In this article, we will understand why section 94A was introduced and what was the need of invoking such provisions under the Income Tax Act,1961.
Section 94A was introduced by Finance Act, 2011 by the Central Government in order to notify certain jurisdictions from which India has no such agreements or arrangements of Sharing/ Exchanging Tax information of the assessee. Central Government has been trying since long to bring back the Black money deposited by Indians in Foreign Bank Accounts. The main reason behind introducing this section is to Curb the circulation of unaccounted money and various international transactions which takes place between Tax Havens and other tax oriented countries. And where Tax information exchange system does not exist.
This section Empowers the Central Government to Blacklist the countries where such effective agreement of sharing tax information does not exist.
This provision acts as counter measure to discourage the transactions between India and Notified Jurisdicted Areas. Till date only Cyprus has been notifed as NJA by Central Government which was rescinded in the year 2016Vide Notification No. 114 dated 14/12/2016 and Notification No. 119 dated 16/12/2016. Therefore in the current regime there is no such NJA exists.
Let us better under this provision in the form of example
There were two brothers named Pushp Kumar Sahu resident of India and another one is Uday Kumar Sahu who is a resident of Country X which is notified by Indian Government as Notified Jurisdicted Area, Mr. Uday and Mr. Pushp has been entered into a transaction in the nature of lending or borrowing of money , then after entering into such transaction both the parties will be deemed to be an “Associated Enterprises”( within the meaning of section 92A)by virtue of section 94A(2).
There would be a liability in the hands of Mr. Pushp kumar sahu in respect of any sum received or credited from Mr. Uday in any previous year, then Mr. Pushp has to offer the explanation about source of the said sum, if he fails to explain the same, then such sum credited in his account would be deemed to be his income and accordingly tax will charged on such income.
Under the same situation Mr. Pushp has also made payment to Mr. Uday ( Resident of NJA) then there is a liability of Mr. Pushp to deduct tax on such sum credited to the account of Mr. Uday at the highest of the following rates, namely;
1). At the rate or rates in force;
2). At the rate specified in the relevant provisions of this act;
3). At the rate of 30%.
(Pushp Kumar Sahu)