Tax Residency Certificate - A pre-requisite to claim Tax Credit under Double Taxation Avoidance Agreement

In exercise of the powers conferred to it by section 90 and 90A read with section 295 of the Income-tax Act, 1961 the Central Boards of Direct Taxes has notified a circular dated 17/09/2012 making it mandatory from 1st April, 2013 for all foreigners to furnish a tax residency certificate of their home country to claim benefits under the Double Taxation Avoidance Agreement.

While at present, there is no requirement prescribed under the law to furnish a Tax Residency Certificate (TRC) from the country of residence to claim treaty benefits, the revenue authorities generally use to ask for such a certificate arbitrarily and foreigners finds themselves at the hands of Tax authorities without knowing in advance the requirements for claiming tax credits. Hence, said notification is expected to benefit the foreign investors, who will have clear understanding of the pre-requisites to claim tax credits under Double Taxation Avoidance Agreement.

The Tax Residency Certificate as mentioned above shall contain the following particulars, namely:-

1. Name of the assessee;
2. Status (individual, company, firm etc.) of the assessee;
3. Nationality (in case of individual);
4. Country or specified territory of incorporation or registration (in case of others);
5. Assessee’s tax identification number in the country or specified territory of residence or in case no such number, then, a unique number on the basis of which the person is identified by the Government of the country or the specified territory;
6. Residential status for the purposes of tax;
7. Period for which the certificate is applicable; and
8. Address of the applicant for the period for which the certificate is applicable;

The same certificate referred to above shall be duly verified by the Government of the country or the specified territory of which the assessee claims to be a resident for the purposes of tax.

S. N. SINGH Vs. UNION OF INDIA & ANR.

Judgment of the above noted case bearing Writ Petition (Civil) No. 5337 of 2012 was delivered by division bench of Hon’ble High Court of Delhi comprising of Mr. Justice Pradeep Nandrajog and Mr. Justice Manmohan Singh on 29^th August, 2012.

Question in issue in above said writ petition was “whether non-information of being arrested in a criminal case amounts to such a grave mis-conduct where severe punishment like compulsory retirement may be awarded?”  

Facts of the case is that while on sanctioned leave, the petitioner was arrested on February 17, 2011 in FIR No.32/2011 PS Kalyanpur, Kanpur, U.P. for offences punishable under Sections 147/323/325/308 IPC and remained in judicial custody till February 25, 2011 when he was admitted to bail. Thereafter, the petitioner got his leave extended up to March 23, 2011 and joined duties on March 24, 2011 but did not inform the department that he had been arrested during his leave and that the criminal case was pending. Information was received. When department came to know of petitioner’s arrest through other sources, it began departmental proceedings and issued charge sheet to the petitioner for the offence of not informing superior officers of his detention as the same amounts to mis-conduct as per Office Memo No.30/59/54-Est(A) dated February 25, 1995. Finally, petitioner was awarded sentence to undergo compulsory retirement in above said departmental proceedings.

Under this circumstance, petitioner filed above said writ petition. After hearing both sides, hon’ble bench as mentioned above opined that that the penalty of compulsory retirement is disproportionate to the gravity of the offence i.e. not reporting his being arrested and confined to prison for 9 days pertaining to a complaint lodged against the petitioner and his family members by close relations. Further, it was observed that a penalty must bear a proportion to the wrong committed.  A penalty which results in cessation of service, be it dismissal or removal from service or compulsory retirement should ordinarily be reserved for grave misconducts and the lesser penalties of reduction in rank or reduction in the pay-scale by an appropriate number of stages or withholding increments should be levied for misconducts which are not of a grave kind. 

In view of dis-proportionate punishment, above said writ was disposed quashing the penalty of compulsory retirement imposed upon the petitioner and with direction to petitioner’s reinstatement without any back-wages, leaving it open to the Competent Authority to levy an appropriate penalty upon the petitioner, but not of a kind where the petitioner would lose his job.  

