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MNCs rush to tax experts as SC backs I-T dept on reassessment notices

Many multinationals are rushing to tax experts, fearing an impact on their existing structures and provisioning, after the Supreme Court validated the income-tax department‘s stand on reassessment notices.

The apex court on May 4 ruled that thousands of show-cause notices issued by the income-tax department under an old provision (Section 148) should be treated as the ones issued under the new amendment (Section 148 A).

This has spooked several multinationals who are now required to respond to the tax department in the coming weeks. Many fear the tax department could pick and choose between the old law and the new regulation around certain regulations that could eventually lead to additional tax outgo, experts say.

Tax experts say that if these notices are treated as being issued under the new law, it could create problems around existing tax structuring.

Tax experts say that the old income-tax rule had a separate interpretation of how jurisdictions outside India could be used for holding entities.

“It needs to be seen if the taxpayers are in a worse-off situation after this decision. If the notices issued are treated as issued under new law as old law has multiple additional defences available to taxpayers on jurisdiction. This would require multinationals to have a relook at their group level tax provisioning on an immediate basis to this extent and plan carefully for complying with these notices after evaluating all pros and cons,” said Rahul Garg, managing partner of tax and regulatory consultants Asire Consulting.

The government had tweaked Section 148 of the IT Act. The section allowed tax officers to open past assessments if they had the reason to believe that the company had paid lower income tax.

The tax department, in the meantime, extended the old regime (old 148) citing Covid second wave and issued thousands of notices. About 90,000 writ petitions were filed across India in this regard.

The issue was heard by several High Courts, most of which ruled in favour of the taxpayers.

The dispute finally reached the

Court which ruled, “The impugned Section 148 notices issued to the respective assessees which were issued under unamended Section 148 of the IT Act, shall be deemed to have been issued under Section 148A of the IT Act as substituted by the Finance Act, 2021, and construed or treated to be show-cause notices in terms of section 148A(b).

The court has directed the tax department to take further action within 30 days based on the facts of the case. The companies will have to respond to these notices within two weeks thereafter.

Tax experts say one of the revised timelines prescribed under the new law is set to create complications for MNCs.

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