Advanced Tax Laws Direct Tax International Taxation 98715

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PROFESSIONAL PROGRAMME

SUPPLEMENT

FOR

ADVANCED TAX LAWS

(Part II - Direct Tax and International Tax)

(Relevant for Students appearing in December, 2024 Examination)

MODULE 1- PAPER 2

Students appearing in December, 2024 Examination shall note the following:

1. For Direct taxes, Finance Act, 2023 is applicable.


2. Applicable Assessment year is 2024-25 (Previous Year 2023-24).

Students are also required to update themselves on all the relevant Rules, Notifications,
Circulars, Clarifications, etc. issued by the CBDT & Central Government, on or before 31st
May, 2024.

Disclaimer: This document has been prepared purely for academic purposes only and it does not necessarily reflect the views of
ICSI. Any person wishing to act on the basis of this document should do so only after cross checking with the original source.

1
INDEX

Details Page No.


Circulars / Notifications

Lesson 18 - Taxation of Companies, LLP and Non-Resident 3

Lesson 20 - Basics of International Taxation – Transfer Pricing 9

Lesson 22 - Income Tax Implication on specified transactions 12

2
Lesson 18
Taxation of Companies, LLP and Non-Resident
Sr. Amendments to Regulations /Rules /Act /Circular /Notification Weblink
No. (For Details)
1. Imposition of charge on the prescribed electronic modes under section 269SU of the https://www.in
Income-tax Act, 1961 [Circular No. 16/2020 Dated August 30, 2020] cometaxindia.g
ov.in/communi
Section 269SU of the Income tax Act, 1961 provides every person having a business cations/circular
turnover of more than Rs. 50 Crores during the immediately preceding previous year shall /circular-16-
mandatorily provide facilities for accepting payment through prescribed electronic modes. 2020.pdf

However representations were received that banks are collecting charges on transactions
carried out through UPI.

Hence, Central Board of Direct Taxes 'CBDT' vide its Circular No. 16/2020 Dated August
30, 2020 advised banks to refund all the charges collected on and after 1st January 2020
on transactions carried out using the electronic modes as prescribed under section 269SU
and not to impose any such charges on any future transactions carried through the
prescribed digital modes.
2. Amount of remuneration prescribed under section 9A(3)(m) of the Income-tax Act, https://www.in
1961 (Circular No. 1/2021 Dated January 15, 2021) cometaxindia.g
ov.in/communi
Finance (No 2) Act, 2019 amended clause (m) of sub-section (3) of section 9A of the
cations/circular
Income-tax Act, 1961 w.e.f. 01.04.2019 to provide for payment of remuneration by an
/circular_1_202
eligible investment fund to an eligible fund manager in respect of fund management activity
1.pdf
undertaken by him on its behalf to be not less than the amount calculated in such manner as
may be prescribed.
Accordingly, rule 10V of the Income-tax Rules, 1962 has been amended, w.e.f. 01.04.2019,
vide Notification No 29/2020 dated 27.05.2020 by way of insertion of sub-rules (12) and
(13) as follow:
Sub-rule (12) provides for the amount of remuneration to be paid by the fund to a fund
manager. 2nd proviso of the said sub-rule provides that the fund may seek Board's approval
in case where the amount of remuneration is lower than the amount so prescribed.

