Volume : 45 l Part 8 l November, 2021
Cricket Tournaments,
Year 2018 & 2019
Ahmedabad Chartered Accountants Journal
E-mail : [email protected] Website : www.caa-ahm.org - caaahmedabad
Volume : 45 Par t : 8 November, 2021
CONT ENTS
To Begin with
- Happy, Healthy and Wealthy Friendship...........................CA. Ajit C. Shah.........................363
Editor ial ............................................................................................CA. Rutvij P. Shah.........................364
Fr om the Pr esident............................................................................CA. Monish Shah..........................365
Ar ticles
Taxation of Partnership Firm under section 9B and 45(4) of the
Income Tax Act, 1961 ........................................................................CA. Sunil H. Talati......................366
GST on Ice Cream - a cold affair........................................................CA. Nitesh Jain............................376
Annual Information Statement (AIS)................................................... CA. Kuntal Merchant...................382
Direct Taxes
Glimpses of Supreme Court Rulings....................................................Adv. Samir N. Divatia....................385
From the Courts..................................................................................CA. C.R. Sharedalal &
CA. Jayesh Sharedalal............... 386
Tribunal News.....................................................................................CA. Yogesh G. Shah &
CA. Aparna Parelkar.................. 389
Controversies.......................................................................................CA. Kaushik D. Shah...................395
Judicial Analysis..................................................................................Adv. Tushar Hemani......................397
FEM A & I nternational Taxation
The Concept of Tax Sparing and its Future..........................................CA. Dhinal A. Shah &
CA. Karan Sukhramani...............404
FEMA Updates....................................................................................CA. Savan Godiawala..................406
I ndirect Taxes
GST and VAT Judgments and Updates................................................ CA. Bihari B. Shah &
CA. Vishrut R. Shah.....................407
Cor por ate L aw & Other s
Corporate Law Update.......................................................................CA. Naveen Mandovara...............410
Guj RERA Corner..................................................................................CA. Manan Doshi.........................412
Capital Markets..................................................................................CA. Karan P. Vora.........................415
Fr om Published Accounts .................................................................CA. Pamil H. Shah..................... 419
Fr om the Gover nment ......................................................................CA Ashwin H. Shah &
CA. Kunal A. Shah......................423
I T Cor ner ...........................................................................................CA. Rushabh Shah.....................425
Association News.............................................................................. CA. Rushabh Shah &
CA. Jay Parekh...........................427
ACAJ Cr osswor d Contest....................................................................................................................428
Ahmedabad Chartered Accountants Journal November, 2021 361
Journal Committee
CA. Rutvij Shah CA.Ashish Sharma
Chair man M ember s Convenor
CA. Ashok K. Kataria CA. Mehul Shah
CA. Mohit Tibrewal Ex-officio CA. Nirav J. Shah
CA. Niren M. Nagri CA. Riken Patel
CA. Monish Shah CA. Sarju Mehta
CA. Rushabh Shah CA. Jay Parekh
A t t ent i on
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720 4720
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ii. In case of membership of (ICAI) for a period more than five years 7500
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Professional Awar ds
The best articles published in this Journal in the categories of 'Direct Taxes', 'Company Law and Auditing' and 'Allied
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Published By
CA. Rutvij P. Shah, on behalf of Chartered AccountantsAssociation, Ahmedabad, 2nd Floor, Darshak, 14/A, Swastik
Society, Opp. Shrey Hospital, Navrangpura, Ahmedabad - 380 009 Phone : +91 79 40392596
No part of this Publication shall be reproduced or transmitted in any form or by any means without the permission
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not responsible for any error that may have arisen.
Pr inted : Pr atiksha Pr inter, Ahmedabad Mobile: 98252 62512 E-mail : [email protected]
362 Ahmedabad Chartered Accountants Journal November, 2021
HAPPY, HEALTHY AND CA. Aj it C. Shah
WEALTHY FRI ENDSHI P [email protected]
“To havefr iends, you must havefr iendlinessin mother was happy to hear about thi s
you; you must beselflessand loving, with deep achievement. Timequickly passed andtheday
concer n for other s, and then you will discover a to leavewasnear.Atul’smother sat down with
fr iend.” him and said,”Atul I need a promisefromyou
beforeyou travel abroad.” “What isit, mom?”
- Swami Chinmayananda “Under any circumstancesyouwill not doany
wrong.”Atul promisedhismother and returned
It issaid that for wanting afriend, you should learn home after two years without breaking his
how to be a f ri end fi rst. A true f ri end i s promise.
understanding and accepting, but also correcting
whenwearewrong.Asafriend, oneshould possess Weareat alow maturity level to judgewhat is
qualitiessuchaskindness, patienceandselflessness. good and what isbad for us. For thisweneed
But while being truthful and helpful, ensure that to livelifewith heightenedawareness. It isour
you aren’t overtaking thesethreeprinciplesof life moral responsibility to not overtakeadviceof
which can turn your and your friends’life in to a elderswho wishfor our lifeto grow rather than
disaster- go.
01. Don’t distur b other s 03. Don’t cr ossboundar ies
Do not crossthe lineof friendship sweetness In Cricket World Cup 2003, SachinTendulkar
to bitterness or meddle in another’s personal establishedaquick smart inningsby punishing
business. Because of erroneous thinking, Lankan spin legend Muralitharan. However,
people are governed by ego, anger, jealousy, hefell short of acentury, getting stumped out.
hate, selfishness, and many more negative At theendof thematch, which Indiawon, Man
emotionswhi ch vi cti mizethem i n to di stributi ng of theMatch, SachinTendulkar concluded his
others. They may go to any extreme of speech by confessi ng the reason for hi s
selfishnesstofulfill what isbeneficial for them. dismissal wasamajor mistakeof stepping out
Wecan’t makethewholenation happy, but it of thecrease.
isour moral responsibility not tomakeany one
unhappy! It’s like ‘Swachh Bharat Abhiyan.’ CreaseandBoundariesarenot meant to restrict
Wemay not beableto keep thewholecountry usbut aremeant to saveour energy flowing in
clean, but it’s our duty to not pollute our wrong direction. Friendsarefriends. But you
surroundingsby throwing garbage. need to be careful of those who violate your
border line.
02. Don’t over look elder s
After adhering to these three conditions you
Atul camehomeexcited tosharehisnewswith maketruefriendswho don’t ask you or tempt
his mother. He had received a two year you to Disturb Others, Overlook Eldersor to
scholarship for further studies abroad. His Cross Boundari es.
hhh
Ahmedabad Chartered Accountants Journal November, 2021 363
Editor ial
CA. Rutvij Shah
[email protected]
Padma Awards are one of the highest civilian awards of India and are conferred in three
categories - Padma Vibhushan, Padma Bhushan and Padma Shri - in various disciplines/fields
of activities such as art, social work, public affairs, science and affairs, and so forth. This
year, 119 Padma Awards were presented by President Ram Nath Kovind. The list comprises 7
Padma Vibhushan, 10 Padma Bhushan and 102 Padma Shri Awards. 29 of the awardees are
women, 16 Posthumous awardees and 1 transgender awardee.
Traditionally Padma awards have been usually conferred upon loyal courtiers of the once
coveted Lutyens’Durbar. A look at their resumes revealed that they often had deep connections
with the influential and the powerful in the government. They were also active supporter of
the government’s policies and even members of the grand old party. The awardees were usually
urban and affluent “club” members. Many others of higher merit were often ignored. The
award they received was a combination of merit and connections and, quite often, the
connections outweighed merit.
However, this year’s Padma Awards have been unique because of the selection of awardees.
This year, grassroot heroes of our country have been selected and all the awardees are real
life role models for our countrymen. Many awardees on the list come from an extremely
humble background and they have been recognised for the work they have done for the
betterment of our society and country.
Earl i er, mi ni sters were recommendi ng names f or the Padma awards. Si nce 2017,
recommendations for the Padma Awards are invited online from regular citizens. All these
recommendations then go to a Padma Award Committee which is headed by the union cabinet
secretary and includes the home secretary, secretary to the president, and four to six eminent
persons as members. Out of these recommendations, winners are shortlisted by the Committee
and the names are then submitted to the Prime Minister and the President for approval. We
must compliment the government for bringing new transparent system for selection of awardees
and elevating the standing of these awards.
In this issue, we have taken up photographs of cricketing events which are organized or
participated by our association. Our cricketing seasons starts with a match between President
XI and Secretary XI. We also participate in friendly matches with other professional bodies as
well as Income Tax Department. Our association also conducts Box Cricket tournaments for
our members.
hhh
364 Ahmedabad Chartered Accountants Journal November, 2021
From the
President
CA. M onish Shah
[email protected]
Dear M ember s
Happy Diwali & Prosperous New Year to you and your family. India achieved a major milestone with
100 Crore vaccines under the vaccination drive. The Association praises all our COVID heroes for
working tirelessly to achieve this milestone. This is indeed a story of success in the challenging times.
As a nation, all steps are being taken to regain lost ground and find the path of development and
progress. This month we had an opportunity to hear Nilesh Shah from Kotak Securities and it was
indeed a pleasure to hear the India Shinning and the Investment that one needs to look to is INDIA may
it be any company the growth of India is gone to be a success story by all means. We have come a long
way adapting and imbibing new ideology. The Gen X and Gen Z’s of toady is where we going to hand
our baton of Development to. The growth story also comes hand in hand with responsibility. The
world as we see today is shaping up and as professionals we also grow with the changing times.
However, the growth story also needs to be regulated. The regulation has to be strong otherwise there
can be slippages and which can lead to deterioration. This month we also saw two stories one of Paytm
and one of Nykaa both have different stories but it shows that one needs to be vigilant and ensure
where and what to invest.
The same theory of Regulation needs to be applied to us in our professional field as well. As we enter
Audit Season, we are all aware that the Client will be willing to travel a distance to make his needs
meet. Negotiation for our fees and other issues will be a key point as we also look to regain and rebuilt.
However, we need to ensure that proper disclosures and reporting is done in order to ensure that we
keep things under control. Let us be true and fair. If the work levels still dip, then the works entrusted
to us on behalf of the Government can also take a dip. This will result to a loss in terms of opportunity.
We need to ensure that we show to the Government and proper officers that we help them in revenue
leakage and also plug the gaps that are there in the system. Our inabilities in the past are one of the
reasons that we lost a few Audits which were specially granted to us. My intention is not to blame
anyone but it’s a collective thought that has been sensed from the Officials that I have met over a period
of time. It’s our responsibility to ensure that respect and stature that has been granted to us stays intact
and we added to that growth story.
As I have always said “All work & No Play makes Jack a Dull Boy”. Keeping this in mind we have
organized a cricket match on 27th which will be played between President XI & Secretary XI. This will
bring out the competitive spirit in the members. The Platinum Jubilee Function and the Diwali Get together
where a great success as members attended the same in large numbers. Me and my team are thankful for
such an outstanding and warm response. It was an immense opportunity to meet you all in person after
such a long time. I would be wrong if I don’t thank our sponsors for the event who helped us financially
and morally to ensure that our event goes smooth. We will soon be celebrating our CAAA Foundation
Day. We are planning few activities and the same will be out soon. Hope to see all the members take
active part in the events as it is you the Members who make the CAAA what it is today.
The world is coming out of the crises, few days back a splurge in the number of Covid Cases was about
to cause panic but I think it’s the large vaccination drive done by the Govt which has ensured us that we
can move around with caution. The schools are set to reopen for all and looks like soon all will be
normal like pre covid. Mask still looks like a punishment to most but it is one of the most important
strengths of ours that will help us to fight Covid. So, let’s keep wearing mask, washing hands at regular
intervals, moving forward to growth and if still not vaccinated get vaccinated.
hhh
Ahmedabad Chartered Accountants Journal November, 2021 365
Taxation of Partnership Firm
under section 9B and 45(4) of the
Income Tax Act, 1961
CA. Sunil H. Talati
[email protected]
Reconstitution of Par tner ship Fir m now liable (ii) chargeable to income-tax as income of
for I ncomeTax such speci fied enti ty under the head
“Prof i ts andgai ns of busi ness or
Tax planning by way of revaluation of assetsor by profession” or under the head “Capital
recording self generated goodwill or other assetsin gains”, in accordancewith theprovisions
thefirm wasoneof thebiggest toolsof tax planning of thisAct.
or tax avoidance. Finance Bill – 2021 has now
placed aban onthistool by making an amendment (3) For the purposes of this section, fair market
w.e.f. 01/04/2020. value of the capital asset or stock in trade or
both on thedateof itsreceipt by thespecified
Section 9B person shall bedeemed to bethefull valueof
theconsiderationreceivedor accruingasaresult
Incomeonreceipt of Capital Asset or Stock inTrade of such deemed transfer of thecapital asset or
by specified person from specified entity stock in tradeor both by thespecified entity.
FinanceAct 2021, introducedanew section, section (4) If any difficulty arises in giving effect to the
9B under Income Tax Act which specifies the provisionsof thissectionandsub-section(4)of
provision related to transfer of Capital Assets or section 45, theBoard may, with theapproval
stock in tradeon Reconstitution or of theCentral Government, issueguidelinesfor
thepurposesof removing thedifficulty.
Dissolution of Firm / AOP, etc.-
(5) Every guidelineissuedby theBoardunder sub-
(1) Whereaspecified person receivesduring the section (4) shall, as soon as may be after it
previousyear any capital asset or stock intrade i si ssued, be l ai d before each House of
or both from a specified entity in connection Parliament, andshall bebindingontheincome-
with thedissolution or reconstitution of such tax authoritiesand on theassessee.
specified entity, then thespecified entity shall
be deemed to have transferred such capital Expl anati on.— For the purposes of thi s
assetor stock in tradeor both, asthecasemay section,—
be, to thespecified person in theyear in which
such capital asset or stock in tradeor both are (i) “reconstitution of the specified entity”
received by thespecified person. means, where—
(2) Any profitsandgainsarisingfromsuchdeemed (a) oneor moreof itspartnersor members,
transfer of capital asset or stock intradeor both, asthecasemay be, of such specified
asthecasemay be, by thespecifiedentity shall entity ceasestobepartnersor members;
be— or
(i) deemed to betheincomeof such specified (b) oneor morenew partnersor members,
entity of thepreviousyear in which such as the case may be, are admitted in
capital asset or stock in tradeor both were such speci f i ed enti ty i n such
received by thespecified person; and circumstancesthat oneor moreof the
366 Ahmedabad Chartered Accountants Journal November, 2021
Taxation of Par tner ship Fir m under section 9B and 45(4) of the I ncome Tax Act, 1961
persons who were partners or • FULL VALUE OF CONSIDERATION
members, as the case may be, of the = FMV OF CA / SIT on thedateof receipt
specified entity, before the change, of such assets.
continue as partner or partners or
member or membersafter thechange; What doesreconstitution standsfor ?:
or
Reconstitution means:
(c) all thepartnersor members, asthecase
may be, of such speci fied entity 1. One or more members ceases to be partners/
conti nue wi th a change i n thei r membersof such specified entities.
respective share or in the shares of
someof them; E.g.; – ABC isapartnership firm, in whichA
B& C is a partner if any of the partners let’s
(ii) “specified entity” means a firm or other say B ceases to be a partner either through
associ ati on of persons or body of retirement or otherwise, then thesaid situation
individuals(not being acompany or aco- iscovered under reconstitution of thefirm.
operativesociety);
2. One or more person admitted as a partner in
(iii) “specified person” means a person, who thealready existing specified entity in which
is a partner of a firm or member of other oneor morepartnersof aspecifiedentity before
associ ati on of persons or body of a change continue to be a partner of such
individuals(not being acompany or aco- specifi ed entity.
operativesociety) in any previousyear.]
E.g.; – ABC isapartnership firm, in whichA
Applicability B & C isapartner, if D isadmitted asapartner
whilepartnerA, B, C continuesto beapartner
· Thereshould beaSpecified Entity. of such entity then such caseshall fall under b.
and the said case shall be a reconstitution of
· Thereshould beaSpecified Person. thefirm.
· Transfer of CapitalAssets/ Stock intrade/ both. 3. All or either of the partners of the specified
entity continues with the change of their
· I n connecti on wi th the di ssol uti on / respectiveshare.
reconstitution.
E.g.; – ABC isapartnership firm, in whichA
If theaboveconditionsarefulfilled; B & C is a partner having 1/3 profit sharing
ratioif all thepartner agreestochangetheshare
• Such transfer i s sai d to be Deemed of all/ either of thepartner, let’ssay C’sshare
Transfer. shall bedecreased to 30% andA B shareshall
increase to 35 % each than the said case fall
• Profit & Gainonsuchdeemedtransfer shall under c, and it issaid to bereconstitution.
be deemed to be the income of such
Specified entity. E.g.: – ABC isapartnership firm, in whichA
B C partner, wantsto retireand partner D E F
• Deemed incomeshall berecognized in the want to admit as a partner, in the current
previous year in which specified person scenario, it isnot thecaseof reconstitution as
receivedsuchcapital assetsor stock intrade existingpartner beforechangeshall not continue
or both. (i.e., Incomeintheyear of receipt). aspartnersafter thechange.
• Nature of income shall be determined as
per the nature of assets ( Taxed either as
Capital Gain or asPGBPIncome).
Ahmedabad Chartered Accountants Journal November, 2021 367
Taxation of Par tner ship Fir m under section 9B and 45(4) of the I ncome Tax Act, 1961
I mpor tant Featur esof Sec. 9B: of reconstitution or dissolution is treated as
deemedtransfer. It overruledvariousjudgment
Section 9B isadeeming provision, which enables which held that Distribution, division, or
certain income will be taxable in the hand of a allotment of assets by partnership firm upon
specifi ed entity. dissolution or reconstitution is nothing but
mutual adjustment of rightsbetween partners.
It isnot acomputation provision, for computation
provision of PGBPor Capital gain will apply. • Remember I n case of reconsti tuti on or
dissolution, for applyingsection9B, theremust
• Herepartners/membersincludeall thepartners/ beatransfer of acapital asset or stock in trade
members example- companies, co-operative or both.
societies(resident or non-resident).
