Legislation UpdatesNotifications

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 the off-shore investment made by a non-resident investor through the AIFs would depend on determination of the 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 the income of investment funds and income received from such funds. Under Chapter XII-FB, Section 115 UB 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 115 UB 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 115 UB 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 115 UB(I) 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 a 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.


[Circular dt. 03-07-2019]

Central Board of Direct Taxes

Ministry of Finance

Case BriefsHigh Courts

Karnataka High Court: H.T. Narendra Prasad, J. dismissed the appeal filed by an Insurance Company against the order passed by Motor Accident Claims Tribunal (MACT).

In the instant case, Jyothi and Nagaraj were traveling on a motorcycle and a lorry came in a rash and negligent manner and dashed against the motorcycle. As a result, Jyothi fell on the road and the lorry ran over her and she died while shifting her to the hospital. Hence, the parents of the deceased filed the claim petition before the Tribunal. The Tribunal granted compensation of Rs 6,96,000 with interest at 6 percent per annum. Being aggrieved by the same, the Insurance Company filed the present appeal.

The learned counsel for the petitioner, Lingaraj H S submitted that the Tribunal had erred in taking the multiplier based on the age of the deceased instead of based on the age of the mother. Further, the Tribunal was unjustified in adding 50 percent of the income of the deceased towards loss of future prospects while calculating the “loss of dependency”. Further, the compensation of Rs 25,000 each awarded to the claimants in the category of “loss of love and affection” was on the higher side. Therefore, the counsel for the petitioner prayed for allowing the appeal by reducing the compensation.

The learned counsel for the claimants, Nataraj Ballal relied on the law laid down by the Supreme Court in the case of National Insurance Co. Ltd v. Pranay Sethi, 2017 SCC OnLine SC 1270, in which it was held that in case the deceased was having a permanent job and was below the age of 40 years, an addition of 50 percent of the established income should be made. Further, as per the said decision, while calculating the “loss of dependency”, the age of the deceased had to be taken into consideration. Hence, the counsel for the claimants submitted that there was no error in the finding of the Tribunal. Therefore, he prayed for dismissal of the appeal.

The Court relied on the decision of Supreme Court in the case of Pranay Sethi, and held that multiplier had to be applied based on the age of the deceased and not based on the age of the mother of the deceased. Moreover, the Court also relied on the case of Magma General Insurance Co. Ltd v. Nanu Ram, 2018 SCC OnLine SC 1546 in which it was held that the claimants were entitled to compensation under the head “loss of love and affection”. Therefore, the Insurance Company has erred in taking the multiplier based on the age of deceased instead of based on the age of the mother and that the Tribunal was unjustified in adding 50 percent of the income of the deceased towards loss of future prospects while calculating the “loss of dependency”. Hence, the appeal could not be accepted and was unsustainable.

The appeal was dismissed accordingly.[Oriental Insurance Co. Ltd. v. Rathna, 2019 SCC OnLine Kar 566, decided on 29-05-2019]

Case BriefsHigh Courts

Gauhati High Court: Hitesh Kumar Sarma, J. dismissed a revision petition filed against the order of the family court whereby the petitioner was directed to pay a monthly sum of Rs 2000 each to his wife and child towards their maintenance under Section 125 CrPC.

The wife had left petitioner’s home due to alleged torture inflicted upon her and thereafter she filed an application under Section 125 claiming maintenance which was allowed by the family court in the terms above. The petitioner was a Government Servant earning a monthly salary of about Rs 22,000.

The High Court noted that while the wife was staying at her parental house, she was not provided maintenance which amounted to negligence in the sense that the petitioner was bound to maintain the wife and the child, which is a settled legal position. It was also noted that the allegation that the wife was working in a school and earning money could not be established by the petitioner and no specific evidence to that effect was laid by him. It was observed: “In the absence of any specific evidence, it cannot be held that the wife/respondent was earning sufficient amount to maintain herself. That being so, in the absence of any specific evidence as to the income of the respondent/wife, the petitioner/husband is bound to maintain his wife and the child fathered by him.”

In that view of the matter, the Court did not find any reason to interfere with the order of the family court. The revision petition was accordingly dismissed. [Jotirmoy Kalita v. Jonamoni Kalita, 2019 SCC OnLine Gau 2245, Order dated 07-05-2019]

Case BriefsHigh Courts

Delhi High Court: A Bench of Jyoti Singh and G.S. Sistani, JJ. dismissed an appeal filed against the order of the family court rejecting the appellant-wife’s application for grant of maintenance pendente lite under Section 24 of the Hindu Marriage Act, 1951.

