New Registration of Trusts, Section 148 Notices & TDS/TCS Changes

New Registration for Trusts

Finance Bill 2020 – Notes

It is also felt that the approval or registration or notification for exemption should also be for a limited period, say for a period not exceeding five years at one time, which would act as check to ensure that the conditions of approval or registration or notification are adhered to for want of continuance of exemption. This would in fact also be a reason for having a non-adversarial regime and not conducting roving inquiry in the affairs of the exempt entities on day-to-day basis, in general, as in any case they would be revisiting the concerned authorities for new registration before expiry of the period of exemption. This new process needs to be provided for both existing and new exempt entities.”

Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, w.e.f. 1-4-2021 new procedure for fresh registration has been made applicable

2(15) : Charitable Purpose

2 (15)   “charitable   purpose”   includes   relief   of   the   poor,   education,   55[yoga,]   medical relief, 40[preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility:

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless-

(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent. of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;]

S11: Income from property held for charitable or religious purposes

11. (1) the following income shall not be included in the total income –

[(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent applied to such purposes or accumulated upto 15%;…

– Donation to another trust shall not be considered as application

– Any loan taken and applied will not be treated as applied until such loan is paid off

– Incase more than 100% has been applied in a year, it cannot be carried forward to next year

– Voluntary contributions in Corpus shall be a part of income for 15% calculation. However application from the corpus shall not be part of other application

– If 15% not achieved due to non-receipt, or other reason then it may be applied in next year, with disclosure in However if not applied in the time period as in SS (2) for 5 years, then it will be taxed in the relevant year (1B)

Provisions of Section 40(a)(ia) and 40A(3) and (3A) are required to be complied while making application.

(1A) Proceeds of Capital gain will not be taxed if another asset purchased from the entire consideration to be applied for charitable purpose

(4A) S11 exemption will apply to anciliary business also as per objects incase separate books of accounts are maintained

S11: Income from property held for charitable or religious purposes

(d)/ (2)/ income from voluntary contributions forming the corpus of the trust/ accumulated income, if invested or deposited in –

1. Savings Certificates

2. Post office Savings Bank

3. Deposit in a Scheduled bank

4. Units of UTI

5. security for money created and issued by CG/SG

6. investment in debentures guaranteed by CG/SG

7. investment or deposit in PSU

8. investment in immovable property

9. Deposits with IDBI

10. Bonds issued by Public Company involved in Long Term Finance

11. Other prescribed mode

(6) Option to claim Capital Expenditure as application or depreciation IMP. – Registration u/s 11 and Sec 10(23C) are exclusive of each other

Income of trusts or institutions from contributions

S 12. (1) Any voluntary contribution (unspecific to Corpus Contribution) shall be deemed to be income from property held for charitable and other purposes

(2) Services made to persons specified in S 13 (Like trustees, or those with interest) are deemed to be income

(3) Other specific contributions not used/disposed off accordingly

S 12A (1) Application in Form 10A before 1st July 1973 or 1 year from formation of the trust or date of grant of registration u/s 12AA or as per Order of Pr CIT

(2) Re-application of Modification of Objects to Pr CIT

12A(1) (ac) New Registrations/ RE Registrations applications –

i. Within 3 months from 4.2021 – Already Registered

ii. 6 Months before expiry of 5 years (i.e. period u/s 12AB)

iii. For provisional registration u/s 12AB – 6 Months before expiry of period of Provisional registration or 6 months after commencement whichever is earlier

iv 6 months  from period 10(23C) sought to be surrendered

v. 30 days from Modification of Objects

vi. Other case – 1 month prior to commencement of year – Largely, trusts or institutions that are newly constituted shall get covered into this category. Further, if registration of any trusts or institutions, lapses take place in maintaining time lines for application or registration is cancelled for any reason and such trusts or institutions desire to be eligible for exemption under section 11 and 12 of the Act, such category of trusts or institutions are covered in this category.