Year of Tr ansfer and Taxation :
• On thedeath of apartner, alegal heir isentitled
to deceased partner’s share, it isnot acase of It isdeemed to betransferred in theyear, in which
reconstitution, asreconstitution existsonly in such capital asset or stock in tradeisreceived by a
case of admission,retirement, or change in specifiedperson.And shall betaxed on thehand of
PSR. specified entity in theyear in which it isreceived
by specified person.
What isdissolution ?:
M ethod of Computation:
• Asper caselaw (CIT vsPigot Chapman& Co),
adissolution bringspartnership to an end. • Profit & gain on transfer of capital assets is
chargeableto capital Gain & all theprovisions
• Wherethereareonly two partners, onthedeath from section 45 to section 55A shall apply
of one partner, the firm is deemed to have accordingly, except totheextent theprovision
dissolved asper caselaw (Mohd laiquiddin vs conflicts with section 9B, as 9B is a special
kamladevi Mishra). provision.
• Wherethereareonly two partners, and oneof • Computethegain asper section 48.
the partners retire, and the existing partner
continuestheir businessasaproprietor thenthe • Cost of acquisition shall betaken at FMV asof
firm isdeemedto havebeen dissolved(ITO vs 1. 04. 2001, if it ispurchased beforesaid date.
Om Namah Shivay Builders& Developers).
• Thebenefit of indexation shall betaken.
What isCapital Asset?:
• Profit & gain on transfer of stock in tradeshall
It isdefined under section 2 (14) for thepurposeof becomputedinthemanner providedinsections
section 9B. 28 to 44DB.
• An asset which is not an asset as per section Section 48
2(14), then thesaid asset isnot acapital asset
for thepurposeof section9B. It includeseither Modeof Computation
movable, immovable, or actionableclaimsbut
doesnot includeStock intrade,Personal effects • Theincomechargeableunder thehead“Capital
other than jewelry, Agricultural land, Gold gains” shall becomputed, by deducting from
Bond, and special bearer bond. (That’s why thefull valueof theconsideration received or
Government Specifically included Stock in accruingasaresult of thetransfer of thecapital
Tradein Section 9B). asset thefollowing amounts, namely :—
What isdeemed Tr ansfer ?: (i) expendi ture i ncurred whol l y and
excl usi vel y i n connection wi th such
• Transfer of Capital asset or stock in tradeby a transfer;
specifiedentity toaspecifiedpersonintheevent
368 Ahmedabad Chartered Accountants Journal November, 2021
Taxation of Par tner ship Fir m under section 9B and 45(4) of the I ncome Tax Act, 1961
(ii) thecost of acquisition of theasset and the • Theamount which ischargeableto tax under
cost of any improvement thereto; section 45(4) shall bereduced for calculating
capital gain under section 9B to avoid double
(iii) in case of value of any money or capital taxation, that’swhy 48(iii) hasbeenintroduced
asset received by aspecified person from in financeAct 2021.
aspecified entity referred to in subsection
(4) of section 45, the amount chargeable • Section 9B(3) provides that FMV of capital
to income-tax asincomeof such specified assetsor stock in trade shall bedeemed to be
entity under that sub-section which is full considerationfor thepurposeof computing
attributable to the capital asset being capital gain or PGBP, hence Section 50C, 50
transf erred by the speci fi ed enti ty, CA, and 43CA shall not beapplied.
calculated in theprescribed manner:
Rate of Tax
Computation of Capital Gain under section 9B
r ead with Rule48(I I I ) shall beasfollows: Therate of tax will be determined on the basisof
thenatureof capital assetstransferred& their period
M anner of Computation of holding. Henceit may beliableto chargetax at
aconcessional rateasprovided in section 111A or
Thefull valueof theconsideration XX X section 112A subject to the fulfi ll ment of a
received or accrued (fair market condition.
valueof capitalassets) (Section 9B
doesnot deal with money Section Section 45 ( 4 )
45(4) does)
Capital Gains
Less:– Expenditureincurred wholly and XX X
exclusively in connection with the Notwithstandinganything containedinsub-section
transfer; (1), where a specified person receives during the
previous year any money or capital asset or both
Less:– Cost of acquisition/indexed XXX from a specified entity in connection with the
cost of acquisition; reconstitution of such specified entity, then any
profits or gains arising from such receipt by the
Less:– Cost of improvement/indexed XXX specified person shall bechargeabletoincome-tax
cost of improvement; and asincomeof such specified entity under thehead
“Capital gains” and shall be deemed to be the
Less:– Theamount chargeableto tax as XX X incomeof suchspecifiedentity of thepreviousyear
incomeof specified entity under in which such money or capital asset or both were
section 45(4) which isattributable recei ved by the speci f i ed person, and
to thecapital asset being notwithstandinganything tothecontrary contained
transferred by thesaid entity inthisAct, suchprofitsor gainsshall bedetermined
[section 48(i ii)] i n accordance wi th the fol l owi ng formul a,
namely:—
Capital Gain XXX
A=B+CD
• Clause(iii) of section 48 hasbeen inserted by
finance act 2021, which provide that if any Where,
money or capital asset isreceivedby aspecified
person from aspecifiedentity, thentheamount • A = income chargeable to income-tax under
chargeable to income-tax as income of such thissubsectionasincomeof thespecifiedentity
specified entity under section 45(4), which is under thehead “Capital gains”;
attributabletothecapital asset beingtransferred
by the specified entity, shall be calculated in
theprescribed manner and shall beallowed as
adeduction in computing capital gains.
Ahmedabad Chartered Accountants Journal November, 2021 369
Taxation of Par tner ship Fir m under section 9B and 45(4) of the I ncome Tax Act, 1961
• B = value of any money received by the thesaid provisionsthereof shall beworkedout
specified person from the specified entity on independently.]
thedateof such receipt;
Non-Applicability
• C = the amount of fair market value of the • Not applicablein caseof dissolution
capital asset received by thespecified person • Not applicablefor transfer of stock in trade.
from the specified entity on the date of such • Implication; –
receipt; and • Any profit or gain on transfer of such assetsto
• D = theamount of balanceinthecapital account the speci fi ed person shall be chargeable
(represented in any manner) of the specified toincometax astheincomeof specifiedentity.
person in thebooksof account of thespecified • Deemed to betheincomeintheyear of receipt
entity at thetimeof itsreconstitution: of such assetsby thespecified assets.
• Such profits shall be treated as CAPITAL
• Provided that if thevalueof “A” in theabove GAIN.
formulaisnegative, itsvalueshall bedeemed • FORMULA
to bezero A = B + C- D
A = Incomeof specified entity which isto be
• Provided further that thebalancein thecapital calculated for charging capital gain.
account of thespecified person inthebooksof B =Valeof money on thedateof receipt.
account of the speci fi ed enti ty i s to be C= FMV of capital assetsonthedateof receipt.
calculated without taking into account the D =Amount of capital balanceof thespecified
increasein thecapital account of thespecified person which is appeared in their capital
person due to revaluation of any asset or due account on thedateof reconstitution.
to self-generated goodwill or any other self- • Thecalculationof capital account of aspecified
generated asset. person isto bedonewithout taking effect of an
increasein capital account
• Explanation 1.— For thepurposesof thissub- • Dueto therevaluation of assets.
section,— • Dueto self-generation of goodwill.
(i) the expressions “reconstitution of the
specified entity”, “specified entity” and
“specifiedperson”shall havethemeanings
respectively assigned to them in section
9B;
(ii) “sel f-generated goodwil l ” and “self-
generated asset” mean goodwill or asset,
as the case may be, whi ch has been
acquired without incurring any cost for
purchase or which has been generated
during the course of the busi ness or
profession.
• Explanation 2.— For theremoval of doubts, it
isclarified that whenacapital asset isreceived
by aspecified personfromaspecifiedentity in
connection with the reconstitution of such
specified entity, the provisions of this sub-
secti on shal l operate i n addi ti on to the
provisionsof section9B andthetaxationunder
370 Ahmedabad Chartered Accountants Journal November, 2021
Taxation of Par tner ship Fir m under section 9B and 45(4) of the I ncome Tax Act, 1961
• Dueto other self-generated assets. (Proviso to gainsarisingfromthetransfer wouldbesubject
section 45(4)) to incometax.
• It comeswithNotwithstandingeffect whatever • TheCBDT guidelinesclarify themethodology
mentioned in Section 45(1). for attribution of income of an entity on its
reconstitution and giveexamplesof situations
• Note whereapartner exitsafirmandtheorganization
settlesthecapital balance.
– Specifiedshall pay tax under section45(4)
is in addition to tax which is to be paid Synopsisof CBDT notification
under section 9(B).
• TheCBDT Guidelinesfor Taxing Partnership
• Note Firms on its Reconstitution explain how to
attributean entity’sincomeon itsreconstitution
– Capital Withdrawal from their respective and provide examples of scenarios where a
Capital Accounts during the course of partner leavesafirmandtheorganizationsettles
businessshall not attract 45(4) thecapital balance.
Section 45(4) | CBDT amends Rule 8AA & • The guidelines provide the procedure for
I nser tsRule 8AB determining thecapital gainsasshort term or
long term at the time of taxability of such
• CBDT videNotification No. 76/2021-Income incomein thehandsof thereconstitutedentity.
Tax | Dated: 2nd July, 2021 amendsrule8AA
which relates to method of determination of • Thenew section9B andsubstitutedsub-section
period of holding of capital assets in certain (4) of section45isapplicablefor theassessment
casesand added rulesrelated to amount which year 2021-22andsubsequent assessment years,
is chargeable to income-tax as income of however theGuidelinesand Rulesareissued
specifiedentity under subsection (4) of section on 2nd July, 2021 and i.e. theapplicability of
45 under thehead Capital gains. the Section should be from 2022-23 and not
2021-22.
• Notification further inserted new IncomeTax
Rule 8AB related to Attribution of income Attr ibution of I ncome Tax an Entity on its
taxableunder sub-section (4) of section 45 to r econstit uti on
thecapital assetsremaining with thespecified
entity,under section48alongwithformnamely • The amount taxed under sub-section (4) of
‘Details of amount attributed to capital asset section45of theAct isrequiredto beattributed
remaining withthespecifiedentity’ to theremaining capital assetsof thespecified
entity so that when such capital assets get
Guidelinesfor Taxing Par tnership Fir mson its transferred in thefuture, theamount attributed
r econstit uti on to suchcapital assetsgetsreduced from thefull
value of the consideration and to that extent
• The Central Board of Direct Taxes (CBDT) thespecified entity doesnot pay tax again on
has issued guidelines for taxing partnership thesameamount.
firmsonitsreconstitution in respect of thenew
provisionsof section9B andsub-section (4) of Capital Assetsfor ming a Block of Assets:
section 45 of theIncometax Act, 1961 videa
Circular No. 14 dated 2nd July 2021. • Thisattribution isgiven in theIT Act only for
48of theAct. Section48of theAct only applies
• The capital assets, money, or stock in trade to capital assets that are forming a block of
receivedby apartner inapartnershipfirmwhile assets.
its dissolution or reconstruction would be
considered asadeemed transfer, and profitsof
Ahmedabad Chartered Accountants Journal November, 2021 371
Taxation of Par tner ship Fir m under section 9B and 45(4) of the I ncome Tax Act, 1961
• For capital assetsformingablock of assets,there that theamount of cost of acquisitionof capital
issub-clause(c) of clauseof section 43 of the assetswill includetheamount of capital gain
Act to determinethewritten down valueof the chargeableto tax u/s45(4).
block of asset and section 50 of the Act to
determinethecapital gainsarising on transfer • Clause(iii) isadded to section 48 which reads
of such assets. asunder:
• However, the Act has not provided that the In caseof valueof any money or capital asset
amount taxed under sub-section (4) of section received by aspecified personfromaspecified
45 of theAct can also be attributed to capital entity referred to in sub-section (4) of section
assets forming part of a block of assets and 45, the amount chargeable to income-tax as
which arecovered by thesetwo provisions. incomeof such specified entity under that sub-
sectionwhichisattributabletothecapital asset
I n Nutshell being transferred by the specified entity,
calculated intheprescribed.
• FinanceAct – 2021 hasintroduced section 9B
and repl aced secti on 45(4) so as to tax Exampl e 1
partnership firm on itsreconstitution.
M/s FR
• Section 9B providesfor taxation of incomeof
thefirm on transfer of capital assets& stock in Partners A BC
tradewhereasSection 45(4) now providesfor
taxationof incomeinthehandsof thefirmwhich PSR 1/3 1/3 1/3
is actually the income in the hands of the
partner. Capital Balance 10 lakhs 10 lakhs 10 lakhs
• Thisprovisionsleadsto doubletaxation and to 3 Piecesof Land (acquired morethan 2 yearsago)
compensatetheimplicationsof doubletaxation,
section48isalsoamendedby addingtheclause Piecesof Land S TU
(iii) therein. It isimportant to understand that
whenapartner retiresfromthefirmandobtains Book Value 10 lakhs 10 lakhs 10 lakhs
money or property from thefirm, therearetwo
transactions. •Partner ‘A’Retires
• First one, quathepartner and Revaluation of Land asper Valuation Report
• Second one, transfer of money or property by Piecesof Land S TU
thefirm.
Book Value 70 lakhs 70 lakhs 50 lakhs
• Theformer transaction isdealt with in section
45(4) and thelater in section 9B. New Section • On Retirement,A gets: Rs. 11 lakh + Land U @
45(4) now providesfor taxation if thepartner Rs. 50 lakhs.
receivesthe“capital assets” or “money” at the
time of reconstitutions whereas Section 9B • Provisionsof section9B areattractedasfirm‘FR’
covers situation where the partner receives transfersland ‘U’to partner ‘A’.
capital assets or stock in trade at the time of
reconstitutionsor dissolution. • Assumetheindexedcost of acquisitionof theland
‘U’to beRs. 15 lakhs.
• To avoid therigour of doubletaxation U/s9B
aswell U/s45(4), consequential amendment is M anner of Computation
also donein section 48 wherein it isprovided
FMV 50 Lakhs
(-)Indexed cost (15 Lakhs)
LTCG 35 Lakhs
Tax @ 20% 7 Lakhs
372 Ahmedabad Chartered Accountants Journal November, 2021
Taxation of Par tner ship Fir m under section 9B and 45(4) of the I ncome Tax Act, 1961
• Assume no surcharge or cess for ease of Exampl e 2
calculation:
M /s FR
M anner of Computation Partners A BC
FMV 50 Lakhs PSR 1/3 1/3 1/3
(-)Book Value (10 Lakhs) Capital Balance 10 lakhs 10 lakhs 10 lakhs
Gains 40 Lakhs 3 Piecesof Land (acquired morethan 2 yearsago)
-Tax @ 20% (7 Lakhs) Piecesof Land S TU
Book Profit 33 Lakhs Book Value 10 lakhs 10 lakhs 10 lakhs
Partners A BC • No Other Capital Asset
PSR 1/3 1/3 1/3 • Partner ‘A’Retires
OpeningCapital 10 lakhs 10 lakhs 10 lakhs • Firm sells Land ‘U’for FMV of Rs. 50 Lakhs
to an outsider for liquidity purpose.
Book Profit of 11 Lakhs 11 Lakhs11 Lakhs
33 Lakhs • Assume the indexed cost of acquisition of the
land ‘U’to beRs. 15 lakhs.
ClosingCapital 21 Lakhs 21 Lakhs21 Lakhs
• ‘A’ has received Rs. 61 Lakhs (11 Lakhs of L and ‘U’tr ansfer red to ‘A’
money and market valueof 50 Lakhs)
FMV 50 Lakhs
• 40 Lakhs(61Lakhs– 21 Lakhs) will bebrought (-)Indexed cost (15 Lakhs)
to tax u/s45(4).
LTCG 35 Lakhs
Moreover; Tax @ 20% 7 Lakhs
• On account of clause (iii) of section 48, read • Assume no surcharge or cess for ease of
with rule 8 AB, this Rs. 40 Lakhs is to be calculation:
attributed to theremaining assetsof thefirm on
thebasisof increasein their value Book Pr ofit
• Here, the increase in the two capital assets FMV 50 Lakhs
namely ‘Land T’and Land ‘U’of Rs. 60 Lakhs
each, isin theratio of 1:1 (-)Book Value (10 Lakhs)
Gains 40 Lakhs
Land Opening Revalued Increase -Tax @ 20% (7 Lakhs)
Book at in value
Value Book Profit 33 Lakhs
S 10 70 60 Capital Account Effect
T 10 70 60 Partners A BC
• Thus, out of Rs. 40 Lakhs, Rs. 20 Lakhs shall PSR 1/3 1/3 1/3
be attributed to ‘Land S’and Rs. 20 Lakhs to
‘LandT’. OpeningCapital 10 lakhs 10 lakhs 10 lakhs
• When either of these lands get sold in future, Book Profit of 11 Lakhs 11 Lakhs11 Lakhs
thisamount attributedtothemwouldbereduced 33 Lakhs
from theamount of salesconsideration.
ClosingCapital 21 Lakhs 21 Lakhs21 Lakhs
Ahmedabad Chartered Accountants Journal November, 2021 373
Taxation of Par tner ship Fir m under section 9B and 45(4) of the I ncome Tax Act, 1961
Revaluation of Land asper Valuation Report Assets
Piecesof Land S T Land ‘S’@ Book Value 30 Lakhs
Fair Market Value 70 lakhs 70 lakhs Patent ‘T’@ WDV 45 Lakhs
• ‘A’has received Rs. 61 Lakhs from the firm to Cash in Hand 225 Lakhs
settlehiscapital balance
•Partner ‘A’retires.
• 40 Lakhs(61 Lakhs– 21Lakhscapital balance) Re-valued Assets
will bebrought to tax u/s45(4). Thiswill bein
addition to Rs. 35 Lakhs already charged to Land ‘S’@ FMV 45 Lakhs
capital gains.
Patent ‘T’@ FMV 60 Lakhs
Self-generated 30 Lakhs
Goodwill
Moreover;
• On account of clause (iii) of section 48, read • On retirement, PartnerA receivesRs. 75 Lakhs’
with rule 8 AB, this Rs. 40 Lakhs is to be plus‘Land ‘S’.
attributed to theremaining assetsof thefirm on
thebasisof increasein their value. • Indexed cost of Land ‘S’isRs. 45 Lakhs.