In this regard, representations have been received expressing inability to comply with the
provisions of sub-rule 12 of rule 10V of the Rules regarding the amount of remuneration to
be paid by the fund to a fund manager for the financial year 2019-20 as the said Notification
No 29/2020 was notified after the financial year got over and the financial year 2020-21 had
already commenced.
In order to avoid genuine hardship in such cases, the Board, provided that for the
financial years 2019-20 and 2020- 21 in cases where the remuneration paid to the fund
manager is lower than the amount of remuneration prescribed under sub-rule (12) of rule
l0V of the Rules, but is at arm's length, it shall be sufficient compliance to clause (m) of
sub-section (3) of section 9A of the Act. It is stated that the remuneration to be paid to the
fund manager, for the financial year 2021- 22, shall be in accordance with sub-rule (12)
of rule 10V of the Rules and the application for lower remuneration in terms of 2nd
proviso for this year, if any, may be filed not later than 1st February, 2021.
3
3. Thresholds for the purposes of Significant Economic Presence - Rule 11UD https://www.in
[Notification No. 41 Dated May 3, 2021] cometaxindia.
gov.in/commu
The Central Board of Direct Taxes has notified the Income-tax (13th Amendment) Rules,
nications/notif
2021 which shall come into force from 1st April 2022. Through this amendment a new rule
ication/notific
11UD has been inserted which notifies the threshold for significant economic presence.
ation_41_2021
As per the new rule, for the thresholds “the amount of aggregate of payments arising from .pdf
transaction or transactions in respect of any goods, services or property carried out by a non-
resident with any person in India, including provision of download of data or software in
India during the previous year, shall be two crore rupees.”

Further, the number of users with whom systematic and continuous business activities are
solicited or who are engaged in interaction shall be three lakhs.

Accordingly, the threshold limit has been notified for the purpose of significant economic
presence.

4. Guidelines under section 9B and sub-section (4) of section 45 of the Income-tax Act, https://www.in
1961 [Circular No. 14 Dated July 02, 2021] cometaxindia.g
ov.in/communi
The Government has inserted a new section 9B of the Income Tax Act, 1961 and substituted cations/circular
sub-section (4) of section 45 of the Income Tax Act, 1961 by the Finance Act, 2021. The /circular_14_20
CBDT has come out with Notification No. 76 dated July 2, 2021 to insert sub-rule (5) to 21.pdf
Rule 8AA and a new Rule-8AB so as to prescribe the manner of calculating the income
chargeable to tax under section 45(4) of the Act as "capital gains" and also the manner in
which such income shall be attributed to remaining assets with the specified entity under
clause (iii) of section 48 of the Act.

Further, the CBDT issued Circular No. 14 dated July 02, 2021 to provide guidelines for
application of section 9B and section 45(4) read with the aforesaid rules.

5. Income Tax (19th Amendment), Rules, 2021 [Notification No. 77 Dated July 7, 2021] https://egazett
e.nic.in/Write
The Central Board of Direct taxes hereby makes Income-tax (19th Amendment), Rules, ReadData/202
2021 further to amend the Income-tax Rules, 1962. As per notification, after rule 8AB, rule 1/228152.pdf
8AC [i.e. Computation of short term capital gains and written down value under section 50
where depreciation on goodwill has been obtained] has been inserted.
6. Income Tax (22nd Amendment) Rules 2021 [Dated August 9, 2021] https://www.in
cometaxindia.g
CBDT has notified Income tax (22nd Amendment) Rules, 2021 to insert the following two ov.in/communi
rules as follow: cations/notifica
Computation of exempt income of specified fund for the purposes of clause (4D) tion/notificatio
of section 10 n_90_2021.pdf
Rule
The Rule provides formula for computation of income attributable to units held by
21AI
non-resident (not being the permanent establishment of a non-resident in India) in a
specified fund for the purpose of clause (4D) of section 10 of the Income tax Act,
1961.
Rule Determination of income of a specified fund attributable to units held by non-
21AJ residents under sub-section (1A) of section 115AD

