ANALYSING SECTION 194R OF THE INCOME TAX ACT
Recently, Section 194 R was inserted by the Finance Act 2022, which came into effect on July 1st, 2022. CBDT made certain recommendations via Circular 12 from the day of the addition of this section, it has become highly debatable. Before touching the issues of this section, we need to understand the legal provision of section 194 R. In simple terms, the new section mandates a person who is responsible for providing any benefit or perquisite to a resident to deduct tax at source at 10% of the value or aggregate value of such benefit or perquisite before providing such benefit or perquisite. The benefit or perquisite may or may not be convertible into money, but it must result from such resident’s business or professional activities. As per this section, tax will be deducted by business or profession on any benefits or perquisites of a person who is residing in India. The benefit or perquisite can be in the form of cash or kind, or partially in cash and partially in kind.
Tax deduction will be 10 percent if the aggregate value doesn’t exceed INR 20,000. In such a case, tax will not be deducted. Such conditions will not be applicable in If the turnover of business doesn’t exceed INR One Crore, If the turnover of the profession doesn’t exceed INR fifty lakhs, For instance, if a person is a sales agent and he exceeds the target allotted by the company and receives a new car worth INR 5, 00,000/-the value of INR 5,00,000 will be taxed under the head of Profit. The intention of this section is to expand the scope of deducting tax on benefits or perquisites and to increase transparency in the reporting of benefits and perquisites received by an individual. Because this particular incentive is in kind rather than cash, recipients of such kinds of transactions do not include it in their income tax return. As a result, inaccurate income information is provided. Such an incentive or bonus in kind ought to ideally be reported as income under the 1961 Income-tax Act (ITA). Also, according to Section 28(iv) of the ITA, any benefit or perk received from a business or profession, whether convertible into money or not, must be reported as business income in the hands of the receiver. Now Section 194(R) gives the right to the payee to deduct the amount, whether in cash or kind, arising out of business promotion. The terms “benefits and perquisites” are not defined under the IT act.
If they receive any such perquisites or incentives, whether in cash or in kind, they must deduct TDS. In cases where the benefit is wholly in kind, the person providing such a benefit or perquisite is required to pay TDS on the value of such benefit or perquisite out of his own pocket. In this case, benefits and perquisites are determined as per the value of the purchased price and manufactured price. However, no taxes to be deducted u/s 194R on sales discount, cash discount, or rebate are allowed to customers. In the matter of ACIT Vs Solvay Pharma India Ltd, the court held that free samples provided by the pharmaceutical company for promotion purposes would be taxable income. As such, free samples cannot be treated as a freebie. The complimentary sample of medication serves solely to demonstrate its effectiveness and to win the doctors’ confidence in the high quality of the pharmaceuticals. Again, this cannot be regarded as gifts given to doctors as they are intended to promote the company’s goods.
The pharmaceutical corporation, which manufactures and markets pharmaceutical products, can only increase sales and brand recognition by hosting seminars and conferences and educating medical professionals about recent advances in therapeutics and other medical fields. Since there are daily advancements in the fields of medicine and therapy taking place throughout the globe, it is crucial for doctors to stay current in order to give accurate patient diagnosis and treatment. The main goal of these conferences and seminars is to keep doctors up to date on the most recent advancements in medicine, which is advantageous for both the pharmaceutical industry and the doctors treating patients. Free medication samples provided to doctors by pharmaceutical corporations cannot be considered freebies in light of the aforementioned value. Hence, under such circumstances, for such a sales effort, the pharmaceutical company may deduct its expenses. The promotion would, however, be taxable income in the hands of the receiver, and the pharmaceutical company would need to deduct TDS on it. Another question that pops up is that in the case of gifts and perks received on special occasions like birthdays, marriages, and festivals, under such circumstances, Section 194R will only be applied if they arise out of business or profession. As we know, we are heading towards digitalisation.
There are many social media influencers who are playing a crucial role in marketing strategy. Income received by an influencer is calculated by deducting expenditure incurred on their business. Filming costs, such as cameras, microphones, and other equipment; subscription and software licencing fees; internet and communication costs; home office costs, such as rent and utilities; office supplies; business costs, such as travel or transportation costs; and others are examples of what can be written off as a social media influencer. To illustrate how Section 194 R will be applicable in such a situation, let’s consider Nandini is a social media influencer.