• Here, the increase in the two capital assets • Here, as the sale consideration is equal to the
namely ‘Land T’and Land ‘U’of ¹ 60 Lakhs Indexed cost of acquisition, there will be no
each, isin theratio of 1:1. LTCG Tax.
Land Opening Revalued Increase • Book profit on land Rs. 15 Lakhs (Rs. 45-30
Lakhs) is to be credited equally to the capital
Book at in value account of each partner.
Value Par tner A’s Capital A/c
S 10 70 60 PSR 1/3
T 10 70 60 Opening Capital 100 Lakhs
• Thus, out of Rs. 40 Lakhs, Rs. 20 Lakhs shall Book Profit of 15 Lakhs 5 Lakhs
be attributed to ‘Land S’and Rs. 20 Lakhs to
‘Land T’. Cl osing Capital 105 Lakhs
•When either of theselandsget sold, thisamount • Asagainst thecapital balanceof Rs. 105 Lakhs,
attributed to them would be reduced from the PartnerA hasreceived Rs. 120 Lakhs(75Lakhs
amount of salesconsideration. cash and Land ‘S’@Rs. 45 Lakhsasdiscussed
above).
•Thefinal resultsin both examples1 & 2 aresame
dueto theoperation of section 9B. • Thus, Rs. 15 Lakhs(120-105) isto becharged
to tax u/s45(4).
Exampl e 3 • On account of clause (iii) of section 48, read
with rule 8 AB, this Rs. 15 Lakhs is to be
M /s FR attributed to theremaining assetsof thefirm on
thebasisof increasein their value.
Partners A BC
PSR 1/3 1/3 1/3 • Here, the value of capital asset- ‘Patent T’ is
increased by Rs. 15 Lakhsand Goodwill of the
Capital Balance 100 lakhs 100 lakhs100 lakhs firm isrecognized at Rs. 30 Lakhs, thustheratio
of distribution of theabove-mentioned gain is
374 Ahmedabad Chartered Accountants Journal November, 2021
Taxation of Par tner ship Fir m under section 9B and 45(4) of the I ncome Tax Act, 1961
to be attributed to the remaining assets in the It will remain at Rs. 45 lakhs. In thisregard, the
ratio of 1:2. followingprovisionsarerelevant indetermining
theamount on which depreciation isallowable
• Then, the LTCG of Rs. 15 Lakhs i s to be under theact:
attributed to theremaining assets.
– Section 32 (1)- explanation 2 provides that
– Patent ‘T’> Rs. 5 Lakhs(15 * 1/3) theterm ‘WDV of theBlock’shall havethe
samemeaning asin section 43 (6) (c).
– Goodwill > Rs. 10 Lakhs(15 * 2/3)
– 43 (6) (c) providesthat- theaggregateof the
• Theamount of Rs. 5 Lakh attributed to ‘Patent WDV of all theassetsfallingwithinthat block
T’, shall not beadded to theblock of theasset; it at thebeginning of thepreviousyear isto be
shal l be reduced from the f ul l val ue of increasedby theactual cost of any asset falling
consideration received on transfer of theasset. withi n that bl ock, acqui red during the
(In accordance with sub-rule (5) of Rule 8AA previousyear. Thisclausedoesnot allow any
of the Rules, both of these i.e. Goodwill and increaseon account of revaluation.
Patent are to be characterised as Short term
Capital Gains). – 43 (1) defines‘actual cost’asactual cost of
theassetstotheassessee. Inrevaluation, there
• E.g.; If the Patent T is sold for Rs. 25 Lakhs, isno actual cost to theassessee.
Rs. 5 Lakhs shall be reduced from the written
down valueof theintangibleblock. Further, section 32 doesn’t allow depreciation
on goodwill. If in the given example, ‘self
– When the goodwill gets sold subsequently, generated goodwil l ’ i s repl aced by ‘self-
Rs. 10 Lakhswouldbereducedfromitssales generatedasset’, eventhen, depreciationwill not
consideration [sec. 48(iii)]. be admissible on the amount of Rs. 30 lakhs
recognized in valuation. Regarding the above
Thisamount of Rs. 15 Lakh will becharged as provisions, since there is no actual cost to the
STCG as per rule 8AA. assessee i n case of ‘sel f-generated asset’,
depreciation isnot allowableasper section 32.
Note:
• For the purposeof calculation of depreciation hhh
u/s32, theWDV of theblock of asset ‘Intangible’
of which Patent ‘T’ is a part, would not be
increased to therevalued valueof Rs. 60 lakhs.
Ahmedabad Chartered Accountants Journal November, 2021 375
GST on Ice Cream -
a cold affair
Recently in its 45th meeting the GST council CA. Nitesh Jain
decidedtoclarify certainissuesrelatingtoIceCream [email protected]
Industry, as per this directive, CBIC has issued a
circular (164/20/2021-GST dated 6.10.2021). astheseareMRPproductswhereby theprices
Through this article we would like to highlight areprinted on their packaging.
certaininterpretational issuedgerminatingfromthis
circular which may result in litigation and hassles II . L egal and factual aspectsinvolved
to theindustry in future.
1. WhenGST wasintroduced,Ice-creamasgoods
I. Facts: wasclassified in ScheduleIII of notification 1/
2017-CTR in entry 22 and istaxable@18%:
1. Many Ice Cream manufacturers in India
primarily sell ready icecreamtoitsdistributors 2105 00 00 - Ice cream and other edible ice,
who further sell it to retailers, restaurantsand whether or not containing cocoa
caterers. They alsohavetheir ownor franchisee
run icecream parlourswhich areof 2 types: 2. Section 7 r ead with ScheduleI I
a. Someoutletshavedecent ambience, sitting Section 7 (1A) of theCGST Act saysthat if an
arrangement and air-conditioning where activity isasupply in accordancewith section
the ice-cream is served over the counter 7(1) then theactivitiesmentioned in Schedule
and thecustomer hasthefacility either to II shall be classified as supply of goods or
sit and consume the ice cream then and serviceasmandated therein
thereor to carry it away and consumeat a
placeof hischoosing. Entry 6 of Schedul e II l i sts out certai n
transactionswhich are compositesuppliesand
b. Some parlours / outlets do not have any mandates that they would be classified as
sitting arrangement and may or may not ‘Supply of Service’, Restaurant Serviceisone
haveair-conditioning facility. Icecream is of them. Said entry readsasunder:
given to thecustomer over thecounter.
6. Compositesupply
2. Further, these outlets serve differentforms of
desserts other than just ice-cream, like Milk Thefollowing compositesuppliesshall be
Shakes, Ice-cream scoops, Sundaes, Ready treated asa supply of services, namely:—
Ice-cream cones, Icecream family, party and
bulk packs. (b) supply, by way of or aspart of any service
or in any other manner whatsoever, of
Someof theproductsfrom theabovelist like goods, being food or any other articlefor
Family, Party and bulk packsaresold on ‘Off human consumption or any drink (other
theshelf basis’, in other wordsconsumer does than al cohol i c l i quor for human
not intend to nor is he allowed to consume it consumption), where such suppl y or
within thepremisesusing theseating facility service is for cash, deferred payment or
other valuableconsideration.
On plain reading of above entry it is clear
supply of foodor drink for humanconsumption
asapart of serviceshall betreated assupply of
service.
376 Ahmedabad Chartered Accountants Journal November, 2021
3. Concept of CompositeSupply GST on I ce Cr eam - a cold affair
Section 8 of the CGST Act prescribes the b. Ter m ‘Restaur ant Ser vice’isdefined in
mechanism asto how to classify atransaction notification 11/2017-CTR asunder :
where 2 or more supplies are being made. It
mandatesthat classificationinsuchatransaction (xxxii) ‘Restaurant service’meanssupply,
would bedonebasis theprincipal supply out by way of or as part of any
of the2 suppliesbeing made. service, of goods, being food or
any other ar ti cl e for human
4. Further, entry 7(ii) of theNotification11/2017- consumpti on or any dr i nk,
CTRprovidesfor taxingof ‘Restaurant Service’ provided by a restaurant, eating
@ 18 % (with ITC) initially and with effect joi nt includi ng mess, canteen,
from 15.11.2017 ratein thisentry wasreduced whether for consumption on or
to 5% (without ITC). away fromthepremiseswheresuch
food or any other arti cl e for
a. Said entr y r ead asunder : human consumption or drink is
supplied.
Heading 9963 (Accommodation, food and
beverageservices) c. Explanation 4(ii) of notification 11/2017
CTR reads as under, it prescr ibes a
(ii) Supply of ‘restaurant service’other ‘Schemeof Classification’by way of an
than at ‘specified premises’ Annexur e:
Provided that credit of input tax charged (ii) Referenceto“Chapter”, “Section” or
on goods and services used in supplying “Headi ng”, wherever they occur,
theservicehasnot beentaken[Pleaserefer unlessthecontext otherwiserequires,
to Explanation no. (iv)] shall mean respectively as“Chapter,
“Section” and “Heading” i n the
annexed scheme of classification of
services (Annexure).
d. Schemeof classification – SAC 9963 readsasunder :
Sr. Chapter, Section, Ser viceCode Ser viceDescr iption
No. Heading or Gr oup (Tar iff)
71 Heading 9963 Accommodation, foodand beverageservices
80 Group 99633 Food, ediblepreparations, alcoholicandnon-
alcoholic beveragesserving services
81 996331 Servicesprovided by restaurants, cafesand
similar eating facilitiesincluding takeaway
services, room servicesand door delivery of
food
83 996333 Servicesprovidedincanteenandother similar
establishments
88 996339 Other food, ediblepreparations, alcoholicand
non-alcoholic beveragesserving services
nowhereelseclassified
Ahmedabad Chartered Accountants Journal November, 2021 377
GST on I ce Cr eam - a cold affair
e. Explanator y Notes to the Scheme of 4.2 Icecreamparlorssell alreadymanufacturedice-
Classification of Servicesr ead asunder: cream and they do not have a character of a
restaurant. Ice-creamparlorsdonot engagein
9963 Accommodati on, food and any form of cooking at any stage, whereas,
beverageservices restaurant serviceinvolvestheaspect of cooking/
preparingduringthecourseof providingservice.
99633 Food, edi bl e preparati ons, Thus, supply of ice-cream parlor stands on a
al cohol i c& non-al cohol i c different footing thanrestaurant service. Their
beveragesserving services activity entailssupply of icecreamasgoods(a
manufactureditem) andnot asaservice, evenif
996331 Ser vi ces provi ded by certainingredientsof servicearepresent.
Restaurants, Cafesand similar
eati ng faci l i ti es i ncl udi ng 4.3 Accordingly, asrecommended by theCouncil,
takeaway ser vi ces, Room it isclarified that whereicecreamparlorssell
services and door delivery of already manufactured ice- cream and do not
food. cook/prepareice-creamfor consumption like
a restaurant, it issupply of icecreamasgoods
996339 Other food, ediblepreparations, and not as a service, even if the supply has
al cohol i c & non-al cohol i c certain ingredientsof service. Accordingly, it
beveragesserving servicesn.e.c. isclarified that icecreamsold by a parlor or
This service code includes anysimilar outlet wouldattract GSTat therate
services provided by refreshment of 18%.
stands, fish-and-chips stands,
fast-food outlets without seating Important interpretation coming out from this
etc; services of ice-cream circular can beexplained asunder:
parlours and cake serving
places; provision of meals and - I ce cream parl our sel l sal r eady
snacksprepared on the premises manufactured ice-cr eam
di spensed through vendi ng
machines; dining car services; - Parlour does not have a char acter of a
mobi l e food ser vi ces, i .e. r est aur ant.
preparing and serving food and
bever ages for i mmedi ate - Ice-cream parloursdo not engagein any
consumption from motori zed for m of cooking at any stage, whereas,
vehicleor non-motorized carts restaur ant ser viceinvolvestheaspect of
cooking/pr epar ing during thecourse of
II I. Recent Cir cular providing service.
In its45th meeting theGST council decided to - Thus, supply of ice-cream parlour stands
clarify certainissues, asper thisdirective, CBIC on a different footing than restaurant
hasissued acircular (164/20/2021-GST dated service.
6.10.2021) which in para4 clarifiesimportant
issuesrelating to rateapplicablefor theact of - Their activity entailssupply of icecream
supplying of icecream by icecream parlours. asgoods(amanufactured item) and not as
Thecircular readsasunder: a service, even if certain ingredients of
servi ce are present.
4. Supply of ice cream by ice cream parlors
Final conclusion in cir cular
4.1 Representationshavebeenreceivedrequesting
for clarificationregardingthesuppliesprovided Accordingly, asrecommendedby theCouncil,
in an icecreamoutlet. it isclarified that
• Where i ce cream parl ours sel l al ready
manufactured ice- cream and
378 Ahmedabad Chartered Accountants Journal November, 2021
GST on I ce Cr eam - a cold affair
• donot cook/prepareice-creamfor consumption CoffeeDay,Vadilal, Havmor etchadclassified
likearestaurant, there activities under Restaurant Services.
Almost all the advance rulings were in sync
• it issupply of icecream asgoodsand not asa sayingthat IceCream Parlourswill betaxed as
service, even i f the suppl y has cer tai n Supply of service @ 5%. Infact, AAR ruling
ingr edientsof service. in case of Arihant Enterprise which said that
ice cream parlours were taxable at 18% was
• Accordingly, it isclarified that icecream sold declaredvoidabinitiobecausetheDGGI Pune
by aparlour or any similar outlet would attract had started search proceedings against the
GST at therateof 18%. franchisor seeking to demand tax asSupply of
Restaurant Serviceand therewasallegation of
I V. Pr onouncement s f r om Appel l at e and suppressing important transactional facts.
Author ity for AdvanceRuling
TheGST Council or theBoard never cameup
A. Ar ihant Enter pr ise – Natur als I ce- andclarifiedthat therulingsor theinquiry being
cr eam initiated by DGGI were not in sync with the
l egal posi ti on unti l now. There was no
Arihant Enterpriseisfranchiseeof Natural vagueness whatsoever i n the l egal
Ice-cream. In their casetheAuthority for understandi ng of the trade as a whol e.
Advance (AAR) ruling vide itsorder no. Therefore, theruleslaid down by theSupreme
GST-ARA -126/2018-19/B-29 dated Court in thecaseof MartinLottery wouldhold
19.03.2019 2019 (4) TM I 808 - good in this case as well because the recent
AUTHORI TY FOR A DVA NCE Circular is deviating from the legal position
RULING, MAHARASHTRAheld that enumerated in the law and therefore the
the supply of ice cream by the applicant interpretation even if held correct cannot be
from itsretail outletswould betreated as held retrospectivein natureand effect.
supply of”goods” and taxed @ 18%.
Aggrieved with this order, department VI . Questions that ar ise fr om the cir cular ised
appealed the matter to the Appel late inter pr et ation:
Authority for AdvanceRuling (AAAR).
Following questionsariseinview of therecent
TheAAARafter duedeliberationsdeclared circular:
the earlier order by theAAR as void-ab-
initio as the earlier order was vitiated by 1. What would be the GST rate applicable
theprocessof suppressionof material facts. on the various desserts being sold from
parlourshaving seating facility?
B. HatsunAgro Product Ltd. – IBACO Ice
cr eam and Venkateswar a Agencies – 2. Istheinterpretation given by thecircular
ScoopsI cecr eam retrospectivein nature?
Inboththeaboverulings, thereiscommon 3. If it isagreed that productssold inparlours
thread which is that the outlets shall be are taxable @ 18% would the ice cream
classified asRestaurantsif thecustomer is parlour beeligiblefor availing GST input
given a choice of consuming the food tax credit of past periods?
inside the premise by providing seating
arrangement and thereforeicecream sold 4. Woul d i ncreasi ng rates i nvi te anti
in theseparlourswould betaxed @5% profiteeringaction against theparlours
V. I sthecircular Retrospectiveor Pr ospective VI I.Analysisof factsand legal aspectsinvolved:
Almost the entire industry was in sync with 7.1 As discussed above, these outlets are of 2
theinterpretation of restaurant service, all top kinds, somehaving seating facility and some
brands, be it Baskin Robin, Gelato, Café don’t.
Ahmedabad Chartered Accountants Journal November, 2021 379
GST on I ce Cr eam - a cold affair
7.2 Further, all these2 outletscook / prepare/ sell preparing would becovered as ‘Service’and
different kindsof dessertsincluding icecream not considering seating and overall customer
experiencefor thesame.
The 2 kinds of outlets have one thing in
common which isthat they sell Ice-cream and 7.5 It would be pertinent to discuss the fact that
related productsof 2 types, onewhich can be when ‘Restaurant Service’wasfirst brought in
sold ‘off the shelf ’ and other which needs the net in the Service tax law, the board vide
preparationof somesort. For example,aperson letter no. D.O.F.No.334/3/2011-TRUdatedthe
can walk into any of the outlet and buy a 28th February, 2011chose to justify the new
packaged coneor aparty pack and walk away levy asunder and thesameisself explanatory:
whileanother may walk-inand order aSundae
which the attendant will have to prepare in a 1. Services provided by a restaurant
customised manner by mixing 2 or more
flavours of ice cream, sugar or sugar syrup, 1.1 Restaurantsprovidea number of services
toppings, saucesand serveit in aspecial bowl normally in combination with themealand/
andgiveit tohimwithor without atissuepaper. or beverage for a consolidated charge.
These services relate to the use of
7.3 I ce cr eam Retailer ver sus an I ce Cr eam restaurant space and furniture, air-
Par lour conditioning, well-trained waiters, linen,
cutlery and crockery, music, live or
There is difference between a retailer / trader otherwise, or a dance floor. The customer
andanicecreamparlour,thelatterarenot merely also has the benefit of personalized service
reselling shops but they are eating places as by indicating his preference for certain
enunciated in ServiceAccounting Code996331 ingredients e.g. salt, chilies, onion, garlic
and 996339. They buy in bulk forms, change or oil. The extent and quality of services
itsformby addingtoppings, sauces, serveit ina available ina restaurant is directlyreflected
waffle cone or a paper cup, provide seating in the margin charged over the direct costs.
arrangements, ambience, experience, table It is thus not uncommon to notice even
cleaning servicestonameafew. packaged products being sold at prices far
in excess of the MRP.