4
The Rule provides formula of calculation, for purposes of sub-section (1A) of section
115AD, the income of a specified fund by way of short-term or long-term capital
gains, referred to in clause (b) of sub-section (1) of section 115AD, attributable to the
units held by non-resident (not being the permanent establishment of a non-resident
in India)
7. Income tax (23rd Amendment) Rules, 2021 [Notification No. 92 Dated August 10, 2021] https://www.in
cometaxindia.g
CBDT notifies the Income tax (23rd Amendment), Rules, 2021, to prescribe the procedure / ov.in/communi
methodology for re-computation of book profit u/s 115JB of the Income tax Act, 1961, to cations/notifica
provide relief in MAT payable in certain cases. tion/notificatio
n_92_2021.pdf
Accordingly, new IT Rule 10RB on ‘Relief in tax payable u/s 115JB(1) due to operation of
section 115JB(2D)’ along with new FORM No. 3CEEA for ‘annual furnishing of particulars
of re-computation for any adjustment on account of income of past year(s) included in
books of account of previous year by a Company on account of secondary adjustment u/s
92CE or on account of an Advance Pricing Agreement entered u/s 92CC’ have been
introduced/ inserted in the Income Tax Rules, 1962.
8. Clarification for the purposes of clause (c) of Section 269ST of the Income-tax Act, https://incomet
1961 in respect of dealership/distributorship contract in case of Co-operative Societies axindia.gov.in/
[Circular No. 25 Dated December 30, 2022] communication
s/circular/circul
Section 269ST inter-alia prohibits receipt of an amount of two lakh rupees or more ar-25-2022.pdf
(hereinafter referred to as 'the prescribed limit ') by a person, in the circumstances specified
therein, through modes other than by way of an account payee cheque or an account payee
bank draft or use of electronic clearing system through a bank account or through such other
electronic mode as may be prescribed.

References have been received in respect of Milk Producers' Cooperative as to whether


under the provisions of Section 269ST of the Act, receipt(s) in cash in a day of bank
holiday/closure of bank day within 'the prescribed limit' from a distributor against sale of
milk when payments were through bank on all other days is to be considered as a single
transaction or whether all such receipts in cash in a previous year would be aggregated in
respect of transactions with a distributor to treat it as one event or occasion.

it is clarified that in respect of Co -operative Societies, a dealership/ distributorship contract


by itself may not constitute an event or occasion for the purposes of clause (c) of Section
269ST. Receipt related to such a dealership/distributorship contract by the Co-operative
Society on any day in a previous year, which is within 'the prescribed limit' and complies
with clause (a) as well as clause (b) of Section 269ST, may not be aggregated across
multiple days for purposes of clause (c) of Section 269ST for that previous year.

9. Extending deeming provision under section 9 to gift to not-ordinarily resident Amendment


vide Finance
Under the Act, income which, inter-alia, is deemed to accrue or arise in India during Act, 2023
a year is chargeable to tax. Sub-section (1) of section 9 of the Act is a deeming
provision providing the types of income deemed to accrue or arise in India.

Finance (No. 2) Act, 2019 inserted clause (viiii) to sub-section (1) of section 9 of the
Act to provide that the any sum of money exceeding fifty thousand rupees, received
5
by a non-resident without consideration from a person resident in India, on or after
the 5th day of July, 2019, shall be income deemed to accrue or arise in India. Sum of
money is referred to in sub-clause (xviia) of clause (24) of section 2 of the Act.

The above amendment was introduced as an anti-abuse provision, as certain


instances were observed where gifts were being made by persons residents in India
to non-residents and were claimed to be non-taxable in India by such non-residents.

It has come to notice that certain persons being not ordinarily residents are receiving
the gifts from persons resident in India and not paying tax on it. In view of the
above, an amendment has been made in clause (viii) of sub-section (1) of section 9
of the Act so as to extend this deeming provision to sum of money exceeding fifty
thousand rupees, received by a not ordinarily resident, without consideration from a
person resident in India.
10. Bringing the non-resident investors within the ambit of section 56(2)(viib) to Amendment
eliminate the possibility of tax avoidance vide Finance
Act, 2023
Section 56(2)(viib) of the Act, inter alia, provides that where a company, not being a
company in which the public are substantially interested, receives, in any previous
year, from any person being a resident, any consideration for issue of shares that
exceeds the face value of such shares, the aggregate consideration received for such
shares as exceeds the fair market value of the shares shall be chargeable to income-
tax under the head ‘Income from other sources’. Rule 11UA of the Income-tax Rules
provides the formula for computation of the fair market value of unquoted equity
shares for the purposes of the Section 56(2) (viib) of the Act.

Clause (viib) of sub section (2) of section 56 of the Act was inserted vide Finance
Act, 2012 to prevent generation and circulation of unaccounted money through share
premium received from resident investors in a closely held company in excess of its
fair market value. However, the said section is not applicable for consideration
(share application money/ share premium) received from non-resident investors.

