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Taxpayers Get Choice in Valuing Startup Investments (Angel Tax)

editor — Mon, 15 Apr 2024 05:00:14 +0000

The Delhi High Court ruled in favor of taxpayers, allowing them to select the method for valuing investments received from angel investors. This comes after a disagreement between a company (Agra Portfolio) and the Income Tax Department (IT Department) regarding the valuation of shares issued to an angel investor.

What is Angel Tax?

Angel tax refers to the tax levied on the difference between the fair market value (FMV) of shares allotted to an angel investor and the amount the investor paid for them.

The Case:

Agra Portfolio used the Discounted Cash Flow (DCF) method to determine the FMV of the shares. DCF estimates an investment’s value by considering its projected future cash flows. The IT Department, however, rejected this valuation and used the Net Asset Value (NAV) method instead. NAV calculates the value per share by dividing the company’s net assets (assets minus liabilities) by the total number of shares.

Court’s Decision:

The Court clarified that while the IT Department can question a taxpayer’s valuation report, it cannot impose a different valuation method. The Court emphasized that the Income Tax Act and Rules grant taxpayers the sole authority to choose the valuation method.

The IT Department can still scrutinize the report and conduct its own valuation (using the taxpayer’s chosen method) to challenge the taxpayer’s assessment.

Outcome:

The Court ordered the IT Department to re-evaluate Agra Portfolio’s case using the DCF method as chosen by the company.

This decision offers greater flexibility to startups and investors when determining the FMV of shares for angel investments.

Source: https://www.thehindubusinessline.com/economy/angel-tax-valuation-method-solely-assessees-choice-says-delhi-hc/article68043342.ece

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Understanding the Tax Advantages of Section 115H for NRIs

editor — Wed, 10 Apr 2024 08:11:09 +0000

Overview of Section 115H:

Section 115H of the Income Tax Act provides favorable tax rates for non-resident Indians (NRIs) on specific investments, encouraging them to invest in India and boosting the country’s attractiveness as a financial destination.

Benefits Under Section 115H:

Claiming the Benefit Under Section 115H:

Continuing Benefits After Becoming a Resident Indian:

Key Considerations:

Tax benefits under Section 115H are applicable only to income earned from specific investments held by NRIs in India.
NRIs must file their income tax returns in India if their taxable income exceeds the basic exemption limit.
Seeking guidance from tax professionals is advisable to understand the nuances of Section 115H and maximize tax benefits.

Difference Between Section 115 and Section 115H:

Conclusion:

Understanding the eligibility criteria, benefits, and claiming process of Section 115H enables NRIs to make informed investment decisions and optimize their tax liabilities in India.

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Assessee is entitled to interest from the date immediately after the expiry of sixty days from the date of receipt of the GST refund application

editor — Tue, 26 Mar 2024 06:28:11 +0000

The Hon’ble Delhi High Court, in the case of Raghav Ventures vs. Commissioner of Delhi [Writ Petition (Civil) No. 12209 of 2023 dated March 01, 2024], held that the payment of 6% interest under the Section 56 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) is statutory and does not depend if the claim made by the Assessee. It is automatically payable if the GST refund is not made within 60 days from the date of receipt of the application.

Facts of the case:

Raghav Ventures, referred to as “the Petitioner,” engaged in exporting mobile phones and accessories to M/s AZ Logistic, Dubai, UAE, and paid Integrated Goods and Services Tax (IGST). The normal procedure for claiming GST refunds involved submitting shipping bills, which Customs processed through ICEGATE.

In December 2022, exports amounted to Rs. 9,06,49,174/- with IGST payment of Rs. 1,63,16,851/-. In February 2023, exports totaled Rs. 2,80,38,271/- with IGST payment of Rs. 50,46,889/-. Similarly, in March 2023, exports amounted to Rs. 95,90,489/- with IGST payment of Rs. 17,26,288/-, and in May 2023, exports of mobiles and accessories worth Rs. 76,96,568/- were made, with IGST payment of Rs. 13,85,382/-.

According to Sub-Rule (2) of Rule 96 of the Central Goods and Services Tax Rules, 2017 (“the CGST Rules”), export invoice details from Form GSTR-1 are electronically transmitted to Customs. Once the system confirms export, GST refunds are processed through ICEGATE under Rule 96(3) of the CGST Rules.

The Petitioner submitted GST returns in Form-GSTR-3B and refund applications for the mentioned periods via Form-GST-RFD-01. Acknowledgments were received via Form-GST-RFD-02, confirming receipt of the GST refund applications.

While the writ petition was pending, the IGST refund for the period was credited to the Petitioner’s bank account on December 4, 2023, without any interest. On December 6, 2023, the Petitioner applied to the Special Commissioner, Department of Trade & Taxes (“the Respondent”), seeking 6% interest from the refund application date until December 3, 2023.

Therefore, aggrieved by these circumstances, the present writ petition was filed, requesting the Respondent to grant the total IGST refund of Rs. 2,44,75,410/- for the tax periods of December 2022, February 2023, March 2023, and May 2023, along with interest as per Section 56 of the CGST Act.