7.4 For aservicetobea‘Restaurant service’it must
havefollowing ingredients: 7.6 It isimportant to notethat theterm Restaurant
isnot defined in thelaw, henceitsdefinition in
a. Restaurant servicemeanssupply of food reputed dictionariescan bereferred upon.
or drinks meant for human consumption
asa par t of any ser vice · abusinessestablishment wheremealsor
refreshmentsmay bepurchased
b. Provided by a r estaur ant, eating j oint
including mess, canteen, ~ Merriam Webster
c. Whether for consumption i nside the · A restaurant i s a pl ace where you
premisesor away wheresuch food or any can eat a meal and pay f or i t. I n
other article for human consumption or restaurants your food is usually served
drink issupplied. to you at your tabl e by a wai ter or
waitress.
Onecan seefrom theabovedissected definition
that if any food or drink issupplied asapart of ~ CollinsDictionary
ANY service, i t shal l be construed as a
restaurant service. In other wordsany supply 7.7 Onfurther readingthedefinitionof ‘Restaurant
of goods must be part of an overall service Service’, Council haschosen to use 4 words,
offering. However, the circular restricts this Restaurant, Eating joint, Mess and Canteen,
definition by mandating that only cooking or singlethreadgoingthroughall these4premises
380 Ahmedabad Chartered Accountants Journal November, 2021
GST on I ce Cr eam - a cold affair
isthat they all haveearmarked seating spaces vi. attendant then put thesauceon thetop
wherethecustomer can consumefood if heso
choosesto. Henceit can bededuced from the vii. Ser ves the cone with a paper tissue to
defi ni tion that for premi se to become a the customer at the table wher e he is
restaurant it ismandatory to have someform sitting or over thecounter.
of seatingarrangement wherethecustomer can
sit and consume the food if he so chooses, it viii. Customer hastheoption of sittinginside
may so happen that thecustomer then chooses thepremisesor sitting on bar stoolskept
to takethefood homeand consume. outside the pr emises and consume the
i ce cr eam.
7.8 Further, if theexplanatory notestoSAC996339
areinterpreted,it goesastepforwardandcovers So thequestion arises, is doing theabove set
even pl aces whi ch do not have seati ng of activities for selling a scoop of ice-cream
arrangement. qual ify to be having more than ‘certai n
ingredientsof service’and thereforequalify to
7.9 The circular is bringing a completely new being a supply of service or does it remain
paradigm to this self-created interpretation within the undefined boundaries of ‘Certain
conundrum, whereby it says that because ice Service’and thereforeremainsto beasupply
creamparloursdonot cook or prepareany food of goods.
inthepremises, they lack thecharacter of being
arestaurant and thereforeicecream sold from In thegiven transaction, thefact that thereare
thereistaxableassupply of goods. Thecircular 2 separatesupplies, oneissupply of icecream
further saysthat theinterpretationwon’t change and the other i s the act of prepari ng the
even if ‘certain ingredients’ of service are customised scoop, serving it on table or over
present. The law does not mandate anywhere thecounter, option of seating facilityisnot in
that for being arestaurant cookingor preparing dispute,henceit isimportant torefer theconcept
food inside the premise is the only condition of compositesupply (asdiscussed above).
precedent, while clarifying, having seating
arrangement and ambience, most important 7.11 Classification would bebased on thedecision
aspect of havingthecharacter of arestaurant is whether supply of ice cream is the principal
not evenmentionedleavealonediscussed. supply or ispreparing thescoop, servingit and
gi vi ng an opti on of si tting i n a parl our
7.10 Lets take an example of Serving Ice-cream environment and consumetheicecream isthe
scoop in awafflecone, in thistransaction principal supply. Here, in my view, thetheory
of ‘Customer’sintent’comesinto play. Weall
i. Customers walks in a parlour, chooses know that ice cream i s avai lable in pre-
fromavidevariety of ice-creamsondisplay packaged form at many outlets, kiranastores,
aswell asmentioned in amenu, malls, etc., what makes the parlour different
from these generic installations is that the
ii. Select aflavour or 2, hecan also select to customer gets the choice of choosing his
have2 different scoopsin oneserving, flavours, getting thescoop in hisdesired form
and consuming it immediately in a decent
iii. Customer isthen asked whether hewants environment, as compared to a Kirana Store,
to havetheicecream in apaper cup or in a experienceof having ice-cream in aParlour is
wafflecone, completely different, thisisalsothereason that
customised ice cream scoops are expensive
iv. hecan chooseto haveatopping of sauce then pre-packaged icecream cups.
of hisliking, onceheconfirmshischoices,
Continued to page384
v. theattendant startspreparing theorder, he
usesascooper toscoopthechosenflavours
into the chosen medium, cup or waffle
cone
Ahmedabad Chartered Accountants Journal November, 2021 381
Annual Information
Statement (AIS)
Intr oduction: CA. K untal M er chant
[email protected]
· IncomeTax Department hasrolledout thenew
“Annual Information Statement” (AIS) on the mutual fund transactions, foreign remittance
Compl i ance Portal whi ch provi des a information etc.
comprehensive view of i nformati on to a
taxpayer with a facility to capture online · Taxpayer wi l l be abl e to downl oad the
feedback. information in PDF, JSON, CSV fileformats.
· Thedisplay of Form 26ASonTRACESportal · Useof DataAnalyticsto populatePAN in non-
will also continuein parallel till thenewAISis PAN datafor inclusion inAIS.
validatedand completely operational.
· Deduplication of information and generation
· The A IS i s a comprehensive statement of asimplifiedTaxpayer InformationSummary
containingdetailsof financial transactionsdone (TIS) for easeof filing return (pre-filling will
by thetaxpayer andreportedby variousentities beenabled in aphased manner).
(mostl y financi al instituti ons) to the tax
department during an FY. · Taxpayer will beabletosubmit onlinefeedback
on the information displayed in AIS and the
· Part A displays general information such as download informationin PDF, JSON, CSV file
name, DOB, PAN, Aadhaar number, mobile formats.
number, addressand others.
· AISMobileApplication will enabletaxpayer
· Part B carriesdetailed information relating to to view AISand upload feedback on mobile.
TDS, Speci fi ed Fi nanci al Transacti ons,
payment of taxes,demandandrefundandother How to view and download AI S?
info like interest on refund, outward foreign
remittance, purchaseof foreign currency etc · Step:1
Obj ecti ve: Login with your ID (PAN No.) and Password
on new i ncome tax Portal (https://
Thekey objectivesof introducingAISare: www.incometax.gov.in)
· To display completeinformation of taxpayer · Step:2
whichhelpstopromotevoluntary compliances
and enableprefilling of return Click on“Annual InformationStatement”under
the“SERVICES” tab, you will bedirected to
· To prevent non-compliance AISportal.
· Topromotefair andjudicioustax administration · Step:3
Salient Featuresof AI Sare: Under theAIStab onAISportal, therewill be
TISon your left sideandAISinright side. Here
· AISincludesadditional informationrelatingto onecan downloadAISandTISin PDF, JSON
interest, dividend, securities transactions, and CSV formats.
One can download utility by clicking on
“Utility” under the “Resources” tab in AIS
Portal to view JSON file.
382 Ahmedabad Chartered Accountants Journal November, 2021
The file is password protected and can be Annual I nfor mation Statement (AI S)
opened using PAN in capital letters and date
of birth / dateof incorporation of thetaxpayer. · The feedback provided by assessee will be
(eg.AAAAA1111A01012000) considered to updatethederived value(value
derivedafter consideringthetaxpayer feedback)
Submission of Feedback on AI S: inTaxpayer Information Summary (TIS)
· If the taxpayer feels that the Information is · Informationassignedto other PAN/Year inAIS
incorrect, relatestoother person/year, duplicate will be processed and information will be
etc., a facility has been provided to submit shown i n the AIS of the taxpayer using
online feedback.It can also be furnished by automated rules.
submittingmultipleinformation in bulk.
· In casetheassigned information ismodified/
· An AIS utility has been provided to submit denied, the feedback will be processed in
feedback by clicking on “Optional” button accordance with risk management rules and
mentionedintheFeedback columnfor relevant high-risk feedback will beflagged for seeking
information. You will be directed to ‘Add confirmation from theinformationsource.
Feedback’ screen. A f ter choosi ng the
appropriatefeedback option, thetaxpayer can What isTaxpayer I nfor mation Summary(TIS):
submit thefeedback.
· TISshows aggregated valuefor thetaxpayer
· The reported value and value after feedback for easeof filling.
will beshown separately in theAIS.
· The information category wise aggregated
· In casetheInformationismodified/denied, the informationsummary for ataxpayer isprepared
information source may be contacted for after deduplicationof informationbasedonpre-
confirmation. defined rules.
· Taxpayer will beableto viewAISinformation · It showsProcessed Value(i.e. valuegenerated
and submit following typesof responseon the after deduplicationof informationbasedonpre-
information: defined rules) and Der ived Value (i.e. value
derivedafter consideringthetaxpayer feedback
1. Information isincorrect and processed value) under each information
category (e.g. Salaries, Interest, Dividendetc.).
2. Information isnot fully correct
· The derived information will be used for
3. Information relatesto other PAN/Year prefilling of Return.
4. Informationisduplicate/ included inother Thingsto r emember :
information
· If there is a variation between the TDC/TCS
5. Information isdenied or details of taxes paid as displayed in 26AS
on TRACES portal and displayed in AIS on
6. Customized Feedback compliance portal, the taxpayer may rely on
information displayed in 26AS on TRACES
The AI S Feedback processing approach is as portal for thepurposeof ITR filing.
under :
· The di splay ofForm 26AS wi ll conti nue
· The feedback provided by assessee will be parallelly until AISisvalidatedandcompletely
captured in theAnnual Information Statement operational.
(AIS) and reported valueand modified value
(i.e. value after feedback) will be shown · If ITR has al ready been fil ed and some
separately. information has not included in ITR and the
samehasdisplayed in TIS, then thereturnmay
berevised to reflect thecorrect Information.
Ahmedabad Chartered Accountants Journal November, 2021 383
Annual I nfor mation Statement (AI S)
AI S vs. TI S: Taxpayer I nfor mation Statement
It providesaggregated valueof TDS, TCS,
Annual I nformation Statement Interest, Dividend, mutual fund transactions,
foreign remittancesetc.
It providescomprehensiveinformation relating to –
a. TDS / TCS TISwill help thetaxpayersin filingtax returnsby
b. Bank Interest prefilling thedatain phased manner
c. Dividend
d. Mutual FundTransactions
e. Foreign Remittances
It providesinformation regarding transactions
undertaken by thetaxpayer, which ismorethan
26AS
26AS v/sASI : j. Purchaseor saleof securities
k. foreignremittance
· Now, AIS will be going to replace 26AS.
Compared to 26ASASI ismuch moredetailed · ThenewAnnual Information Statement (AIS)
one, with many moredetailsincluded like– wil l provide comprehensive information
a. Stocks relating to thetaxpayer.AISwill contain more
b. Insurance information ascompared to existing form 26AS
c. Credit Cards which primarily provideinformation relating
d. Purchaseof property to TDSand TCStransactions.
e. Mutual FundsTransactions
f. Salary or Businessincome Thus, the new AIS statement will provide
g. Dividends comprehensiveinformationof thetaxpayer and
h. Interest on SB A/c and Deposits will besignificantly useful whilepreparing the
i. purchaseor saleof immovableproperties tax return.
hhh
Continued fr om page 381 Ar ticle : GST on I ce Cr eam - a cold affair
Similarly selling a Sundae ice cream dish or decreasingthetax cost andconsequently would
Milk / thick shakeneedslot of preparing and haveresulted in lower net tax paymentsto the
customised serving. government. Hence in comparative terms by
paying 5% industry wasat aloss.
VI I I . Conclusion
To hang such a sword on the entire industry
It can be deduced that the circular is going and that too after (nearly) 5 yearsof GST isa
much ahead of thelegal provisions, restricting travesty, they will befacing thecoldbothsides,
the term ‘Service’to include only cooking / if they charge18% and avail ITC, officerscan
preparing activity is not a legally sound assess them as restaurant service saying that
proposition and won’t survive the judicial they haveseating facility and ask them reverse
process.Almost all leading icecream parlour all ITC, if they go ahead with 5%, officer can
brandsbarring afew, under abonafidebelief, take a stand that the circular is against them,
wereclassifying themselvesunder Restaurant seatingdoesnot qualify toServiceenoughand
Service and paying 5% GST in cash without demand differential 13% GST.
availing GST input tax credit. In real termsif
they had classified their output as Supply of It isindeedacold interpretational conundrum.
goods and availed Input tax credit, it would
have been benefi ci al to the i ndustry i n hhh
384 Ahmedabad Chartered Accountants Journal November, 2021
Glimpses of AdvocateSamir N. Divatia
Supreme Court [email protected]
Rulings
arerequired to strikeabalancebetween legitimate
18 L i mi tati on Act-1963- Secti on-14- rightsand interest of therespectiveparties.
Exclusion of time
S.5 doesnot speak of an application. Although, it
Section-5 and 14 arenot mutually exclusive, even isthegeneral practiceto makeaformal application
in a case where S.14 does not strictly apply, the in order to enablethecourt or tribunal to weigh the
principlesof S.14 can beinvoked to grant relief to sufficiency of the cause for the inability of the
an applicant under S.5 of the Limitation Act by applicant toapproachcourt/tribunal withinthetime
purposively construing “Sufficient Cause”. The prescribed by limitation, thereisno bar to exercise
omission to refer to thecorrect section of astatute by the court/tribunal of its discretion to condone
doesnot vitiatetheorder. delay in theabsenceof aformal application.
The conditions for exclusion of time under S.14 Sesh Nath Singh vs. Baidyabati Sheoraphuli Co-
arethat theearlier proceedingsshould havebeen operativeBank (2021) (7 SCC 313)
for the same relief, the proceedings should have
been prosecuted diligently and in good faith and 19 I nter pretation of statutes– Explanation
theproceedingsshould havebeen prosecuted in a
forum which from defect of jurisdiction or other Ordinarily, an Explanation added to a statutory
cause of a like nature was unable to entertain it. provisionisnot asubstantiveprovisioninany sense
S.14 excludes the time spent in proceeding in a of theterm, but ismeant to explainor clarify certain
wrong forum which is unable to entertain the ambiguities which may have crept into statutory
proceedingsfor want of jurisdiction or other such provision. Thus, an Explanationmust bereadso as
cause. to harmonize with and clear up any ambiguity in
the main section. Ordinarily, should not be so
Thecondition precedent for condo nation of delay construed asto widen theambit of thesection.
is the existence of sufficient cause. Whether the
explanationfurnishedfor thedelay wouldconstitute Sesh Nath Singh vs. Baidyabati Sheoraphuli Co-
sufficient cause or not would be dependent upon operativeBank (2021) (7 SCC 313)
the facts of the case. Acceptance of explanation
furnishedshouldbetheruleandrefusal anexception 20 S. 254(2A) of IncomeTax Act andAr t.14
whennonegligenceor inactionor want of bonafides of Constitution
can beimputedto thedefaulting party. It istruethat
avaluableright may approveto theother party by It issettled law that challengesto thetax statutes
the law of limitation which should not lightly be made under Art. 14 of theConstitution can be on
defeated by condoning delay in aroutinemanner. grounds relatable to discrimination as well as
At the same time, when stakes are high, the groundsrelatableto manifest arbitrariness. These
explanation should not be rejected by taking a groundsmay beprocedural or may besubstantive
pedantic and hypertechnical view of the matter in nature.
causing thereby irreparableloss and injury to the
party against whom thelisterminates. TheCourts Continued to page403
Ahmedabad Chartered Accountants Journal November, 2021 385
From the
Courts
CA. C. R. Shar edalal CA. Jayesh C. Shar edalal
[email protected] [email protected]
Sec. 14A and satisfaction of Assessing What isa speculativetr ansaction?
61 Officer. 63 Pr. CI T v/s. Diamond Secur ities Pvt.
Pr. CI T v/s. Guj ar at Fluoro Chemicals L td. (2020) 431 I TR 201 (M P)
L td. (2021) 431 I TR 160 (Guj )
I ssue:
I ssue:
Which transaction can besaid to beaspeculation
Isrecording of satisfaction acondition precedent transaction?
for invoking provisionsof Sec. 14A?
Held:
Held:
A conjoint reading of clause(d) of the proviso to
The language of section 14A of the Income Tax clause (5) of section 43 of the Income Tax Act,
Act, 1961 isplain and clear. Beforeinvoking rule 1961, and theExplanation attached to it makesit
8D of theIncomeTax Rules, 1962, theAssessing clear that if atransaction in trading of derivatives
Officer isobliged to indicatethat having regard to is carried out electronically on a screen based
theaccountsof theassessee, heisnot satisfied with system through astock broker or sub broker and it
thecorrectnessof theclaimof theassesseeinrespect issupportedby atimestampedcontract noteissued
of suchexpenditureinrelationtothe incomewhich by such broker which indicates the unique client
does not form part of the total income under the identity and permanent account number of the
Act. To put i t in other words, the condi ti on client, it shall be“an eligibletransaction” andshall
precedent of recording the requisite satisfaction not bedeemed to bea“speculativetransaction”.
whichisasafeguardprovidedinsection14A should
not beoverlooked beforegoing to rule8. Disallowanceu/s14A: (1) Disallowance
62 Sec. 132 (4A) and thepr esumption. 64 cannot exceed exempt i ncome: (2)
H.M . Constr uctionsv/s. Asst. CI T Satisfaction.
(2021) 431 I TR 196 (K ar n) Pr. CI T v/s. Envestor VenturesL td.
(2021) 431 I TR 221 (M ad)
I ssue:
I ssue:
Effect of presumption u/s132 (4A).
(1) U/s 14A whether disallowance can exceed
Held: exempt income? (2) Is there a necessity of
recording satisfaction?