Accordingly, an amendment has been made to include the consideration received


from a non- resident also under the ambit of clause (viib) by removing the phrase
‘being a resident’ from the said clause. This will make the provision applicable for
receipt of consideration for issue of shares from any person irrespective of his
residency status.

11. CBDT notifies Persons exempt from the provisions related to ‘Angel Tax’ https://incom
[Notification No. 29 Dated May 24, 2023] etaxindia.gov.
in/communic
The Finance Act 2023 has enhanced the scope of section 56(2)(viib) to make it applicable to ations/notific
share application money/premium received from any person, regardless of residential status. ation/notifica
Further, Proviso to section 56(2)(viib) gives power to the Central Government to notify tion-29-
2023.pdf
class or classes of persons to whom the provisions of said section shall not apply.
In the exercise of the power, the CBDT has notified the following class or classes of

6
persons:
i. The Government and Government related investors such as central banks, sovereign
wealth funds, international or multilateral organizations or agencies, including
entities controlled by the Government or where direct or indirect ownership of the
Government is 75% or more;
ii. Banks or Entities involved in Insurance Business where such entity is subject to
applicable regulations in the country where it is established or incorporated or is a
resident;
iii. Any of the following entities, which is a resident of any country or specified
territory, and such entity is subject to applicable regulations in the country where it
is established or incorporated or is a resident:

• Entities registered with SEBI as Category-I Foreign Portfolio Investors;


• Endowment funds associated with a university, hospitals or charities;
• Pension funds created or established under the law of the foreign country or
specified territory;
• Broad-Based Pooled Investment Vehicle or fund where the number of
investors in such vehicle or fund is more than 50, and such fund is not a
hedge fund or a fund which employs diverse or complex trading strategies

The board has notified 21 Countries/Specified Territories for point (iii).


12. CBDT amends the provisions of the ‘Angel Tax’ that are not applicable to https://inco
start-ups recognised by DPIIT [Notification No. 30 Dated May 24, 2023] metaxindia.go
v.in/communi
The CBDT amends the provisions of section 56(2)(viib) of the Income Tax Act, 1961 cations/notifi
(“the IT Act”) as per which the provision shall not apply to the consideration cation/notific
received by a company for the issue of shares that exceeds the face value of such ation-30-
2023.pdf
shares, if the said consideration has been received from any person, by a company
which fulfils the conditions specified in Para 4 of the Notification No. G.S.R. 127(E),
dated February 19, 2019 issued by the Ministry of Commerce and Industry in the
Department for Promotion of Industry and Internal Trade.
13. CBDT amends income tax rules; to expand tax exemption for public https://incom
sector shares [Notification No. 35 Dated May 31, 2023] etaxindia.gov.
in/communic
The Central Board of Direct Taxes (CBDT) has amended the income tax rules to facilitate ations/notific
strategic disinvestment of public sector companies by expanding the scope of a tax ation/notifica
exemption on shares received below fair market value. tion-35-
2023.pdf
As per the Income-tax (Eighth Amendment) Rules, 2023, any person receiving shares from
a public sector company below their fair market value is exempt from the purview of section
56(2)(x) of the Income Tax Act, 1961 that makes such discounted share issues taxable in the
hands of the recipient. At present, this exemption applies to shares received by a person
from the central or state government under strategic disinvestment.

