IT - Toolbox of counter measures in respect of transactions with persons located in a non-cooperative jurisdiction

By Vijay Kumar

IN order to discourage transactions by a resident assessee with persons located in any country or jurisdiction, which does not effectively exchange information with India, a set of anti-avoidance measures have been provided.

A new section 94A has been inserted in the Act to specifically apply to transactions undertaken with persons located in such country or area. The section provides-

(i) an enabling power to the Central Government to notify any country or territory outside India, having regard to the lack of effective exchange of information by it with India, as a notified jurisdictional area;

(ii) that if an assessee enters into a transaction, where one of the parties to the transaction is a person located in a notified jurisdictional area, then all the parties to the transaction shall be deemed to be associated enterprises and the transaction shall be deemed to be an international transaction and accordingly, transfer pricing regulations shall apply to such transactions;

(iii) that no deduction in respect of any payment made to any financial institution shall be allowed unless the assessee furnishes an authorization, in the prescribed form, authorizing the Board or any other income-tax authority acting on its behalf, to seek relevant information from the said financial institution;

(iv) that no deduction in respect of any other expenditure or allowance (including depreciation) arising from the transaction with a person located in a notified jurisdictional area shall be allowed under any provision of the Act unless the assessee maintains such other documents and furnishes the information as may be prescribed;

(v) that if any sum is received from a person located in the notified jurisdictional area, then, the onus is on the assessee to satisfactorily explain the source of such money in the hands of such person or in the hands of the beneficial owner, and in case of his failure to do so, the amount shall be deemed to be the income of the assessee;

(vi) that any payment made to a person located in such area shall be liable to deduction of tax at the higher of the rates specified in the relevant provision of the Act or rate or rates in force or a rate of 30 per cent.

These amendments have been made effective from 1st June 2011. Though this Section came into effect from 1.6.2011, the Government really wanted to use it only as a threat and not a weapon. So far no country has been notified and no prescribed authorisation Form has been notified. But now, the Government seems to be serious about this and the Board has amended the Income Tax Rules to insert a new Rule 21AC - Furnishing of authorisation and maintenance of documents etc. for the purposes of section 94A. Form No. 10FC also has been notified. Perhaps they will notify a few countries as blacklisted in the next few days.

CBDT Notification No. 47/2013 (F.No.142/12/2013-TPL), Dated: June 26, 2013