company and not to be determined on the basis of isolated facts since that by itself do not establish effective management. For example - fact that if one or some of the directors of foreign company reside in India will not be conclusive evidence that satisfies the conditions for establishing PoEM in India. The guideline lays down that before holding a company incorporated outside India on the basis of its PoEM, as being resident in India by the Assessing officer, prior approval from the Principal Commissioner or Commissioner has to be obtained. 

The norms clarified that 'snapshot' approach is not to be adopted and no single principle will be decisive in itself. Since, the guidelines have left room for interpretation, this would lead to litigation. 

To read in detail check the notification: 
http://www.incometaxindia.gov.in/news/poem-note-for-uploading.pdf

Advance Ruling is case specific but it serves as a good indication as to how a business transaction should be interpreted

Recently, North American Coal Corp. India, the local subsidiary of US-based North American Coal Corp, sought a ruling on the application of service tax on social security benefits given by the parent to an employee working in India on contract. Tax authorities are of the view that the practice of paying salaries for work in India that are then transferred to foreign accounts by the parent company and reimbursed to it by the Indian subsidiary make it akin to supply of manpower and hence taxable. 

It was contended that the service rendered was in the capacity as an employee as per the agreement and hence no question of any service tax provision is applicable to the salary paid by the local subsidiary to the employee. In the past regime, there was a specific Entry No. Section 65(68) read with Section 65 (105)(k). But after 2012 and after the advent of the Negative List, all those entries had gone into the oblivion and now there is a fresh definition of service under Section 65 (44). The applicant relied upon the definition of service and more particularly on the exclusion provision which is under Section 65 (44)(b), which suggests that a provision of service by an employee to the employer in the course of or in relation to his employment shall not be included in the definition of service.

AAR is of the view that one must look from the perspective of the definition of service and if the definition of service excludes the service offered by an employee to the employer then it has to be so held. 

A view is expressed that this ruling must be taken into consideration for examining identical situations of other companies even though AAR ruling does not have binding effect on them. This can guide companies on potential tax liabilities. 

For details

Source:

http://www.cbec.gov.in/resources//htdocs-cbec/aar/rulings/st-rulings/st-ruling-18-north-america.pdf;jsessionid=0BEFE1F18254A8E5135419A6ADE2EBB1

Right of review is a creature of statute. Tribunal is the creation of statute.

Hon’ble Supreme Court in the case of Grindlays Bank Ltd. vs. Central Government Industrial Tribunal and Ors.[1] have discussed the connotation of the expression ‘review’. 

This expression is used in the two distinct senses, namely:

(1) a procedural review which is either inherent or implied in a court or Tribunal to set aside a palpably erroneous order passed under a misapprehension by it; and

(2) a review on merits when the error sought to be corrected is one of law and is apparent on the face of record.

Thus, we can say that review is a reconsideration of the subject-matter by the same Bench. However, the power to review is a restricted power which authorizes the court or the Tribunal which has passed the order sought to be reviewed to look over through the order not in order to substitute a fresh or second order, but to correct it or improve it because some material which it ought to have considered had escaped its consideration.[2] Such power of review is not inherent in a court or Tribunal. 

The Hon'ble Supreme Court in the case Patel Nareshi Thakershe vs. Pradyum Singhji Arjun Singhji[3] has held that the Income Tax Act, 1961 has not conferred jurisdiction on the Tribunal to review and revise its order, as the Tribunal is not a Court and it has no power to review its orders adjudicated on merits. Hence, the power of review is not an inherent power, but it must be conferred either specifically or by necessary implication.

The Act has specified the scope of powers of the tax authorities including appellate authority, wherein the Tribunal has been specifically vested to rectify any mistake apparent from the record under section 254(2) of the Act. It is important to note that the Appellate Tribunal is vested with all the powers as that of the income tax authorities referred to in section 131 by virtue of section 255 (6). It clarifies that any proceeding before the Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of sections 193 and 228 and for the purpose of section 196 of the Indian Penal Code. 

