direct tax laws and international taxation

444 Pages·2017·2.72 MB·English

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DIRECT TAX LAWS AND
INTERNATIONAL TAXATION
FINAL
STUDY NOTES
The Institute of Cost Accountants of India
CMA Bhawan, 12, Sudder Street, Kolkata - 700 016
First Edition : August 2016
2nd Edition : April 2017
3rd Editioin : February, 2018
Published by :
Directorate of Studies
The Institute of Cost Accountants of India (ICAI)
CMA Bhawan, 12, Sudder Street, Kolkata - 700 016
www.icmai.in
Printed at :
Jayant Printery LLP
352/54, Girgaum Road,
Murlidhar Temple Compound,
Mumbai - 400 002
Copyright of these Study Notes is reserved by The Insitute of Cost
Accountants of India and prior permission from the Institute is necessary
for reproduction of the whole or any part thereof.
Syllabus - 2016
PAPER 7 : DIRECT TAXATION
Syllabus Structure
A Advanced Direct Tax Laws 50%
B International Taxation 30%
C Tax Practice and Procedures 20%
C
B
20%
30%
A
50%
ASSESSMENT STRATEGY
There will be wirtten examination paper of three hours.
OBJECTIVES
To gain knowledge about the direct and international tax laws in force for the relevant rules and principles emerging
from leading cases, to provide and insight into practical aspects and apply the provisions of laws to various situations :
Learning Aims
The syllabus aims to test the student’s ability to :
► Tax planning and management under Direct Tax
► Explain case laws governing core provisions of the above Acts
► Explain tax assessment for various assessees and return filing procedures
► Expalin powers of various assessing authorities
► Explain international Taxation and other relevant issues
Skill sets required
Level C : Requiring skill levels of knowledge, comprehension, application and analysis, synthesis and evaluation.
Section A: Advance Direct Tax Laws [50 Marks] 50%
1. Assessment of income and Computation of tax liability of Various Entities
2. Tax Management, Return and Assessment Procedure
3. Grievance Redressal
4. Penalties and Prosecutions
5. Business Restructuring
6. Different aspect of Tax planning
7. CBDT & Other Authorities
8. E-commerce Transaction and liability in special cases
9. Income Computation and Disclosure Standards (ICDS)
10. Black Money Act, 2015
Section B: International Taxation [30 Marks] 30%
11. Double Taxation and Avoidance Agreements [Sec. 90, 90A and 91]
12. Transfer Pricing
Section C: Case Study Analysis [20 Marks] 20%
Paper 16 : Direct Tax Laws and International Taxation
Section A: Advance Direct Tax Laws [50 Marks]
1. Assessment of income and Computation of tax liability of Various Entities
a. Individual including non-resident
b. Company
c. Trust
d. Mutual Association
2. Tax Management, Return and Assessment Procedure
a. Return of Income
b. Assessment Procedure
c. Interest and fees
d. Survey, Search and Seizure
e. Refund, demand and recovery
3. Grievance Redressal
a. Appeal
b. Rectification
c. Revision
d. Settlement Commission
e. Advance Ruling
4. Penalties and Prosecutions
5. Business Restructuring
a. Amalgamation
b. Demerger
c. Slump sale
d. Conversion of sole proprietary business to company
e. Conversion of firm into company
f. Conversion of private limited company / unlisted public company into LLP
6. Different aspect of Tax planning
7. CBDT & Other Authorities
8. E-commerce Transaction and liability in special cases
9. Income Computation and Disclosure Standards (ICDS)
10. Black Money Act, 2015
a. Introduction to Black Money Act
b. Highlights of Black Money Act
Section B: International Taxation [30 Marks]
11. Double Taxation and Avoidance Agreements [Sec. 90, 90A and 91]
12. Transfer Pricing
a. Transfer Pricing including specified domestic transactions
b. Application of Generally Accepted Cost Accounting Principles and Techniques for determination of
Arm’s Length Price
c. Advance Pricing Agreement – Concept and Application
d. Safe Harbour Rules & their capitalisation
Section C: Case Study Analysis [20 Marks]
Contents
Section A - Advance Direct Tax Laws
STUDY NOTE 1 : ASSESSMENT OF VARIOUS ENTITIES
