Recent Case Laws Analysis: Income Tax Updates October 2023

In the world of taxation, staying up-to-date with the latest case laws is crucial. It helps individuals and businesses navigate the complex landscape of income tax regulations and understand the implications of recent legal decisions. This missive delves into recent case laws analyzed by various authorities, offering a concise view of the judgments and their significance. We provide in-depth analysis by examining the provisions of the law, the issues at hand, the facts of the cases, and the ultimate conclusions drawn.

1. Cognizant Technology Solution vs ACIT (ITA No. 269/Ch/2022 – Chennai ITAT)

Provision: As laid down under Provision of Income tax Act(‘’Act’’) buy back of shares result in company being taxed at 22.92% and has no pass through status. For Dividend distribution taxation shareholders are liable to pay tax and not applicable for company.

Issue: Whether purchase of the shares through the court approved scheme attracts deemed dividend as laid under the Act.

Facts: The Assessee purchased 94,00,534 equity shares of face value Rs.10/share from its shareholders based in the US and Mauritius at Rs.20,297/share i.e. consideration of Rs.19,080.26 Cr.

Conclusion It was held by ITAT that the purchase of shares through a scheme sanctioned by the jurisdictional HC as regards the Companies Act amounted to “distribution of accumulated profits which attracts provisions of Sec.2(22) of the Income Tax Act, 1961. ITAT even held that the transaction was carried with aim to avoid tax however there was no dispute with the scheme of buyback sanctioned by court.

2. PCIT vs M/S Schaeffler India Ltd (Tax appeal no 679 of 2023-Gujart High court)

Provision: Form 3CL is merely a report in the form of intimation regarding inhouse approval of Research facility and form 3CM is given on receipt of the same.

Issue: Whether Revenue can challenge before the high court that only form 3CM was submitted and form 3CL was not submitted during the assessment proceedings.

Facts: Assessee filed return of income of Rs.37.70 Cr and claimed deduction of Rs.20.12 Cr under Section 35(2AB) for R&D facility which was subjected to assessment wherein the said claim was allowed, PCIT initiated proceedings under Section 263 on the ground that deduction under Section 35(2AB) was not allowable since the Assessee failed to submit necessary documentary evidence such as Form 3CL issued by the prescribed authority thereby, leading to failure of AO to examine the said documents which is prejudicial to the interest of Revenue.

Conclusion: The Assessee has filed Form 3CL certifying his Research and Development (R&D) facility approved by the prescribed authority in proper format, merely because the authority failed to send the intimation during the course of assessment proceedings could not be the reason for denying the claim deduction under section 35(2AB) of the Act.

3. ITO vs NCDEX Investor (ITA No. 854/Mum/2023-Mumbai ITAT)

Provision: As per Act under 10(23EC) income, of contributions received from commodity exchanges and the members thereof, of such Investor Protection Fund set up by commodity exchanges in India, either jointly or separately, as the Central Government may, by notification give stand exempted. Prior to 1st April 2024 Investor protection  fund trust can claim exemption under Section 10(23EC) and under Section 11 and 12.

Issue: Whether the assessee being registered under 12A can claim exemption under 10(23C) and Section 11,12 . In simple the assessee being a business trust whether can make use of exemption applicable as envisaged under the act on a substantial basis.

Fact: Assessee is registered under Section 12A and is also eligible for claiming exemption under Section 10(23EC); For AY 2016-17, Assessee claimed exemption under Section 10(23EC) for Rs.9.24 Cr received by way of statutory contribution from National Commodity & Derivatives Exchange Ltd. and its members and claimed the balance of income from property held under trust as deduction under Section 11(1)(a) and accumulation under Section 11(2) and the same was disallowed by revenue.

Conclusion: There is no bar on the Assessee claiming exemption under Section 10(23EC) and under section 11 and 12 for AYs prior to Apr 1, 2024.

4. Concentrix Daksh Services vs ACIT (ITA No. 2552/Del/2023-Delhi ITAT)

Provision: Section 115BAA is a concessional scheme of taxation where by tax rate is 22% but no Mat credit can be claimed. Form 10-IC need to be filed only first time of exercising the option but however for subsequent years need not file. Once the new scheme is opted no revert back to old scheme

Issue: Whether the concessional rate of tax can be denied on the ground that assessee had not filed fresh form 10IC?

Facts: Assessee engaged in providing Information Technology Enabled Services, filed its return of income for AY 2021-22, declaring total income of Rs.358.03 Cr and computed its tax liability by applying concessional rate of tax under Section 115BAA. The claim was denied by income authorities as centralised processing centre and national faceless assessment centre.

Conclusion: Based on FAQ and instruction issued in filing ITR 6 an Assessee has opted for concessional rate of tax once, it shall apply to subsequent assessment years and cannot be withdrawn. Therefore the assessee contention is correct. 

5. Form 10IC/56F/10B/10BB Filing Deadline Extension/Postponement

i. Form 10IC Filing Deadline Extension

For corporates exercising the new scheme of taxation who were unable to file Form 10IC for Assessment Year (AY) 2021-22 due to genuine hardship, there is good news. The deadline for filing Form 10IC, a critical requirement for availing the benefits of the new tax scheme, has been extended. You now have the opportunity to submit Form 10IC this year, providing relief for those who encountered obstacles in adhering to the initial deadline.

This extension acknowledges that businesses may face unforeseen challenges that hinder compliance. Now, those who faced such hardships have an opportunity to catch up and ensure that they can take full advantage of the new taxation scheme in their financial planning.

ii. Form 56F Reporting Deadline Postponed

Form 56F is a report that must be furnished by chartered accountants to ensure compliance with regulations related to Special Economic Zones (SEZs). This report plays a crucial role in meeting SEZ-related requirements.

The standard deadline for filing Form 56F was originally set to align with the date of filing the income tax return. However, the new update provides some relief. The deadline for submitting Form 56F has been postponed to December 31st of 2023. This extension gives individuals and businesses more time to ensure that they fulfill the necessary reporting requirements associated with SEZs. It recognizes that additional time may be needed to compile and provide accurate information in compliance with SEZ regulations.

iii. Form 10B/10BB Filing Deadline Extension for Charitable Trusts

Charitable trusts play a significant role in various social and humanitarian causes. To ensure that they can continue their valuable work, the due date for filing Form 10B and Form 10BB, which are essential for charitable trust compliance, has been extended.

The original deadline was September 30th, but the extension provides charitable trusts with additional time to prepare and file these forms. Charitable trusts, dedicated to noble causes, can now submit Form 10B and Form 10BB until October 31st, 2023.

This extension recognizes the unique challenges and responsibilities faced by charitable trusts and provides them with the time needed to meet their compliance obligations.

Conclusion

Understanding recent case laws and their implications is vital in navigating the ever-evolving landscape of income tax. These cases cover a range of topics, from share buybacks to R&D deductions, business trusts, and more. Staying updated with such analyses is essential for individuals and businesses to make informed decisions and comply with taxation regulations.