The Finance Bill, 2013, as introduced in Parliament is available here. Among the amendments introduced, one which has caused some concern is an amendment which states that Tax Residency Certificates are necessary but not sufficient. Much of the concern appears to be undue. Under the general law, TRCs are not conclusive as to residence. The amendment indicates that they are not 'sufficient'; and a subsequent press release has indicated that the Department will not attempt to use this amendment to go behind all TRCs. The Supreme Court in Azadi Bachao had held that a Mauritius TRC is conclusive: this was on the basis of a specific Circular issued by the CBDT in relation to the Mauritius treaty. Until the Circular is withdrawn, the position in respect of Mauritius should continue to be the same.
Another set of amendments has been in relation to the GAAR, which has been deferred to 1st April 2016 (which should mean that the provisions shall be effective from FY 2015-16, AY 2016-17 onwards). The scope of what constitutes an impermissible avoidance arrangement has been somewhat narrowed - an arrangement the main purpose (as opposed to 'one of the main purposes') of which is to obtain a tax benefit would be covered. If the main purpose of the transaction as a whole is not tax benefit, but that of a step in the transaction is, then the transaction would be presumed to be an impermissible avoidance arrangement. Factors such as the period of time for which the arrangement had existed, the fact of payment of taxes by the assessee under the structure adopted, and the fact that an exit route was provided by the arrangement, would be relevant but not sufficient to determine whether the arrangement is an impermissible avoidance arrangement. The constitution of the Approving Panel has been widened to include non-revenue participation. The Panel would be headed by a serving or retired High Court judge; and would also consist of one senior Revenue officer and one external expert/scholar. Directions of the Panel are stated to be final and binding on both, the Revenue as well as assessees.
In the context of domestic taxation, there appear to be a number of changes introduced. The position of law (as per the Bombay High Court in Dinesh Tailor v. TRO 326 ITR 85) was that a director of a private company could in certain circumstances be liable for the tax demand, but not for the interest or penalty levied, on the private company. It has now been clarified that 'tax' in this context shall include interest and penalty. Amendments have been introduced effectively resulting in the application of s. 50C to certain business assets too (contrary to the views taken by some High Courts). There are some amendments to the definition of agricultural land; including one amendment stating that the distance of the land from municipal limits (which is one of the tests) is to be measured aerially (and not by road, as held by the Punjab and Haryana High Court). A new investment allowance is proposed to be introduced for a limited duration, by bringing in the new s. 32AC. Receipt of immovable property for inadequate consideration is brought within the tax net: the difference between the consideration and the stamp duty valuation is taxable in the hands of the recipient u/s 56 (and this is in addition to any liability which may be incurred by the transferor u/s 50C). TDS has also been introduced on transactions involving transfers of immovable property for consideration above Rs. 50,00,000.
Several amendments and new provisions in respect of venture capital funds, securitisation trusts etc have been introduced, as has been a new charge on certain companies in respect of buybacks; and we shall examine these provisions in a separate post.