(b) /(ba) Audit & Return of Income mandatory for such trusts incase income above threshold Otherwise it will loose its exemption

– No Action u/s 147 just due to non-registration

Old Procedure for registration

12AA : Grant of Registration (Old Provisions) where application u/s 12 a/aa/ab

(1) The Pr CIT will call for such documents and pass an order

(2) Order to be passed within 6 months – As per Apex Court Order if the order is not passed then there would be deemed registration

12AA This Section is inoperative from 1st April 2021

New Procedure for registration

12AB. Application made under 12A(1)(ac) and Pr CIT shall –

(a) Register for 5 years incase old registration is continued

(b) Incase of (ii) to (vi), for renewal – make enquiries into whether the activities are still continuing to be charitable and all conditions are satisfied

(c) Provisional registration before starting 12(1)(ac)(vi)

(3) Order passed within 1month – 6 Months

(i) Apply till 30th June – Order within 3 months

(ii) 6 months prior to expiry – – Order within 6 months

(iii) 6 months prior to expiry of the period of the provisional approval or within 6 M of commencement – – Order within 6 months

(iv) 1 month prior to commencement of the PY – – Order within 1 months

(4) /(5) Cancellation of registration even after grant after hearing

Section 11 not to apply in certain cases

13. a. Where religious purpose is not for benefit for public (Hon’ble Supreme Court in Deoki Nandan v. Murlidhar (AIR 1957 SC 133) – Pvt Vs Public trusts -the beneficiaries are specific individuals, whereas, in the latter, they are general public or a class thereof )

b. Where the trust is formed for benefit of a particular caste

c. Income applied for benefit of trustees/ majority stake holders – persons specified u/s 13(3)

d. Investment other than as required

New Trusts

1. Apply in 12A(1)(ac)(vi) For AY 22-23 – anytime in PY 21-22 (Exception has been carved out in Rule 17A)

2. Apply in 12A(1)(ac)(vi) For AY 23-24 onwards – one month before the end of PY 22-23

Authorities

Authorities authorized for receiving and granting registration:

According to Notification No. 30 /2021/F. No. 370142/4/2021-TPL, CPC and CIT(Exemption)- Bengaluru are authorized to receive form 10A and Grant provisional registration (section 12A(1)(ac)(vi)]. Even the authority to grant registration in case of renewal [section 12A(1)(ac)(i)] is with these Authorities.

Whereas, for all other purpose, since there is no such separate notification issued till date, the authority lies with jurisdictional CIT (Exemption).

Order for Registration

Under Rule 17A, the orders for grant of registration (or rejection thereof) of an application made under sub- section (1) of Section 12AB is required to be passed as under:

(a) Rule 17A (5) – Form 10AC granting registration- for application u/s 12A(1)(ac)(i) & (vi)

(b) Rule 17A(8) – Form 10AD granting registration- for application u/s 12A(1)(ac)(ii) to (v) or Rejecting the Application

10(23C)

1. They cover specific trusts created for specific purposes

2. Hospitals/ Universities are generally created in this Section

80G : Deduction in respect of donations to certain funds, charitable institutions, etc.

80G (ix) Provisio –

(i) Apply till 30th June

(ii) 6 months prior to expiry;

(iii) 6 months prior to expiry of the period of the provisional approval or within 6 M of commencement

(iv) 1 month prior to commencement of the PY

– Provisio – Grant for 5 years

Rule 17A : Application for registration of charitable or religious trusts etc

Form to Choose –

(i) Form 10A – By 30th June 2021 OR in Other case 1 month prior to the start of PY

(ii) Form No. 10AB – Re-registration – 6 months prior to expiry/ 6 months before expiry of Prov Reg or 6 months after commencement of activity, whichever is earlier/ 6 months prior to AY when trust is sought to be made operative/ 30 days from modification of objects

Documents required –

(a) Self-certified copy of such instrument/document creating or establishing the applicant;

(b) self-certified copy of registration with ROC or Registrar of Firms and Societies or Registrar of Public Trusts

(c) self-certified copy of registration under FCRA

(d) self-certified copy of existing order granting/rejecting registration under section 12A or section 12AA or section 12AB

(e) where the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of the applicant relating to such prior year / 3 years

(f) where a business undertaking is held along with charitable activities for last few years, self-certified copies of the annual accounts of such business undertaking ( max 3 years) for which such accounts have been made up and self-certified copy of the report of audit as per the provisions of section 44AB for such period;