The amended provision makes the exemption applicable to "any movable property, being
equity shares, of a public sector company or a company, received by a person from a
public sector company or the Central Government or any State Government under
strategic disinvestment." The rule change effectively expands the scope of the tax
exemption.
7
14. Income tax 13th Amendment Rules 2023 [Notification No. 51 Dated July 18, 2023] https://inco
metaxindia.g
The Central Board of Direct Taxes introduces the Income-tax (Thirteenth Amendment)
ov.in/comm
Rules, 2023 wherein a new sub-rule has been inserted in rule 11UAC. This sub-rule pertains
unications/n
to movable property, such as shares or units, received by the fund management entity of the
otification/n
resultant fund in exchange for shares or units held by the investment manager entity in the
otification-
original fund during relocation. The sub-rule outlines specific conditions for this exchange
51-2023.pdf
to take place, including the proportion of shares or units held by the same entities or
persons. Definitions for terms like “relocation,” “original fund,” “resultant fund,” “fund
management entity,” and “investment manager entity” are also provided.
15. CBDT notifies changes to Rule 11UA in respect of ANGEL TAX [PIB Dated https://www
September 26, 2023] .pib.gov.in/P
ressReleaseP
The Finance Act, 2023, brought in an amendment to bring the consideration received from age.aspx?PR
non-residents for issue of shares by an unlisted company within the ambit of section ID=1961031
56(2)(viib) of the Income-tax Act, 1961(the Act), which provides that if such consideration
for issue of shares exceeds the Fair Market Value (FMV) of the shares, it shall be chargeable
to income-tax under the head ‘Income from other sources’.

Taking into consideration the suggestions received in this regard and detailed interactions
held with stakeholders, Rule 11UA for valuation of shares for the purposes of section
56(2)(viib) of the Act has been modified vide notification no. 81/2023 dated 25th September,
2023.

The key highlights of the changes in Rule 11 UA are:


a. In addition to the two methods for valuation of shares, namely, Discounted Cash
Flow (DCF) and Net Asset Value (NAV) method, available to residents under Rule
11UA, five more valuation methods have been made available for non-resident
investors, namely, Comparable Company Multiple Method, Probability Weighted
Expected Return Method, Option Pricing Method, Milestone Analysis Method,
Replacement Cost Method.
b. Where any consideration is received for issue of shares from any non-resident entity
notified by the Central Govt., the price of the equity shares corresponding to such
consideration may be taken as the FMV of the equity shares for resident and non-
resident investors, subject to the following:

i. To the extent the consideration from such FMV does not exceed the
aggregate consideration that is received from the notified entity, and
ii. The consideration has been received by the company from the notified
entity within a period of ninety days before or after the date of issue of
shares which are the subject matter of valuation.

c. On similar lines, price matching for resident and non-resident investors would be
available with reference to investment by Venture Capital Funds or Specified
Funds.
d. Valuation methods for calculating the FMV of Compulsorily Convertible Preference
Shares (CCPS) have also been provided.
A safe harbor of 10% variation in value has been provided.

8
Lesson 20

Basics of International Taxation – Transfer Pricing


Sr. Amendments to Regulations /Rules /Act /Circular /Notification Weblink
No. (For Details)
1. Notification No. 83 (October 19, 2020) https://www.in
cometaxindia.g
The Central Government vide Notification No. 83 Dated October 19, 2020 notifies that ov.in/communi
where the variation between the arm’s length price determined under section 92C of the cations/notifica
Income tax Act, 1961 and the price at which the international transaction or specified tion/notificatio
domestic transaction has actually been undertaken does not exceed 1% of the latter in n_83_2020.pdf
respect of wholesale trading and 3% of the latter in all other cases, the price at which the
international transaction or specified domestic transaction has actually been undertaken shall
be deemed to be the arm’s length price for assessment year 2020- 2021.

Accordingly, the price at which the international transaction or specified domestic


transaction has actually been undertaken shall be deemed to be the arm’s length price if
the variation between the arm’s length price and the price at which the international
transaction or specified domestic transaction has actually been undertaken does not
exceed 1% of the latter in respect of wholesale trading and 3% of the latter in all other
cases.
2. Income Tax 30th Amendment Rules 2021 [Notification No. 117 Dated Sept. 24, 2021] https://egazette.
nic.in/WriteRea
The Central Board of Direct Taxes hereby makes the Income-tax (30th Amendment) Rules, dData/2021/22
2021 as per which, in the Income-tax Rules, 1962, in rule 10TD [Safe Harbour Rules], in 9929.pdf
sub-rule (3B), for the words and figures “assessment year 2020-21”, the words and figures
“assessment years 2020-21 and 2021-22” shall be substituted.
3. Notification No. 135 [Dated December 8, 2021] https://incomet
axindia.gov.in/
The Protocol, amending the Agreement between the Government of the Republic of India communication
and the Government of the Kyrgyz Republic for the avoidance of double taxation and for the s/notification/n
prevention of fiscal evasion with respect to taxes on income which was signed at New Delhi otification-135-
on 13th April, 1999, has been signed at Bishkek, Kyrgyz Republic on 14th June, 2019, as set 2021.pdf
out in the Annexure. The date of entry into force of the said amending Protocol is the 22nd
October, 2020, being the date of the later notification of the completion of the procedures
required by the respective laws for the entry into force of the said amending Protocol, in
accordance with Article 3 of the said amending Protocol.