1.1 Definations 1
1.2 Tax on distributed income to unit holders [Sec. 115R] 18
1.3 Tax on income from Securitisation Trusts [Sec. 115TCA] 18
1.4 Tax on income of unit holder and business trust [Sec. 115UA] 20
1.5 Tax on income of investment fund and its unit holders [Sec. 115UB] 22
1.6 Tax on income from Patent [Sec. 115BBF] 25
1.7 Tax on income from transfer of carbon credits [Sec. 115BBG] 25
1.8 Religious or Charitable Trust 26
1.9 Local Authority 37
1.10 Mutual Concern 37
STUDY NOTE 2 : NON RESIDENT
2.1 Computation of income on presumptive basis 43
2.2 Capital gain on transfer of shares / debentures by a non-resident [First proviso to Sec. 48 and rule 115A] 46
2.3 TDS on payment to non-resident sportsman or sports associations [Sec. 194E] 55
2.4 TDS on interest from Infrastructure Debt Fund [Sec. 194LB] 55
2.5 TDS on certain income from units of a Business Trust [Sec. 194LBA] 56
2.6 TDS on income of units of Investment Fund [Sec. 194LBB] 56
2.7 TDS on income from Investment in Securitization Fund [Sec. 194LBC] 56
2.8 TDS on interest to non-resident [Sec. 194LC] 57
2.9 Income by way of interest on certain bonds, Govt. securities [Sec. 194LD] 57
2.10 TDS on other sums payable to non-resident [Sec. 195] 58
2.11 TDS on income from units [Sec. 196B] 58
2.12 TDS on income from foreign currency bonds or GDR [Sec. 196C] 58
2.13 TDS on income of FII from securities [Sec. 196D] 59
2.14 Assessment of Trust 64
STUDY NOTE 3 : RETURNE OF INCOME
3.1 Introduction 65
3.2 Forms – Return of income 66
3.3 Mode of furnishing Income-tax Return 67
3.4 Time limit for filing return of income [Explanation 2 to Sec. 139(1)] 70
3.5 Fee for default in furnishing return of income [Sec. 234F] 71
3.6 When a return of loss should be filed [Sec. 139(3)] 71
3.7 Belated Return [Sec. 139(4)] 71
3.8 Return of income of Charitable Trust [Sec. 139(4A)] 71
3.9 Return of income of Political Party [Sec. 139(4B)] 72
3.10 Return of income of scientific research association, etc. [Sec. 139(4C)] 72
3.11 Return of income by a University/ College etc. [Sec. 139(4D)] 73
3.12 Return of income of a Business Trust [Sec. 139(4E)] 73
3.13 Return of income of Investment Fund [Sec. 139(4F)] 73
3.14 Revised Return [Sec. 139(5)] 73
3.15 Defective Return [Sec. 139(9)] 73
3.16 Verification of Return [Sec. 140] 75
3.17 Quoting of Aadhaar number [Sec. 139AA] 76
STUDY NOTE 4 : ASSESSMENT PROCEDURE
4.1 Self-Assessment [Sec. 140A] 77
4.2 Intimation or Assessment by Income tax department 78
4.3 Inquiry before assessment 78
4.4 Intimation / Assessment by Assessing Officer 80
4.5 Intimation [Sec. 143(1)] 80
4.6 Scrutiny Assessment u/s 143(3) 81
4.7 Best Judgment Assessment [Sec. 144] 83
4.8 Power of Joint Commissioner to issue directions in certain cases [Sec. 144A] 83
4.9 Refernce to Dispute Resolution Panel [Sec. 144C] 84
4.10 Income Escaping Assessment [Sec. 147] 85
4.11 Period excluded from time limit for completion of assessment [Expl. 1 to sec. 153] 88
4.12 Rectification of Mistake [Sec.154] 90
4.13 Demand Notice [Sec.156] 90
STUDY NOTE 5 : INTEREST
5.1 Interest for failure to deduct and pay tax at source [Sec. 201(1A)] 92
5.2 Interest for failure to collect and pay tax at source [Sec. 206C(7)] 92
5.3 Interest for default in furnishing return of income [Sec. 234A] 92
5.4 Interest for default in paying advance tax [Sec. 234B] 95
5.5 For deferment of Advance Tax [Sec. 234C] 97
5.6 Interest for excess refund granted to the assessee [Sec. 234D] 101
5.7 Fee for defaults in furnishing statements [Sec. 234E] 101
5.8 Fee for default in furnishing return of income [Sec. 234F] 101
5.9 Interest for failure to pay tax according to demand notice [Sec. 220(2)] 101
5.10 Waiver or reduction of interest u/s 234A, 234B & 234C 102
5.11 Interest payable to the assessee 103
STUDY NOTE 6 : SURVEY, SEARCH AND SEIZURE
6.1 Power regarding discovery, production of evidence, etc. [Sec. 131] 105
6.2 Search and Seizure [Sec. 132] 106
6.3 Powers to requisition books of account, assets, etc. [Sec. 132A] 111
6.4 Application of seized or requisitioned assets [Sec. 132B] 112