Section 255 (6) states that the Appellate Tribunal shall be deemed to be a Civil Court for all the purposes of section 195 and Chapter XXXV of the Code of Criminal Procedure, 1898. Section-131 clearly states the scope of the power regarding discovery, production of evidence, etc. vested by the Act when trying a suit. For purpose of ease the said section is reproduced herein below,-

(1) The Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner, Commissioner (Appeals), [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner and the Dispute Resolution Panel referred to in clause (a) of sub-section (15) of section 144C shall, for the purposes of this Act, have the same powers as are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in respect of the following matters, namely:-

(a) discovery and inspection;
(b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath;
(c) compelling the production of books of account and other documents; and
(d) issuing commissions

Thus, it is clear from the provisions of the Income Tax Act, 1961 that the Code of civil procedure does not apply to the proceedings under the Income Tax Act, 1961. Section 131 has laid down parameters for exercising its power for a limited purpose of discovery and inspection, enforcing the attendance of any person, including any officer of a banking company and examining him on oath, compelling the production of books of account and other documents and issuing commissions. The Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner, Commissioner (Appeals), Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner and the Dispute Resolution Panel have, for the purposes of the Act, been given the same powers as are vested in a court under the Code of Civil Procedure when trying a suit. Therefore, courts having general jurisdiction like civil courts have inherent power. But the courts or Tribunals of limited jurisdiction created under special statutes have no inherent power. [4] 

Under the Income Tax Act, there is no power of review conferred on the Tribunal and in the absence of such specific conferment of such power cannot exercise the power of review of its previous judgment purporting to exercise power under Order 47, Rule 1 or section 151, CPC. The exercise of such power is completely different.[5] It was observed by Andhra Pradesh High Court in the case of CIT vs. Ram Murti,[6] that Appellate Tribunal is a judicial body exercising judicial powers under the statute. Whatever it does must be done in consonance with sound judicial principles and in accordance with well-accepted doctrines applicable to judicial bodies. Hon’ble Bombay High court in the case of Trikamal Maneklal In Re:[7] has observed that the Tribunal having once delivered a judgment which has by operation of law become final is not entitled to review its decision in a subsequent proceeding.

The general rule, however, is subject to exceptions, and one of the exceptions is that a Judicial Tribunal can always recall and quash its own order.  The Punjab High Court in Mangat Ram Kuthiala vs. CIT[8] has held that, it is a settled rule where a judicial Tribunal could recall and quash its own order in exceptional cases if it was shown that it was obtained by fraud or by palpable mistake or was made in utter ignorance of a statutory provision. Under such circumstances, Tribunal has inherent power to recall such an order, quash it, and make an order on merits and according to law in the ends of justice.

It is pertinent to mention an important judicial pronouncement where scope of inherent power of Tribunal has been adjudicated. In the case of Bhagwan Radha Kishen vs. CIT.[9], it was observed by the Hon’ble Allahabad High court that,

“there is no provision in the rules, for setting of an order of dismissal for default even in a case where the Tribunal might be later satisfied on unimpeachable evidence that notice was not in fact affected or that there was sufficient cause for non-appearance. It is true that there is no such rule but it must be held that there is inherent jurisdiction in the Tribunal to set aside an order of dismissal for default or an order passed on an appeal heard ex parte when it is satisfied that there was in fact no service of notice or that there was sufficient cause which prevented the appellant or the respondent from appearing on the date fixed.” 

Rule 24 and 25 of the Appellate Tribunal Rules, 1963 deals with procedure for hearing ex-parte by the Tribunal.

In view of the above discussion, it is thus important to understand the facts and circumstances of each case, scope of power of the Appellate Tribunal conferred by the statute and rely upon judicial pronouncements to come at a reasonable conclusion. It is a debatable point as to when the Tribunal can be said to be exercising its inherent power to correct a mistake or its statutory power to correct a mistake apparent from the records and when the exercise of such power tantamount to a review of its earlier order. 

The Income Tax Act is a self-contained code. The Income-tax Appellate Tribunal is a creation of the statute and its powers are circumscribed by the provisions of the Act. Appeals are filed before it under section 253 of the Act. Section 254(1) contemplates disposal of the said appeal after giving opportunity to both the parties of being heard. Sub-section (2) of section 254 enables the Tribunal to rectify any mistake apparent from the record. Sub-section (4) of section 254 specifies that save as provided in section 256, the order passed by the Appellate Tribunal on appeal are final. A reading of section 254 shows that the orders which are passed under section 254 are final except under two circumstances: (1) if a rectification is called for, then such an order can be passed under section 254 (2), and (2) a reference can be made on questions of law arising out of this order under the provisions of section 256. As far as the Tribunal is concerned, section 254(4) provides that the orders passed by it on appeal are final.[10]

---

[1] 1980 Supp SCC 420

[2] Jaipur Finance & Dairy Products (P) Ltd. vs. CIT (1980) 125 ITR 404 (Raj.)

