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June 29 To July 5, 2019 u Taxmann’s Corporate Professionals Today u Vol. 45 u 12all expenses in excess of ` 10,000 through
banking channels.
Section 11 of the Income-tax Act was amended
to provide that provisions of TDS disallowance
under section 40(a)(ia) and expenses disallowance
under section 40A(3) and 40A(3A) shall be
applicable while computing the application
of income in case of trusts or institutions.
It is interesting to note that in respect of
TDS, only the provision of sub-clause (ia)
of section 40(a) was inserted in Section 11.
This sub-clause talks about disallowance only
in case where tax isn’t deducted from sum
payable to a resident person. Legislature
inadvertently missed the inclusion of sub-
clause (i) which talks about disallowance if
payment to non-residents is made without
deduction of tax at source.
It is expected that Union Budget, 2019 shall
amend section 11 and include non-deduction of
expense if tax is not deducted from payment
to non-resident.- Notional interest on security deposit
received by landlord for letting out the
property
Deposit of security amount is a usual practice
at the time of letting out a property. There
is no provision in the Income-tax Act to
calculate and include the notional interest
on such security amount while calculating
the income from house property.
The Courts have consistently held that notional
interest on interest free security deposit
shall not be taken into consideration while
computing ALV of house property let out
by the taxpayers.
It is suggested that the upcoming Budget
should bring suitable amendments to end
the litigations on this count. If the security
deposit is reasonable (equivalent to average
rent for 3 months) no notional interest should
be added to the income from house property.
25. Meaning of the term ‘Month’ and
computation thereof
As per the provisions of section 201(1A), in
case of failure to deduct TDS, interest is to
be paid at the rate of 1.5% from the date of
deduction to the date of payment. Any part
of the month shall be considered as one full
month. So, the understanding should be that
if TDS is deducted on April 23, 2019 and
payment is made on 8th May, 2019, interest
should be paid for one month.
However, Income-tax Dept. calculates interest
for 2 months because it considers April and
May as two separate calendar months. So,
the scenario is that even if the TDS is late
by 1 day, interest is calculated for 2 months
which seems to be an absurd situation.
The ITAT in the case of Bank of Baroda v.
DCIT [2017] 88 taxmann.com 103 (Ahmedabad- Trib.) also held that interest was to be
levied only for actual period of delay, i.e.,
from date on which tax was deducted and
till date on which tax was deposited. If
such a period exceeded one month then
full month’s interest was leviable. It is very
common problem that every deductor faces in
all those provisions where interest or fees is
calculated in reference to ‘month’ of default.
Thus, it would be advisable that Income-tax
Act should explicitly define the meaning of
the expression ‘month’.
- Deductibility of discount given on
ESOPs
Some of recent judicial pronouncements
suggest that the tax fraternity is grappling
with the controversy on the tax treatment
of the discounts on the shares issued to the
employees under ESOPs.
The revenue has been contending that the said
discounts can never be allowed as deductions
on the following grounds:
- Trib.) also held that interest was to be
EXPECTATIONS FROM AND RECOMMENDATIONS FOR UNION BUDGET 2019