May 142021
 

Facts:

Assessee deductor had made payments under the head “uniform allowance”; however, the deductor had neither included this allowance to the total salary payments nor had he deducted tax at source (TDS) on such income.

The assessee had disclosed in writing that out of around 790 to 800 employees at Hazira, 752 employees had taken this reimbursement on the basis of self-certification and thus, it has not been included in the gross salary chargeable to TDS under section 192 of the Act for the financial year in question presuming that since the employees had given self-certification, they might have incurred or would be incurring such expenditure. Therefore, no further check had been observed by the deductor as to whether they had actually incurred such expenditure or not, and original/genuine and real bills and vouchers to this effect were not taken at the relevant point of time during the relevant financial year.

Section 10(14)(i) of the Act provides that any such special allowance or benefit, not being in the nature of a perquisite within the meaning of clause (2) of section 17, specially granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, as may be prescribed to the extent to which such expenses are actually incurred for that purpose are not to be included in the total income of the assessee

Thus, the assessee had claimed expenditure incurred towards uniform allowance as exempt section 10(14)(i) of the Act on the basis of self-certification by the concerned employees without calling for any proof in the nature of bills, vouchers, etc. regarding such expenditure having been actually incurred and without due verification.

Section 10(14)(i) on the above point:

Section 10 of the Act provides that the total income of a previous year of any person falling in any of the clauses set out thereunder shall not be included. Sub-clause (i) of clause (14) thereof, as it stood at the relevant time, reads thus:

“(14) (i) any such special allowance or benefit, not being in the nature of a perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of duties of an office or employment of profit, as may be prescribed, to the extent to which such expenses are actually incurred for that purpose.”

Rule 2BB of the rules prescribe the allowances for the purpose of clause (14) of section 10. The allowances enumerated under sub-rule (1) thereof are prescribed for the purposes of clause (14) of section 10. The allowance prescribed by clause (f) of Rule 2BB(1) of the rules is any allowance granted to meet the expenditure incurred on the purchase or maintenance of uniform for wear during the performance of the duties of an office or employment of profit.

 

 

Analysis:

The present case relates to uniform allowance, which as noticed earlier is exempt from tax under section 10(14)(i) of the Act read with rule 2BB(1)(f) of the rules to the extent to which such expenses are actually incurred for that purpose. Under the Act, the liability to the employer is to deduct tax at source to the extent of the taxable income of the employee. If any part of such income is exempt, there is no liability to deduct tax at source from such income. Since liability to pay tax under the Act is of the individual employee and the liability on the part of the employer is only to deduct tax at source, Circular No. 15 dated 8-5-1969 provides that self-certification on the part of the employee is sufficient for the disbursing officer for calculation of the tax-deductible at the source. While the said circular relates to conveyances, the underlying principle can well be applied even in the case of uniform allowance. Therefore, if an employee gives a certificate certifying that he had incurred certain expenditure towards uniforms and maintenance thereof, insofar as the disbursing officer is concerned, that would be adequate while calculating the tax deductible at source.

However, if no uniform was prescribed by the employer then, the payment of allowance under the head of the uniform allowance would not fall within the exemption clause of section 10(14)(i) of the Act read with rule 2BB of the rules.

May 122021
 

Facts:

This issue relates to a gift of Rs.50,000 received from the father of the assessee and a gift of Rs.50,000 from the sister-in-law. However, the assessee is unable to explain the occasion of receiving such gifts.

Following are undisputed facts in the above case:

  1. Gifts have been received through the banking channel
  2. The identity of the donors is well established.
  3. Both the donors, i.e., the father and sister-in-law, fall under the category of relatives provided in explanation (e) of section 56(2).

Section 56(2)(v), (vi) & (vii)

Where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1st day of September 2004 59[but before the 1st day of April 2006], the whole of such sum :

Provided that this clause shall not apply to any sum of money received—

 

(a) from any relative; or
(b) on the occasion of the marriage of the individual; or
(c) under a will or by way of inheritance; or
(d) in contemplation of death of the payer; or
60[(e) from any local authority as defined in the Explanation to clause (20) of section 10; or
(f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
(g) from any trust or institution registered under 60a[60aa[section 12AA]].]

 

Explanation.—For the purposes of this clause, “relative”61 means—

 

(i) spouse of the individual;
(ii) brother or sister of the individual;
(iii) brother or sister of the spouse of the individual;
(iv) brother or sister of either of the parents of the individual;
(v) any lineal ascendant or descendant of the individual;
(vi) any lineal ascendant or descendant of the spouse of the individual;
(vii) spouse of the person referred to in clauses (ii) to (vi);]

 

62[(vi) where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received without consideration, by an individual or a Hindu undivided family, in any previous year from any person or persons on or after the 1st day of April 2006 63[but before the 1st day of October 2009], the whole of the aggregate value of such sum:

Analysis of Section 56(2):

From a perusal of section 56 sub-section (2) as well as explanation (e), we find that sections 56(2)(v), 56(2)(vi) & 56(2)(vii) which provides a cap of the sum received without consideration by an individual or Hindu Undivided Family (HUF) to be taxed as income from other sources, if amount exceeding the cap provided in these sub-sections is received by the assessee.