[3] AIR 970 SC 1273

[4] Gopinath Deb vs. Budhia Swain, AIR 1983 Orissa 31, 33

[5] CIT vs. Globe Transport Corporation (1991) (1992) 195 ITR 311 (Raj.)

[6] 167 ITR 603 (AP)

[7] 1958 33 ITR 725 (Bom.)

[8] 1960  38 ITR 1 (Punj.)

[9] 1952  22 ITR 104, 108

[10] CIT vs. K.L. Bhatia (1990) 182 ITR 361 (Delhi)

Undisclosed Foreign Income and Assets (Imposition of Tax) Act, 2015 - Brief overview of compliance & penalties

Compliance & Penalties

The Bill has been passed by both the Houses of Parliament and will become an Act once it receives accent from the President of India. This was introduced as a measure to curb black money. “Black money” is ordinarily expressed as bill to impose tax on evaded income. The main objective of the Bill is to impose tax on any undisclosed foreign income and assets and the procedure for dealing with such income and assets. The provisions of this new legislation after being enacted will come into force from Assessment year 2016-17 i.e. financial year 2015-16 (1^st April 2015 till 31^st March, 2016)

Who is an ‘assessee’ defined under this law? An assessee is a person, resident other than not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act, by whom tax in respect of undisclosed foreign income and assets, or any other sum of money, is payable under this Act and includes every person who is deemed to be an assessee in default under this Act.

Therefore, the provisions of the bill are not applicable to:

·        an individual who has been a non-resident in India in 9 out of 10 previous years preceding that year, or has during the 7 previous years preceding that year been in India for a period of, or previous amounting in all to, 729 days or less; and

·        a Hindu Undivided Family whose manager has been a non-resident in India in 9 out of 10 previous years preceding that year, or has during the 7 previous years preceding that year been in India for a period of, or previous amounting in all to, 729 days or less

To understand the applicability of this law, let’s find out what “undisclosed asset located outside India” and “undisclosed foreign income and asset” means.

“undisclosed asset located outside India” means an asset (including financial interest in any entity) located outside India, held by the assessee in his name or in respect of which he is a beneficial owner, and he has no explanation about the source of investment in such asset or the explanation given by him is in the opinion of the Assessing Officer unsatisfactory and “undisclosed foreign income and asset” means the total amount of undisclosed income of an assessee from a source located outside India and the value of an undisclosed asset located outside India, referred to in section 4, and computed in the manner laid down in section 5.

Chargeability of Tax – Every assessee for every assessment year commencing on or after the 1st day of April, 2016, will be imposed a tax @ 30% of such undisclosed income and asset in respect of his total undisclosed foreign income and asset of the previous year, subject to the provisions of this Act.

Provided that an undisclosed asset located outside India is charged to tax on its value in the previous year in which such asset comes to the notice of the Assessing Officer.

Scope of total undisclosed foreign income and asset

It means,-

i. an income from a source located outside India, which has not been disclosed in the return of income furnished within the time specified in Explanation 2 to sub-section (1) or under sub-section (4) or sub-section (5) of section 139 of the Income-tax Act, 1961;

ii. an income, from a source located outside India, in respect of which a return is required to be furnished under section 139 of the Income-tax Act but no return of income has been furnished within the time specified in Explanation 2 to sub-section (1) or under sub-section (4) or sub-section (5) of section 139 of the said Act; and

iii. the value of an undisclosed asset located outside India.

Tax Compliance for undisclosed foreign income and assets:

Chapter VI (provision 59 to 63) talks about the various compliances to be adhered by any person as applicable to them under this law.