Now, therefore, in exercise of the powers conferred by sub-section (1) of section 90 of the
Income-tax Act, 1961, the Central Government hereby notifies that all the provisions of the
said amending Protocol shall have effect in the Union of India.
4. Clarification regarding the Most-Favoured-Nation (MFN) clause in the Protocol to https://incomet
India's DTAAs with certain countries [Circular No. 3 Dated 3rd February, 2022] axindia.gov.in/
communication
The Protocol to India’s Double Taxation Avoidance Agreements (DTAAs) with some of the s/circular/circul
countries, especially the European States and OECD members contains a provision, referred ar-3-2022.pdf
to as the Most-Favoured-Nation (MFN) clause. Though each MFN clause in these DTAAs

9
has a different formulation, the general underlying provision is that if after the signature/
entry into force of the DTAA with the first State, India enters into a DTAA with another
OECD Member State, wherein India limits its source taxation rights in relation to certain
items of income (such as dividends, interest income, royalties, Fees for Technical Services,
etc.) to a rate lower or a scope more restricted than the scope provided for those items of
income in the DTAA with the first State, such beneficial treatment should also be extended
to the First State.

The Central Board of Direct Taxes (CBDT) has received representations seeking clarity on
the applicability of the MFN clause (particularly to dividend withholding rates) available in
the Protocol to some of the DTAAs with OECD member States. India’s DTAAs with
countries, namely Slovenia, Colombia, and Lithuania, provide for the lower rate of source
taxation with respect to certain items of income. However, these States were not members of
the OECD at the time of the conclusion of their DTAAs with India and have become
members of the OECD thereafter.

On a plain reading of the MFN clauses in India’s DTAAs especially with respect to the
above-mentioned countries, it is clear that there is a requirement that the third State is to be
a member of the OECD both at the time of conclusion of the treaty with India as well as at
the time of applicability of MFN clause. Therefore, it is clarified that for the applicability of
the MFN clause, the third State has to be an OECD Member State on the date of the
conclusion of DTAA with India.

It may also be pointed out that the MFN clause in these DTAAs clearly states that the
reduced rate takes effect from the date of entry into force of Indian DTAA with the third
State. Thus, the declaration in the decree/bulletin/publication of The Netherlands, France,
and the Swiss Confederation to make the reduced rate effective from the date of the third
State becoming member of OECD subsequent to the entry into force of a DTAA is not in
accordance with the relevant provision of the MFN clause in the Protocol. In fact, these
countries could not have made it effective from the date of entry into force of Indian DTAA
with the third State as the third State was not a member of the OECD on such date of entry
into force. This makes it clear that the intention of the MFN clause in the Protocol of the
DTAAs is not to give the benefit of India’s DTAA with the third State which was not a
member of OECD when India entered into DTAA with it.
5. Central Government notifies provisions of DTAA with ‘Chile’ [Notification No. 24 https://incomet
Dated May 3, 2023] axindia.gov.in/
communication
An Agreement and Protocol between the Government of the Republic of India and the s/notification/n
Government of the Republic of Chile for the elimination of double taxation and the otification-24-
prevention of fiscal evasion and avoidance with respect to taxes on income, was signed at 2023.pdf
Chile on the 9th day of March, 2020.