However, the above sub-sections 56(2)(v), 56(2)(vi) & 56(2)(vii) shall not be applicable if any sum is received from any relative ( as defined in explanation (e) to section 56).

There is no mention about the occasion to be a necessary condition for receiving any sum from any relative.

Conclusion:

In the instant case, the alleged gifts of Rs.50,000/-, Rs.1,00,000/- and Rs.50,000/- for A.Ys. 2004-05, 2005-06 & 2006-07 have been received from relatives of the assessee i.e. father and sister-in-law through account payee cheques/demand draft. Therefore, the same cannot be included in the income of the assessee by any cannon of law.

Hence, the above payments can not be added on account of unexplained gifts for all three assessment years.

May 102021
 

Facts:

Whether, a third partly viz., National Financial Switch and Cash Tree has been acting as an agent by collecting charges from the bank for its services rendered to the bank as an intermediary between the bank and its customers? Or

Whether there is a relationship between the parties shall be regarded as a principal-to-principal basis?

And therefore, whether the provisions of section 194H apply and whether the bank is liable to deduct TDS on each transaction of service charge payable to a third party.

Relevant Rules:

Section 194H – TDS on Commission, brokerage, etc.

(1) Any person, not being an individual or a Hindu Undivided Family, who is responsible for paying, on or after the 1st day of October 1991, but before the 1st day of June 1992 to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten percent.

(2) The provisions of sub-section (1) shall not apply-

(a) to such persons or class or classes of persons as the Central Government may, having regard to the extent of inconvenience caused or likely to be caused to them and being satisfied that it will not be prejudicial to the interests of the revenue, by notification in the Official Gazette 4, specify in this behalf;
(b) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed two thousand five hundred rupees.
Explanation.- For the purposes of this section,-
(i) ” commission or brokerage” includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or concerning any transaction relating to any asset, valuable article or thing;
(ii) ” professional services” means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA;
(iii) where any income is credited to any account, whether called “Suspense Account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

 

Analysis of facts and Section 194H:

Mode of working:

Suppose, the credit card issued by the bank was used on the swiping machine of another bank, the customer whose credit card was used got access to the internet gateway of acquiring bank resulting in the realization of the payment.

Subsequently, the acquiring bank realizes and recovers the payment from the bank, which had issued the credit card.

Analysis of working in the eyes of law:

The relationship between the assessee and any other bank is not of an agency but that of two independent bases on a principal-principal basis.

Even assuming that the transaction was being routed to National Financial Switch and Cash Tree, then also it is pertinent to mention here that the same is a consortium of banks and no commission or brokerage is paid to it.

if the payment was received or is receivable directly or indirectly by a person acting on behalf of another person for services rendered not being professional and for any services in the course of buying and selling of goods or in relation to any transaction relating to an asset, valuable article or thing.

Also, from a perusal of section 194H, it is evident that the provision would apply if the payment was received or is receivable directly or indirectly by a person acting on behalf of another person for services rendered not being professional and for any services in the course of buying and selling of goods or in relation to any transaction relating to an asset, valuable article or thing.

Conclusion:

Thus, in the instant case, the third party and the bank are acting as independent parties and hence, the bank is not liable to deduct TDS on service charges payable to a third-party agency.

May 072021
 

Due dates for the Month of May 2021
7th
INCOME TAX
– TDS Payment for April.
10th
GST
– Return of authorities deducting tax at source – GSTR 7 for April.
– Details of supplies effected through e-commerce operator and the amount of tax collected – GSTR 8 for April.
11th
GST
– Details of outward supplies of taxable goods and/or services effected – GSTR 1 for April.
13th
GST
– Return for Input Service Distributor – GSTR 6 for April.
15th
Providend Fund
– PF Payment for April.
ESIC
– ESIC Payment for April.
20th
GST
– Monthly return on the basis of finalization of details of outward supplies and inward supplies along with the payment of the amount of tax – GSTR 3B for April.
– Return for Non-Resident foreign taxable person – GSTR 5 for April.
22nd
GST
– GSTR 3B for April if turnover below Rs. 5 Crore for Gujrat, Madhya Pradesh, Chattisgarh, Maharashtra, Telangana. Andhra Pradesh, Karnataka, Goa, Kerala, Tamil Nadu, Puducherry, Dadra & Nagar Haveli.
24th
GST
– GSTR 3B for April if turnover below Rs. 5 Crore for the Rest of India.
28th
GST
– Details of Inward Supplies to be furnished by a person having UIN and claiming refund – GSR 11 for
April.
30th
LLP
– Form 11 – Annual Return for Previous Financial Year.
31st
PROF. TAX
– Monthly Return for Tax Liability of Rs. 100,000 & above.
INCOME TAX
– TDS/TCS Quarterly Statements (Other than Government Deductor) for January to March
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May 052021
 

Facts:

Liabilities Assets
Capital a/c

Income earned during the year                         Rs 35,0000

Investment

(For claiming deduction u/s 80CCA & 80CCB)

National Savings Scheme – Rs 40,000

Unit Trust of India – Rs 10,000

Unsecured loans                                                 Rs 2,05,000 Loan and Advances

M/s. Ganesh Prasad Hira Lal – Rs 200,000

Less: withdrawals – (Rs 50,000)

(Invested in NSC and UTI) – Rs 150,000

Whether the above claims of deductions against investment be rejected on the ground that the same had not come out of income chargeable to tax?