SL. No.	Compliance	Provision reference	Procedure/ Manner of compliance	Penalty
1.	A declaration to be filed with the Principal Commissioner or the Commissioner in respect of any undisclosed asset located outside India and acquired from income chargeable to tax under the Income-tax Act for any assessment year prior to the assessment year beginning on 1st day of April, 2016,- i. for which he has failed to furnish a return under section 139 of the Income-tax Act; ii. which he has failed to disclose in a return of income furnished by him under the Income-tax Act before the date of commencement of this Act; iii. which has escaped assessment by reason of the omission or failure on the part of such person to make a return under the Income-tax Act or to disclose fully and truly all material facts necessary for the assessment or otherwise	Section 59, 62	(a) In such form and be verified in such a manner as may be prescribed. (b) Declaration to be signed: i. where the declarant is an individual, then by individual himself & if absent from India, by some person duly authorized by him in this behalf & in case an individual is mentally incapacitated from attending to his affairs, by his guardian or by any other person competent to act on his behalf; ii. where the declarant is a HUF, by the Karta, and in his absence from India or if mentally incapacitated from attending to his affairs, then by any other adult member of such family; iii. where the declarant is a company, by the managing director, or if due to any unavoidable reason such managing director is not able to sign the declaration, or if there is no managing director, then by any director; iv. where the declarant is a firm, then by the managing partner, or due to any unavoidable reason such managing partner is not able to sign the declaration, or if there is no managing partner, then by any partner who is not a minor; v. where the declarant is any other association, by any member of the association or the principal officer; vi. where the declarant is any other person, by that person or by some other person competent to act on his behalf.	100% of such tax charged under this provision (i.e. 30% of the value of such undisclosed asset on the date of the commencement of this Act

 Compliance by the declarant:

(1) If a declaration has been made in respect of an asset or in the capacity as a representative assessee in respect of the asset of any other person, no other declaration is to be made, and if made, it would be deemed to be void.

(2)  The tax or penalty in respect of the undisclosed asset located outside India to be paid on or before a date as notified by the Central Government in the official Gazette.

(3) Proof of payment of tax and penalty to be filed on or before such notified date with the Principal Commissioner or the Commissioner before whom the declaration was made.

(4) If tax in respect of the declaration is not made on or before such notified date, it would be deemed that declaration under this law have not been made.

(5) The amount of undisclosed investment in an asset located outside India must not be included in the total income for any assessment year under the Income-tax Act, 1961 if payment of tax/ or the penalty had been made by such notified date.

(6) Reopening of any assessment or reassessment made under the Income-tax Act or the Wealth-tax Act, 1957 or claim any set off or relief in any appeal, reference or other proceeding in relation to any such assessment or reassessment in respect of undisclosed asset located outside India declared or any amount of tax paid thereon is not allowed.

(7) Any amount of tax or penalty paid in pursuance of the declaration made is not refundable.

(8) If a declaration has been made by misrepresentation or suppression of facts, such declaration will be considered as void and shall be deemed never to have been made under this Chapter.

(9) Where the undisclosed asset located outside India is represented by cash (including bank deposits), bullion or any other assets specified in the declaration—

(i) in respect of which a return under the Wealth-tax Act, 1957 for the assessment year commencing on or before the 1st day of April, 2015 has not been filed; or

(ii) which have not been shown in the return of net wealth furnished for the said assessment year or years; or

(iii) which have been understated in value in the return of net wealth furnished for the said assessment year or years, then, notwithstanding anything contained in the Wealth-tax Act, 1957 or any rules made there-under,—

(a) wealth-tax is not payable in respect of the assets referred to in SL. No. (i) and (ii), such assets are not included in the net wealth for the said assessment year or years;

(b) the amount by which the value of the assets referred to in clause (iii) has been understated in the return of net wealth for the said assessment year or years, to the extent such amount does not exceed the voluntarily disclosed income utilized for acquiring such assets, shall not be taken into account in computing the net wealth of the declarant for the said assessment year or years.

 Penalties for non-compliance:

The law has laid down very stringent penalties for non-compliance of the provisions related to undisclosed foreign income assets. Briefly, the penalty provisions (Section 41 to 47) are stated here-under:

       A. Where tax has been computed under section 10 in respect of undisclosed foreign income and asset, a penalty @300% of the tax assessed.

       B.  If a person, being a resident other than not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act, fails to furnish return before the end of the relevant assessment year for any previous year, as required under sub-section (1) of section 139 of the Income-tax Act or by the provisos to that sub-section, in respect of:

 i. any asset held (including financial interest in any entity) located outside India as a beneficial owner or otherwise; or

           ii. was a beneficiary of any asset (including financial interest in any entity) located                  outside India; or

iii. had any income from a source located outside India,-

Assessing officer may impose Rs. 10,00,000/- by way of penalty.

 Note – This is not applicable in respect of an asset, being one or more bank accounts having an aggregate balance not exceeding a value equivalent to Rs. 5,00,000/- at any time during the previous year.

