Journal June 2022

Ahmedabad Chartered Accountants Journal

E-mail : [email protected] Website : www.caa-ahm.org - caaahmedabad

Volume : 46 Part : 02 May, 2022

CONTENTS

To Begin with

- Art of Leaving.................................................................. CA. Nirav Choksi......................... 67

Editorial ............................................................................................CA. Rutvij P. Shah...........................68
From the President............................................................................ CA. Monish Shah............................69

Articles

Filing of Updated Return - All that Glitters is not Gold........................CA. Manthan Khokhani................70

Income vs. Capital Receipt under Income Tax Act, 1961...................... CA. Jay Sharma...........................74

Section 194R : TDS on benefits or perquisite.......................................CA. Akshat Vithlani.........................79

Direct Taxes

Glimpses of Supreme Court Rulings....................................................Adv. Samir N. Divatia....................82
From the Courts.................................................................................. CA. Jayesh Sharedalal................. 84
Tribunal News.....................................................................................CA. Yogesh G. Shah &

CA. Aparna Parelkar.................... 87
Unreported Judgements...................................................................... CA. Sanjay R. Shah......................93
Controversies.......................................................................................CA. Kaushik D. Shah....................95
Judicial Analysis.................................................................................. Adv. Tushar Hemani......................97

FEMA & International Taxation

Update on Recent Case Laws – International Taxation and .............. CA. Dhinal A. Shah &

Transfer Pricing CA. Karan Sukhramani...............106

FEMA Updates....................................................................................CA. Savan Godiawala..................108

Indirect Taxes

GST and VAT Judgments and Updates................................................ CA. Bihari B. Shah &
CA. Vishrut R. Shah.....................110

Corporate Law & Others

Corporate Law Update....................................................................... CA. Naveen Mandovara................113
GujRERA Corner..................................................................................CA. Manan Doshi.........................116
Allied Laws Corner............................................................................. Adv. Ankit Talsania.......................119
Capital Markets.................................................................................. CA. Karan P. Vora........................122

From Published Accounts ................................................................ CA. Pamil H. Shah..................... 127

From the Government ......................................................................CA Ashwin H. Shah &
CA. Kunal A. Shah........................129

IT Corner...........................................................................................CA. Rushabh Shah..................... 131

Association News.............................................................................. CA. Rushabh Shah &
CA. Jay Parekh............................133

ACAJ Crossword Contest......................................................................................................................140

Ahmedabad Chartered Accountants Journal May, 2022 65

CA. Rutvij Shah Journal Committee CA. Ashish Sharma
Chairman Members Convenor

CA Uday Shah CA Jayesh Sharedalal
EC Representative Past President

CA. Monish Shah CA. Riken Patel
CA. Ashok Kataria CA. Pratik Kikani

CA. Nirav Shah CA. Pratik Jain

Attention

Members / Subscribers / Authors / Contributors

1. Journals are carefully posted. If not received, you are requested to write to the Association's Office within one

month. A copy of the Journal would be sent, if extra copies are available.

2. You are requested to intimate change of address to the Association's Office.
3. Subscription for the financial year 2022-23 is ` 1500/-, single copy ` 150/- (if available).

4. Please mention your membership number in all your correspondence.

5. While sending Articles for this Journal, please confirm that the same are not published / not even meant for

publishing elsewhere. No correspondence will be made in respect of Articles not accepted for publication, nor

will they be sent back.

6. The opinions, views, statements, results published in this Journal are of the respective authors / contributors

and Chartered Accountants Association, Ahmedabad is neither responsible for the same nor does it necessarily

concur with the authors / contributors.

7. Life Membership/Annual Membership and Other Fees F. Y. 2022-23 Amount in `

Basic GST Total
90 590
1. Admission Fees 500
- 600
2. Annual Membership Fees - 750

a. If Paid Prior to june 30 of each financial year : - 720
- 900
i. In case of membership (of ICAI) for a period of less than or equal to five years 600
720 4720
ii. In case of membership of (ICAI) for a period more than five years, 750 1350 8850

b. If paid after june 30 of each financial year : 144 944
180 1180
i. In case of membership (of ICAI) for a period of less than or equal to five years, 720 360 2360

ii. In case of membership of (ICAI) for a period of more than five years 900

3. Life Membership Fees
i. In case of membership (of ICAI) for a period of less than or equal to five years 4000

ii. In case of membership of (ICAI) for a period more than five years 7500

4. Brain Trust Membership Fees
a. Individual Membership Fees
i. In case of membership (of ICAI) for a period of less than or equal to five years 800

ii. In case of membership of (ICAI) for a period more than five years 1000
b. Flexi Firm/Corporate Membership Fees*** 2000