(g) where the income of the applicant includes profits and gains of business as per the provisions of sub-section (4A) of section 11 and the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of such business relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up and self-certified copy of the report of audit as per the provisions of section 44AB for such period;

(h) self-certified copy of the documents evidencing adoption or modification of the objects;

(i) note on the activities of the applicant – There is no format prescribed in the rules to give a note on the activities conducted by the applicant. It is, therefore, advised to briefly describe in a note (a) the objects of the summary of activities conducted under distinct heads like educational, medical, etc. as per section 2 (15) of the Act-charitable purpose. It is advisable to prepare the columnar Excel statement in the following format also wherever possible in support of the note on activities of the applicants: –

Sr. No.	Day and date	Place	Name of activity /beneficiaries	Amount spent –Rs.
01
02
03
04
05
06
07 etc
			Total

Download Form 10A and 10AC-Granting Registration

Income Tax Portal

 

Other Income Tax Amendments

TDS/TCS on non filer at higher rates

Sec 206 AB – TDS at higher rates for non filers

Sec 206 CCA – TCS at higher rates for non filers

Provisional attachment in Fake Invoice cases 281B

Section 281B of the Act contains provisions which provide that in cases of assessment or reassessment the Assessing Officer may provisionally attach any property of the assessee, if necessary, in order to protect the interest of revenue. This can be done only with prior approval of Pr. Chief Commissioner or Pr Director General or Chief Commissioner or Director General or Principal Commissioner or Principal Director or Commissioner or Director, of Income-tax. Such provisional attachment is valid for a period of 6 months. Further, the said section allows the assessee to furnish a bank guarantee of the value of the property so attached for revocation of the provisional attachment. The above bank guarantee shall be invoked if the assessee fails to pay his tax demand on time. The powers under this section can only be exercised by the Assessing Officer

Section 271AAD of the Act was inserted vide the Finance Act, 2020 to impose penalty on a person or a person who causes such person to make a false entry or omit an entry from his books of accounts. It is an anti-abuse provision. Upon initiation of such penalty proceedings, it is highly likely that the taxpayer may also evade the payment of such penalty, if imposed. Hence, in order to protect the interest of revenue, it is proposed to amend the provision of section 281B of the Act to enable the Assessing Officer to exercise the powers under this section during the pendency of proceedings for imposition of penalty under section 271AAD of the Act, if the amount or aggregate of amounts of penalty imposable is likely to exceed two crore rupees.

Advance Tax Installment for Deemed Dividend

234C (1) Dividend (Other than Deemed Dividend) to be included in Advance Tax Calculation on receipt.

Income Escaping Assessments

Life cycle of income escaping assessment under old regime

Section 147 – Income escaping assessment.

Existing section 147 substituted and replaced

• If any income chargeable to tax, in the case of an assessee
• Has escaped assessment for any assessment year
• The assessing officer may, subject to the provisions of section 148 to 153

i. assess or reassess such income

ii. recompute the   loss   or the   depreciation  allowance or  any  other  allowance or deduction

• for such assessment year (hereafter in this section and in section 148 to 153 referred to as the relevant assessment year)

Section 147 – Income escaping assessment.

Explanation to section 147

• The Assessing officer may assess or reassess the income in respect of any issue, which has escaped assessment, and
• such issue comes into his notice subsequently in the course of the proceedings under this section
• irrespective of the fact that the provisions of section 148A have been complied with Comparison with earlier provision
• No need of ‘reason to believe’
• Safeguards of opening assessment after 4 years removed

i. income assessment due to failure to file return under section 139 or 142(1) or 148

ii. failure to disclose fully and truly all material fact

Section 148 – Issue of notice where income has escaped assessment

Existing section 148 substituted and replaced

• before making an assessment reassessment or re computation under section 147
• and subject to the provisions of section 148A,
• the assessing officer shall serve on the assessee a notice along with a copy of the order passed under section 148A(d)
• requiring him to furnish within such period as may be specified in such notice, a return of income or the income of any other person in respect of which he is assessable under this Act during the previous year for responding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this act shall, so far as maybe, apply according as if search return word return required to be furnished under section 139

Proviso to section 148 – No notice under section 148 unless

• there is information with the assessing officer which suggests that the income chargeable to tax has escaped assessment
• Prior sanction under section 151 has been obtained

