JUDICIAL PRONOUNCEMENTS
TRIBUNAL DECISIONS
Adesh Foundation (Regd.) vs. Commissioner of Income-tax (Exemptions), Chandigarh 105 taxmann.com 13 (Amritsar Trib.) [18/3/2019]

Section 80G approval can not be denied simply because there may be possibility of misuse of donations:

It is reported many a times that CIT Exemption deny the approval on the ground which are beyond the objectives of the IT Act.

Similarly, registration u/s. 12AA and approval u/s. 80G is also denied for the reason that it could be misused if registration or approval is granted.

This decision speaks about the scope of the powers of CIT while working on such application. It is expressely concluded that section 80G approval couldn’t be denied just because there may be possibility of misuse of donations.

Merely because assessee charitable educational institution was prosperous and failed to state as to why there was need for donations and it failed to submit list of proposed donors, approval under section 80(5)(vi) could not be denied merely upon possibility of misuse of donations.

Section 71, Read with Section 115BBE, of the Income-Tax Act, 1961 – Losses – Set off of from one head against Income from an other – Clarification regarding Non-Allowability of Setoff of losses against the deemed Income under Section 115BBE of the Income Tax Act, 1961 Prior to Assessment Year 2017-18
Circular No. 11/2019 [F.No.225/45/2019-ITA.II], dated 19/6/2019

With effect from 1-4-2017, sub-section (2) of section 115BBE of the Income-tax Act, 1961 (Act) provides that where total income of an assessee includes any income referred to in section(s) 68/69/69A/69B/69C/69D of the Act, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provisions of the Act in computing the income referred to in section 115BBE(1) of the Act.

In this regard, it has been brought to the notice of the Central Board of Direct Taxes (the Board) that in assessments prior to assessment year 2017-18, while some of the Assessing Officers have allowed set off of losses against the additions made by them under section(s) 68/69/69A/69B/69C/69D, in some cases, set off of losses against the additions made under section 115BBE(1) of the Act have not been allowed. As the amendment inserting the words ‘or set off of any loss’ is applicable with effect from 1st of April, 2017 and applies from assessment year 2017-18 onwards, conflicting views have been taken by the Assessing Officers in assessments for years prior to assessment year 2017-18. The matter has been referred to the Board so that a consistent approach is adopted by the Assessing Officers while applying provision of section 115BBE in assessments for period prior to the assessment year 2017-18.

The Board has examined the matter. The Circular No. 3/2017 of the Board dated 20th January, 2017 which contains Explanatory notes to the provisions of the Finance Act, 2016, at para 46.2, regarding amendment made in section 115BBE(2) of the Act mentions that currently there is uncertainty on the issue of set-off of losses against income referred to in section 115BBE. It also further mentions that the pre-amended provision of section 115BBE of the Act did not convey the intention that losses shall not be allowed to be setoff against income referred to in section 115BBE of the Act and hence, the amendment was made vide the Finance Act, 2016.

Thus keeping the legislative intent behind amendment in section 115BBE(2) vide the Finance Act, 2016 to remove any ambiguity of interpretation, the Board is of the view that since the term ‘or set off of any loss’ was specifically inserted only vide the Finance Act 2016, w.e.f. 1/4/2017, an assessee is entitled to claim set-off of loss against income determined under section 115BBE of the Act till the assessment year 2016-17.

Section 115UB of the Income-Tax Act, 1961 – Tax on Income of Investment Fund and its unit Holders – Clarification regarding Taxability of Income earned by a Non-Resident Investor from Off-Shore Investments Routed through an Alternate Investment Fund
Circular No. 14/2019 [F.No. 225/79/2019-ITA.II], dated 3/7/2019

In the context of Alternate Investment Funds (AIFs), references have been made to the Central Board of Direct Taxes (the Board) seeking clarity regarding taxability of income from investments made by the non-resident investor through these AIFs, outside India (off-shore investment).
The incidence of tax arising from off-shore investment made by a non-resident investor through the AIFs would depend on determination of status of income of non-resident investor as per provisions of section 5(2) of the Income-tax Act, 1961 (Act). As per section 5(2) of the Act, the income of a person who is non-resident, is liable to be taxed in India if it is received or is deemed to be received in India in such year by or on behalf of such person; or accrues or arises or is deemed to accrue or arise to him in India.

Chapter XII-FB contains special provisions relating to tax on income of investment funds and income received from such funds. Under Chapter XII-FB, section 115UB of the Act (“Tax on income of investment fund and its unit holders) is the applicable provision to determine the income and tax-liability of investment funds & their investors. In this context, Investment fund” is defined in Explanation 1 of Chapter XII-FB to mean any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate of registration as a Category I or Category II Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992). Thus, provisions of section 115UB apply only to Category I or Category II AIFs, as defined in SEBIs regulations.

By an overriding effect over other provisions of the Act, sub-section (1) of section 115UB of the Act provides that any income accruing or arising to, or received by, a person, being a unit holder of an investment fund, out of investments made in the investment fund, shall be chargeable to income-tax in the same manner as if it were the income accruing or arising to, or received by, such person had the investments made by the investment fund been made directly by him and not through the AIF.

The matter has been considered by the Board, As section 115UB(1) of the Act provides that the investments made by Category I or Category II AIFs are deemed to have been made by the investor directly, it is hereby clarified that any income in the hands of the non-resident investor from off-shore investments routed through the Category I or Category II AIF, being a deemed direct investment outside India by the non-resident investor, is not taxable in India under section 5(2) of the Act.

It is further clarified that loss arising from the off-shore investment relating to non-resident investor, being an exempt loss, shall not be allowed to be set-off or carried-forward and set off against the income of the Category I or Category II AIF.