6.5 Release of asset [First Proviso to sec. 132B] 112
6.6 Power to call for information [Sec. 133] 113
6.7 Power of Survey [Sec. 133A] 114
6.8 Power to collect certain information [Sec. 133B] (Door to door survey) 115
6.9 Power to call for information by prescribed income-tax authority [Sec. 133C] 116
6.10 Power to inspect registers of companies [Sec. 134] 116
6.11 Power of certain authorities [Sec. 135] 116
6.12 Proceedings before income-tax authorities to be judicial proceedings [Sec.136] 117
6.13 Disclosure of information in respect of assessee [Sec. 138] 117
6.14 Assessment in case of Search or requisition [Sec. 153A] 117
6.15 Assessment of income of any other person [Sec. 153C] 118
6.16 Time limit for completion of assessment [Sec. 153B] 119
STUDY NOTE 7 : COLLECTION, RECOVERY & REFUND
7.1 Demand Notice [Sec. 156] & Provisions relating thereto [See. 220] 124
7.2 Penalty payable when tax in default [Sec. 221] 125
7.3 Certificate to Tax Recovery Officer [Sec. 222] 125
7.4 Tax Recovery Officer by whom recovery is to be effected [Sec. 223] 126
7.5 Validity of certificate and cancellation or amendment thereof [See. 224] 127
7.6 Stay of proceedings [Sec. 225] 127
7.7 Other modes of recovery [Sec. 226] 127
7.8 Recovery through State Government [See. 227] 128
7.9 Recovery of tax in pursuance of agreements with foreign countries [Sec. 228A] 128
7.10 Recovery of penalties, fine, interest and other sums [Sec. 229] 128
7.11 Tax clearance certificate [Sec. 230] 129
7.12 Recovery by suit or under other law not affected [Sec. 232] 130
7.13 Provisional attachment to protect revenue in certain cases [Sec. 281B] 130
7.14 Certain transfers to be void [Sec. 281] 131
7.15 Service of notice generally [Sec. 282] 131
7.16 Authentication of notices and other documents [Sec. 282A] 132
7.17 Return of income, etc., not to be invalid on certain grounds [Sec. 292B] 132
7.18 Notice deemed to be valid in certain circumstances [Sec. 292BB] 132
7.19 Meaning [Sec. 237] 132
7.20 Who can claim refund 133
7.21 Form and Time limit for claiming refund [Sec. 239] 133
7.22 Refund on Appeal, etc. [Sec. 240] 133
7.23 Correctness of assessment not to be questioned [Sec. 242] 133
7.24 Interest on refund [Sec. 244A] 134
7.25 Set-off of refund against tax remaining payable [Sec. 245] 134
7.26 Withholding of refund in certain cases [Sec. 241A] 134
STUDY NOTE 8 : APPEALS, RECTIFICATION, REVISION, SETTLEMENT COMMISSION
8.1 Appeals 135
8.2 Appeals to Commissioner of Income Tax (Appeals) [CIT (A)] [Sec. 246A to 250] 136
8.3 Appeals to Income Tax Appellate Tribunal (ITAT) [Sec. 252 to 255] 139
8.4 Appeal to High Court [Sec. 260A] 143
8.5 Appeal to the Supreme Court [Sec. 261] 144
8.6 Special provision for avoiding repetitive appeals [Sec. 158A] 145
8.7 Procedure when in an appeal by revenue an identical question of law is pending before 145
Supreme Court [Sec. 158AA]
8.8 Revision of order prejudicial to the revenue [Sec. 263] 146
8.9 Revision of Order not Prejudicial to Revenue [Sec. 264] 148
8.10 Settlement Commission 150
STUDY NOTE 9 : ADVANCE RULING
9.1 Introduction 159
9.2 Definations 159
9.3 Authority for Advance Rulings [Sec. 245-O] 160
9.4 Vacancies etc., not to invalidate proceedings (Section 245P) 161
9.5 Application for Advance Ruling [Sec. 245-Q] 161
9.6 Procedure on Receipt of Application [Sec. 245R] 162
9.7 Appellate Authority not to Proceed in certain Cases [Sec. 245RR] 163
9.8 Applicability of Advance Ruling [Sec. 245S] 163
9.9 Advance Ruling to be void in certain circumstances [Sec. 245-T] 163
9.10 Powers of the Authority [Sec. 245U] 163
9.11 Procedure of Authority [Sec. 245V] 164
STUDY NOTE 10 : PENALTIES AND PROSECUTION
10.1 Penalties 165
10.2 Penalty for under-reporting and misreporting of income [Sec. 270A] 169
10.3 Immunity from imposition of penalty, etc. [Sec. 270AA] 174
10.4 Power to Reduce or Waive Penalty, etc., in certain cases [Sec. 273A] 175
10.5 Power of Principal Commissioner or Commissioner to Grant Immunity from Penalty [Sec. 273AA] 176