Relevant rules:

Section 80CCA – Deduction in respect of deposits under National Savings Scheme or payment to a deferred annuity plan. (1) Where an assessee, being—

(a) an individual, or
(b) a Hindu undivided family, 19[***]
(c) 20[***]

has in the previous year—

(i) deposited any amount in accordance with such scheme as the Central Government may, by notification21 in the Official Gazette, specify in this behalf 22[* * *]; or
(ii) paid any amount to effect or to keep in force a contract for such annuity plan of the Life Insurance Corporation as the Central Government may, by notification23 in the Official Gazette, specify,

out of his income chargeable to tax, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income of the whole of the amount deposited or paid (excluding interest or bonus accrued or credited to the assessee’s account, if any) as does not exceed the amount of twenty thousand rupees in the previous year :

Section 80CCB – Deduction in respect of investment made under Equity Linked Savings Scheme. (1) Where an assessee, being—

(a) an individual, or
(b) a Hindu undivided family, 31[* * *]
(c) 32[* * *]

has acquired in the previous year, out of his income chargeable to tax, units of any Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), under any plan formulated in accordance with such scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf (hereafter in this section referred to as the Equity Linked Savings Scheme), he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income of so much of the amount invested as does not exceed the amount of ten thousand rupees in the previous year :

Analysis of principles for claiming deductions out of investments made under section 80CCA etc:

  1. Investment in National Savings Certificates, etc. for claiming deduction under section 80C of the Act, need not be from the income earned up to that period.
  2. It is sufficient – if the total income for that year covers the investment

Thus, in the instant case assessee’s current year income is sufficient to cover the current year’s investment and hence deductions shall be allowed for the aforesaid investments. Thus, the mathematical rule for claiming deductions under section 80CCA and section 80CCB would be:

An aggregate of investments under section 80CCA and section 80CCB < Gross taxable income of the previous year whose tax liability needs to be calculated
May 032021
 

Facts:

Whether the assessees are not entitled to deduction u/s 80C of the Act on the LIC premium paid in respect of his LIC policies if:

  • Assessee derives salary income from a concern named M/s SME. Thus, filing his return of income under the salary and income from other sources and claiming deduction u/s 80C of Rs. 1,00,000/-.
  • The above premium amounts were paid by the Grandfather of the assessee
  • The grandfather was the proprietor of M/s SVR where –
    • LIC accounts were shown as assets
    • The above amounts were duly debited to the account of the assessee in the books of the proprietary concern of his grandfather.
    • The assessee could not pass corresponding credit entry, since he did not maintain books of account

So the question arises, whether LIC premium so paid by his grandfather would be eligible as a deduction to the assessee in a case where the assessee neither in receipt of any loan nor a gift from his grandfather? Or for ease in understanding can LIC premium be said to be paid by the assessee or his grandfather.

Analysis of section 80C:

Analysis of 80C before the introduction of rebate u/s 88 Analysis of 80C after the introduction of rebate u/s 88
The old provisions of sec. 80C which prescribed the condition that the eligible payments should have been made out of income chargeable to tax.

B. Deductions in respect of certain payments

The present provisions of sec. 80C do not contain the words “out of income chargeable to tax”.
54a[55[Deduction in respect of life insurance premia, contributions to provident fund, etc.

5680C.57[(1In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section, an amount calculated, with reference to the aggregate of the sums specified in sub-section (2), at the following rates, namely:

where such aggregate does not exceed Rs.6,000 the whole of such aggregate;
(b) where such aggregate exceeds Rs. 6,000 but does not exceed Rs. 12,000 Rs. 6,000 plus 50 percent of the amount by which such aggregate exceeds Rs. 6,000;
(c) where such aggregate exceeds Rs. 12,000 Rs. 9,000 plus 40 percent of the amount by which such aggregate exceeds Rs. 12,000.]

(2)       The sums referred to in sub-section (1) shall be the follow ing, namely:

            (a)        where the assessee is an individual, any sums paid in the previous year by the assessee out of his income chargeable to tax

77[Deduction in respect of life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc.

7880C.7980(1) In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted, in accordance with and subject to the provisions of this section, the whole of the amount paid or deposited in the previous year, being the aggregate of the sums referred to in sub-section (2), as does not exceed 81[one hundred and fifty thousand rupees].

 

Thus, it can be inferred that:

  1. The deduction under sec. 80C shall be made if the sums specified in sub-section (2) are paid or deposited in the previous year.
  2. It does not place any condition about the source for making the payments or deposit.
  3. Further, the deduction is given while computing the total income, i.e., out of gross total income.