She received an offer from a company for product promotion in another city. She charged her fee of Rs 88,000 and the travel expense incurred by her was Rs 25,000. Here, the company will reimburse her travel expenses. So, the travel expenditure incurred by the company is covered under the benefits and perquisites provided to Nandini. Hence, TDS is to be deducted under section 194R at the rate of 10%, i.e., Rs 2500 is deductible from the fees payable to Nandini. There is no further requirement to check whether the amount is taxable in the hands of the recipient or under which section it is taxable. The Supreme Court took the same view in the case of PILCOM vs. CIT in reference to the deduction of tax under Section 194E. It was held by the Hon’ble Supreme Court that tax is to be deducted under section 194E at a specific rate indicated therein, and there is no need to see the taxability under DTAA or the rate of taxability in the hands of the non-resident.
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Disproportionate assets case: Delhi High Court stays Lokpal proceedings initiated against Jharkhand Mukti Morcha chief Shibu Soren
On Monday, the Delhi High Court has stayed the proceedings initiated by Lokpal of India under the provisions of the Lokpal & Lokayuktas Act, 2013 against Jharkhand Mukti Morcha (JMM) Chief and Rajya Sabha MP Shibu Soren in connection with a disproportionate case of assets.
The bench comprising of Justice Yashwant Varma observed and has passed an order on Soren’s plea challenging the validity of the said proceedings, claiming that the same was ex facie bad in law and without jurisdiction.
In the present case, the proceedings were initiated by Lokpal of India pursuant to a complaint dated August 5, 2020 filed by BJP’s Nishikant Dubey. Therefore, it has been directed by the CBI to make a preliminary enquiry into the Complaint under section 20(1)(a) of the Lokpal and Lokayuktas Act, 2013. It was claimed by Soren that the said order was not served on him.
While claiming the complaint was false, frivolous and vexatious, Soren in his plea submitted that according to section 53 of the Act and there is a statutory bar against the Lokpal of India assuming jurisdiction to investigate or inquire into any Complaint made after the expiry of seven years from the offence alleged.
The plea reads that the initiation of the proceedings under the Complaint, or at the very least, continuation thereof, once it has been demonstrated by the preliminary inquiry that it pertains to alleged acquisitions prior to the 7-year period and is clearly barred by statute, without jurisdiction and the same is liable to be quashed.
Further, the petition filled submits that the maximum period of 180 days for completion of preliminary enquiry from the date of Complaint expired on February 1, 2021. In this backdrop, it has been stated that by this time, only on July 1, 2021, the comments were sought from Soren which is beyond the prescribed statutory period.
The plea adds that the final preliminary enquiry report was submitted by the CBI on 29.06.2022, about a year and a half after expiry of the 180- day period. Such purported report is void and null and non-est in the eyes of law and cannot be received or considered by the Respondent No.1.
Thus, the court took note of the order passed by Lokpal of India dated August 4, 2022 directing that proceedings under section 20(3) of the Lokpal Act be initiated to determine whether a prima facie case existed to be proceeded against Soren. It is Soren’s case that the order was passed without considering the preliminary objection on jurisdiction being raised by him.
In the said order, the court noted that all the Lokpal of India recorded was that the comments received from the petitioner were forwarded to CBI so as to examine and submit an enquiry report.
It was ordered by the court that the challenge to assumption of jurisdiction by respondent no. 1 (the Lokpal of India) has neither been answered and nor dealt with. Matters require consideration. Subsequently, there will be a stay of proceedings pending before the Lokayukta.
Accordingly, the court will now hear the matter on 14 December.
DELHI HC SETS ASIDE MURDER CONVICTION & LIFE SENTENCE OF MAN WHO WAS UNPRESENTED BY LAWYER; REMANDS CASTE BACK TO TRIAL COURT
The Delhi High Court in the case Narender @ Lala v. State Of NCT Of Delhi observed and has set aside the orders of conviction for murder and sentence of life imprisonment awarded to a man in 2018 who was unrepresented by a lawyer before the Trial Court. Thus, the Delhi High Court has remanded the case back to the Trial Court for cross examination of certain prosecution witnesses.
The division bench comprising of Justice Mukta Gupta and Justice Anish Dayal observed and was of the view that there had been a grave miscarriage of justice to the man as when number of witnesses were examined, he was not represented by a counsel and that the legal aid counsel, who was present before Trial Court and was appointed on the same day and asked to cross- examine the witnesses on the same day.
On March, 2018, Narender was convicted for offence of murder punishable under section 302 of Indian Penal Code, 1860. On 4th May, 2018, he was sentenced by the Trial Court for life imprisonment and also to pay a fine of Rs. 10,000.
In the present case, the case of the prosecution was that the man had committed murder of his wife by strangulating her to death.