The parties married to each-other in June 2012 and had been living separately since September of that year. The wife was living in Gurgaon and the husband was in Singapore. The husband sought a decree of nullity of marriage under Section 12(1)(a) and (c), pending which the wife filed the application under Section 24 claiming pendente lite maintenance of Rs 2.50 lakhs per month along with litigation expenses. The same was rejected by the family court. Aggrieved thereby, the wife filed the present appeal.

The High Court noted that the wife was well educated and earning a monthly salary of around Rs 1.25 lakhs. On the other hand, the husband was also at a senior position in a reputed company in Singapore and was earning about Rs 13 lakhs per month. Noting all the facts and discussing the law on the subject, the Court was of the view that the impugned order does not need interference. Observing that the cost of living as per the standards of the country where the husband is employed is to be considered, the Court stated, “We cannot agree with the contention of the appellant that merely because the respondent is earning in ‘dollars’ she is entitled to the maintenance claimed by converting his salary in dollars into Indian rupees. We agree with the respondent that his expenditure being in dollars, the salary being in dollars is a fact which cannot be overemphasized.”

Being satisfied that wife’s earnings were sufficient to maintain herself, it was stated, “The provisions of this section (Section 24) are not meant to equalize the income of the wife with that of the husband but are only to see that when divorce or other matrimonial proceedings are filed, either of the party should not suffer because of paucity of source of income and the maintenance is then granted to tie over the litigation expenses and to provide a comfortable life to the spouse. Where, however, both the spouses are earning and have a good salary, merely because there is some salary difference cannot be a reason for seeing maintenance.”

In light of the above discussion, the wife’s appeal was dismissed as being devoid of merits.[KN v. RG, 2019 SCC OnLine Del 7704, dated 12-02-2019]

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of Dr. AK Sikri, SA Nazeer and MR Shah, JJ decided an issue relating to interpretation of Section 80HH of the Income Tax Act, 1961 referred to it by a division bench in 2014 and that the decision of the Court in Motilal Pesticides (I) Pvt. Ltd. vs. Commissioner of Income Tax, Delhi-II, (2000) 9 SCC 63, was erroneous.

The issue before the Court was”

“while computing the deduction whether it is to be available out of ‘income’ as computed under the Income Tax Act, 1961 or out of ‘profits and gains’, without deducting therefrom ‘depreciation’ and ‘investment allowance’.”

The Court discussed the scheme of the Act at length and said:

“Reading of Section 80HH along with Section 80A would clearly signify that such a deduction has to be of gross profits and gains, i.e., before computing the income as specified in Sections 30 to 43D of the Act.”

It said that the scheme itself draws distinction between the concept ‘income’ on the one hand and ‘profits and gains’ on the other hand. Below is the point-wise summary of how the Court explained the scheme of the Act in order to reach the abovementioned conclusion:

  • Insofar as computation of income under the head ‘profits and gains’ from business or profession is concerned, Section 28 of the Act mentions various kinds of incomes which are chargeable under this head.
  • Section 29 mentions the method of arriving at ‘income’ which is to be computed in accordance with the provisions contained in Sections 30-43D of the Act.
  • Sections 30-43D contain deductions of various kinds which are in the nature of expenditure or the like nature.
  • After providing the deductions admissible in these provisions, one arrives at the figure of net profits which would become the net income under the head ‘profits and gains of business or profession’.
  • Under Chapter VI-A of the Act certain deductions are given by way of incentives. Assessees may earn these deductions on fulfilling the eligibility conditions contained therein, even when they are not in the nature of any expenditure incurred by the assessee.
  • Section 80A of the Act provides that in computing the total income of assessee, there shall be allowed from his gross total income, in accordance with the subject of the provisions of this Chapter, the deductions specified in Sections 80C to 80U.
  • Section 80A itself uses the expression ‘from his gross total income’ as it states that deduction is to be allowed to an assessee ‘from his gross total income’.
  • Section 80HH specifically mentions that deduction @ 20% of ‘profits and gains’.

The Court, hence, overruled the verdict in Motilal Pesticides as it missed the marked difference in the terms ‘Income’ and ‘Gross Total Income’

[Vijay Industries v. Commissioner of Income Tax, 2019 SCC OnLine SC 299, decided on 01.03.2019]

Legislation UpdatesRules & Regulations

S.O. 1023(E)—In the exercise of the powers conferred by Section 169 read with Section 33 of the Representation of People Act, 1951 (43 of 1951), the Central Government after consulting the Election Commission hereby makes the following rules further to amend the Conduct of Elections Rules, 1961, namely:––

1. (1) These rules may be called the Conduct of Elections (Amendment) Rules, 2019.
(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Conduct of Elections Rules, 1961 in FORM 26,––
I. in PART A—
(i) for paragraph (4) and the Table thereunder, the following shall be substituted, namely:—
“(4) Details of Permanent Account Number (PAN) and status of filing of income tax return:

[Refer link for detailed notification: Notification]

Ministry of Law and Justice


Note: In accordance to the amended Form 26, five years’ returns are to be furnished, along with details of offshore assets. Along with this,  it would also require details under various heads of the candidate’s spouse, members of the Hindu Undivided Family (if the candidate is a ‘karta’ or coparcener) and dependents.

