Article
Taxability of sale consideration retained in escrow: A conundrum
Ordinarily in the case of a sale, the price mutually agreed upon by the parties which is received by or accrues to a seller should be taken as the ‘full value of the consideration’ for calculating capital gains. However, a legal quandary arises in the cases where a portion of the consideration is retained in an escrow account under an agreement between the parties. Taking note of various case law, the article ponders over the questions as to whether such retained amount falls within the purview of ‘full value of the consideration’ and what would be the year of taxation in such case. Highlighting that the language utilized in the sale agreement becomes critical for determining the taxability of the sums retained in an escrow account, the authors (Tanmay Bhatnagar, Snehal Ranjan Shukla and Avar Lamba) also list various factors the parties should keep in mind in such sales. According to them, the taxpayers should carefully determine their rights and liabilities towards the escrow sums to trace their tax liabilities.
Notifications & Circulars
- Direct Tax Vivad se Vishwas Scheme, 2024 – Guidance Note issued
- Due date for furnishing return of income for Assessment Year 2024-25 extended for certain assessees
- Cooperative societies claiming deduction under Section 80P – Condonation of delay under Section 119(2)(b) for delayed returns of income for AY 2023-24
- Monetary limits of income-tax authorities for entertaining applications under Section 220(2A) for reduction or waiver of interest payable under Section 220(2)
- Income-tax Rules, 1962 amended – Changes made in Rules 26B, 31AA, and 37-I
- No TCS on payments received from Reserve Bank of India
- Valuation – Transaction price to be deemed to be Arm’s Length Price in certain cases
Ratio decidendi
- Transfer Pricing – Transactional Net Margin Method cannot be rejected without any reasoning and ‘other method’ applied, without also ruling out applicability of other five methods – Delhi High Court
- Transfer Pricing – Extended limitation period under Section 153(4) for passing assessment order is not available once a TPO reference is quashed as being without jurisdiction – ITAT Mumbai
- Findings in proceedings under Income tax Act have no binding force in proceedings under Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 – ITAT Mumbai
- Failure to provide ‘consent waiver form’ to facilitate information exchange under the India-Switzerland DTAA is valid ground for upholding assessment under Section 153A – ITAT New Delhi
- Broken period interest to be allowed as revenue expenditure to banks for securities being held as stock-in-trade – Supreme Court
- Jurisdictional Assessing Officer is not denuded of jurisdiction by virtue of Faceless Assessment Scheme – Delhi High Court