Explanation 1: For the purpose of this section and section 148A, the information with AO with suggest that the income chargeable to tax has escape assessment means

• Any information flagged in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the board from time to time
• Any final objection raised by CAG

Deemed Proviso that the AO has information that suggest that income chargeable to tax has escaped assessment

Explanation 2: Deemed information which suggests income chargeable to tax has escaped assessment for the 3 AY’s immediately preceding the AY (applicable on or after 01/04/2021 only)

• Search under section 132A or requisitioned under section 132A
• A survey is conducted under section 133A
• Asset is seized or requisitioned in case of any other person
• Books of accounts or documents, seized or requisitioned in case of any other person Also the procedures with respect to section 148A need to be carried out in these cases

This would imply that the provisions of section 153A or 153C of the Act is subsumed in these provisions

Section 148A – Conducting inquiry, providing opportunity before issue of notice under section 148.

The assessing officer shall before issue of notice under section 148

• Conduct any enquiry, if required, with prior approval of specified authority with respect to the information which suggests that the income chargeable to tax has escaped assessment
• Provide an opportunity of being heard to the assessee, with the prior approval of specified authority, by serving upon him a notice to show cause (within the time not less than 7 days but not exceeding 30 days) as to why a notice under section 148 should not be issued on the basis of information which suggests that the income chargeable to tax has escaped assessment
• Consider the reply of the assessee furnished, if any, in response to the show cause notice referred to in clause above
• Decide on the basis of material available on record including the reply of the assessee whether or not it is a fit case to issue or notice under section 148 by passing an order with the prior approval of specified authority

Options available with the assessee against an order issued under 148A

• The order received u/s 148A is not appealable u/s 246A before the CIT (A)
• Revision petition with the CIT under section 264 not available
• However, a writ petition may be filed with the jurisdictional HC against the order u/s 148A

Section 149 – Time limit for notice.

Time limit for issue of notice under section 148 is as under

• General Clause- 3 years from the end of the relevant assessment year
• Special clause- 10 years from the end of the relevant assessment year if

i. the assessing officer has in his possession

ii. books of account or other documents or evidence

iii. which revealed that income chargeable to tax

iv. represented in the form of an asset

v. which has escaped assessment amount to or is likely to amount to rupees 50 lacs or more for that year

“asset” shall include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account.

Recent Judgements

Recent cases

• Reopening of the assessment based on valuation cell report Assistant Commissioner of Income Tax v. Dhariya Construction [2010] [328 ITR 515] not valid ground for reassessment
  • the Supreme Court held that a valuation report could not be treated as information for the purpose of invoking jurisdiction under section 147 of the Income-tax Act
• No reassessment based on Supreme Court ruling reversing the legal position prevailing at time of regular assessment
  • In the case of Calcutta Club Ltd. v. ITO [2020] 114 taxmann.com 560 (Calcutta).
  • The Calcutta High Court held that there was no whispering in the recorded reason that there was any omission or failure on the part of the assessee in disclosing fully and truly material facts for Assessing Officer (AO) could not establish that the information of alleged escaped income was not within his knowledge and was not considered at the time of passing of the assessment order under section 143(3) of the Income-tax Act, 1961
• AO couldn’t initiate reassessment on pretext that binding decision of Supreme Court was overlooked
• • In the Case of PCIT v. Moser Baer India Ltd.[2020] 114 com 549 (SC)
  • In course of assessment, AO allowed assessee’s claim for deduction under section 37(1) in respect of royalty paid for acquiring technical
  • However, later on, reassessment proceedings were initiated on-premise that scrutiny assessment originally completed was in ignorance of a binding decision of the Supreme
  • Apex Court had dismissed the special leave petition (SLP) filed against the order of High Court wherein tribunal took a view that since in scrutiny assessment AO had gone into taxability of royalty payment, he could not initiate reassessment proceedings on the pretext that a binding decision of Supreme Court was overlooked at the time of assessment
• AO can’t make 100% disallowance under Section 40(A)(2)(b) on payment made to related parties: Delhi ITAT
  • In the Case of Amit Mehra ITO – [2020] 116 taxmann.com 870 (Delhi – Trib.)
• Assessee paid interest to his mother and his The AO contended that the assessee had routed his own money to his mother and his HUF, either through himself or his partnership firm and had then taken a loan from them on which interest was being paid
• Section 40A(2)(b) provides disallowance if any expenditure is excessive and unreasonable having regard to its fair market
• In this case HUF and assessee’s mother received amount from the partnership firm. If any disallowance was to be made it had to be made in the hands of the partnership firm but not in the hands of the
• Section 40A(2)(b) does not envisage 100% disallowance unless expenditure is proved to be excessive or unreasonable having regard to fair market
• Deposit of cash exceeding limit prescribed under Section 40A(3) in supplier’s bank account attract disallowances
  • In the Case of Ajai Kumar Singh Khaldelial PCIT – [2020] 122 taxmann.com 103 (Allahabad)
  • Assessee deposited cash in the accounts of the supplier contended that amount deposited in the bank account of supplier would be covered under Rule 6DD(c)(v) as the same had been done by use of “electronic clearing system” through the Bank
  • Allahabad High Court held that the term “use of electronic clearing system through a bank account” would necessarily include the transaction of funds by electronic mode through the clearing
  • Transaction by depositing cash directly in the bank account of the beneficiary was not routed through any clearinghouse nor is the money sent through electronic mode and therefore such a transaction could not be covered by rule 6DD(c)(v).