The said Agreement and Protocol entered into force on the 19th day of October, 2022, being
the date of the later of the notifications of the completion of the procedures required by the
respective laws of the Contracting States for entry into force of the said Agreement and
Protocol.

Sub-paragraph (a) of paragraph 2 of Article 30 of the said Agreement provides that the
provisions of the Agreement shall have effect in India in respect of income derived in any
fiscal year beginning on or after the first day of April next following the date on which the
Agreement enters into force;
Now, therefore, the Central Government notifies that all the provisions of said Agreement
10
and Protocol shall be given effect to in the Union of India.

6. Reducing the time provided for furnishing Transfer Pricing report Amendment
vide Finance
Section 92D of the Act, inter-alia, provides that every person who has entered into Act, 2023
an international transaction or a specified domestic transaction shall keep and
maintain the information and documents as provided under rule 10D of the Income-
tax Rules, 1962 (the Rules).

As per sub-section (3) of section 92D of the Act, the Assessing Officer (AOs) or the
Commissioner (Appeals) may during the course of any proceedings under the Act
require such person to furnish any information or document, as provided under rule
10D of the Rules, within a period of 30 days from the date of receipt of a notice
issued in this regard. It has been further provided that on an application made by the
assessee the time period of 30 days may be extended by an additional period of 30
days.

It has been represented that in several instances due to limited time available for TP
proceedings it may not be practically possible to provide minimum 30 days for
producing these information or documents which in any case is already in possession
of the assessee. Accordingly, the time period allowed for submission of information
or documents in respect of international transactions or a specified domestic
transaction is required to be rationalised so as to provide the AOs a reasonable
amount of time to examine the information/documents submitted and complete the
pending proceedings.

In view of the above, an amendment has been made in sub-section (3) of section
92D of the Act to provide that,

i. the Assessing Officer or the Commissioner (Appeals) may, in the course of


any proceeding under the Act, require any person referred to in clause (i) of
sub-section (1) of section 92D of the Act i.e., who has entered into an
international transaction or specified domestic transaction, to furnish any
information or document referred therein, within a period of ten days from
the date of receipt of a notice issued in this regard; and
ii. the Assessing Officer or the Commissioner (Appeals) may, on an application
made by such person who has entered into an international transaction or
specified domestic transaction, extend the period of ten days by a further
period not exceeding thirty days.

11
Lesson 22

Income Tax Implication on specified transactions


Sr. Amendments to Regulations /Rules /Act /Circular /Notification Weblink
No. (For Details)
1. Income-tax (16th Amendment) Rules, 2021 [Notification No. 68 Dated May 24, 2021] https://www.in
cometaxindia.g
The Central Board of Direct Taxes on 24th May 2021 has published the Income- tax (16th ov.in/communi
Amendment) Rules, 2021 which has notified a new rule for computation of fair value of cations/notifica
capital assets in slump sale. As per the Amendment a new rule 11UAE has been inserted tion/notificatio
which provides two formulae for calculation of fair market value of the capital asset.
n_68_2021.pdf
The FMV1 shall be the fair market value of the capital assets transferred by way of slump
sale determined and FMV2 shall be the fair market value of the consideration received or
accruing as a result of transfer by way of slump sale.
2. Cost Inflation Index for FY 2021-22 [Notification No. 73 Dated June 15, 2021] https://www.in
cometaxindia.g
The Central Board of Direct Taxes (CBDT) has notified the cost inflation index (CII) for FY ov.in/communi
2021-22 as "317" via a notification dated June 15, 2021. CII is used to calculate the cations/notifica
inflation adjusted cost price of an asset. tion/notificatio
n_73_2021.pdf
Accordingly, the above inflation adjusted price then is used to arrive at long-term capital
gains or long-term losses.

