Introduction
The Government of India has provided various incentives and tax rebates for companies to encourage investment and help in the economic growth of the country. One such provision is the concessional rate of interest that domestic companies can avail, under Section 115 BAA, provided they fulfil specific conditions. Companies can opt for this concession by submitting Form 10 IC online, signed digitally by the authorized signatories with a digital certificate or electronic verification code. Filing timely returns and document verification are important to ensure compliance. This is well documented in a case pertaining to the company Tranxit Engineers Pvt.Ltd. vs. Income Tax Appellate Tribunal (ITAT), Mumbai. In this article, we analyse the facts of the case in which the Mumbai bench of ITAT mandated the document verification of Form 10 IC in disputes concerning availing concessional rates of tax.
Understanding Form 10 IC
Form 10 IC serves as an application for domestic companies who want to opt for the concessional rate of tax under Section 115 BAA of the Income Tax Act, 1961. Let us first understand corporate tax and corporate tax concessions under this section. Companies that wish to opt for the concessional rate of tax of 22% under sub-section (5) of Section 115 BAA must file Form 10 IC. It can be submitted online on the e-filing portal. All registered domestic companies can access this form from the portal with their valid username and password. A valid digital certificate or electronic verification certificate of the company filing is needed to E-Verify the return. Details like PAN, registered address of the company, date of incorporation, and nature of business must be mentioned in the Form 10 IC.
Corporate tax in India
All companies incorporated and registered under the companies act, 2013 in India are liable to pay corporate tax. It is a direct tax applicable to the profits or taxable income of the company or corporation from their business, both domestic and foreign. The taxable income is the revenue minus the total of the cost of goods sold, general and administrative expenses, the cost of selling and marketing, research and development, depreciation, and other operating expenses. The ministry of corporate affairs decides the rate of tax applicable.
Corporate tax concession
Companies can opt to pay tax at a concessional rate of 22% (plus applicable surcharge and cess) as per Section 115 BAA, provided that they do not avail of specified deductions and incentives. They can opt for a concessional rate from assessment year 2020-21. To avail of this concession, they are required to file Form 10 IC on or before the due date specified under subsection (1) of subsection 139 for furnishing returns for the previous financial year. After availing of the option for a particular financial year, it cannot be withdrawn subsequently.
Case Background and Disputed Tax Rates
Traxit Engineers Pvt. Ltd., a private company, that opted for the concessional tax rate under Section 115BAA of the Income Tax Act, 1961, paid the tax and filed the return for the assessment period 2020-21 on October 14, 2020. In the return, the company declared that it had paid tax under Section 115BAA of the Income Tax Act, 1961, at the discounted rate. But the central processing centre (CPC) processed the return under Section 143(1), calculated the tax at a higher rate, and sent a demand for the difference in tax amount. The assessees did not agree and appealed to the CIT (A), challenging the tax calculation. They stated that they had submitted Form 10 IC within the timeframe. And also that CPC did not provide them with an opportunity for a fair hearing before passing the order. They also faced difficulties while uploading the Form 10 IC on the portal and requested that the CIT (A) allow for the concessional rate of tax.
CIT (A)’s decision
The CIT (A) directed the Assessing Officer (AO) to verify that the company had submitted the Form 10 IC within the specified time. If the Formi was available, then the lower tax rate would be considered, or else the tax would be calculated at the regular rate.
Mumbai ITAT’s Directive on Document Verification
The company argued before ITAT, Mumbai, that the form 10IC was filed subsequently as per Rule 21AE of the income tax rules, so they were eligible for the concessional tax rate. ITAT observed that CIT (A) had not considered the subsequent submission. Further, the ITAT also stated that the filing of Form 10 IC needed factual verification. So they sent the appeal back to CIT (A) and instructed them to thoroughly verify the appellant’s claim that they had submitted Form 10 IC with evidence of the submission.
Importance of Form 10 IC Verification
The Traxit Engineers case highlights the importance of timely submission of necessary forms for availing concessional tax rates under section 115BAA. ITAT Mumbai stressed the value of factual verification before making a final decision. The case is an example of the importance of taxpayers diligently adhering to procedural compliance with adequate evidence while filing their returns.
Procedures to file form 10 IC
The taxpayer must login to the income tax portal. To file Form 10 IC, the following steps are involved:
Step 1-The taxpayer must go to the e-file option in the ITC portal and select income tax forms.
Step 2-They then must click on the ‘File income tax forms’ option, search for Form 10 IC, and select ‘Application for exercise of the option under Section 115BAA of the Income Tax Act, 1961’. Enter the required details, then click on next.
Step 3- On the next page, they must select the relevant assessment year, click on proceed further, and start filling out the application.
Step 4- There are four sections in Form 10 IC
Step 5- In the first section, the details of the assessing officer must be entered
Step 6- In the second section, the basic details, including personal details and nature of business of the domestic company, must be entered. Sector to be selected as per nature of business
Step 7- In the next section, the details of IFSC units (if any) and options exercised under Section 115BAA must be selected by selecting the check box
Step 8- On the verification page, all the details must be entered, and the taxpayer must agree to the terms and conditions, then preview the details and submit.
Step 9- The next step is to verify; the user must next proceed to E-Verify. The form must be e-verified using a digital certificate or an electronic verification certificate.
On successful e-verification, the process of submitting Form 10 IC is complete. The taxpayer will receive a transaction ID and an acknowledgement receipt number, which they must save for future reference. They will also receive a confirmation message on their email address registered with the e-filing portal.