          C.     Penalty for default in payment of tax arrear and in case of continuing default penalty of an amount equal to the amount of tax arrears will be imposed.

          D.     Penalty will not cease to apply merely by a reason of the fact that tax has been paid before the levy of such penalty.

       E.   Penalty of minimum Rs. 50,000/- extending up to Rs. 2,00,000/- is imposed upon failing to:

i.      i.    answer any question put by a tax authority in the exercise of its powers under this Act;

  ii.   sign any statement made in the course of any proceedings under this Act which a tax authority may legally require you to sign;

     iii. attend or produce books of account or documents at the place or time, if required to attend or give evidence or produce books of account or other documents, at certain place and time in response to summons issued under section 8.

Note:

The Tax authority, before imposing any penalty will issue a notice, to show cause as to why the penalty should not be imposed.

The notice is issued either,-

during the pendency of any proceedings under this Act for the relevant previous year, in respect of penalty referred to in section 41; or

within 3 years from the end of the financial year in which the default is committed in respect of penalties referred to in section 45.

No order imposing a penalty is made unless an opportunity of being heard is given by the assessing authority.

Prosecutions:

(1) Willful attempts in any manner to evade any tax, penalty or interest chargeable or imposable under this Act, is punishable with rigorous imprisonment for a term not be less than 3 years extending up to 10 years with fine.

(2) Willful attempts in any manner to evade payment of any tax, penalty or interest under this Act, without prejudice to any penalty that may be imposable on under any other provision of this Act, is punishable with rigorous imprisonment for a term which not less than 3 months extending up to 3 years and in the discretion of the court, may also be liable to fine.

Note - For the purposes of this section, “a wilful attempt to evade any tax, penalty or interest” chargeable or imposable under this Act or the payment thereof includes a case where any person—

possess or control any books of account or other documents (being books of account or other documents relevant to any proceeding under this Act) containing a false entry or statement; or

makes or causes to be made any false entry or statement in such books of account or other documents; or

willfully omits or causes to be omitted any relevant entry or statement in such books of account or other documents; or

causes any other circumstance to exist which will have the effect of enabling such person to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof.

(3) Making a statement in any verification under this Act or under any rule made there-under, or delivers an account or statement which is false, which is known or believed to be false, or does not believe to be true, is punishable with rigorous imprisonment for a term of minimum 6 months extending up to 7 years and with fine.

(4) If abetted or induced in any manner another person to make and deliver an account or a statement of declaration relating to tax payable under this Act which is false and which is either known to be false or does not believed to be true or to commit an offence of willful attempt to evade tax, is punishable with rigorous imprisonment for a term of minimum 6 months extending up to 7 years with fine.

(5) If a resident other than not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act, at any time during the previous year, hold any asset (including financial interest in any entity) located outside India as a beneficial owner or otherwise, or was a beneficiary of such asset or had income from a source outside India and willfully fails to furnish in due time the return of income which is required to be furnished under sub-section (1) of section 139 of that Act, will be punished with rigorous imprisonment for a term of minimum 6 months extending up to 7 years and with fine.

(6) If a resident, other than not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act, has furnished the return of income for any previous year under sub-section (1) or sub-section (4) or sub-section (5) of section 139 of that Act, willfully fails to furnish in such return any information relating to an asset (including financial interest in any entity) located outside India, held as a beneficial owner or otherwise or in which was a beneficiary, at any time during such previous year, or disclose any income from a source outside India, will be punished with rigorous imprisonment for a term of minimum 6 months extending up to 7 years and with fine.

In short, the new legislation will apply to all persons resident in India and holding undisclosed foreign income and assets. Such persons may file a declaration before the specified tax authority within a specified period, followed by payment of tax @ 30% and an equal amount by way of penalty.

Reference: http://www.itatonline.org/info/index.php/download-the-undisclosed-foreign-income-and-assets-imposition-of-tax-bill-2015/

Tax deduction at source from non-exempt payments under life insurance policy

The provisions of section 10(10D) of the Income-tax Act provides that any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy is exempt subject to fulfillment of conditions specified under said section 10(10D).

Therefore, the sum received under a life insurance policy which does not fulfil the conditions specified under section 10(10D) are taxable under the provisions of the Income-tax Act.

In order to have a mechanism for reporting of transactions and collection of tax in respect of sum paid under life insurance policies which are not exempt under section 10(10D) of the Income-tax Act, a new section 194DA has been inserted. 