Section 132(4A) of the Income Tax Act, 1961,
raisesapresumption that adocument found during Held:
search belongsto theperson from whosepossession
it isseized. Thisisastatutory presumption and the Thedisallowanceunder rule8D of theIncomeTax
burden shiftson theassesseeto rebut thestatutory Rules read with section 14A of theAct can never
presumption by leading cogent evidence. exceedtheexemptedincomeearnedby theassessee
during theparticular assessment year and further,
386 Ahmedabad Chartered Accountants Journal November, 2021
without recording thesatisfaction by theassessing Fr om the Cour ts
authori ty that the apporti onment of such
disallowableexpendituremadeby theassesseewith expenditure is excessive and unreasonable. The
respect to theexempted incomeisnot acceptable burdenisontheassesseetoestablishthat theamount
for reasonstobeassignedby theassessingauthority, was expended wholly and exclusively for the
he cannot resort to thecomputation method under purposeof businessor professionandsection40(A)
rule8D of theIncomeTax Rules, 1962. (2)(a) of theAct permits theAssessing Officer to
di sal l ow expendi ture which i s excessi ve or
unreasonable.
65 Revision u/s263 and two conditions. 67 Sec. 14A: Duty of Assessing Officer.
Sutur esI ndia Pvt. L td. v/s. CI T (K ar n) K odagu Dist. Co. Op. Centr al Bank Ltd
(2021) 431 I TR 332 (K ar n) v/s.Asst. CIT (2021) 431 ITR 356(Karn)
I ssue: I ssue:
Which arethetwo conditionsto befulfilled before What is the duty of Assessing Officer before
starting revision proceedingsu/s263? anvoking provisionsof Sec. 14A?
Held: Held:
The condition precedent for invocation of power The Assessing Officer, before embarking upon
under section 263 of the Income Tax Act, 1961, determinationof theexpenditureincurredinrelation
namely (i) that an order passed by an Assessing to the exempted income, has to record a finding
Officer must be prejudicial to the interests of the that he isnot satisfied with thecorrectness of the
Revenue and (ii) must be erroneous have to be claimof theassesseeinrespect of suchexpenditure.
fulfilled beforepower under section 263 of theAct Thisisamandatory requirement.
isinvoked. It isequally well settledlegal proposition
that wheretheview taken by theAssessing Officer Cl ause r egar di ng i nt er est and
is one of the possible views the powers under r emuner ati on i n Par tner shi p Deed.
section 263 of theAct would not beinvoked.
68 Actual no receipt: Noticeu/s147/148not
AlsoSee: HarmanConnectedServicesCorporation valid.
IndiaPvt. LTd. v/s. CIT (2021) 431ITR401(Karn) Dipak Ratnabhai Patel v/s. I TO
(2021) 431 I TR 548 (Guj )
Excessi ve expendi t ur e and secti on
I ssue:
66 40A(2) : Bur den on assessee.
CI T v/s. Fi br es and Fabr i cs Mere provision of interest and remuneration in
I nter national Pvt. L td. partnership deed, but no receipt would entitle
(2021) 431 I TR 339 (K ar n) Assessing Officer to issuenoticeu/s147/148?
I ssue: Held:
Istheburden onassesseeto provethat expenditure Mereincorporation of aclausein thepartnership
claimed isreasonable? deedproviding for payment of interest on partners’
capital andremunerationdoesnot necessarily mean
Held: or should beconstrued asmandatory. Therehasto
be some material on record to indicate that the
Section 40A(2) of the Income Tax Act, 1961, assessee had actually received any “interest on
empowers the Assessi ng Officer to disal low capital” or “remuneration” from the firm. Where
payments made to a related person, i.e. payment no such income has been earned by the assessee,
madeby acompany in favour of thedirector if the thequestion of taxing it doesnot ariseat all.
Ahmedabad Chartered Accountants Journal November, 2021 387
Fr om the Cour ts Held:
Held accordingly, that thenoticeof reassessment Someof theprinciplesapplicableto reassessment
wasnot valid. under section 147 of the IncomeTax Act, 1961,
arethat at the timeof the commencement of the
I nternational Tr ansaction: Sub section reassessment proceedings, theAssessing Officer
has to see whether there is prima facie material,
69 (1) & (2) of Sec. 92A. on the basis of which the Department would be
Pr. CI T v/s. PageI ndustr iesL td justified in reopening thecase. Thesufficiency or
(2021) 431 I TR 409 (K ar n) correctness of the material is not a thing to be
considered at that stage. The validity of the
I ssue: reopening of the assessment shall have to be
determined with referenceto thereasonsrecorded
How sub section (1) and (2) of Sec. 92A areto be for reopeni ng of the assessment. The basi c
read? requirement of law for reopening theassessment
isapplication of mind by theAssessing Officer, to
Held: the materialsproduced prior to thereopening of
theassessment, to concludethat hehasreason to
From aperusal of theprovisions, it isevident that believe that income has escaped assessment.
sub-sections (1) and (2) of section 92A of the Unless that basic jurisdictional requirement is
IncomeTax Act, 1961 areinterlinked and haveto satisfied apostmortem exerciseof analyzing the
be read together. Sub section (2) of section 92A materialsproduced subsequent to thereopening
was emended with effect from April 1, 2002 to will not makean inherently defectivereassessment
clarify that the mere fact of participation by one order valid.
enterprisein themanagement or control or capital
of theother enterprise, or theparticipation of one
or morepersons in the management or control or
capital of both theenterprisesshall not makethem
associated enterprises, unlessthecriteriaspecified
in sub section (2) arefulfilled.
What ar e the pr inciples for r eopening hhh
70 u/s147/148?
M .R. Or ganisation v/s. I TO
(2021) 431 I TR 528 (Guj )
I ssue:
What are the princi pl es to be considered i n
reopening assessment u/s147/148?
388 Ahmedabad Chartered Accountants Journal November, 2021
Tribunal
News
CA. Yogesh G. Shah CA. Aparna Parelkar
[email protected] [email protected]
Vidr asI ndia Cer amics(P.) L td v. DCI T and doubtful debt by debiting in Profit and Loss
account al so si mul taneousl y removes such
31 190 ITD 551/129 Taxmann.com (Ahd) provi si on from i ts account by reduci ng the
Assessment Year 2014-15, or der dated correspondingamount fromtheloansandadvances
9th July 2021. on the asset side of the balance sheet. The later
would be an instance of write off and not a mere
Facts: provision.” Respectfully, relying upon thejudgment
cited above, theTribunal held that theassesseeis
Theassesseeisaprivatelimitedcompany engaged entitled to be allowed the provision for bad and
in the business ofmanufacturing and trading of doubtf ul debts on the i denti cal f acts and
Cerami cs Ti l es Chemi cal s.The assessee i n circumstancesof thecasesince it has debited the
itsfinancial statements has claimed provision for provision to theProfit and Lossaccount in respect
doubtful debt under the provision of section of doubtful debtsandalsoreducedthesameamount
36(1)(vii) of theAct. However, theAO found that in the balance sheet from sundry debtors/trade
such provision isnot eligiblefor deduction under receivable. Such reduction from sundry debtors
the provision of Act. Therefore, the same was amountsto actual writeoff.
disallowed and added back to thetotal incomeof
theassessee.Aggrieved assesseepreferred an appeal Suzl on Gl obal Ser vi ces L i mi ted V.
beforetheCIT(A), who confirmed theorder of the
AO. TheassesseeisbeforetheTribunal 32 PCITTS-935-ITAT-2021(Ahd)
Assessment Year 2016-17 & 2017-18,
I ssue: Or der dated 16th September 2021
Whether the assessee is eligible for deduction Facts:
with r espect to thepr ovisionsmadeagainst the
tradedebtor sin pur suanceto theexplanation 1 SuzlonGlobal Services, (SGSL)Assesseeacquired
to clause(vii) of section 36(1) of theAct. adivision of itsholding company on aslump sale
basis.Thenet assetsof thedivision acquired by the
Held: Assesseeagainst apurchaseconsideration resulted
in excess payment which was treated asgoodwill
BeforetheTribunal theassesseecontended that it inthebooksof Assesseeonwhichdepreciationwas
hasadjusted theprovision madeagainst thetrade claimed sinceAY 2014-15. Subsequently,Assessee
receivableshown in theBalancesheet ason31/03/ wasamalgamated with Suzlon Structures (SSL)
2014.Accordingly, the provision made by the effectivefrom March 31, 2016. Asaconsequence
assessee with respect to the trade receivable was of amalgamation, SGSL claimed thedepreciation
eligiblefor deduction. TheTribunal based on the on theabovegoodwill & unabsorbed depreciation
decisionsof theSupremeCourt incasesof Southern for364 dayswhereasSSL claimed thedepreciation
Technologies Ltd. ([2010] 320 ITR 577/187 only for oneday i.e. March 31, 2016.SSL created
Taxman346) andVijayaBank ([2010] 190Taxman goodwill in the books of accounts on account of
257/323 ITR 166 ) held that there is a clear theamalgamation andalso claimed depreciation on
distinction between acasewheretheassesseemay thegoodwill generated in itsbooksof accountsin
makeaprovisionfor doubtful debt andacasewhere
theassesseeafter creating such aprovision for bad
Ahmedabad Chartered Accountants Journal November, 2021 389
Tr ibunal News
the scheme ofamalgamationfor the year ending namely SSL. But thePr.CIT could not revisethe
March 31, 2016. SGSL wasasassessed u/s143(3). intimation issuedu/s 143(1) in case of SSL as it
SSL returnwasprocessed u/s143(1).Subsequently, was ti me barred u/s 263. I TAT noted that
the Pr. CIT found that assessment u/s 143(3) was assessmentwasframed by theAO in the nameof
erroneousin so far as prejudicial to theinterest of SGSL which was not in existence and based on
Revenue, since Assessee was not eligible for theSC rulingin Maruti Suzuki IndiaLimited [TS-
claiming depreciation on goodwill arising out 429-SC-2019] and held that the assessment was
ofamalgamation on account of 6th proviso to not valid under theeyes of law as it was made in
Section 32(1), Section 49(1)(iii)(e), Explanation 7 thenameof thenon-existent company.Also held
to Secti on43(1), Explanation 2(b) to Section that such assessmentcould not bemadesubject to
43(6)(c) and Secti on 55(2)(a)(ii ). Further as revision u/s 263. ITAT drew support from Delhi
theamalgamation between SGSL and SSL wasin HC ruli ng in KaizenProducts [TS-6780-HC-
the nature of merger, AS 14 issued byICAI 2017(DELHI)-O] in holding so.On meritsaswell,
prohibited recording thegoodwill. On SN issued ITAT noted that in theinstant caseSSL had taken
by thePr. CIT,Assesseesubmittedthat depreciation over thebusinessof SGSL along withall theassets,
wasclaimed for 364 dayssincetheamalgamation liabilities, and reserves, and that theassets were
waseffectivefromMarch31, 2016ontheintangible taken over at fair market value. Accordingly, as
assets which were acquired in the year 2014 in a per accounting standard, viz AS-14, the scheme
schemeof slumpsaleandnot ongoodwill generated of amalgamation in theinstant case was in the
in handsof M/sSSL.Assesseealso submitted that nature of purchase which recognised goodwill
themethodadoptedintheschemeof amalgamation wherethepurchaseconsiderationsurpassed thenet
wasin thenatureof purchase,sincethetransfer of assets taken over. The Assessee paid purchase
theassetsfrom SGSL to SSL wasdoneon thefair consideration by cancellingtheinvestment against
market valueand not thebookvalue.However, the net assetsvalueacquired.Accordingly, an excess
Pr. CIT, set asidetheassessment order anddirected amountrecorded as goodwi l l , and al l thi s
theAO to redo the assessment de novo, after due information waspart of aschemeof amalgamation
consideration of thefactsand law.Aggrieved, the which was approvedby the jurisdictional High
Assesseepreferred an appeal beforetheITAT. Court. Thus, the finding of Pr.CIT to this extent
that theschemeof amalgamation wasin thenature
I ssue: of merger was based on a wrong assumption of
facts. ITAT on perusal of relevant provisions of
Whether the Pr incipal CI T under section 263 Section 2(1B), 32(1), 43(6)(c), 47(vi)held that
of theAct er red in holding that the assessment allthese relevant provisions of theAct deal with
fr amed under section 143(3) of the Act as respect totheassetsavailable/recorded inthebooks
er r oneousinsofar pr ej udicial to theinter est of of thetransferor/amalgamating company. Further
r evenue. that theseprovisionsarenot relatedto thegoodwill
arisingin thehandsof amalgamated company in
Held: the scheme of amalgamation which rises due to
thedifferencebetween thepurchaseconsideration
TheITAT noted that Pr. CIT proceeded to verify and the NAV acquired by it. The ITAT relied on
the depreci ati on cl ai med by the successor theSC ruling in Smifs Securities [TS-639-SC-
company i.e. SSLon goodwill generated in the 2012] and held that there was no ambiguity that
schemeof amalgamation under section 263 in the goodwill wasapart and parcel of intangibleassets
assessment of the erstwhile company i.e. SSGL and Assessee was eligible for depreciation on
and remarked that the Pr. CIT proceeded on the goodwill. In view of theaboveTribunal held that
wrong assumption of facts. The ITAT further the order passed u/s 263 to beunsustainable and
remarked that if at all the Pr. CIT should have to quashed thesame.
proceeded against theintimation generated under
section 143(1) in thecase of successor company
390 Ahmedabad Chartered Accountants Journal November, 2021
Tr ibunal News
ForAY 2017-18, ITAT notedthat Assesseeclaimed Held:
depreci ati on on goodwi l l whi ch was
broughtforward from the immediate preceding Basedonthedecisionof theTribunal inearlier year
assessment years. ITAT drew support from itsco- incaseof theassessee, thetribunal heldwithrespect
ordinatebenchrulinginBodal Chemicals[TS-8665- to thesubscription feefor theCASdivision which
ITAT-2019(AHM EDABAD)-O] and held that givesmereaccessto that work or permissiontouse
depreciationonthegoodwill originatedintheearlier thework cannot imply thatthepayer ispaying for
year cannot be di sturbed i n the year under useor right to usethecopyright. Further transfer of
consideration withoutdisturbing theyear in which acopyrighted right meansthat therecipient hasa
it wasinstigated. right tocommercially exploit thedatabase/software,
e.g. reproduce, duplicateor sub-licensethesame;
Amer ican Chemical Society V ACI T but factually inthepresent nosuchrightsindatabase
or search tools(SciFinder or STN) areacquired by
33 (IT) TS-995-ITAT-2021 (Mum) thecustomers, asisevident from theterms of the
Assessment Year 2017-18, or der dated sampleagreement of CAScustomers.Accordingly
26th October 2021 tribunal heldthat theincomeearnedby theassessee
from the Indian Customers with respect to the
Facts: subscription fees for CAS cannot be taxed as
royalty asper section 9(1)(vi) of theAct aswell as
The assessee is a US based nonresident entity Article12(3) of theIndia-USA DTAA. Further the
engaged i n promoti on and devel opment of journal provided by the PUBS division do not
knowledgein thefield of chemistry. It isorganized provide any information arising from assessee’s
into various divisions which are as under:- i) previousexperience. Theassessee’s experience lies
Chemical AbstractsService(CAS) division offers in the creation of / maintaining such information
online, web-based and desktop accessto databases online. By granting access to the journals, the
of scientificcontent toitscustomers.ii) Publications assesseeneither sharesitsexperiences, techniques
(PUBS) division which reviews and publishes or methodology employed in evolving databases
research work submitted by scientistsworldwide. with theusers, nor impartsany informationrelating
It isengaged insubscriptionsalesof web-basedand to them. All that the customers get is the right to
printed copiesof research journals/ e-journalsin search,view anddisplay thearticles(whether online
the subject of chemistry, to its subscribers. The or by taking aprint) and reproducing or exploiting
assessee has such customers in India as well and thesamein any manner other than for personal use
receives payments for provision of products / isstrictly prohibited. No‘useor right to use’in any
servicesfromoutsideIndiatoIndiancustomers. The copyright or any other intellectual property of any
assesseesubmittedthat noneof thesereceiptswould kind isprovided by theassesseeto itscustomers.
qualify as royalties or fee for included services Furthermore, the
under India-US Tax-Treaty and accordingly, not
liable to tax. However, AO treated the receipts to information resides on servers outside India, to
beroyalty paymentsasheld in earlier assessment which the customers have no right or access, nor
yearsThought theTribunal had held in favour of dothey possesscontrol or dominionover theservers
the assessee in the earlier years, the DRP upheld in any way. Therefore, the question of such
theAO’s action on theground that further appeal paymentsqualifyingasconsiderationfor useor right
hasbeen preferred by thedepartment accordingly
matter has not reached finality.Aggrieved, the to use any equi pment, whether i ndustri al ,
assesseeisin further appeal beforeTribunal. commercial, or scientific, doesnot arise.
I ssue: What isacquired by thecustomer isacopyrighted
article, copyrights of which continue to lie with
Whether theSubscr iption char gesr eceived by assesseefor all purposes. lt isawell settled law that
the assesseear e in the natur eof Royalty liable
to tax in I ndia.