TDS/TCS Amendments

Section 194Q- TDS on purchase of goods

• Any person, being a buyer who is responsible for paying any sum to any resident
• for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall,
• at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier,
• deduct an amount equal to 0.1 per cent of such sum exceeding fifty lakh rupees as income-tax.
• The provisions of this section shall not apply to a transaction on which––

i. tax is deductible under any of the provisions of this Act; and

ii. tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C

Distinction between TDS and TCS on purchase/ sale of goods

Basis of distinction	TDS on purchase of goods [Section 194Q]	TCS on Sale of goods [Section 206C(1H)]
Who is liable for deduction/collection	Buyer is liable to deduct the tax	Seller is liable to collect the tax
Turnover limit of deductor or collector	The total sales, gross receipts or turnover of the buyer from the business should exceed Rs. 10 crores during the financial year immediately preceding the financial year in which such goods are purchased	The total sales, gross receipts or turnover of the collector from the business should exceed Rs. 10 crores during the financial year immediately preceding the financial year in which such goods are sold
Threshold limit of purchase/sale	If the value of purchase exceeds Rs. 50 lakhs	If the value of sales exceeds Rs. 50 lakhs
Rate of tax	0.1%	0.1%
Amount on which tax to be deducted/collected	On the amount of purchase in excess of Rs.  50 lakhs	On the amount of sale consideration in excess of Rs. 50 lakhs
Time of deduction/collection	At the time of credit or payment, whichever is earlier	At the time of receipt
Preference to be given	Purchaser is first liable to deduct the tax if the transaction could be subject to both provision	Seller shall be liable to collect the tax only if the purchaser is not liable to deduct the tax or purchaser failed to deduct tax

194Q

Q. total sales, gross receipts or turnover includes GST? – Yes

Q. Will Sale of Services be included in Turnover? – Yes

Q. Is it applicable on Imports

Q. Will buyer deduct or will Seller charge – Read 2nd Provisio to 206C(1H) along with 194Q(5)(b)

Q. Timing of deduction – Credit/Payment/Suspense A/c Credit

Q. Purchase before 1st July but payment after 1st July – 50 Lakhs to be considered on payment basis

Q. No PAN Cases – Provisio to Sec 206AA(1) – 5%

Q. Will seller be responsible u/s 194Q incase the buyer does not deduct TDS u/s 194Q

Q. Will it apply to actionable claims – No

Q. Will it apply to Securities – Yes

Q. TDS on immovable prop u/s 194IA

Q. TDS on Electricity – Not on purchase from Power Exchanges

Q. Software – If its considered as Goods

Q. Out of pocket expenses – if part of invoice

Q. TDS on GST also – Yes

Q. TDS on Advance – Yes

Q. TDS on Deposit/Loan – No

Q. TDS on Branch Transfer – No

Q. TDS refund on Credit Note – No

Q. Rs.50 Lakhs Computation on PAN to PAN Matching

Q. S 197 Lower deduction Certificate – NA for 194Q