Procedures for Document Verification
Document verification involves verifying the authenticity of the document. Digital document verification can help meet regulatory requirements, prevent fraud, and process documents faster. The income tax department, in its initiative to go paperless and promote the government’s digitization program, has provided taxpayers with the facility to e-verify their returns. Today the income tax portal is the most user-friendly, effective, tax administration interface in India. Digitization has helped the department and users in filing and processing tax returns without human intervention, computer-based scrutiny, and speedy processing of returns and refunds. The digital tax initiatives have helped companies and corporations in their business operations and are in favour of tax transformation and automation in India.
The procedure for document verification while filing form 10 IC is simple. There are several modes available for e-verification of IT returns for taxpayers on the e-filing portal.
While filing the form 10 IC online through the income tax portal, there are four sections. The fourth and final section is for verification. When the taxpayer clicks on e-verify, they have the option to choose either a digital certificate (DC) or an electronic verification certificate (EVC) after agreeing to the terms and conditions. The various options available are:
- Digital Signature Certificate
- Aadhaar OTP
- Electronic Verification Code (using bank account / demat account or ATM)
- Net Banking
The prerequisites for availing the e-verification option are:
- The taxpayer must be a registered user on the e-Filing portal with valid user ID and password
- Acknowledgement Number (to e-verify the return without logging into the e-Filing portal)
- The taxpayer must have filed a return on the portal to e-Verify the return
If the taxpayer chooses to E-Verify using his DSC, they must first download and install the emsigner utility provided by the income tax department. On the data sign page, they must select provider, certificate, and enter provider password, then click on sign. A success message is displayed, along with the transaction ID, to be saved for future reference. A confirmation message will also be sent to the email address and mobile number registered with the income tax department. In the same way, the return can also be verified through the Aadhaar OTP, the Electronic Verification Code, or through net banking.
Role of Taxpayers and Tax Authorities
Role of Taxpayers
The role of taxpayers, like registration, filing the returns on time, computation and payment of accurate taxes, maintaining the books and records, and cooperating with the tax authorities when there are audits and inquiries, is important for seamless compliance. Proper documentation, and the filing of receipts, acknowledgements, and other supporting documents are crucial, as they are also evidence of compliance. Further, when the taxpayers receive notices, they must respond within the stipulated time and provide the required clarifications. It is better for them to seek professional help when they find it difficult to follow the regulatory procedures and protocols.
In the specific case of Traxit Engineers Pvt. Ltd., there were procedural lapses. There was confusion regarding the submission of the Form 10 IC for being eligible for the concessional rate by the appellant. The ITAT stated that the factual verification of submission of Form 10 IC had to be done and sent the appeal back to the CIT(A) for a thorough examination of the appellant’s claim of having submitted Form 10 IC. The case points to the importance of timely submission and verification of tax returns, keeping proper records like acknowledgements, receipts, and other documents, and producing them when required by the authorities. Moreover, there is mention that the appellants did not respond to the notices sent by the CIT (A), asking for details. So they could not verify whether the assessees had filed the return. They also did not provide documentary evidence of filing the return.
Role of tax authorities
Compliance plays an important role in revenue collection, and revenue is necessary for developmental projects and administrative expenditures for the country. Tax payers and tax authorities are interdependent. Efficient, easy to use procedural measures and transparency in audits help in maintaining a good relationship between the two.
In the case of Traxit Engineers Pvt. Ltd., it is the contention of the company that they had difficulty in submitting the form 10 IC on the portal. They stated that they were not given sufficient opportunity to put forward their proposal, that they were not heard before passing the order under section 250. They could not respond to the notices due to reasonable and sufficient cause. The assessee was directed to furnish the relevant details in support of the claim for concessional rates of tax under Section 115 BAA and cooperate with the appellate proceedings. As a result, the appeal was allowed for statistical reasons.
Implications for Taxpayers
The implication for taxpayers is that it is their duty to follow compliance procedures by submitting tax returns on time and responding to notices when they receive them from the tax authorities. They are also required to appear before the authorities or appellate tribunals when they are told to do so. Non-compliance can lead to monetary losses and other legal complications. Taxpayers must understand the tax and regulatory policies so that businesses can grow and contribute to overall economic development. Changes happen in the tax rules often. Companies must update tax compliance procedures regularly. As their business grows, they must identify the most appropriate and optimal tax structures that align with their business goals. A lot of time and money can be saved by avoiding legal remedies when the prescribed compliance procedures are properly followed.
Conclusion
Companies must follow the mandatory tax compliances, like registering, filing tax returns as per procedure, accurate collection and payment of tax, filing audit reports, and maintaining proper books of account Apart from avoiding penalties and legal consequences, being tax compliant has many advantages, like the benefits of availing of various government facilities, schemes, tax concessions, and incentives. They can also be a part of the progress and growth of the country, by contributing to social welfare initiatives like education, healthcare, and poverty alleviation. By being tax compliant companies will contribute to decision making process of the government, overall economic development, and nation building. Easier tax compliance procedures, incentives and concessions, and digitizing tax systems are some of the reforms the tax authorities have undertaken to encourage compliance and improve revenue.
Frequently asked questions
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Is it mandatory for all companies to file form 10 IC?
Answer: No, it is optional. It must be filed by domestic companies that choose to pay tax at the concessional rate of 22% under section 115BAA of the Income tax act, 1961.
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Do I file form 10 IC online?
Answer: Yes, you must file form 10 IC only in online mode after logging into the e-filing portal.
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Should I file the form 10 IC every year?
Answer: No, if you opt for the concessional tax rates once, it is applicable for the subsequent years and cannot be withdrawn.
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Will I get a confirmation after submitting Form 10 IC?
Answer: Yes, you will receive a confirmation on your email ID registered with the e-filing portal. you can also view the status after login in the e-filing port on the worklist under the ‘for your actions tab’.
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Should I verify the Form 10 IC?
Answer: Yes, your Form 10 IC will be submitted only after you complete e-verification of the document using DSC or EVC.