Ahmedabad Chartered Accountants Journal November, 2021 391
Tr ibunal News I ssue:
copyrightedarticleisdifferent fromacopyright,and Whether any adj ustment is r equir ed to the
that consideration for theformer, i.e. acopyrighted ar m’slength priceof tr ansfer of power & steam
article does not qualify as royalties. Thus, the from eligibleunitsto non-eligibleunits.
subscription revenuereceived from customersof
PUBS di vi si on f or sal e of j ournal al so, Held:
andaccordingly PUBSfeealso doesnot qualify as
‘Royalty’in termsof section 9(1)(vi) of theAct as Thetribunal was in agreement with the DRPthat
well asArticle12(3) of the India-USA DTAA. for the purpose of benchmarki ng of power
transferred from eligibleunit to non-eligibleunit
DCM Shr ir am L td. V Addl. CI T TS- assesseecan only claim internal cup when it also
sales power to SEB. In Rajasthan it purchases
34 1009-ITAT-2021(DEL ) power from SEB therefore it cannot said to bean
Assessment Year 2014-15, Or der dated internal cup but rightly held by the DRPto be an
28/10/2021 external cup. The Tribunal found that the rate
Indian energy exchangestated to bepertaining to
Facts: Rajasthan region isRs2.55 per kilowatt whereas
theratesat which thepower waspurchased by the
A ssessee was engaged i n the busi ness of assesseeinRajasthanfromSEBs¹ 8.35per kilowatt.
manufacturing and trading of chemicals, cement, If theratesof SEB arecompared with theratesof
sugar,fertilizer, seeds, etc. and had power units Indian energy exchange thereisawidedisparity
locatedin UP, Rajasthan andGujarat Regionwhich between the two rates. It was not in dispute that
were‘eligibleunits’for deductionu/s80-IA.During SEB in Rajasthan issupplying power to majority
theassessment year, assesseeentered intospecified of theconsumer using electricity. Therefore, asper
domestic transactions(SDTs) of saleof power by Tribunal much sanctity is attached to the rates
theeligibleunitsto non-eligibleunitsandtransfer adopted by SEBs. Further, if the prices are so
of steam from eligible unit to non-eligible units; divergent and the difference between the two
A ssessee had benchmarked the f ormer external cup becomesirreconcilable, theexternal
SDTconsidering internal CUPi.e. actual purchase cup price which is more reliable should be used.
price charged by SEBs and the latter SDT at the Therefore, for thesereasonstheTribunal held that
cost i.e.without charging any markup.TPO, based IEX cannot besaid to bean external cup available
on data received in notice u/s 133(6) of the Act for invoking the provisions of first proviso to
issued to Indian Energy Exchange Ltd. (‘IEX’), Section 92C (2) of the act. In view of the above
made a downward TPadjustment to assessee’s factstheTribunal did not find any infirmity in the
transfer priceby applyingaveragesalepricequoted benchmarking analysisof theassesseewherein the
on IEX for unitsin Rajasthan, on theground that assesseehasconsidered rateof ¹ 6.30 per kilowatt
theassesseehad transferred power at higher value against therateof power purchase
i.e. actualpurchase price of electricity purchased
from SEB which wasmorethan averageof prices paidby theassesseetoJaipur Vidyiut VitranNigam
obtained from IEX.Assessee benchmarked transfer Limited at therateof ¹ 8.35 per kilowatt, using the
of steam by eligible units to non-eligible units at external cup for comparability. The Tri bunal
cost under‘Other method’ based on detail ed acknowledged theassessee’sclaim that steam was
guidance provided under established norms of joint product and not just byproduct andrejected
costingduly certifiedby professionals. TPOdidnot Revenue’sclaimthat steamwasaraw material. The
accept saidbenchmarkingand recomputed theALP tribunal highlighted that production of steam was
for such transfer of steam at “NIL”, considering not unintentional but anessential ingredient forboth
steam to beabyproduct whose cost wassubsumed production of power and sugar and held that
in the cost of electricity (final product). DRP Revenue failed to produce any disparity while
af f i rmed the TP addi ti on and aggri eved,
assesseepreferred an appeal beforetheITAT.
392 Ahmedabad Chartered Accountants Journal November, 2021
summarily rejectingdetailedcost sheetsduly certified Tr ibunal News
by professionals for calculating the exact cost of
steam. The Tribunal accordingly held that steam I ssue:
was a valuable source of power and there was a
separatecost for productionfor steam.Accordingly Whether expenditureincurred on fr eebiesgiven
upheld theALPfor transfer of steam from eligible toDoctorsisnot allowableunder section 37 read
to non-eligibleunitsat ‘Cost’. with explanation thereof
35 DCIT V MacleodsPharmaceuticalsLtd. Held:
TS-963-I TAT-2021(M um)
It was clear that the regulations prohibiting the
Facts: acceptanceof freebiesby themedical professionals
provide, under section 20A of theIndian Medical
Theassesseeisacompany engaged in thebusiness Council Act 1956 read with rule 6.8 of Indian
of manufacturingpharmaceutical products, such as Medical Council (Professional conduct, Etiquette
tablets, capsules, liquids and injectablesetc. The and Ethics) Regulations, 2002, as amended from
assessee was subjected to a search and seizure timeto time, that such freebiescannot belawfully
operation on 28th January 2016. It was in this accepted by medical professionals, and, therefore,
backdrop that theassessmentswerereopened, and any expenditure incurred for extending these
thepresent assessment proceedingsunder section freebies to the medical professionals is for a
153A r.w.s143(3) wereinitiated. Duringthecourse “purpose which is prohibited by law”. On these
of theseassessment proceedings, theAOnoted that facts, therefore, Explanation to Section 37(1) is
the assessee had made payments of freebi es clearly attracted. Asper theTribunal it isan open
todoctors. The AO based on CBDT circular No. secret, that all these freebies extended by the
05/2012 dated 1st August 2012, took note of the pharmaceuti cal compani es to the medi cal
amendment in the Medi cal Counci l of India professionals, more often than not, come with
regulations vide Gazette notification dated 10th strings attached, and that is what makes the
December, 2009, and Explanation Section 37(1) expenditure in question for a purpose which is,
of theAct, and put theassesseeto noticeasto why prohibitedby law.Thefreebiesfrompharmaceutical
theseexpensesnot bedisallowed. Theassesseewas companiescannot, under section20A of theIndian
defended itsclaim based on the Tribunal decision Medical Council Act 1956 read with rule 6.8 of
i n i ts own case, whi ch had al l owed such Indian Medical Council (Professional conduct,
expenditure mainly accepting the plea that “no Eti quette and Ethi cs) Regulations, 2002, as
disallowance of such sales promotion expenses amended from timeto time, belawfully accepted
could bemade by applying CBDT circular dated by medical professi onal s and, therefore, an
1-8-2012 insofar asCBDT circular was effective extensionof suchfreebiesisfor apurposeprohibited
fromAY 2013-14”, andthat, inview of thedecision by law . Thestand of theAssessing Officer cannot,
of another coordinate bench in the case of DCIT therefore, befaulted.
Vs PHL Pharma Pvt Ltd [(2017) 163 ITD 10
(Mum)] thedisallowancecould not besustained as Consideringthefact that thereareseveral decisions
the M CI gui del i nes bi nd onl y the medi cal of coordinate benches, in favour of the assessee,
prof essi onal s and not the pharmaceuti cal on this issue. The Tribunal proposed for the
companies. TheAO, however, proceeded to make constitution of a special bench of three or more
the disallowances account of payments made for members, to consider thefollowing question:
freebiesto thedoctors, by giving detailed reasons.
The CIT(A) held in favour of the assessee. The Whether an item of expenditure on account of
department isin appeal beforetheTribunal. freebies to medical professionals, which is hit by
rule6.8.1of IndianMedical Council (Professional
Conduct, Etiquetteand Ethics) Regulations, 2002-
as amended from time to time, read with section
20A of theIndian Medical Council Act 1956, can
Ahmedabad Chartered Accountants Journal November, 2021 393
Tr ibunal News servicesunder section 9(1) (vii) of theAct aswell
asAr ticle 13 of I ndia Poland DTAA
beallowed asa deduction under section 37(1) of
the Income Tax Act, 1961 read with Explanation Held:
thereto, in the hands of the pharmaceuti cal
companies? Thetribunal considered thedefinition of “Person”
asper Article3(1)( e) of theDTAA and found that
I nfosys BPO L t d. v. DCI T 131 i t speci fi es that the provi si ons of DTAA i s
applicableto ‘persons’who aretaxableunder the
36 taxmann.com 293 (BANG) domestictaxationlawsof thecontractingstates.The
Assessment Year 2015-16AND 2016-17 tribunal then considered thedefinition of ‘resident
or der dated 11th October 2021 of acontracting state, asset out inArticle4(1). In
view of the provisions of Article 4(1) read with
Facts: Article(1) andArticle3(1)(e), unlessthepayeeis
taxable under domestic laws of Poland, treaty
Theassesseeisan Indian company engaged in the benefitscannot beextended.ThereforetheTribunal
businessof providingbusinessprocessoutsourcing held that theLaw firm isanon taxableentity asper
services. Theassesseefiledapplicationsbeforethe thedomesticlawsandthereforetreaty benefit cannot
CIT(A) under section 248 of the Act, seeking beextended to thefirm. In thepresent factsof the
declaration,that notax wasdeductibleonpayments case, it would be the partners of the firm who
made to the non residents in Poland which was represent thepartnership in Poland. TheTribunal
admitted by theCIT(A). TheCIT(A) observedthat noted that revenue treated the receipt by the non
assesseemadepaymentsto aLaw firm in Poland, resident tobeFTSasperArticle13(4) TheTribunal
alimited partnership firm, who wastax resident of noted that Paragraph 4 of Article 13 excludes
Poland. Assesseesubmitted copiesof certificates services mentioned in Article 15 & 16. Since
of tax residenceof theshareholdersin support. The Partnersaretaxablein Poland asper thePersonal
CIT(A) examined thepayment underArticle13 of IncomeTax Act,Article15 of IndiaPoland DTAA
India Poland DTAA dealing with “Royalties and would beapplicable. TheTribunal thereforeheld
Fees for Technical Services”. The CIT(A) was of that that servicesrendered by thenon resident Law
theopinionthat thepayment madeby assesseecame firm cannot betreated asFTSunder Article13(4).
under theambit of “Royaltiesand feesfor technical Thetribunal noted thaonly on fulfillment of either
services” asdefined in para.4of Article13. Heheld of thetwo circumstancesunderArticle15, it could
at the payments to nonresident in Poland was besaidthat themoney received by thenon resident
chargeabletotax inIndiaunder section 9(1)(vii) of istaxablein India. Dueto non fulfillment of above
Incometax Act, aswell asArticle13(4) of DTAA conditions, taxability under Article 15 does not
between Indiaand Poland. TheCIT(A) therefore trigger. In thepresent casenonresident payeehas
denied declaration to assessee on this issue. given a certificate that there is no fixed place of
Accordingly the assessee is in appeal before the business/PE in India. Nothing hasbeenbrought on
Tribunal. record by the revenue to establish that the non
resident payeehasany fixed placeof businessPE
I ssue: in India. In that view of the above, the Tribunal
held that theincomeceasesto betaxablein India.
Whether thePar tner ship fir m wasnot eligible Accordingly this ground raised by assessee was
for benefit under I ndia Poland DTAA, on the allowed.
gr ound that assesseewasa fiscally tr anspar ent
entity not liableto tax in Poland in itsown r ight hhh
and
Whether thePartnersarefully taxablein respect
of their shar esof incomein Par tner ship Fir m
Whether payments made to the law fir m in
Poland is in the natur e of Fee for technical
394 Ahmedabad Chartered Accountants Journal November, 2021
Controversies
CA. K aushik D. Shah
[email protected].
I ssues in clause (a) by way of remission or cessation
thereof, the amount obtained by the successor in
Whether waiver of loan for acquiring capital assets business or the value of benefit accruing to the
can betaxed asremission of liability under section successor in businessshall bedeemed to beprofits
41(1) of theIncomeTax Act, 1961? and gains of the business or profession, and
accordingly chargeabletoincome-tax astheincome
Pr opositions of that previousyear.
The provisions contained in Section 41(1) of the View against theProposition
Act statesthat,
Honourable Delhi High Court i n the case of
Wherean allowanceor deduction hasbeen made Rollatainers Ltd. Vs. Commissioner of Income
in the assessment for any year in respect of loss, Taxheld that Section 41(1) was applicable and
expenditure or trading liability incurred by the waiver of principleamount of loan wastaxableas
assessee (hereinafter referred to as the first- incomeasthewaiver of principal amount of working
mentioned person) and subsequently during any capital loanintheformof CashCredit was‘revenue
previousyear,— receipt’in natureand not ‘capital receipt’.
(a) thefirst-mentionedpersonhasobtained,whether HonourableMadrasHigh Court in thecaseof CIT
in cash or in any other manner whatsoever, any (Chennai)Vs. RamaniyamHomes(P.) Ltdhasheld
amount in respect of such loss or expenditure or that amount representing principal loan waived by
somebenefit in respect of such trading liability by bank under one time settlement scheme would
way of remission or cessation thereof, theamount constituteincomefalling under section28(iv).
obtained by such person or the value of benefit
accruing to him shall bedeemed to beprofitsand View in favour of theProposition
gains of business or profession and accordingly
chargeable to income-tax as the income of that HonourableHigh Court of MadhyaPradesh in the
previousyear, whether thebusinessor profession case of CIT Vs. Dholgiri Industries (P) Ltd. has
in respect of which theallowanceor deduction has held that wheretheprincipal amount of loan was
been madeisin existencein that year or not; or never beingclaimed by assesseeasitsexpenditure,
itswaiver would not amount toincomeof assessee.
(b) thesuccessor in businesshasobtained, whether
in cash or in any other manner whatsoever, any HonourableMadrasHigh Court in thecaseof CIT
amount inrespect of which lossor expenditurewas Vs. Rayala Corporation (P) Ltd. has held that,
incurred by the first-mentioned person or some “Unl ess the amount had been all owed as a
benefit in respect of thetrading liability referred to deduction in the earlier years, the question of
invoking Section 41(1) doesnot arise.”
Ahmedabad Chartered Accountants Journal November, 2021 395
Contr over sies principal amount of loan advanced by theKJC to
theassesseeand to cancel thepromissory notesas
Honourable Delhi High Court i n the case of and when they got matured.
Logitronics(F) Ltd.Vs. CIT & ANR. hasheld that
waiver of loan may beconsidered asincomeasper On appeal to the Supreme Court, the revenue
Section41(1) only whentheloanistakenfor trading claimedthat thewaivedamount representedincome
purposesand not for acquisition of acapital asset under section 28(iv) or alternatively, under section
and isalso treated as such from thebeginning in 41. However, the assessee pointed out that sum
thebooksof accounts. waivedcouldnot bebrought totax asit represented
thewaiver of aloanliability whichwasonthecapital
To understand whether theloan is part of trading account and thus, wasnot in thenatureof income.
activity of business/ profession, theHigh Court of
Madras in the case of Iskraemeco Seahorse Ltd. Supreme Court held the judgement of the High
Vs. TheCommissioner of IncomeTax 2010 SCC Court in thefavour of theassessethat,
OnLineMad 5901 held asfollows: “In thepresent
case on hand, admittedly the Assessee was not a) Section 28(iv) does not apply on the present
trading in money transactions.A grant of loan by a casesincethereceiptsof Rs57.74 lakhsarein
Bank cannot betermed asatrading transactionand thenatureof cash or money.
it cannot also be construed i n the course of
business.” So, if the business/profession of the b) Section 41(1) does not apply sincewaiver of
assesseeisnot in money transaction it will benot loan does not amount to cessation of trading
be assumed that the loan was availed for trading liability. It isamatter of recordthat theassessee
purpose. Inanutshell what isrequired to belooked hasnot claimed any deduction under section
into is the pri mary activity of any business/ 36(1)(iii) for the payment of interest in any
profession. previ ous year.
Summation In view of above, in my humble opinion, if loan
hasbeen utilized for any ancillary activity of any
Decision taken by Supreme Court of India in the business/professionor for acquisitionof capital asset
caseof Commissioner of IncomeTax Vs.Mahindra and further when thewaived off loan isnot treated
and Mahindrahasset thebenchmark for key matter asassessee’smoney. Such waived off loan amount
of thiscontroversy. would not attract theprovision of section 41 (1) of
the Income Tax Act. In any other situations, the
In the given case the assessee entered into an facts and circumstances will have to be closely
agreement on 18-6-1964 wi th K ai ser Jeep examined to determine whether such waived off
Corporation(‘KJC’) basedinAmericawhereinKJC l oan amounts to profi t from busi ness and
agreedtosell thedies, weldingequipmentsanddie consequently taxableu/s41(1) of theIncomeTax
modelsto theassessee. For theprocurement of the Act, 1961.
saidtoolingsandother equipments, theKJC agreed
to providealoan to theassesseeat therateof 6 per hhh
cent interest repayableafter 10yearsininstalments.
Subsequently,AmericanMotor Corporation(AMC)
took over the KJC and also agreed to waive the
396 Ahmedabad Chartered Accountants Journal November, 2021
Judicial AdvocateTushar Hemani
Analysis [email protected]
Noticesof reopeningon amalgamatingcompany in the circumstances cannot operate as an
after it got amalgamated isnot valid estoppel against law. Thisposition now holds
thefieldinview of thejudgment of acoordinate
16 Alok Knit Expor ts L td.v.DCIT [2021] Bench of two learned judgeswhich dismissed
130 taxmann.com 457 (Bombay) the appeal of the Revenue i n Spi ce
Enfotainment on 2 November 2017. The
6. TheApex Court in itsrecent judgment on this decision in Spice Enfotainment has been
subject in Pr. CIT v. Maruti Suzuki India Ltd. followed in the case of the respondent while
[2019] 107 taxmann.com 375/265 Taxman dismissing theSpecial Leave Petition for AY
515/416 ITR 613, considered thejudgment of 2011-2012. In doing so, thisCourt hasrelied
Sky Light Hospitality LLP (supra) of theApex on thedecision in SpiceEnfotainment.