In a appeal, it was argued by the man that during the substantial course of trial, he was not represented by a lawyer and hence the trial in the absence of a lawyer had seriously prejudiced him. He thus sought recalling of all the prosecution witnesses and thereby ensuring a fair trial.
The Court observed that the manner in which the trial is conducted, there was a serious denial of fair trial to the appellant and the appellant is required to be given an opportunity to cross-examine the witnesses i.e., the witnesses examined in the absence of the lawyer, or the lawyer having been appointed on the same day from the legal aid and is asked to cross-examine the witnesses.
Further, the court remanded the back to Trial Court for cross-examination of ten prosecution witnesses. Also, the court directed the Trial Court Judge to follow due process of law and also to record the statement of the man under Section 313 CrPC and permit leading the defence evidence if so required.
The Court ordered that the case be listed before the learned Trial Court on 26th September, when Superintendent Tihar Jail will product the appellant before the learned Trial Court and the learned Trial Court is requested to expedite the trial and conclude the same preferably within four months.
SUPREME COURT REFUSES TO ENTERTAIN PLEA CHALLENGING EXCLUSION OF SC/ST RESERVATION IN JHARKHAND DISTRICT JUDGES APPOINTMENT
The Supreme Court in the case Dr. B.R. Ambedkar Educational And Cultural Trust v. Hon’ble High Court Jharkhand And Ors. observed and has refused to entertain a plea challenging the non-inclusion of reservation for Scheduled Castes, Scheduled Tribes and Other Backward Classes communities in the process of appointment of District Judges in pursuant to an advertisement issued in March, 2022 by the High Court of Jharkhand. The present petition claimed that the exclusion of reservation violates Jharkhand State Reservation Policy and constitutional guarantee under Article 16(4). Apart from this, it is also in derogation of a resolution being passed by the High Court vouching to implement reservation in the Jharkhand Superior Judicial Service.
The bench comprising of Justice D.Y. Chandrachud and the Justice Hima Kohli observed and has granted liberty to the petitioner to file a petition under Article 226 of the Constitution before the Jharkhand High Court.
The court while considering that the process of appointment as per the concerned notification is underway, Justice Chandrachud asked the petitioner to approach the High Court with respect to future appointments.
It stated that “For the future you can file a petition before the High Court… We will give you liberty to approach the High Court under Article 226 of the Constitution.”
The bench of Justice Chandrachud observed that the Decisions of the Administrative side of the High Court can be challenged before the judicial side of the High Court. You can move the High Court.
In the present case, a writ petition challenging a similar notification was filed in 2017 before the High Court, which was eventually dismissed. It was observed by the High Court that there is no duty vested in the authorities to reserve seats for all posts, more particularly in higher judiciary. Moreover, it had already initiated the appointment process, the High Court opined that it cannot alter the rules midway. Thus, the appeal filed before the Apex Court was also dismissed.
However, in 2018 the Full Court of the Jharkhand High Court had agreed in principle to grant reservation in the recruitment for Jharkhand Superior Judicial Service. The advocates belonging to the SC/ST/OBC communities in 2021 had made representations to the Chief Justice of the High Court requesting for the implementation of the Reservation policy in appointment of District Judges (direct entry from Bar)/ superior judicial service. The impugned notification was issued without incorporating reservation for SC/ST/OBC communities in March 2022.
Mr. Arvind Gupta, Advocate on Record has filled the present petition.
Right to contest election is not a fundamental right; it is only a right conferred by statute: Supreme Court
The Supreme Court in the case Vishwanath Pratap Singh vs Election Commission of India observed that the right to contest an election is not a fundamental right but only a right conferred by a statute.
The bench comprising of Justice Hemant Gupta and the Justice Sudhanshu Dhulia observed while dismissing a Special Leave Petition filed by Vishwanath Pratap Singh that an individual cannot claim that he has a right to contest election and the said stipulation violates his fundamental right, so as is required under the Act, to file his nomination without any proposer.
Also, the court imposed a cost of Rupees one lakh on Singh.
In the present case, Singh had first approached the Delhi High Court challenging a notification issued by Election Commission of India for election to Rajya Sabha after he was not allowed to file his nomination without a proper proposer being proposing his name. His contentions were rejected by the High Court that his fundamental right of free speech and expression and right to personal liberty has been infringed.
While dismissing the SLP, the Apex Court observed that the writ petition before the High Court was entirely misconceived.
The bench observed while referring to earlier judgments viz Javed v. State of Haryana, (2003) 8 SCC 369 and Rajbala v. State of Haryana (2016) 2 SCC 445 wherein it was stated that the right to contest an election is neither a fundamental right nor a common law right. It is a right conferred by a statute.
