India: “Angel tax” provisions; reassessment based on new information; recommendations of GST Council meeting

The KPMG member firm in India has prepared reports about the following tax developments (read more at the hyperlinks provided below).

• “Angel tax” provisions not applicable to the issue of right shares that were allocated in proportionate to the existing shareholding and to the renunciation of right shares by relatives: The Gujarat High Court held that the issue of right shares by a company is the creation of property and merely receiving such shares cannot be considered as a “transfer” under the “angel tax” provisions of Section 56(2)(vii)(c). Therefore, Section 56(2)(viii)(c) does not apply to the issuance of right shares allocated to the taxpayer in proportionate to the taxpayer existing shareholding in the company. Further, the renunciation of right shares by the wife and father of the taxpayer by not exercising the right to subscribe is not subject to Section 56(2)(vii)(c). However, Section 56(2)(vii)(c) does apply to shares allotted to the taxpayer as a result of third-party shareholder declining to apply for right shares which leads to the disproportionate allocation of shares in favor of the taxpayer. The case is: PCIT v. Jigar Jashwantilal Shah. Read an October 2023 report [PDF 273 KB]
• Tax officer required to have new or tangible information to justify that income has escaped reassessment: Following the introduction of the new reassessment regime, an Assessing Officer (AO) argued that with the omission of the phrase “reason to believe,” the requirement that the AO establish “escapement of tax” at the stage of assumption of jurisdiction is no longer required. The Madras High Court held that the new reassessment regime casts a statutory burden upon the AO to have “information” suggesting that income chargeable to tax has escaped assessment. If the existence of such information was not established even at the initial stage, the foundation of the proceedings stands vitiated in law. In the instant case, all materials relating to issues sought to be reassessed were placed before the AO at the time of original scrutiny proceedings. There was no new or tangible information with the AO to justify the reassessment. Accordingly, the reassessment notices and proceedings were overturned. The case is: IDFC Limited v. DCIT. Read an October 2023 report [PDF 380 KB]
• Key recommendations of the 52nd GST Council meeting: The 52nd GST Council meeting was held on 7 October 2023 in New Delhi. At this meeting, the GST Council made certain recommendations relating to changes in tax rates for a few goods and services, amnesty scheme for filing of appeals, taxability of personal guarantee and corporate guarantee, automatic restoration of provisional attachment of property, allowing supplies to special economic zone (SEZ) unit or developer for authorized operations on payment of integrated tax, and other trade facilitation measures. Read an October 2023 report [PDF 382 KB]