Court andsaidthat theApex Court hasexpressly
mentionedthat in thepeculiar factsof that case 7. Thisquotation squarely appliesto thiscaseat
wrong namegiven in thenoticewasmerely a hand. I n the case at hand as wel l , the
clerical error. TheApex Court inMaruti Suzuki indisputable fact is respondent no. 1 has
India Ltd. (supra), hasalso observed that what invoked jurisdiction by issuing notice under
weighed in thedismissal of theSpecial Leave section 148 of the Act to an entity that had
Petitionwerethepeculiar factsof that case. The ceased toexist. Thisisnotwithstandingthefact
Apex Court hasreiterated thesettled position that respondent no. 1 was aware that Niraj
that thebasison which jurisdiction isinvoked Realtorshad ceased to exist. Respondent no.
isunder section 148 of theAct and when such 1, asnoted earlier, wesay wasawarebecause
jurisdi cti on was invoked on the basis of the notice under section 148 of the Act was
something which wasfundamentally at odds issued for theAssessment Year 2011-2012 in
with thelegal principlethat theamalgamating the name of peti tioner for reopening the
entity ceasestoexist upontheapprovedscheme assessment of Niraj Realtors. In fact even the
of amalgamation, thenoticeisbad in law. The reasoning dated 6th July 2018 for reopening
Apex Court hasheld asunder : of theAssessmentYear 2011-2012 startswith
thefollowing :
In the present case, despite the fact that the
Assessi ng Of fi cer was i nf ormed of the “The M/s. Niraj Realtors & Shares Pvt. Ltd.
amalgamatingcompany havingceasedtoexist (PAN : AABPS7071E) now merged with M/
as a resul t of the approved scheme of s. Alok Knit Exports Private Limited (PAN :
amalgamation, the jurisdictional notice was AACCA8337K) isanAssesseeof thischarge.”
issued only in its name. The basis on which
jurisdiction wasinvoked wasfundamentally at 8. The stand now taken in the affidavit in reply
odds wi th the l egal pri nci pl e that the andsubmissionsof Mr. Mohanty isnothingbut
amalgamating entity ceasesto exist upon the an afterthought by respondent after having
approved scheme of amal gamati on. committedafundamental error.Wewouldhave
Participationintheproceedingsby theappellant expected respondent no. 1 to have at least
applied his mind and looked for documents
Ahmedabad Chartered Accountants Journal November, 2021 397
Judicial Analysis prior to theissuanceof noticedated 25th March,
2019 for reopening theassessment. Thereafter
whichwerealready onfileto seewhether Niraj thepetitioner informed therespondent about
Realtors existed before issuing notice under thesaidamalgamationof all thethreecompanies
section 148 of theAct. Respondents’records with thepetitioner. Therecord revealsthat the
wouldhaveindicatedthat Niraj Realtorsceased factum of amal gamati on of the Gayatri
to exist and his predecessor/colleague has Integrated Services Private Limited with the
issued notice for theAssessment Year 2011- petitioner, wascommunicatedtotherespondent
2012 along with thereasoning in thenameof with sufficient details viz. (i) Passing of the
petitioner. order dated 18th June, 2015 by this court; (ii)
communication dated 9th September, 2017
9. Therefore, thestandof respondent today that it addressed by thepetitioner to theIncomeTax
was an error which could be corrected under Officer, Ward-2(1)(1) during the assessment
section 292B of the Act is not acceptable to proceedingsfor theassessment year 2015-16
thisCourt. Mr. Mohanty submitted that when containing the information of amalgamation
respondent filledup theformfor recording the and (iii) detailsof amalgamation in thereturn
reasons and i nitiating proceedings under for theassessment year 2015-16 .
section 148 of the Act and for obtaining the
approval on 29th M arch 2019, he has 8. Concededly, inthepresent casethenoticeunder
mentioned intheform inthecolumnnameand section 148 of the Act has been issued to
addressof theassesseeasM/s. Niraj Realtors Gayatri Integrated Services Private Limited
andSharesPvt. Ltd. now mergedinandknown whi ch, as aforesai d, had l ong back got
as M/s. Alok Knit Exports Pvt. Ltd. In our amalgamated with the petitioner vide order
view, that itself should havemaderespondent dated 18th June, 2015 passed by thiscourt and
no.1 realise that when acompany ismerging thus, it had ceased to haveitsown existenceso
into another company that merging company as to render it amenable for the reassessment
ceases to exi st. I n f act the Pri nci pal proceedingsunder theprovisionsof section147
Commi ssi oner of I ncome Tax, who i s of theAct. Moreover, the respondent and the
supposed to have approved the initiating of department were dul y i nformed by the
proceedingsunder section 148 of theAct, also petitioner about theamalgamationand despite
should havebrought to thenoticeof or guided the said factum having been brought to the
respondent no. 1 that the notice ought to be noticeof therespondent, statutory noticeunder
issued in thenameof petitioner and not Niraj section 148 came to be issued to Gayatri
Realtorswhich ceased to exist. Integrated Servi ces Pri vate Li mi ted for
reopening the assessment on the ground that
17 Gayatr i Microns L td. v. ACIT [2020] therespondent hasreasontobelievethat income
114 taxmann.com 318 (Guj arat) chargeabletotax for theassessment year 2012-
13 has escaped the assessment within the
7. Having heard the learned counsel for the meaning of section 147 of theAct.
respectiveparties, it emergesfrom therecord
that this court, under the provisions of the 9. Thecontroversy in thepresent petition, isno
CompaniesAct, hasvideorder dated 18th June, longer resintegra. TheApex Court in thecase
2015, sanctioned the composite scheme of of Maruti Suzuki Indi a Ltd. (supra), i n
arrangement in thenatureof amalgamation of paragraph 33, hascategorically held that if the
the three transferor companies viz. Gayatri company hasceased to exist asaresult of the
Mine-ChemPrivateLimited, Gayatri Integrated approved schemeof amalgamationtheninthat
Services Private Limited and Gayatri Fillers case, thejurisdictional noticeissuedinitsname
Private with the petitioner that is, Gayatri
Microns Limited, the transferee company.
Pertinently, amalgamation took place, much
398 Ahmedabad Chartered Accountants Journal November, 2021
would be fundamentally illegal and without Judicial Analysis
jurisdiction. It is also held that upon the
amalgamating entity ceasing to exist, it cannot (iii) Thirdly, theconsequenceof theschemeof
beregarded asaperson under sub-section (31) amalgamationapprovedunder Section394
of secti on 2 of the Act; agai nst whom of the Companies Act 1956 is that the
assessment proceedingscan beinitiated. The amalgamatingcompany ceasedto exist. In
Apex Court hasfurther held that participation Saraswati Industrial Syndicate Ltd.,
by the amal gamated company i n the (supra) theprinciplehasbeen formulated
proceedings would be of no effect as there is by thisCourt inthefollowingobservations:
no estoppel against law.
(iv) Fourthly, upontheamalgamatingcompany
10. Similarly, thiscourt, inthejudgment inthecase ceasing to exist, it cannot beregarded asa
of Dharamnath Shares and Services (P.) Ltd. personunder Section2(31) of theAct 1961
(supra) whilereferring to itsearlier decision in against whomassessment proceedingscan
the case of Khurana Engineering Limited be initiated or an order of assessment
(supra) held that once the assessee company passed;
getsamalgamated with thetransfereecompany,
itsindependent existencedoesnot surviveand (v) Fifthly, anoticeunder Section 143(2) was
therefore it would no longer be amenable to i ssued on 26 September 2013 to the
the assessment proceedings. Thus, it is well amalgamating company, SPIL, whichwas
settl ed proposi ti on of l aw that upon i ts followed by a notice to it under Section
amalgamation thetransferor company ceases 142(1);
to exist and becomesextinct, and it would no
l onger be amenabl e to the assessment (vi) Sixthly, prior to the date on which the
proceedingsconsideringthefact that theextinct jurisdictional noticeunder Section143(2)
entity would not becovered within theambit wasissued, theschemeof amalgamation
of theprovisionsof theAct. had been approved on 29 January 2013
by the High Court of Delhi under the
18 PCIT v. Maruti Suzuki IndiaL td. [2019] Companies Act 1956 with effect from 1
107 taxmann.com 375 (SC) April 2012;
xxx… (vii)Seventhly, the assessing officer assumed
jurisdiction to make an assessment in
19. Whi l e assessi ng the meri ts of the ri val pursuanceof thenoticeunder Section 143
submissions, it is necessary at the outset to (2). Thenoticewasissued in thenameof
advert tocertainsignificant facetsof thepresent theamalgamating company in spiteof the
case: fact that on 2April 2013, theamalgamated
company M SI L had addressed a
(i) Firstly, theincome which is sought to be communication to the assessing officer
subjected tothechargeof tax forAY 2012- intimatingthefact of amalgamation. Inthe
13 is the income of the erstwhile entity aboveconspectusof thefacts, theinitiation
(SPIL) prior to amalgamation. This ison of assessment proceedingsagainst anentity
account of atransfer pricingadditionof Rs. which had ceased to exist was void ab
78.97 crores; initio.
(ii) Secondly, under the approved scheme of 20. In Spice Entertainment, (supra) a Division
amalgamation, thetransfereehasassumed Bench of theDelhi High Court dealt with the
the liabilities of the transferor company, question as to whether an assessment in the
includingtax liabilities; name of a company whi ch has been
amalgamatedandhasbeendissolvedisnull and
void or, whether theframing of an assessment
in the name of such company is merely a
Ahmedabad Chartered Accountants Journal November, 2021 399
Judicial Analysis isajurisdictional defect. TheDivision Bench
al so rel i ed on the hol di ng i n Spice
procedural defect which can be cured. The Entertainment (supra) that participationby the
High Court held that upon a notice under amalgamatedcompany inproceedingsdoesnot
Secti on 143 (2) bei ng addressed, the curethedefect as“therecan beno estoppel in
amalgamatedcompany had brought thefact of law”, to affirm thequashing of theassessment
theamalgamationto thenoticeof theassessing order.
officer. Despite this, theassessing officer did
not substitute the name of the amalgamated 22. In Micron Steels, (supra) anoticewasissued
company andproceededtomakeanassessment to Micron Steels Pvt Ltd (original assessee)
in thenameof anon-existent company which after it had amalgamated with Lakhanpal
renders it void. This, in the view of the High InfrastructurePvt Ltd.A Division Bench of the
Court, was not merely a procedural defect. Delhi High Court upheld the setting aside of
Moreover,theparticipationby theamalgamated assessment orders, noti ng that Spice
company wouldhavenoeffect sincetherecould Entertainment (supra) isan authority for the
beno estoppel against law : proposition that completion of assessment in
respect of anon-existent company dueto the
xxx… amal gamati on order, woul d render the
assessment anullity.
FollowingthedecisioninSpice Entertainment,
(supra) the Del hi Hi gh Court quashed 23. I n Micra India, (supr a) the ori gi nal
assessment orders which were framed in the assesseeMicraIndiaPvt. Ltdhadamalgamated
nameof theamalgamating company in: with Dynamic Buildmart (P) Ltd. Noticewas
issued to theoriginal assesseeby theRevenue
(i) DimensionAppar els(supra); after the fact of amalgamation had been
communicated to it. The Court noted that
(ii) M icr on Steels; and (supra) though the assessee had participated in the
assessment, theoriginal assesseewasnolonger
(iii) M icr a I ndia (supra). in existenceand theassessment officer did not
thetaketheremedial measureof transposing
21. In Dimension Apparels, (supra) a Division thetransfereeasthecompany which had to be
Bench of the Delhi High Court affirmed the assessed. Instead, the original assessee was
quashing of an assessment order dated 31 described as one in existence and the order
December 2010. The Respondent had mentioned thetransferee’snamebelow that of
amalgamated with another company and thus, the original assessee. The Division Bench
ceased to exist from 7 December 2009. The adverted to the j udgment in Dimension
Court rejected the argument of the Revenue Apparels (supra) wherein theHigh Court had
that theassessment wasinsubstanceandeffect discussed the ruling in Spice Entertainment
in conformity with the Act by reason of the (supra). It washeld that thiswasacasewhere
fact that theassessing officer had used correct the assessment was contrary to law, having
nomenclatureinaddressingtheAssessee; stated been compl eted agai nst a non-exi stent
thefact that thecompany hadamalgamatedand company.
menti oned the correct address of the
amalgamated company. It wastheRevenue’s 24. A batch of Civil Appealswasfiled beforethis
contention that theomission on thepart of the Court against thedecisionsof theDelhi High
assessing officer to mention the name of the Court, the l ead appeal bei ng Spice
amalgamated company isaprocedural defect. Enfotainment (supra). On 2 November 2017,
TheDelhi HighCourt rejected thiscontention. a Bench of this Court consisting of Hon’ble
In doing so, it relied on the holding in Spice
Entertainment, (supra) wheretheHigh Court
expressl y cl ari fi ed that “the frami ng of
assessment against anon-existingentity/person”
400 Ahmedabad Chartered Accountants Journal November, 2021
Mr JusticeRohintonFaliNariman and Hon’ble Judicial Analysis
Mr JusticeSanjay KishanKaul dismissed the
Civi l Appeal s and tagged Speci al Leave (supra). In assessing the merits of the above
Petitionsin termsof thefollowing order : submission, it isnecessary to extract theorder
dated 6April 2018 of thisCourt:
“Delay condoned.
“In the peculiar facts of this case, we are
Heard the learned Senior Counsel appearing convinced that wrong namegiven in thenotice
for theparties. was merely a clerical error which could be
corrected under Section 292B of the Income
Wedo not find any reason to interferewith the Tax Act.
impugned judgment(s) passed by the High
Court. Thespecial leavepetition isdismissed.
In view of this, wefind no merit in theappeals Pending applicationsstand disposed of.”
and special leavepetitions.
Now, it isevident from theaboveextract that it
Accordingly, the appeals and special leave wasin thepeculiar facts of thecasethat this
petitionsaredismissed.” Court indicated itsagreement that thewrong
namegiven in thenoticewasmerely aclerical
25. The doctrine of merger results in the settled error, capableof beingcorrectedunder Section
legal position that the judgment of the Delhi 292B. The “pecul i ar facts” of Skyl i ght
High Court stands affirmed by the above Hospitality emerge from the decision of the
decision in theCivil Appeals. Delhi High Court34Sky Light Hospitality LLP
(supra). Skylight Hospitality, an LLP, (supra)
26. The order of assessment in the case of the had taken over on 13 May 2016 and acquired
respondent for AY 2011-12 was set aside on therightsand liabilitiesof Skylight Hospitality
the same ground. This resulted in a Special Pvt. Ltd upon conversion under the Limited
LeavePetition by thePrincipal Commissioner Liability Partnership Act 200835. It instituted
of IncomeTax – 6 Delhi32. TheSpecial Leave writ proceedingsfor challenginganoticeunder
Petition wasdismissed by atwo judgeBench Sections 147/148 of the Act 1961 dated 30
of thisCourt consisting of Hon’bleMr Justice March 2017 for AY 2010-2011. The“reasons
RohintonFaliNarimanand Hon’bleMsJustice to believe” made areferenceto a tax evasion
Indu Malhotraon 16 July 2018 in view of the report received from theinvestigation unit of
order in Spice Enfotainment (supra) and the the income tax department. The facts were
connected batch of cases. Though, leavewas ascertained by the investigation unit. The
not granted by this Court, reasons have been reasons to believe referred to the assessment
assignedby thisCourt for rejectingtheSpecial order for AY 2013-2014 and the findings
LeavePetition. Thelaw declared wouldattract recordedinit.Thoughthenoticeunder Sections
the appl i cabi l i ty of A rti cl e 141 of the 147/148 was issued in the name of Skylight
Constitution. For, as this Court has held in Hospitality Pvt. Ltd. (whichhadceased toexist
Kunhayammed (supra) : upon conversion into an LLP), there was, as
the Delhi High Court held “substantial and
27. Thesubmissionhowever whichhasbeenurged affirmativematerial and evidenceon record”
on behalf of the Revenue is that a contrary to show that the issuance of the notice in the
positionemergesfromthedecisionof theDelhi nameof thedissolvedcompany wasamistake.
HighCourt inSkylight Hospitality LLP (supra) The tax evasi on report adverted to the
which wasaffirmed on 6April 2018 by atwo conversion of theprivatelimitedcompany into
judgeBenchof thisCourt consistingof Hon’ble an LLP. Moreover, the reasons to believe
Mr JusticeA K Sikri and Hon’ble Mr Justice recorded by the assessing officer adverted to
Ashok Bhushan33 Sky Light Hospitality LLP the approval of the Principal Commissioner.
Ahmedabad Chartered Accountants Journal November, 2021 401
Judicial Analysis order was invalid. This was not a case
wherein noticeunder Section 147/148 of
The PA N number of the LL P was al so theAct wasdeclaredto bevoidand invalid
mentioned in some of the documents. The but acasein which assessment order was
notice under Sections 147/148 was not in passed in thenameof and against ajuristic
conformity with thereasonsto believeand the personwhichhadceasedtoexist andstood
approval of thePrincipal Commissioner. It was di ssol ved as per provi si ons of the
in thisbackground that theDelhi High Court CompaniesAct. Order wasin thenameof
held that the case fell within the purview of non-existing person and hence void and
Section 292B for thefollowing reasons: illegal.”
“18… Therewasno doubt and debatethat the 29. From areading of theorder of thisCourt dated
noticewasmeant for thepetitioner and no 6April 2018intheSpecial LeavePetition filed
oneelse.Legal error andmistakewasmade by Skylight Hospitality LLP (supra) against
in addressing the notice. Noticeably, the thejudgment of theDelhi High Court rejecting
appellant having received thesaid notice, itschallenge, it isevident that thepeculiar facts
had filed without prejudice reply/letter of thecaseweighed with thisCourt in coming
dated 11.04.2017. They had objected to to thisconclusion that therewasonly aclerical
thenoticebeing issued in thenameof the mistakewithin themeaning of Section 292B.
Company, which had ceased to exist. The decision in Skylight Hospitality LLP
However, the reading of the said letter (supra) has been distinguished by the Delhi,
indicatesthat they hadunderstoodandwere Gujarat and MadrasHigh Courtsin:
aware, that thenoticewasfor them. It was
replied and dealt with by them. The fact (i) Rajender Kumar Sehgal (supra);
that noticewasaddressed to M/s. Skylight
Hospitality Pvt. Ltd., a company which (ii) Chandreshbhai Jayantibhai Patel; and
had been dissolved, was an error and (supra)
techni cal l apse on the part of the
respondent. No prejudicewascaused.” (iii) Alamelu Veerappan (supra).
28. Thedecision in Spice Entertainment (supra) 30. Thereisno conflict between thedecisionsof
was di sti ngui shed wi th the f ol l owi ng thisCourt in Spice Enfotainment (supra) and
observations: in Skylight Hospitality LLP (supra) .