3. Cost Inflation Index FY 2022-23 [Notification No. 62 Dated June 14, 2022] https://incomet
axindia.gov.in/
Cost Inflation Index FY 2022-23 331 communication
s/notification/n
Accordingly, the above inflation adjusted price then is used to arrive at long-term capital otification-62-
gains or long-term losses. 2022.pdf
4. Cost Inflation Index for FY 2023-24 [Notification No. 21 Dated April 10, 2023] https://income
taxindia.gov.i
n/communicat
Cost Inflation Index FY 2023-24 348 ions/notificati
on/notificatio
Accordingly, the above inflation adjusted price then is used to arrive at long-term capital
n-21-2023.pdf
gains or long-term losses.
5. Cost Inflation Index for FY 2024-25 [Notification No. 44 Dated May 24, 2024] https://inco
metaxindia.go
v.in/communi
Financial Year Cost Inflation Index cations/notifi
cation/notific
2024-25 "363" ation-44-
2024.pdf

12
6. Tax avoidance through distribution by business trusts to its unit holders Amendment
vide Finance
Act, 2023
Finance (No.2) Act, 2014 introduced a special taxation regime for Real Estate
Investment Trust (REIT) and Infrastructure Investment Trust (InVIT) [commonly
referred to as business trusts]. The special regime was introduced in order to address
the challenges of financing and investment in infrastructure. The business trusts
invest in special purpose vehicles (SPV) through equity or debt instruments.

Keeping in mind the business structure, the special taxation regime under section
115UA of the Act, inter-alia, provides a pass-through status to business trusts in
respect of interest income, dividend income received by the business trust from a
special purpose vehicle in case of both REIT and InvIT and rental income in case of
REIT. Such income is taxable in the hands of the unit holders unless specifically
exempted.

Sub-section (1) of section 115UA of the Act, inter-alia, provides any income
distributed by a business trust to its unit holders shall be deemed to be of the same
nature and in the same proportion in the hands of the unit holder as it had been
received by the business trust.

Further, Sub-section (3) of section 115UA of the Act, inter-alia, provides that if the
“distributed income” received by a unit holder from the business trust is of the
nature as referred to in clause (23FC) or clause (23FCA) of section 10 of the Act i.e.,
is either rental income of the REIT or interest or dividend received by the business
trust from the SPV, then, such distributed income or part thereof shall be deemed to
be income of such unit holder.

It has been noticed in certain cases that business trusts distribute sums to their unit
holders which are categorised in the following four categories: (a) Interest; (b)
Dividend; (c) Rental income; (d) Repayment of debt.

As has been stated above, interest, dividend and rental income have been accorded a
pass-through status at the level of business trust and are taxable in the hands of the
unit holder. However, in respect of the distributions made by the business trust to its
unit holders which are shown as repayment of debt, it is actually an income of unit
holder which does not suffer taxation either in the hands of business trust or in the
hands of unit holder.

It may be noted that dual non-taxation of any distribution made by the business trust
i.e. which is exempt in the hands of the business trust as well as the unit holder, is
not the intent of the special taxation regime applicable to business trusts.

In view of the above, an amendment has been made to make such sum received by
unit holder taxable in his hands. However, provision is also proposed for a situation
when the sum received by unit holder represents redemption of unit held by him.
Hence,

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i. insertion of clause (xii) in sub-section (2) of section 56 of the Act to provide
that income chargeable to income-tax under the head “income from other
sources” shall also include any sum, received by a unit holder from a
business trust, which-
(a) is not in the nature of income as referred to in clause (23FC) or clause
(23FCA) of section 10 of the Act; and
(b) is not chargeable to tax under sub-section (2) of section 115UA of the
Act;

ii. insertion of a proviso to the said clause to provide that where the sum
received by a unit holder from a business trust is for redemption of unit or
units held by him, the sum received shall be reduced by the cost of
acquisition of the unit or units to the extent such cost does not exceed the
sum received;

iii. insertion of sub-section (3A) in section 115UA of the Act to provide that the
provisions of sub - sections (1), (2) and (3) of this section, shall not apply in
respect of any sum, as referred to in clause (xii) of sub-section (2) of section
56 of the Act, received by a unit holder from a business trust;

iv. insertion of sub-clause (xviic) in clause (24) of section 2 of the Act to


provide that income shall include any sum referred to in clause (xii) of sub-
section (2) of section 56 of the Act.

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