Issue:

Does the Assessee have a statutory entitlement to interest on delayed GST refunds?

Held:

The Delhi High Court, in Writ Petition (Civil) No. 12209 of 2023, ruled as follows:

It was observed that interest payment under Section 56 of the CGST Act is mandatory and not contingent upon the Assessee's claim. It automatically becomes due if the GST refund is not issued within 60 days from the date of application receipt. Denial of GST refund based on waiving interest claims in FORM GST-RFD-01 is unjustifiable. Additionally, interest is only applicable if the refund isn't granted within 60 days from the application date, making interest payment obligatory and automatic.
It was also noted that Circular No. 125/44/2019-GST dated November 18, 2019, clarifies that interest calculation starts from the day immediately following the 60-day period from the application receipt until the amount is credited to the applicant's bank account.
The court held that the Petitioner is entitled to statutory interest at a rate of 6%, starting from the day immediately following the expiry of the 60-day period from the application receipt until the refund is credited to the Petitioner's bank account. The Respondent was instructed to process the refund of interest and credit it to the Petitioner's account within four weeks. Consequently, the petition was resolved along with the pending application.

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CBDT Simplifies Business Reorganization ITR Filing Process for Successor Companies

editor — Thu, 14 Mar 2024 10:26:14 +0000

The Central Board of Direct Taxes (CBDT) has issued an order on March 13, 2024, under section 119 of the Income-tax Act, 1961, providing relief to successor companies involved in business reorganizations such as amalgamations, mergers, or demergers sanctioned by competent authorities such as High Courts, Tribunals, or Adjudicating Authorities as per the Insolvency and Bankruptcy Code, 2016. This order addresses situations where the reorganization orders were issued between June 1, 2016, and April 1, 2022, predating the introduction of section 170A by the Finance Act, 2022.

Entities undergoing business reorganizations have faced challenges in filing income tax returns post-reorganization, especially when orders were issued before April 1, 2022. The CBDT’s order aims to simplify this process and provide relief to such successor companies.

Background and Legal Context

The CBDT’s order is based on the judgment in Civil Appeal Nos. 9496-99 of 2019, where the Supreme Court held that successor companies could file returns considering the Scheme of Arrangement and Amalgamation sanctioned by the National Company Law Tribunal (NCLT). This judgment paved the way for successor companies to seek relief in filing their income tax returns post-reorganization.

Provisions and Relief Offered

Section 170A of the Income-tax Act, 1961, introduced by the Finance Act, 2022, allows entities to file modified income tax returns within six months from the end of the month of issuance of the reorganization order. However, this provision applies only to orders issued after April 1, 2022. For orders issued between June 1, 2016, and April 1, 2022, the CBDT’s order provides relief by allowing successor companies to furnish returns with modified particulars in accordance with the reorganization order.

Process for Filing Modified Returns

The CBDT has outlined a streamlined process for successor companies to file modified returns, taking into account the reorganization order. The entities are required to communicate with the Jurisdictional Assessing Officer (JAO) by April 30, 2024, for enablement of electronic filing of returns. The JAO will then verify whether the return is resulting from and limited to the reorganization order and enable electronic filing through the ITBA system. Taxpayers must file their returns by June 30, 2024.

The full order can be assessed at: https://www.nyca.in/wp-content/uploads/2024/03/Order-under-section-119-of-the-Income-tax-Act-1961.pdf

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Revisions to TDS Sections 194R and 194S in the Income Tax Act, 1961

editor — Thu, 14 Mar 2024 10:09:10 +0000

Section 194R, introduced as part of the Finance Act 2022, addresses the taxation of benefits or perks associated with business or professional activities and the subsequent deduction of taxes. It pertains to instances where businesses provide distributors, channel partners, or agents with various benefits or incentives to promote business growth. These benefits may include travel deals, gift vouchers, or other privileges, and are subject to taxation under Section 28 (iv) of the Income Tax Act, 1961.

Purpose of Section 194R

The introduction of Section 194R aims to curb potential tax evasion in businesses by ensuring the taxation of perks or benefits provided to distributors or channel partners. To comply with this provision, businesses are required to withhold TDS on such benefits, whether they are monetary or non-monetary in nature. This measure broadens the taxpayer base and closes potential tax loopholes.

Scope of Section 194R

Under Section 194R, a TDS rate of 10% applies to residents receiving benefits or privileges, subject to certain conditions. However, if the total value of benefits provided does not exceed Rs 20,000 within the financial year, or if the total sales do not surpass specified thresholds, TDS may not be applicable.

Nexus with Business or Profession – Section 194R

Section 194R applies to any person granting benefits or privileges to another resident arising from business or professional activities. This includes both monetary and non-monetary benefits aimed at promoting business interests.

Applicability of Section 194R

Section 194R is applicable when businesses, firms, or professionals provide benefits exceeding Rs 20,000 to individuals during the financial year. However, certain exceptions apply, such as benefits provided to employees, non-residents, or cases where there is no existing business relationship.