10.6 Penalty not to be Imposed in certain cases [Sec. 273B] 177
10.7 Procedure [Sec. 274] 177
10.8 Bar of limitation for imposing penalties [Sec. 275] 177
10.9 When Assessee becomes Liable for Prosecution 178
10.10 Power of Commissioner to Grant Immunity from Prosecution [Sec. 273AB] 180
STUDY NOTE 11 : BUSINESS RESTRUCTURING
11.1 Amalgamation 183
11.2 Demerger 188
11.3 Slump Sale 192
11.4 Conversion of sole proprietary business or firm into company 195
11.5 Conversion of private limited company or unlisted company into LLP 199
11.6 Capital Gain on buy back of own shares or other specified securities [Sec. 46A] 202
STUDY NOTE 12 : DIFFERENT ASPECTS OF TAX PLANNING
12.1 Introduction 203
12.2 Tax Evasion, Tax Avoidance and Tax Planning 205
12.3 Tax Planning 207
12.4 Distinguish between Tax Planning, Tax Evasion, Tax Avoidance and Tax Management 208
12.5 Objectives of Tax Planning 209
12.6 Essentials of Tax Planning 210
12.7 Types of Tax Planning 210
12.8 Areas of Tax Planning 210
12.9 Form of organisation 211
12.10 Locational Aspects 212
12.11 Nature of Business 212
12.12 Tax Planning relating to Corporate Restructuring 213
12.13 Tax Planning relating to Financial Management Decisions 214
12.14 Organisation Tax Planning Cells 215
STUDY NOTE 13 : INCOME TAX AUTHORITIES
13.1 Income Tax Authorities [Sec. 116] 219
13.2 Appointment of income-tax authorities [Sec. 117] 220
13.3 Central Board of Direct Taxes (CBDT) 220
13.4 Jurisdiction of income-tax authorities [Sec. 120] 222
13.5 Jurisdiction of Assessing Officers [Sec. 124] 223
13.6 Power to transfer cases [Sec. 127] 223
13.7 Sucession of income-tax authority [Sec. 129] 224
STUDY NOTE 14 : ECOMMERCE TRANSACTION AND LIABILITY IN SPECIAL CASES
14.1 Equalisation Levy 225
14.2 Tonnage Tax Scheme [Sec. 115V to Sec. 115VZC] 229
14.3 Legal representatives [Sec. 159] 233
14.4 Executors [Sec. 168] 234
14.5 Representative assessee [Sec. 160] 234
14.6 Exceptions to the general rule that income of a Previous Year is taxed in its Assessment Year 236
14.7 Company in liquidation [Sec. 178] 237
14.8 Miscellaneous Provisions 238
STUDY NOTE 15 : INCOME COMPUTATION & DISCLOSURE STANDARDS
15.1 Income Computation & Disclosure Standards 247
15.2 ICDS 248
15.3 ICDS I: Accounting Policies 248
15.4 ICDS II: Valuation of Inventories 250
15.5 ICDS III: Construction Contracts 251
15.6 ICDS IV: Revenue Recognition 254
15.7 ICDS V: Tangible Fixed Assets 255
15.8 ICDS VI: Effects of Changes in Foreign Exchange Rates 257
15.9 ICDS VII: Government Grants 260
15.10 ICDS VIII: Securities 262
15.11 ICDS IX: Borrowing Costs 264
15.12 ICDS X: Provisions, Contingent Liabilities and Contingent Assets 266
STUDY NOTE 16 : BLACK MONEY AND IMPOSITION OF TAX ACT
16.1 Black Money and Imposition of Tax Act 275
Section B - INTERNATIONAL TAXATION
STUDY NOTE 17 : INTERNATIONAL TAXATION
17.1 Introduction 284
17.2 Tax Heaven 284
17.3 Controlled Foreign Corporation (CFC) 287
17.4 Indian Perspective 288
17.5 Resident of Contracting State 290
17.6 Agreement with foreign countries [Sec. 90] [Bilateral Relief] 291
17.7 Adoption by Central Government of agreements between specified associations for double 294
taxation relief [Sec. 90A]
17.8 Countries with which no agreement exists [Sec. 91] [Unilateral Relief] 294
17.9 The Concepts of Permanent Establishment (PE) 296
17.10 Taxation of Business Process Outsourcing Units in India 297
17.11 Taxation of income from Air and Shipping Transport under DTAA 298
17.12 Computation of income from international transaction or specified domestic ansaction 299
having regard to arm’s length price [Sec. 92]
17.13 Arm’s length price [Sec. 92F(ii)] 300
17.14 Enterprise [Sec. 92F(iii)] 306
17.15 Meaning of international transaction [Sec. 92B] 306
17.16 Deemed International Transaction 307
17.17 Meaning of Specified Domestic Transactions [Sec. 92BA] 308
17.18 Meaning of associated enterprise [Sec. 92A] 308
17.19 Computation of arm’s length price [Sec. 92C] 309
17.20 Reference to Transfer Pricing Officer [Sec. 92CA] 310
17.21 Power of Board to make safe harbour rules [Sec. 92CB] 311