Case BriefsHigh Courts

Delhi High Court: A Division Bench comprising of G.S. Sistani and Jyoti Singh, JJ. dismissed an appeal filed against the order of the Family Judge whereby the appellant-husband was directed to pay a sum of Rs 15, 000 per month as maintenance to his wife.

The respondent-wife had filed an application under Section 24 of the Hindu Marriage Act, 1955 seeking maintenance from her husband. The Family Judge decided the quantum of maintenance as above to be paid by the husband to the wife. Aggrieved thereby, the husband filed the instant appeal. It was contended by the appellant that the Family Court did not properly appraise the facts and documents as submitted by him. It was averred that he was barely earning Rs 10,000 per month and therefore the Family Judge was not right in awarding the abovementioned amount as maintenance.

The High Court perused the record and was of the view that the pleas taken by the appellant about his income were not believable. Similarly, for his plea regarding the salary earned by the respondent was not supported by evidence. The Court referred to Jasbir Kaur v. District Judge, Dehradun, (1997) 7 SCC 7 wherein it was held that “considering the diverse claims made by the parties one inflating the income and the other suppressing, an element of conjecture and guess work does enter for arriving at the income of the husband. It cannot be done by any mathematical precision.” It was observed that in family matters, there is a tendency of spouses no to disclose their correct and true income; the present case was no different. In such view of the matter, it was held that the quantum of maintenance as calculated by the Family Judge suffered from no infirmity. Therefore, the appeal was dismissed. [Bhuvneneshwar Sachdeva v. Kavita Sachdeva,2018 SCC OnLine Del 12415,dated 29-10-2018]

Case BriefsHigh Courts

Delhi High Court: A Division Bench comprising of Sangita Dhingra Sehgal and G.S. Sistani, JJ. dismissed an appeal filed by the husband against the award of maintenance pendente lite awarded to the wife by the family court.

The instant appeal was filed by the husband under Section 19 of the Family Courts Act, 1984 assailing  the order passed by the family court where the appellant was directed to pay Rs 4500 per month as maintenance to the respondent-wife under Section 24 of the Hindu Marriage Act (maintenance pendente lite)  from the date of filing of the application. The husband submitted that as he was a permanent resident of U.P., the Minimum Wages Act of Delhi would not be applicable to him.

The High Court perused Section 24 and noted that it empowers the Court to award maintenance pendente lite and litigation expenses to a party who has no independent source of income sufficient for his/her support during the pendency of proceedings. Reference was made to Jasbir Kaur Sehgal v. District Judge, (1997) 7 SCC 7. The Court observed that in the present case, the husband failed to produce any documentary proof with regard to his employment status and also his actual income; and by not disclosing his source of income the husband was trying to defeat the legitimate right of the wife to claim maintenance. Furthermore, the appellant could not be allowed to take benefit of non-disclosure of his income despite being bound in law to disclose it. Thus, the plea of the husband that Minimum Wages Act of U.P. is applicable to him doesn’t come to his rescue. The appeal was accordingly dismissed. [Vijay Kushwaha v. Chanchal,2018 SCC OnLine Del 10828, dated 24-07-2018]

Case BriefsSupreme Court

Supreme Court: In a case where the assessment order for actor Amitabh Bachchan’s income in the year 2001-2002 was in question, the bench of Ranjan Gogoi and P.C. Pant, JJ held that the Commissioner of Income Tax (CIT) is empowered to revise the said order under Section 263 of the Income Tax Act, 1961 as making a claim which would prima facie disclose that the expenses in respect of which deduction has been claimed has been incurred and thereafter abandoning/withdrawing the same gives rise to the necessity of further enquiry in the interest of the Revenue.

The assessee, in his earlier stand had stated that the expenses incurred were for security purposes and that payments have been made out of cash balances available and later, by a re-revised return, he withdrew his claims, acting upon which, the Assessing Officer abandoned the enquiry.

Explaining the law on revisional power of CIT, the Court said that There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority which is a course of action that must be desisted from. However, the Court said that the present case was an exceptional one and required a revision as the matter had not been investigated by the Assessing Officer and that the notice issued under Section 69-C of the Act could not have been simply dropped on the ground that the claim has been withdrawn. [Commissioner of Income Tax v. Amitabh Bachchan, 2016 SCC OnLine SC 484, decided on 11.05.2016]