*** Registered Firm/Corporate can nominate any two participants from their firm for each Brain Trust Meeting. Additional
Representatives can be nominated @1000/- plus GST per participant subject to maximum of 20 participant per firm

Professional Awards

The best articles published in this Journal in the categories of 'Direct Taxes', 'Company Law and Auditing' and 'Allied
Laws and Others' will be awarded the Trophies/ Certificates of Appreciation after being vetted by experts in the
profession. Articles and reading literatures are invited from members as well as from other professional colleagues.

Published By

CA. Rutvij P. Shah, on behalf of Chartered Accountants Association, 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
in writing from the Chartered Accountants Association, Ahmedabad.
While every effort has been made to ensure accuracy of information contained in this Journal, the Publisher is
not responsible for any error that may have arisen.

Printed : Pratiksha Printer, Ahmedabad Mobile : 98252 62512 E-mail : [email protected]

6 6 Ahmedabad Chartered Accountants Journal May, 2022

ART OF LEAVING

A video of Late Shri Arun Jaitley speaking in CA. Nirav Choksi
the Parliament is doing the rounds on [email protected]
whatsapp these days. He was referring to the
trend of retired High Court and Supreme Court achievements, which we have enjoyed at some
judges self-appointing themselves on various point of time in our lives.
committees or departments after their
retirement. The majority of these posts were It’s easier said than done. If you have been in
not related to their area of work. He raised a limelight for a major part of your life and
pertinent question in my mind, are we ready suddenly the scenario changes, it is very
to LEAVE?. difficult for a human being to accept the
change. The worst part is that the change is
This is just an instance which has been very immediate and the outlook of general
debated upon in that video, but if we think people towards you also changes abruptly.
and introspect, this is applicable to all of us. And in majority of the cases the outlook goes
A businessman, not ready to hand over the negative. But that is not in our hands as to
reigns of his business to the next generation. how people behave with us. What best we can
A politician not willing to see anyone else in do is prepare ourselves for this change.
the chair which he has once occupied. Leaving cannot be compared with
Consistent efforts being made by him to abandoning. We must not abandon our
continue to be in power, either directly or responsibilities towards the family and
through his nominees. A government officer society. But we must inculcate the culture of
not ready to accept the fact that he is no longer transmission of powers and responsibility so
the boss who once was the center of all that the coming generation does not get awed
important or major events happening in his when suddenly the powers and responsibility
department. A sportsman or an actor who once come to them. Remember the fact that expiry
was a darling of crores is now a nobody. All date of our life is not ascertained but there is
these instances are emanating from the fact every certainty of the event to come.
that WE ARE NOT READY TO LEAVE?. We
are not ready to leave the Power, Fame, Glory, Let us all decide to LEAVE proactively and
Position, Control and similar delusional LIVE peacefully.

❉❉❉

Ahmedabad Chartered Accountants Journal May, 2022 67

Editorial

CA. Rutvij Shah
[email protected]

April and May are months of Vacations. In today’s stressful life, vacations have become very
important. It rejuvenates us and gives us time to rest, relax and recharge. It helps us to prevent
burnouts and improves our mental and physical wellbeing. A person who comes back from
vacations shows improved productivity and focus on work.

Apart from this, vacations have certain hidden benefits also. In today’s busy life, we are always
playing catch up with various statutory deadlines and commitments. Many a times we find it
hard to attend to family gatherings and miss out on opportunities of family bonding. Therefore,
it is very important to spend time with someone you love. Vacations provide this quality family
time. It allows us to unplug from our busy work schedules and spend quality time with our
loved ones. It makes family relationship strong.

In earlier times vacations were the times to visit Mama, Kaka, Masi and Foifor kids. They were
great family fun times. In today’s time, things have changed. However, importance of vacation
has not diminished one bit. There are many opportunities for kids to take part in adventure
camps and trekking activities. It provides a great platform for them to improve their social
skills and gives them valuable experience.

April and May months are relatively easy for us professionally. There are not many statutory
deadlines or work which requires our urgent attention in these months. We can utilize this
month to prepare our office for upcoming busy season. We can refresh ourselves with new
provisions of law, update our checklists and work SOPs. We can also look into our own
accounting, finances and billing aspects. All these will help us to be ready and prepared for
upcoming season.

