“Direct tax – Important due dates for January 2023, Income Tax updates – December 2022”

Table of Contents
1. Due Dates for Income Tax Compliance – January 2023
Notifications
2. CBDT exempts NR not having PAN from mandatory e-filing of Form 10F till 31-03-2023
3. CBDT issues circular on TDS from salaries for Financial Year 2022-23
Other Matters
4. UAE bring the law to levy 9% corporate tax with effect from 1st June 2023
5. Repealing Section 144B(9) by FA 2022 with retrospective effect isn’t unconstitutional: High Court
6. Marked-to-market loss from forward contracts deductible under Section 37(1): Delhi High Court

1.Due Date for Income tax Compliance (January 2023)

Due Date Compliance
7 January 2023 Deposit of TDS/ TCS deducted/collected for the month of December, 2022
14 January 2023 Issue of TDS Certificates for tax deducted in the month of November, 2022 on:

• Transfer of Immovable property (S.194-IA);
• Payment of Rent for use of Land or Building (S. 194-IB);
• Payment by Individuals/ HUF for carrying out any work, brokerage, professional fee above 50 lakhs (S. 194M).

15 January 2023 Quarterly statement of TCS for the quarter ending December 31, 2022
15 January 2023 Due date for furnishing of Form 24G by an office of the Government where TDS/TCS for the month of December, 2022 has been paid without the production of a challan​
15 January 2023 Quarterly statement in respect of foreign remittances (to be furnished by authorized dealers) in Form No. 15CC for quarter ending December, 2022​
15 January 2023 Due date for furnishing of Form 15G/15H declarations received during the quarter ending December, 2022
30 January 2023 Furnishing of TDS Return challan-cum-statement) in respect of tax deducted in the month of December, 2022 on:

• Transfer of Immovable property (S.194-IA);
• Payment of Rent for use of Land or Building (S. 194-IB);
• Payment by Individuals/ HUF for carrying out any work, brokerage, professional fee above 50 lakhs (S. 194M)
• Payment by way of consideration for transfer of a virtual digital asset(194S)

30 January 2023 Quarterly TCS certificate in respect of quarter ending December 31, 2022
31 January 2023 ​Quarterly statement of TDS for the quarter ending December 31, 2022
31 January 2023 Quarterly return of non-deduction at source by a banking company from interest on time deposit in respect of the quarter ending December 31, 2022
31 January 2023 Intimation under section 286(1) in Form No. 3CEAC, by a resident constituent entity of an international group whose parent is non-resident

Notifications
2.CBDT exempts NR not having PAN from mandatory e-filing of Form 10F till 31-03-2023

This Tax Alert summarizes a recent Notification dated 12th December 2022 issued by the Central Board of Direct Taxes (CBDT) prescribing Partial relaxation with respect to electronic submission of Form 10F by select category of taxpayers in accordance with the DGIT (Systems) Notification No. 3 Of 2022.
A non-resident can claim relief under a DTAA entered into between India and his resident country only if he obtains a Tax Residency Certificate (TRC) of his being a resident of such country. Such non-resident is also required to furnish some additional information in Form No. 10F.

The Central Board of Direct Taxes (CBDT) vide notification No. 03/2022, dated 16-07-2022 made it compulsory for the taxpayer to furnish Form 10F electronically. However, non-residents who don’t have PAN are facing difficulties in fulfilling this statutory compliance requirement.

To address genuine hardship, the CBDT has allowed non-residents who are not required to have a PAN under the Income-tax Act, 1961 to manually file Form 10F. These NRs may continue to manually file Form 10F until March 31, 2023, as was previously done before the issuance of Notification No. 3 of 2022.

3. CBDT issues circular on TDS from salaries for Financial Year 2022-23

The Central Board of Direct Taxes (CBDT) has issued a circular for the deduction of tax at source from salaries. CBDT has explained the obligation of employers with regard to the deduction of tax at source from salaries under section 192 of the Income-tax Act, 1961 for the Financial Year 2022-23 in a comprehensive manner.As per section 192, any person responsible for paying salary income must deduct income tax at the time of payment. The tax should be deducted at the average rate, calculated based on the rates in force for the current financial year, on the estimated salary income of the recipient for that year.

As per Section 192 also states that the person responsible for paying salary income must provide the recipient with a statement giving correct and complete particulars of perquisites or profits in lieu of salary provided to him and the value thereof.

This circular contains guidance for tax deduction at source on salaried payable to employees considering the various provisions of the Income-tax Act.

4. UAE bring the law to levy 9% corporate tax with effect from 1st June 2023

The Ministry of Finance of the United Arab Emirates (UAE) has published Federal Decree-Law No. 47 of 2022, providing the legislative framework to levy corporate tax on business profits in the UAE.

UAE Corporate Tax (UAE CT) will become effective for financial years starting on or after 1st June 2023. It shall apply to:
(a) Individuals who are engaged in a business or business activity in UAE through an unincorporated partnership or sole proprietorship;
(b) Juridical persons incorporated in the UAE;
(c) Juridical persons effectively managed and controlled in the UAE; and
(d) Foreign juridical persons that have a Permanent Establishment in the UAE.