Payment in respect of life insurance policy. — “Any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, other than the amount not includible in the total income under clause (10D) of section 10, shall, at the time of payment thereof, deduct income-tax thereon at the rate of two per cent:

Provided that no deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payments to the payee during the financial year is less than one hundred thousand rupees."

In simple words, this provision provides, deduction of tax @2% on sum paid under a life insurance policy, including the sum allocated by way of bonus, which is not exempt under section 10(10D) of the Income-tax Act. 

Relevant extract from section 10(10D) is as follows,-

10(10D) any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, other than;

i. any sum received under sub-sec(3) of section 80DD or sub-sec(3) of section 80DDA; or

ii. any sum received under a Keyman insurance policy; or

iii. any sum received under any insurance policy issued on or after the 1^st day of April 2003, in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured;

Provided that the provisions of this sub clause shall not apply to any sum received on the death of a person;

Provided further that for the purpose of calculating the actual capital sum assured under this sub clause effect shall be given to the Explanation to sub section (3) of Section 80C or the Explanation to sub section (2A) of section 88 as the case may be.

For the purpose of this clause, Keyman Insurance policy means a life insurance policy taken by a person on the life of another person who is or was the employee of the first mentioned person or is was connected in any manner whatsoever with the business of the first mentioned person.

In order to reduce the compliance burden on the small tax payers, it has been provided that no deduction under section 194DA is required to be made if the aggregate sum paid in a financial year to an assessee is less that Rs. 1,00,000/-.

References:

1. Circular No.1/2015 dated 21st January, 2015-
http://www.incometaxindia.gov.in/communications/circular/circular1_2015.pdf

2. http://www.incometaxindia.gov.in/pages/acts/income-tax-act.aspx

Chargeability of interest u/s. 234A of the Income Tax Act, 1961 on the self-assessment tax paid before the due date of filing of return

Briefly, let's understand the provision of section 234A of the Income Tax Act, 1961.

Interest is levied at 1% per month or part of a month. The nature of interest is simple interest. In other words, the taxpayer is liable to pay simple interest at 1% per month or part of a month for delay in filing the return of income. Interest under section 234A is levied from the period commencing on the date immediately following the due date of filing the return of income and ending on the date of furnishing the return of income, or in case where no return has been furnished, on the date of completion of the assessment under section 144. 

It should be noted that while computing the period of levy of interest, part i.e. fraction of a month is considered as full month. Interest under section 234A is levied on the amount of tax as determined under section 143(1) and where regular assessment is made, the tax on total income as determined under such regular assessment as reduced by advance tax, tax deducted/collected at source, relief claimed under various sections like sections 90/90A/91 and tax credit claimed under section 115JAA/115JD. 

Hon'ble Supreme Court in the case of CIT Vs. Prannoy Roy, held that the interest payable under the aforesaid provision is payable only on the amount of tax that has not been deposited before the due date of filing the income tax return for the relevant assessment year. 

Accordingly, Board has decided that no interest U/s. 234A is chargeable on the amount of self-assessment tax paid by the assessee before the due date of filing of income tax return. 

Reference:

1. Circular No.2/2015 dated 10th February, 2015 - http://www.incometaxindia.gov.in/communications/circular/circular_2_2015.pdf

2. http://www.incometaxindia.gov.in/tutorials/6-interest%20payable%20by%20the%20taxpayer.pdf

Whether income from letting of properties is assessable as "business profits" or as "Income from house property" - Supreme Court decides in the case of Chennai Properties & Investments Ltd. Vs. CIT

On deciding the legal issue as to whether income from letting of properties is assessable as "business profits" or as "Income from house property", 

Supreme Court in the case of Chennai Properties & Investments Ltd. Vs. CIT has laid down certain tests:

A. Each case to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. 

B. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on. 

C. A mere entry in the object clause showing a particular object would not be the determinative factor to arrive at a conclusion that the income is to be treated as income from business. Such question would depend upon the circumstances of each case, viz., whether a particular business is letting or not.

D. Where there is letting out of premises and collection of rents, the assessment on property basis may be correct but not so if the letting or sub-letting is part of a trading operation. 

Hence, the diving line may be difficult to find but if the company has laid down its objects and the manner of its activities and the nature of its dealings with such property, it would be possible to say on which side the operations fall and to what head the income is to be assigned. 

http://itatonline.org/archives/wp-content/uploads/chennai_properties_rental_biz_profits.pdf