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August 2018

Direct Tax Amicus: June 2018

by Bharathi Krishnaprasad

Retention money - Is recognition as contract revenue sufficient to tax it early?

The Central Government, in September 2016, introduced Income Computation and Disclosure Standards (shortly, ‘ICDS’), under the Income tax law, that would govern computation of income of an assessee under the head ‘profits or gains from business or profession’ and ‘income from other sources’ necessitated a taxpayer to take a fresh look at certain issues which were accepted as settled. The Delhi High Court struck down many portions of the ICDS. However by way of amendments to Income Tax Act, 1961 a fresh lease of life has been given to the notified ICDS after the ruling of the Hon’ble Delhi High Court. This article takes a look at one such issue, viz., taxability of retention monies. Retentions, in common parlance, are contractual amounts withheld by a contractee from a contractor, to be paid in future to such contractor only on completion/‘satisfactory’ completion of work undertaken. One may argue that there exists a complete uncertainty as to whether a taxpayer would at all be eligible to receive either whole or part of the sum and hence taxing such retentions would tantamount to taxing hypothetical income which is not permissible, absent a legal fiction to tax the same Depending on the terms of the contract and surrounding facts and circumstances of the case, it may be possible to argue that even after the amendment vide Finance Act, 2018 the retention money does not accrue until the time of its receipt...

 

Ratio decidendi

  • Time limit to deposit TDS – Amendment in Section 40(a)(ia) applicable retrospectively – Supreme Court
  • Encashment of bank guarantee is revenue expenditure qualifying deduction – ITAT Delhi
  • Assessment of total income under Section 143 can be completed below returned income – ITAT Kolkata
  • Section 10AA deduction on trading, warehousing and consultancy income – Provisions of SEZ Act override Income Tax laws – ITAT Kolkata
  • Taxability of Inland Haulage Charges under India-France DTAA – ITAT Mumbai
  • Deduction under Section 80-IC triggers from initial year of substantial expansion – Supreme Court
  • Service of notice to security guard is valid – Delhi High Court
  • No business profit where principle of mutuality satisfied and service not restricted to specific members – AAR, New Delhi
  • Permanent establishment in respect of hotel business – AAR has power to look at entire contract not just part of it – AAR, New Delhi

 

News Nuggets

  • Amendment proposed to Rule 10B on computation of interest pursuant to secondary adjustment

 

June, 2018/Issue-46 June, 2018/Issue-46

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