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Alerts:

Direct Tax Alert - Person notified for verifying tax returns and to act as authorised representative

20 August 2021

Clause (c) of Section 140 of the Income-tax Act, 1961 (IT Act) provides that in case of Company the tax return is to be verified by the Managing Director (MD) and where MD is not able to verify for any unavoidable reason or where there is no MD, any director of the Company can verify the return. In respect of Company whose application for insolvency resolution process has been admitted by the Adjudicating Authority (AA) under the Insolvency and Bankruptcy Code, 2016 (IBC), the tax return is to be verified by the insolvency professional appointed by such AA. Similarly, as per clause (cd) of section 140  of the IT Act, in case of limited liability partnership (LLP), the tax return is to be verified by the designated partner of the LLP or by any partner in case there is no such designated partner.

Finance Act, 2020 had amended clause (c) and (cd) of section 140 of the IT Act to permit ‘any other person’ (as may be prescribed) to verify the return of income in the cases of a company and LLP.

Further, section 288(2) of the IT Act covers persons who can act as Authorised Representative for appearing before any Income-tax Authority or Appellate Tribunal on behalf of the taxpayer. While the IBC empowers Insolvency Professional or the Administrator to exercise the powers of the Board of Directors or corporate debtor, due to lack of explicit reference in section 288 of the IT Act for an Insolvency Professional to act an authorised representative of the corporate debtor, it was raising certain practical difficulties. To address this, Finance Act, 2020 amended section 288(2) of the IT Act to provide that ‘any other person’ as may be prescribed by the Board, to appear as an authorised representative.

Recently, the Central Board of Direct Taxes (CBDT) has issued a notification1 inserting Rule 12AA and Rule 51B in the Income-tax Rules, 1962 (IT Rules) and thereby notifying ‘any other person’ for the purpose of section 140 and section 288 of the IT Act. We, at BDO in India, have summarised this Notification and provided our comments on its impact hereunder:

For the purpose of clause (c) and clause (cd) of section 140 of the IT Act, who is notified as ‘any other person’?

As per Rule 12AA of the IT Rules, for the purpose of clause (c) and clause (cd) of section 140 of the IT Act, ‘any other person’ shall be the person appointed by the AA for discharging the duties and functions of an interim resolution professional, a resolution professional, or a liquidator, as the case may be, under the IBC and the rules and regulations made thereunder.

For the purpose of Authorised Representative, who is notified as ‘any other person’?

As per Rule 51B of the IT Rules, for the purpose of section 288(2) of the IT Act, ‘any other person’, in respect of a company or a limited liability partnership, as the case may be, shall be the person appointed by the AA for discharging the duties and functions of an interim resolution professional, a resolution professional, or a liquidator, as the case may be, under the IBC and the rules and regulations made thereunder.

Both the new Rules – Rule 12AA and Rule 51B – refer to Adjudicating Authority. What is the definition of Adjudicating Authority?

The definition of “Adjudicating Authority” as contained in section 5(1) of the IBC shall be applicable for Rule 12AA as well as Rule 51B. As per section 5(1) of the IBC, AA means National Company Law Tribunal2.

BDO comments

The IT Act has a provision of signing the tax return forms by insolvency professionals. The IT Act also contains a provision that such an insolvency professional can act as an Authorised Representative of the Company under liquidation. However, under IBC, there is a provision for appointing an interim resolution professional to undertake various compliances. Since such reference was not made in the IT Act, it was creating hindrance in getting the tax forms signed as well as appearing before the tax authorities. With the insertion of these two new Rules, the CBDT has addressed this challenge.


1Notification No 93 of 2021 [F.No.370142/34/2021-TPL (Part III)] dated 18 August 2021

2Constituted under section 408 of the Companies Act, 2013