Equalization Levy
Important points relating to
Equalization levy
·
Even though no TDS is required to be
deducted u/s 195 of Income Tax Act, 1961 on specified services which are
subject to equalization levy, but information on said remittance to non-resident
is to be furnished to Income Tax Department in Part- D of FORM 15CA as
mandated by Rule 37BB (2) of Income Tax Rules.
·
Consequences - When assessee does not deduct and
deposit equalization levy on the honest belief that the services are not
specified services.
Before I dealt with the issue, it is better to go through the itinerary of
Chapter VIII of Finance Act, 2016 as under:-
|
S.No
|
Section
|
Matter
covered
|
|
1.
|
163
|
Extent,
Commencement & Application
|
|
2.
|
164
|
Definitions
|
|
3.
|
165
|
Charge of
Equalization levy
|
|
4.
|
166
|
Collection
& Recovery of Equalization Levy
|
|
5.
|
167
|
Furnishing
of Annual Statement
|
|
6.
|
168
|
Processing
of Annual Statement- Intimation
|
|
7.
|
169
|
Rectification
of Mistake in Intimation
|
|
8.
|
170
|
Interest on
delayed payment of Equalization levy
|
|
9.
|
171
|
Penalty for
failure to deduct or pay equalization levy
|
|
10.
|
172
|
Penalty for
failure to furnish Annual Statement
|
|
11.
|
173
|
Penalty not
to be imposed in certain cases
|
|
12
|
174
|
Appeal to
CIT(A)
|
|
13.
|
175
|
Appeal to
ITAT
|
|
14.
|
176
|
Punishment
for false statement
|
|
15.
|
177
|
Institution
of Prosecution
|
|
16.
|
178
|
Application
of certain provision of Income Tax Act.
|
|
17.
|
179
|
Power to
make Rules
|
|
18.
|
180
|
Power to
remove difficulties
|
ISSUES
a)
Under
which section AO will pass order to conclude that services are specified
services?
i)
Under Income Tax Act 1961, if TDS is not
deducted by payer on the good faith that requisite payment does not attract TDS
liability, then AO has power u/s 201 to pass an order adjudging on requirement
to deduct TDS on the part of assessee and treating him assessee in default for
non-payment of necessary TDS amount.
ii)
There is no pari-materia provision in Chapter
VIII of Finance Act, 2016 similar to section 201.
iii)
Section 178 of Finance Act, 2016 giving
reference to various sections of Income Tax Act, 1961 to be applicable to
Equalization levy, does not include section 201.
iv)
Thus if an assessee does not deduct and deposit
equalization levy on the belief that services are not specified services, Chapter
VIII of Finance Act 216 does not provide specific section authorizing AO to pass an order adjudicating that services are
specified services and treating an
assessee as assessee in default and proceed to recover the amount due.
b)
AO’s Order
holding that services are specified services is NON-APPEALABLE
i)
In case of equalization levy, consider the
following situation:-
1) Assessee
makes foreign remittances to Non-resident for certain Services.
2) No
TDS was deducted u/s 195 of Income Tax Act, 1961, on the basis that said
payment is not chargeable to tax in India under DTAA.
3) Assessee
is also under bona-fide belief that said services are not specified services
attracting equalization levy.
ii)
Though there is no explicit provision in Chapter
VIII of Finance Act, 2016 empowering AO to order that services are specified
services but assumes that AO draws power under section 166 of Finance Act, 2016
(Collection and Recovery of Equalization levy) and on the basis of information
furnished in FORM 15CA conclude that services are specified services and treat
assessee as assessee in default for non-payment of equalization levy.
iii)
In above case, the order of AO holding that services are specified services requiring
deduction & deposit of equalization levy is NOT APPEALABLE,
as only penalty order u/s 171 of Finance Act, 2016 is appealable order u/s 174
of Finance Act, 2016.
iv)
Thus in the first instance AO assumption of
jurisdiction to pass afore-said order is itself litigative. Even if
jurisdiction challenge fails, law does not provide an assessee adequate forum
to address his grievances against AO’s order and only option left is take the
route of writ petition. At this stage it is worth mentioning that order u/s 201
of Income Tax Act, 1961 is appealable.
v)
As the scope of specified services, which is
presently restricted to online advertisement, is bound to increase in future, clarity
on ambiguities engulfing above issues are at most important.