Understanding Section 194S

Introduced in the 2022 budget, Section 194S addresses the implementation of TDS on the transfer of virtual digital assets (VDAs) and cryptocurrencies. It aims to regulate and monitor transactions involving VDAs, with a TDS rate of 1% applicable to transfers exceeding Rs. 10,000.

Who Should Deduct TDS under Section 194S?

Various entities, including buyers, sellers, exchanges, and brokers, may be responsible for deducting TDS under Section 194S, depending on the nature of the transaction. The TDS rates and filing requirements differ based on the type of transaction and the parties involved.

Conclusion

Understanding the provisions of Sections 194R and 194S is crucial for both taxpayers and businesses involved in digital asset transactions. Compliance with these regulations ensures adherence to tax laws and contributes to a transparent and responsible financial ecosystem.

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Income Tax Exemption Announced for Specific Trusts and Institutions Under Conditions

editor — Tue, 12 Mar 2024 04:49:14 +0000

The Income Tax Department recently released guidelines on March 8, 2024, specifying conditions under which certain trusts, institutions, universities, educational entities, hospitals, or medical institutions can be exempted from income tax. These exemptions apply to entities falling under sections 10 and those registered under sections 12AA or 12AB of the Income-tax Act, 1961.

To be eligible for exemption under the mentioned sections, trusts or institutions must fulfill certain conditions outlined in various sections of the Act. For example, they must ensure that their accounts are audited and furnish the audit report in the prescribed form before the specified date.

The prescribed forms for audit reports, Form No. 10B and Form No. 10BB, were notified vide Notification No. 7 of 2023 dated February 21, 2023, effective for the assessment year 2023-24 and subsequent years. However, it has been observed that some trusts/institutions have furnished the wrong form, which could result in the denial of exemption.

In light of this, the Central Board of Direct Taxes has allowed trusts/institutions to rectify their audit reports by March 31, 2024, to claim exemption for the assessment year 2023-24. This flexibility is provided under Circular 2/2024 dated March 05, 2024, issued by the CBDT.

Source: Income Tax Portal

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CBDT Releases Guidelines for Expedited Appeal Disposal

editor — Tue, 12 Mar 2024 04:39:13 +0000

The Central Board of Direct Taxes (CBDT) has issued guidelines, dated March 07, 2024, under F.No.279/Misc/M-102/2021-ITJ, aimed at expediting the handling of appeals by Commissioners of Income Tax (Appeals/Assessment Unit) or Additional/Joint CIT(A).

As per these directives, priority resolution will be given to appeals involving genuine and exceptional circumstances, either initiated by the appellant themselves or referred by the Assessing Officer/Range Head. Principal Chief Commissioners of Income Tax/Chief Commissioners of Income Tax/Directors General of Income Tax will assess these appeals based on advice from local tax authorities.

Examples of such extraordinary situations include appeals with a demand exceeding Rs. 1 Crore, cases flagged by VIPs or the Prime Minister’s Office for prompt resolution, appeals mandated by courts for swift handling, appeals from senior or super senior citizens, or any other appeal presenting genuine difficulties.

For appeals under the jurisdiction of faceless Commissioners of Income Tax (Appeals Unit), requests for expedited processing should be directed to the Principal Chief Commissioner of Income Tax (National Faceless Assessment Centre), who will then forward them to the relevant Commissioner of Income Tax (Appeals Unit).

The guidelines are available for reference at: https://www.nyca.in/wp-content/uploads/2024/03/Guidelines_for_priority_out_of_turn_disposal_of_appeals_by_CsIT.pdf

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Update on Option to File ITR-U Under Section 139(8A) of IT Act

editor — Sat, 09 Mar 2024 05:28:40 +0000

The Income Tax Department has released a recent update, dated March 7, 2024, regarding the provision to submit an Updated Income Tax Return (ITR) under section 139(8A) of the Income Tax Act, 1961. This provision allows individuals to file an updated return for any assessment year within twenty-four months from the end of the relevant assessment year, irrespective of their previous filing status. Form 61 must be used for filing the updated return.

Under section 139(8A) of the Income Tax Act 1961, any person, whether or not they have previously filed a return under subsections (1), (4), or (5), can file an updated return for an assessment year (referred to as the relevant assessment year) for their income or income of any other assessable person, within the specified timeframe.

However, certain conditions apply:

The provision does not apply if the updated return results in a loss, decreases the total tax liability determined based on the original return, or increases the refund due.
Individuals cannot file an updated return if certain circumstances are present, such as a search initiated under section 132, a survey conducted under section 133A, or if they have received notices related to seized assets or documents.
No updated return can be furnished if proceedings for assessment, reassessment, or any other related process are pending or completed for the relevant assessment year.
Further, if the person has sustained a loss in any previous year and has filed a return of loss within the prescribed time, they are allowed to file an updated return.
Additionally, if there are any adjustments to losses carried forward or unabsorbed depreciation in subsequent previous years due to the filing of an updated return, a return must be filed for each subsequent previous year.

These provisions aim to streamline the process of filing updated returns and ensure compliance with the Income Tax Act.

For detailed information, individuals can refer to the Income Tax Portal.

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