However, the Supreme Court in Javed (supra) had made the following observations: Right to contest an election is neither a fundamental right nor a common law right and it is a right conferred by a statute. At the most, in view of Part IX having been added in the Constitution of India that a right to contest election for an office in Panchayat may be said to be a constitutional right and a right originating in the Constitution and given shape by a statute. But even if, it cannot be equated with a fundamental right. It is stated that there is nothing wrong in the same statute which confers the right to contest an election also to provide for the necessary qualifications without which a person cannot offer his candidature for an elective office and also to provide for disqualifications which would disable a person from contesting for, or from holding, an elective statutory office.
It was held in Rajbala (supra) that the right to contest for a seat in either of the two bodies is subject to certain constitutional restrictions and could be restricted further only by a law which the parliament made.
Further, the court added that Singh did not have any right to contest election to the Rajya Sabha in terms of the law made by the Parliament.
The Court stated while dismissing the SLP that the Representation of People Act, 1950 read with the Conduct of Elections Rules, 1961 has contemplated the name of a candidate to be proposed while filling the nomination form. However, it cannot be claimed by an individual that he has a right to contest election and the said stipulation violates his fundamental right, so as to file his nomination without any proposer as is required under the Act.
Post-conviction compounding of offences is permissible: Himachal Pradesh High Court
The Himachal Pradesh High Court in the case Shri Kantu Ram v Shri Beer Singh recently observed that a court, while exercising powers under Section 147 of the Negotiable Instruments Act and can proceed to compound the offences even after recording of conviction by the courts below.
The bench comprising of Justice Sandeep Sharma observed in a case where the revision Petitioner, who was convicted under Section 138 of the NI Act by the Magistrate Court and was aggrieved by subsequent dismissal of appeal by the Sessions Court and had agreed to pay the amount due and settle the matter.
Thus, the petitioner had sought compounding of offences.
In the present case, the respondent admitted the factum with regard to receipt of the amount due from the accused and expressed that the prayer made on behalf of accused for compounding of offence can be accepted.
However, the High Court allowed the prayer and the offence committed by the Petitioner under Section 138 NI Act was ordered to be compounded.
The Court observed that the Reliance was placed on Damodar S. Prabhu V. Sayed Babalal H. (2010) 5 SCC 663, wherein the Apex Court has categorically held that court, while exercising power under Section 147 of the NI Act and can proceed to compound the offence even after recording of the conviction by the courts below.
‘Pensionary benefits to employee, who is removed from service for misconduct, is not at par with those who retire on superannuation’
The Jammu and Kashmir and Ladakh High Court in the case Bashir Ahmad Wani v Jammu and Kashmir Grameen Bank and Another recently observed and stated that an employee who is removed from service for misconduct is not at par with those who is being retired on superannuation.
The bench comprising of Justice Sanjeev Kumar observed while dismissing the pension claim made by a former employee of the J&K Grameen Bank, who was removed from service in 2011.
In the present case, the petitioner had sought benefit of the J&K Grameen Bank (Employees) Pension Regulations, 2018 whereby provision was made for terminal benefits.
However, the court disallowed the claims on two grounds:
Firstly, that at the time of removal of the petitioner from service when there were no norms, rules or regulations providing for the benefit of pension to the employees of the respondent-Bank.
In the year 2011, the employees of the respondent-Bank were governed by the J&K Grameen Bank ( the Officers and Employees) Service Regulations, 2010… it is abundantly clear that it does not prescribe imposition of a penalty of removal along with the pensionary benefits.
Secondly, it was opined by the court that though the 2018 Regulations had been made applicable to those employees who were in service between 1st day of September, 1987 and 31st day of March, 2010 and the employees retired from the services of the Bank before 31st day of March, 2018, however, this leeway cannot come to aid of the Petitioner.
The Curt observed that the reason for finding that the Petitioner was not an employee who had “retired” on superannuation from the bank. Rather, he was “removed” for misconduct.
The Court stated that the regulations apply to those employees who retired from the service of the Bank before 31.03.2018 and not the employees who were terminated for misconduct. Viewed thus, the order of removal of the petitioner dated 02.09.2011 holding the petitioner entitled to terminable benefits and cannot, by any stretch of reasoning, be construed to be an order of removal with the benefit of the pension. Neither, the petitioner, at the time of his removal from service, nor with the promulgation of Pension Regulations of 2018, is entitled to the benefit of pension.
Accordingly, the court dismissed the petition.
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