Too procedural to matter

Finance Act 2019 had inserted section 115BAA in the Income-tax Act, 1961 (IT Act), wherein every domestic company was provided an option to pay income-tax at the concessional rate of 22% as against the prevailing rate of 30%, subject to certain specified conditions. These conditions are both substantive and procedural. On the substantive side, these conditions include giving up specified deductions/benefits. On the procedural side, the company needs to exercise its option, by filing Form 10-IC (Form) before the due date of filing the return of income (ROI). As per the literal reading of law, benefit of the concessional tax rate may not be available, if this Form is not filed within stipulated timelines.

The recent controversy

Several companies availed the concessional tax rate of 22% in the ROI filed for financial year (FY) 2019-20. However, in some cases, though these companies complied with all the substantive conditions specified under law, they inadvertently missed filing the prescribed Form, within the due date of filing the ROI. The ROI of such companies were processed by the Central Processing Centre (CPC) wherein the CPC disregarded the concessional tax rate and computed tax at the rate of 30%.

This once again raked up the issue of whether the benefits provided under the IT Act should be withdrawn only on account of non-fulfillment / delay in compliance of the procedural provisions. To what extent can procedural provisions supersede substantive law?

Undue hardship

Several representations were made to the government to remove this hardship. This was in addition to appeals being filed against the orders passed by the CPC. It is pertinent to note that in the past, courts have allowed deductions/exemptions under various other beneficial provisions of the IT Act even when the taxpayer has failed to file the prescribed forms on or before the prescribed due date. The courts took a view that filing of these forms was merely a procedural requirement. Thus, broadly speaking, a procedural law cannot be an obstruction in the implementation of provisions of the substantive law. It should always be subservient to the substantive provisions. Hence, even procedural compliances happen at a later stage, the taxpayer should be eligible to claim the deduction/exemption. 

Recently, the Gujarat High Court (Rajkamal Healds And Reeds Pvt. Ltd [TS-73-HC-2022(GUJ)), in the case of a taxpayer who faced issue of denial of concessional rate of tax, has held that the taxpayer is at liberty to file an application before Principal Chief Commissioner of Income-tax / Chief Commissioner of Income-tax under section 119(2)(b) seeking permission for condonation of delay in filing of Form electronically. 

CBDT Clarification

In response to the numerous representations, CBDT has recently clarified (vide Circular No 6/2022 dated 17 March 2022) that the delay in filing the Form for FY 2019-20 should be condoned if following conditions are satisfied:

• The ROI for FY 2019-20 has been filed on or before the due date specified in section 139(1) of the Act.
• The eligible domestic company has opted for taxation under section 115BAA in "Filing Status" in "Part A-GEN" of Form ITR-6.
• Form No. 10-IC is filed electronically on or before 30 June 2022 or 3 months from the end of the month in which this circular is issued, whichever is later. 

Recommendations

The government has proactively been taking steps to improve the ease of doing business in India. This can be seen from various recent reforms in form of simplification and rationalisation of various procedures (such as assessments, appeals, etc.). It is desirable that this issue, which despite favourable court rulings keeps cropping up, needs to be addressed in totality. More so because there are several provisions under the IT Act, which contain requirement of filing of various forms to avail any tax benefit.

One way to deal with such cases could be that the details required by these forms could be incorporated within the ROI itself. This will avoid the confusion of filing various forms and will hence also reduce the defaults on the procedural front. Or, if there is a delay or default the income-tax authority could highlight the same and ask the taxpayer to comply within stipulated timeframe instead of denying the tax benefit.

The other alternative could be that a simplified procedure for obtaining condonation of delay from the jurisdictional income-tax authority, in a time bound manner could laid down. Instructions could be provided to the income-tax authority to provide relief, in light of the various taxpayer favourable court rulings.

These small steps towards rationalisation of compliance procedures will go a long way in reduction of litigation on account of denial of tax benefits because of procedural lapses or delays. Thus, in the instant case a simple column in the tax return itself should be sufficient for the tax payer to opt for the concessional tax rate and giving up the specified tax benefits, instead of filing a separate form.