“19.Petitioner reliesonSpiceInfotainment Ltd. xxx…
v. Commissioner of Service Tax, [2012]
247 CTR 500. Spice Corp. Ltd., the 33. In the present case, despite the fact that the
company that had filed the return, had assessi ng of f i cer was i nf ormed of the
amalgamatedwithanother company.After amalgamatingcompany havingceasedtoexist
notice under Section 147/148 of theAct as a resul t of the approved scheme of
was issued and received in the name of amalgamation, the jurisdictional notice was
Spice Corp. Ltd., the Assessing Officer issued only in its name. The basis on which
wasinformed about amalgamation but the jurisdiction wasinvoked wasfundamentally at
Assessment Order waspassed in thename odds wi th the l egal pri nci pl e that the
of the amalgamated company and not in amalgamating entity ceasesto exist upon the
thenameof amalgamatingcompany. Inthe approved scheme of amal gamati on.
saidsituation, theamalgamating company Participationintheproceedingsby theappellant
had filed anappeal and issueof validity of in the circumstances cannot operate as an
A ssessment Order was rai sed and estoppel against law. Thisposition now holds
examined. It washeld that theassessment the field in view of the judgment of a co-
402 Ahmedabad Chartered Accountants Journal November, 2021
ordinate Bench of two learned judges which Judicial Analysis
dismissed theappeal of theRevenuein Spice
Enfotainment (supra) on 2 November 2017. of thepresent appeal whichrelatestoAY 2012-
Thedecision in SpiceEnfotainmenthasbeen 13. Not doingsowill only result in uncertainty
followed in the case of the respondent while anddisplacement of settledexpectations. There
dismissing theSpecial Leave Petition for AY is a significant value which must attach to
2011-2012. In doing so, thisCourt hasrelied observing therequirement of consistency and
onthedecisioninSpice Enfotainment (supra). certainty. Individual affairsareconducted and
businessdecisionsaremadein theexpectation
34. We find no reason to take a different view. of consistency, uniformity and certainty. To
Thereisavaluewhich thecourt must abideby detract from those pri nci pl es i s nei ther
in promoting the interest of certainty in tax expedient nor desirable.
litigation. Theview which hasbeen taken by
thisCourt in relation to therespondent forAY hhh
2011-12must,inour view beadoptedinrespect
Continued fr om page 385 Glimpses of Supr eme Cour t Rulings
Manifest arbitrarinessmust besomething doneby from it by implication what clearly fallswithin its
the legislature capriciously, irrationally and/or expressterms.
without adequatedeterminingprinciple.Also, when
somethi ng i s done whi ch i s excessi ve and Marginal noteto asection cannot bereferred to for
disproportionate, suchlegislationwouldmanifestly the purpose of construing the section but it can
arbitrary. certainly be relied upon as indicative the drift of
thesectionor show what thesectionisdealingwith.
A taxing statutemay contraveneArt.14 if it seeks
to imposeupon thesameclassof property, persons S.80P(4) i s to be read as a provi so whi ch
etc. something which leadsto obviousinequality. specifically excludesco-operativebankswhich are
If the statute discloses a permissible policy of co-operativesocietiesengaged in banking business
taxation, thecourtswill uphold it. i.e engaged in landing money to members of the
public, which have license in this behalf, RBI. A
Though, equity and taxation are often strangers primary co-operative bank cannot be a primary
attempts should be made that this do not remain agricultural society.
alwayssoandif constructionsresultsinequity rather
than in injustice, then, suchconstruction should be S.80P being a benevolent provision enacted by
preferred to theliteral construction. Parliament to encourageand promotethecredit of
the co-operative sector in general must be read
CIT vs. Pepsi FoodsLtd. (2021) (7 SCC 413) liberally and reasonably and if thereisambiguity
in favour of theassessee. Thus, adeduction that is
21 I nter pr etation of statutes –Pr oviso- given without any reference to any restriction or
M ar ginal note- S. 80P I T Act li mitation cannot be restricted or limi ted by
implication assought to bedoneby therevenuein
A proviso cannot beused to cut down thelanguage thepresent caseby adding theword “agriculture”
of themainenactment wheresuchlanguageisclear into S. 80P(2)(a)(i) when it isnot there.
or to excl ude by impl ication what the main
enactment clearly states. Wherethelanguageof the Mavilayi ServicesCooperativeBank Ltd. vs. CIT
main enactment isexplicit and unambiguous, the (2021) (7 SCC 90)
provi so can have no repercussi on on the
interpretationof themainenactment soastoexclude hhh
Ahmedabad Chartered Accountants Journal November, 2021 403
BEPS 2.0 - Progress on Pillar
1 & 2 Proposals
CA. Dhinal A. Shah CA. K ar an Sukhr amani
[email protected] [email protected]
Backgr ound On 1 July 2021, the OECD released a Statement
on a Two-Pillar Sol ution to Address the Tax
In March 2018, Organisation for Economic Co- ChallengesArising FromtheDigitalisation of the
operation and Development (OECD) released the Economy, reflecting the agreement of 130 of the
document Tax Chal l enges Ar i si ng from member jurisdictionsof theInclusiveFramework
Digitalisation — InterimReport 2018asafollow onsomekey parameterswithrespect tobothpillars.
up to 2015 final report on Action 1 of the project
on Base Erosion and Profit Shifting (BEPS). The Recently, on 8th October 2021, the OECD/G20
2018InterimReport providedthat thefurther work InclusiveFramework publishedanupdatestatement
should be carried out to understand the various on theprogressof technical work related to Pillars
businessmodelsoperated by enterprisesoffering 1 & 2. Thestatement providesanumber of awaited
digital goodsand servicesto arriveat thepossible confirmations on several key parameters and
solution. practical implicationsof how Pillars1 & 2 will be
appliedin practice.
Thereafter, OECD released a Policy Note in
January 2019, describing pl ans for renewed Updates included in the October Statement –
international discussionsthat wereto focuson two Pillar 1
pillars: onepillar addressingthebroader challenges
of the digi talization of the economy and the Scope: Thestatement confirmsEUR 20 billion in
allocation of taxing rights, and a second pillar global revenuesand 10% profit beforetax (PBT)
addressing remaining BEPSconcerns. marginasthekey parametersfrom amateriality test
perspective.
At the end of January 2020, the OECD released
a Statement by theInclusiveFramework on BEPS Exclusions: In
on theTwo-Pillar Approach. With respect to both
pillars, the documentsincludenew details on the termsof typesof activitiescovered, theexclusions
proposedapproachesandidentifiedkey issuesunder for “extractives” and“regulatedfinancial services”
consideration and areaswheremorework isto be areconfirmed.
undertaken.
Nexus:
In October 2020, the OECD released detailed
reportson theBlueprintson Pillar Oneand Pillar A jurisdiction will generally qualify for anAmount
Two, an Economic Impact Assessment of the A allocation if aminimum level of EUR 1 million
Pillar Oneand Pillar Two proposalsand thenext in revenuesisachieved by an MNE (multinational
steps. enterpri ses) i n a gi ven market. For smal l er
jurisdictions(with aGDPbelow EUR 40 billion),
thisthreshold will bereduced to EUR 250k.
404 Ahmedabad Chartered Accountants Journal November, 2021
Quantum: BEPS 2.0 - Pr ogr ess on Pillar 1 & 2 Pr oposals
An important confirmation was included in the Compani es should not be bothered with the
statement on theshareof theresidual profits(i.e., Undertaxed Payment Rule (UTPR) in the initial
above10% PBT margin) that will bere-allocated phaseof their international activities. Namely, the
tomarket jurisdictionsunderAmountA. Following Statement now providesfor aUTPR“graceperiod”
an indication of 20%- 30%in the1stJulystatement, of 5 years if an MNE has tangible assets of max.
thecurrent versionconfirmsaprecisevalueof 25%. EUR50mabroadandif that groupdoesnot operate
in morethan 5 other jurisdictions.
Tax basedetermination:
Detailsof thesubstancebased carve-outsaremore
It isconfirmed that themeasureof profit or lossof specific and slightly moregenerous, with aninitial
thein-scopeMNE will bedetermined by reference mark-up on tangible assets of 8% and of 10% on
to “financial accounting income, with a small payroll, both declining to 5% over aperiod of 10
number of adjustments.” years.
Safehar bour : Whilethe OECD in its July 2021 Statement only
alluded to such exclusions being available, the
Thestatement reconfirmstheneed for amarketing October Statement now makes it clear that the
and distribution profitssafeharbour in connection GloBE rulesshall not apply for thosejurisdictions
withAmount A calculation, with further work on where the MNE has a minimal presence, namely
itsdesign still ongoing. revenuesof lessthan EUR 10m and profitsof less
than EUR 1m.
Timeline:
Theapplication of theSubject toTax Rule(STTR)
A new Multilateral Convention is intended to be hasbeen restricted to doubletax treatiesbetween a
developed and opened for signaturein 2022 with developing country and acountry with a nominal
the intention of removing unilateral “all Digital corporate i ncome tax rate l ower than 9%
ServicesTaxesandother relevant similar measures” (previously 7.5% to 9%).
and facilitating theimplementation of Amount A.
ThemodelrulestobedevelopedforPillar2will
Thetechnical analysisand publication of specific addresstheneed for theswitch over rule, in certain
parametersforAmount B, coveringminimumtarget treatiesand in circumstances wheretheexemption
profitability levels for routine distribution and method would apply.
marketi ng acti vi ti es wi thi n M NEs, shal l
becompleted by theend of 2022. hhh
Updates included in the October Statement –
Pillar 2
Theminimum tax rate for the GloBE rules isnow
firmly expressed asbeing 15% rather than ‘at least
15%’
Ahmedabad Chartered Accountants Journal November, 2021 405
FEMA CA. Savan Godiawala
Updates [email protected]
Devel opments in I ndia’s Balance of as agai nst outfl ow of US$ 0.5 bi l l ion i n
Q1:2020-21.
14 Payments dur ing the Fir st Quar ter
(Apr il-June) of 2021-22 · Net foreign portfolio investment was US$ 0.4
billion as compared with US$ 0.6 billion in
Preliminary data on India’s balance of payments Q1:2020-21.
(BoP) for the first quarter (Q1), i.e., April-June
2021-22. Key Featuresof India’sBoPin Q1:2021- · Net external commercial borrowings to India
22 was presented by the Reserve Bank of India recorded inflow of US$ 0.5 billion in Q1:2021-
(RBI). 22 as against an outflow of US$ 0.6 billion a
year ago.
Key Featuresof I ndia’sBoP in Q1:2021-2:
· Net inflow on account of non-resident deposits
· India’s current account balance recorded a decreased to US$ 2.5 billion from US$ 3.0
surplusof US$6.5 billion(0.9 per cent of GDP) billion in Q1:2020-21.
in Q1:2021-22 as against a deficit of US$ 8.1
billion (1.0 per cent of GDP) inQ4:2020-21 and · There was an accretion of US$ 31.9 billion to
a surplus of US$ 19.1 billion (3.7 per cent of theforeign exchangereserves(on aBoPbasis)
GDP) ayear ago [i.e. Q1:2020-21]. as compared with that of US$ 19.8 billion in
Q1:2020-21
· Thesurplusin thecurrent account in Q1:2021-
22 was primarily on account of contraction in Sour ce:Press Rel ease: 2021-2022/960, dated
thetrade deficit to US$ 30.7 billion from US$ September 30, 2021
41.7 billion in the preceding quarter, and an
increasein net servicesreceipts. For ful l text r efer :https://rbi .org.in/scripts/
FS_PressRel ease.aspx?prid=52324& fn=5
· Net servicesreceiptsincreased,bothsequentially
and on ayear-on-year (y-o-y) basis, on theback 15 I ndi a’s I nter nati onal I nvestment
of robust performanceof net exportsof computer Position (I I P), June2021
and businessservices.
TheReserveBank released datarelating to India’s
· Private transfer receipts, mainly representing International Investment Positionat end-June2021.
remittances by Indians employed overseas,
amounted to US$ 20.9 billion, an increase of Key Featuresof I ndia’sI I P in June2021:
14.8 per cent from their level ayear ago.
· Net claims of non-residents on India declined
· Net outgo from the primary income account, by US$ 24.3 billion duringApril-June2021 to
mainly reflectingnet overseasinvestment income US$ 327.0 billion asat end-June2021.
payments, decreased sequentially aswell ason
ay-o-y basis. · Reserveassetsaccounted for 95 per cent of the
increaseof US$ 35.9 billion in Indianresidents’
· In the financial account, net foreign direct overseasfinancial assetsduring thequarter.
investment recorded inflow of US$ 11.9 billion
Continued to page418
406 Ahmedabad Chartered Accountants Journal November, 2021
GST and VAT CA. Bihar i B. Shah CA. Vishr ut R. Shah
Judgments [email protected] [email protected]
and Updates
of pre-deposit at thetimeof filingof theappeal.
[I] I mpor tant Case L aws: (Supr eme Cour t/ Therefore, theCourt found no meritsand writ
High Courts) petition wasliableto bedismissed.
[1] Issue: [2] Issue:
Pr e-deposit for filing appeal under GST to SEZ unit is eligi ble to claim r efund of
be paid thr ough cash ledger and not fr om unutilized I nput Tax Credit: M adr asHC:
cr edit ledger : Or issa High Cour t:
Case L aws:
Case L aws:
Pl ati num H ol di ngs Pvt . L td. v. Addl .
Jyoti Constr uction vs. Dy. Commissioner of Commissioner of GST & Centr al Excise
CT & GST [2021] 131 taxmann.com 104 [2021] 131 taxmann.com.142 (Mad)
(Or issa)
Facts:
Facts:
Thepetitioner wasaSpecial Economic Zone
ThePetitioner wasaPartnership Firm engaged (SEZ) and made purchases from several
in thebusinessof execution of workscontract suppliers/vendorsfor thedevelopment of the
including civil, electrical andmechanical . The SEZ.Thepetitioner filedapplicationsfor refund
Additional Commissioner rejected theappeal of thetaxesand it washeld that thepetitioner
filed by thepetitioner holding that theappeals was not entitled to the refund on the ground
filed were defective. Hewas of the view that that only asupplier of serviceswouldbeentitled
the petitioner had made payment of the pre- to claim refund and not theSEZ itself. It filed
deposit being 10% of the disputed amount appeal and the appeal was also rejected. The
under theIGST, CGST and SGST by debiting petitioner filed writ petition.
itselectroniccredit ledger.IT didnot pay it from
the electronic cash ledger and this was in Decision:
contravention of Section 49(3) of GST Act,
2017. ThePetitioner filedwrit petitionagainst The Honourable High Court observed that
thesame. Section 54 of theGST Act read with Rule 89
of CGST Rules permits any entity to seek a
Decision: refund of taxes or other amounts paid under
provisionsof theAct. Theonly exclusion isof
The Hon’ble High Court observed that the theperson covered under anotification issued
Output Tax asdefined under section 2(82) of under section55,admittedly inapplicabletothe
GST Act could not beequated to pre-deposit petitioner. Therefore it was held that the
required to bemadein termsof section 107(6) application filed for refund of taxespaid under
of GST Act. The petitioner was required to Act would be maintainable if it would be
make payment equivalent to 10% of the established that no such claim hasbeen made
disputed amount of tax arising from theorder by supplier and tax has been remitted to
against which theappeal wasfiled. Thecredit treasury. Thus, theauthority would beentitled
ledger cannot bedebited for making payment
Ahmedabad Chartered Accountants Journal November, 2021 407
GST and VAT - Judgements and Updates [h] to providefor thecost of thispetition;
to seek and obtain all information or any It appearsfrom thematerialson recordthat the
relevant documentary evidencein support of writ applicant is engaged in the business of
theclaim. trading of pan masalaand isregistered under
the Provisi ons of the Central Goods and
[3] Issue: Services Tax Act, 2017 (‘the Act’for short).
The writ applicant had placed an order with
Show Cause Notice for Confiscation of oneM/s.AtharvaEnterprises, Ujjain. Madhya
Goods or Conveyances u/s. 130 can’t be Pradesh f or the suppl y of pan masal a
issued on mer e suspicion. (Guj ar at High amounting to Rs. 35,74,155/- Thesaid goods
Cour t) were to be transported from Ujjain, Madhya
Pradesh on 8th Sept. 2020 in avehiclebearing
Case L aws: No. MP-13-GA-9108andwereto bedelivered
at Ahmedabad, Gujarat.
M /s. Nakoda and Company (Pr op. Shr i
Anant Jignesh Shah) v. TheUnion of I ndia It isnot indisputethat theE-Way bill generated
(Thr ough theUnder Secretary & 2 Others). was valid for the period between 08.09.2020
to 13.09.2020. On 12th Sept. 2020, thevehicle
Facts: carrying thegoodscameto beintercepted by
themobilesquad of therespondent No. 2. On
By this writ application under Article 226 of 13th Sept. 2020, the respondent No.2 passed
theConstitutionof India, thewrit applicant has an order of detention under section 129(1) of
prayed for thefollowing relief. the Act in Form GST MOV-06. Thereafter,
noticein Form GST MOV-10 dated 15th Sept.
[a] to quash and set aside the Order and 2020 cameto beissued.
Detention under section 129(1) if the
CGST Act dated 13.09.2020 (Annexure- Being dissatisfied with the issue of notice in
A) issued by theRespondent No.2; Form GST MOV-10 referred to above, thewrit
applicant has come up with the present writ
[b] to quash and set aside the Show Cause application.
Notice under section 130 of the CGST
dated 15.09.2020 (Annexure-A1) issued The Hon. Court has heard the learned senior
by theRespondent No.2; Counsel assistedby learnedcounsel for thewrit
applicant and learned Assistant Government
[c] pending theadmission, hearing and final Pleader appearing for therespondent State.
disposal of thi s petiti on, to stay the
implementationandoperationof theOrder Theshow causenoticein Form GST MOVE-
of Detention under section 129(1) of the 10issuedby theStatetalksabout thefollowing
CGST Act at Annexure-A to thispetition; contraventions.
[d] pending theadmission, hearing and final ‘For sel l i ng goods to trader Nakoda &
disposal of thi s petiti on, to stay the Company, Ahmedabad, havi ng offi ce at
implementationandoperationof theShow Shahi baug, Ahmedabad, Guj arat havi ng
Cause Notice under section 130 of the GSTIN No. 24BQDPS09883, trader Atharva
CGST Act atAnnexure-A1tothispetition; Enterprise17, Shriram Colony,YantraMahal
M arg, Uj j ai n havi ng GSTI N No.
[e] direct theRespondent No. 3 to releasethe 23BKFPS2904B2ZM had generated E-Way
Conveyanceof petitioner; Bi l l No. 631216432684 on 08.09.2020.
Thereafter on 09.09.2020, they had gone to
[f] direct theRespondent No. 3 to releasethe
Goods worth Rs/ 35,74,155/- along with
theconveyance;
[g] any other andfurther relief deemedjust and
proper begrantedin theinterest of justice;
408 Ahmedabad Chartered Accountants Journal November, 2021
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