Scott R. Bayman vs Commissioner of Income Tax

Judgment of the above noted case bearing ITA No. 285 of 2003 directed against an order of Income Tax Appeallate Tribunal in ITA No. 1617/Del/1997 was delivered by bench of Hon'ble High Court of Delhi comprising of Mr. Justice S. Ravindra Bhat and Mr. Justice R. V. Easwar on 17th August, 2012.

Question in issue in above said matter was “whether the amount spent by the employer towards the repair of building would be covered by clauses (iii) & (iv) of Sub-Section 2 of Section 17 of the Income Tax Act, 1961?” 

After careful study of complete case details, it was held that provision of section 17(2)(iv) cannot be made applicable for the reason:

1. THAT in this particular case, it was not the obligation of the employee to carry out repairs and renovations because as per his Service Contract, the employer had to provide the assessee with furnished accommodation including maintenance, security and services.

2. THAT in law there is a maxim “expressio unis est exclusion atlerius”, which means that the express mention of one thing implies the exclusion of another. AND Rule 3 of the Income Tax Rules as it existed for non governemnt companies at the relevant time expressly provided for valuation of Rent Free Accomodation as follows:

The value of rent-free residential accommodation which is not furnished shall ordinarily be a sum equal to 10 per cent of the salary due to the assessee in respect of the period during which the said accommodation was occupied by him during the previous year.

Provided that (1) where the fair rental value of the accommodation is in excess of 20 per cent of the assessee’s salary, the value of the perquisite shall be taken to be 10 per cent of the salary increased by a sum equal to the amount by which the fair rental value exceeds 20 per cent of the salary; so, however, that the Assessing Officer may, having regard to the nature of the accommodation, determine the sum by which 10 per cent of the salary is to be increased, as a percentage (not exceeding 100 per cent) of the amount by which the fair rental value exceeds 20 per cent of the salary;

where the assessee claims, and the Assessing Officer is satisfied that the sum arrived at on the basis provided above exceeds the fair rental value of the accommodation, the value of the perquisite to the assessee shall be limited to such fair rental value.

where the accommodation is furnished one, the value of rent free residential accommodation shall be the aggregate of the following sums, namely: -

(1) the fair rental value of the accommodation arrived at as above considering the same were not furnished; and

(2) the fair rent for the furniture (including television sets, radio sets, refrigerators, other household appliances and air-conditioning plant or equipment) calculated at 10 percent per annum, of the original cost of such furniture or if such furniture is hired from a third party, the actual hire charges payable therefore.

Thus express provision of Rule 3 of the Valuation Rules elaborates various contingencies in relation to the perquisite of rent free accommodation and rules out the intention of law makers to treat expense in relation to improvement, repairs or renovations, as falling within the meaning of “perquisite”. BECAUSE If the premises were to be valued at market value of the rental, in case it increased as a result of the renovations, the only prescribed mode was to apply the method indicated by Rule 3(a)(iii) of the Valuation Rules.

In view of above said facts and legal position, the appeal was allowed and order of ITAT was set aside making way for deletion of cost of repairs and renovation from the taxable income of the assessee.

Additional Options for Listed Entities to comply with the minimum public shareholding requirements

Before the Circular No. CIR/CFD/DIL/11/2012 dated 29th August, 2012 of SEBI, Listed entities desirous of achieving the minimum public shareholding had options in form of one of the following modes as provided in clause 40A of listing agreement:

1. Follow on Public Issue;
2. Offer for Sale;
3. E-Offer for Sale;
4. E-IPP

Now with a view to facilitate listed entities to comply with the minimum public shareholding requirements within the time specified in Securities Contracts (Regulation) Rules, 1957 i.e. JUNE - 2013, SEBI has provided following additional methods through above noted circular:-

1. Rights Issues to public shareholders, with promoters/ promoter group shareholders forgoing their rights entitlement.
2. Bonus Issues to public shareholders, with promoters/ promoter group shareholders forgoing their bonus entitlement.

In case any listed entity is desirous of achieving the minimum public shareholding requirement through other means, they will have to approach SEBI with appropriate details. Also, listed entities desirous of seeking any relaxation from the available methods may approach SEBI with appropriate details. Such requests would be considered by SEBI based on merit.