The decree provides that the financial statements of businesses should be prepared in accordance with accounting standards accepted in the UAE. Taxpayers should prepare financial statements on an accrual basis unless they are permitted to use the cash basis of accounting.Further, to determine the taxable income, transactions and arrangements between related parties must meet the arm’s length standard. The arm’s length result of a transaction must be determined by applying one or a combination of the prescribed transfer pricing methods.The corporate tax shall be imposed on the taxable income at the following rates:
(a) For individuals and juridical persons: 9% of taxable income that exceeds the specified amount (to be decided by cabinet).
(b) In the case of Qualifying Free Zone Persons: 9% of taxable income which does not meet the qualifying income definition.

5.Repealing Section 144B(9) by FA 2022 with retrospective effect isn’t unconstitutional: High Court
{ [2022] 145 taxmann.com 557 (Allahabad) HIGH COURT OF ALLAHABAD Sapna Flour Mills Ltd. v. Union of India }

The assessee was engaged in the business of running a flour mill, manufacturing flour from wheat. The assessee filed a writ petition before the Allahabad High Court on the grounds that the omission of sub-section (9) of Section 144B of the Income-tax Act was unconstitutional.Section 144B(9) provided that the assessment proceedings would be invalid if the specified procedure of faceless assessment were not followed. The Finance Act 2022 had omitted the provisions of sub-section (9) of Section 144B with retrospective effect, i.e. from 01-04-2021, i.e. from the date of its inception.

It was argued that the omission of Section 144B(9) makes the entire Section 144B unconstitutional since the omission of the check/safeguard would result in an arbitrary, whimsical, capricious decision-making process.

The High Court held that sub-section (9) of Section 144B was omitted to streamline the faceless assessment process and address legal and procedural issues that arose during the implementation of this section, which was introduced in 2020.

The amendments made by the Finance Act 2022, which are the subject of this challenge, are procedural in nature and are intended to simplify the process and resolve any issues that have arisen.

The omission of sub-section (9) of Section 144B was with various new measures for checks and balances having been provided in the procedure prescribed under Section 144B.

For instance, under the pre-amendment version of Section 144B, an assessee could request a personal hearing, and this request would only be granted if the Chief Commissioner or Director General believed the request met certain criteria. However, the amendments made by the Finance Act of 2022 to Section 144B have changed this process, and personal hearing is allowed without any approval.

Sub-section (9) of Section 144B, which is a procedural statute, did not give the taxpayer any rights, including substantive rights. It only outlined a procedure for conducting an assessment and stated that it would be considered invalid if the assessment was not conducted in accordance with this procedure.

The purpose of sub-section (9) of section 144B was to place a burden on the department rather than granting rights to the taxpayer. The inclusion of this sub-section has caused numerous technical legal disputes due to difficulties in implementing the faceless assessment process, as noted in the amendment bill.

Thus, the challenge to the amendment brought by the Finance Act 2022, omitting sub-section (9) of Section 144B, cannot be sustained.

6. Marked-to-market loss from forward contracts deductible under Section 37(1): Delhi High Court

In the instant case, the assessee was engaged in the business of providing engineering, consultancy, and related services. The assessee claimed a loss of Rs. 9.20 crores against a forward contract entered into to hedge the risk against foreign exchange fluctuations to cover the exports and imports. Out of the total loss, the loss of Rs. 7.12 crores was related to unmatured forward contracts.

The Assessing Officer (AO) held that the loss on forward contracts was speculative and to be disallowed in terms of the CBDT Instruction No. 3/2010. The said Instruction explained ‘Marked to Market’ as a concept where financial instruments are valued at market rate to report their actual value on the date of reporting. Such ‘Marked to Market’ losses represent notional losses and are required to be added back to compute taxable income.

On appeal, the CIT(A) set aside the disallowance. On further appeal, the Tribunal concurred with the decision of the CIT(A) and held that the loss on forward contracts could not be disallowed in terms of the CBDT Instruction. Aggrieved-AO filed the instant appeal before the Delhi High Court.

The main questions raised before the High Court were whether the losses on account of foreign exchange fluctuations on forward contracts are allowable under Section 37(1) and covered as hedging transactions under Section 43(5)(a) or should be disallowed as speculation losses under Section 43(5) of the Act in view of the CBDT Instruction No. 3/2010?

The High Court held that there is no dispute that the forward contracts were entered into by the assessee to hedge against foreign exchange fluctuations. Thus, the transaction falls within the exceptions of proviso (a) to Section 43(5) of the Act and should not be treated as speculative. The Court held that the forward contracts, in the present case, are hedging transactions.

On the issue of the deductibility of the loss, the High Court relied on the case of the CIT v. Woodward Governor India Pvt. Ltd. [2009] 179 Taxman 326 (SC), wherein the Supreme Court had referred to AS-11. In terms of AS-11, the exchange difference arising on foreign currency transactions must be recognized as income or expense in the period in which they arise, except in cases of exchange differences arising on repayment of liabilities for acquiring fixed assets.

Applying the above ratio, the High Court held that as the assessee was reinstating its debtors and creditors in connection with the execution of contracts entered into with foreign entities based on the value of the foreign exchange, the loss on account of forward contracts would require to be recognized.

The Court upheld the order of CIT(A) and the Tribunal in finding that the loss, on account of Forward Contracts, cannot be considered speculative, and the AO had erred in disallowing the same.