A new team has taken charge at the helm of our association. I would like to congratulate new
office bearers of our Association led by President CA. Sarju Mehta, Vice President CA. Shivang
Choksi and Hon. Secretaries CA. Jay Parekh and CA. Mayur Modha. I also wish them a very
successful and fulfilling tenure.

Recently our association held an essay competition in the memory of Late Shri C.R. Sharedalal.
The competition was open for junior members of our association and topic was Income vs.
Capital Receipt under Income Tax Act, 1961. CA. Jay Sharma was awarded first prize in this
competition. This article is published in this issue of our journal.

❉❉❉

6 8 Ahmedabad Chartered Accountants Journal May, 2022

From the CA. Sarju Mehta
President [email protected]

Dear Members,

Hope all of you and your loved ones are safe and in pink of health.

It gives me immense pleasure to write this message as the 66th President of our Association. I
will faithfully execute the office of the President to the best of my ability and will preserve,
protect and defend the bye laws of this august Association and that I will devote myself to the
service and wellbeing of the members of our Association.

The torch bearers change but the show must go on. I and my team consisting of CA Shivang
Chokshi (Hon. Vice President), CA Jay Parekh and CA Mayur Modha (Hon. Secretary) will
ensure that the activity of the Association will be carried on without any breaks. The year has
started with a great publication in form of Schedule III Reporting and the book has received
tremendous response across the State of Gujarat. In the coming months, we will ensure that all
the meetings related to amendments specifically related to Companies Act, Income Tax, GST
and Trust will be arranged.

I am happy to inform that the First Brain Trust Meeting is scheduled on 18th June, 2022 and
RRC to Udaipur is also launched for 23, 24 and 25th June, 2022.

Along with the programs, we are also working on getting technologically advanced with
association using all forms of Social Media to stay in touch with the members. Our website
needs to be updated to the current needs which is to perform as a data centre and also cater to
various professional information being available for members. We would be carrying out the
updation soon and the committee for the same will ensure proper updation.

I on behalf of my team and myself would like to thank you all for trusting me with the
opportunity in serving the noble profession. I shall try my best to serve to the need of all of
you and also ensure you that me and my team will be available 24 x 7 and will also ensure that
the Association will be happy to serve any need of its members.

CA SARJU MEHTA

❉❉❉

Ahmedabad Chartered Accountants Journal May, 2022 69

Filing of Updated Return - All
that Glitters is not Gold

Preface CA. Manthan Khokhani
[email protected]
The Finance Act 2022 has amended the provisions
of Section 139 of the Income-tax Act, 1961 (“The The speech of the Finance Minister while
Act”) dealing with filing of returns, to insert a new introducing the provisions read as under:
sub-section (8A) so as to allow the taxpayers to file
an “updated return of income”. 121. India is growing at an accelerated pace and
people are undertaking multiple financial
Presently, the Income-tax Act allows taxpayers to transactions. The Income Tax Department has
file their original return of income within the due established a robust framework of reporting
date as specified under the Act. In case, the original of taxpayers’ transactions. In this context,
return cannot be filed within the time specified, the some taxpayers may realize that they have
taxpayers still have an option to file a belated return committed omissions or mistakes in correctly
of income. Further in case of errors or omissions in estimating their income for tax payment. To
the original return of income, the taxpayers are even provide an opportunity to correct such errors,
allowed to file a revised or rectified return of income. I am proposing a new provision permitting
However, time limit available to taxpayers to file a taxpayers to file an Updated Return on
revised or belated return ranges from one month to payment of additional tax. This updated return
five months only depending on whether they are can be filed within two years from the end of
covered under audit or not. Therefore, the Finance the relevant assessment year.
Act 2022 seeks to provide one more opportunity to
the taxpayers to disclose any additional income 122. Presently, if the department finds out that some
which they might have missed to report by way of income has been missed out by the assessee,
filing an updated return. However, unlike a belated it goes through a lengthy process of
or revised return, filing of an updated return comes adjudication. Instead, with this proposal now,
with certain riders and involves an additional cost there will be a trust reposed in the taxpayers
to the taxpayers. that will enable the assessee herself to declare
the income that she may have missed out
The Memorandum explaining the provisions of the earlier while filing her return. Full details of
Finance Bill, 2022 reads out the following as the the proposal are given in the Finance Bill. It
basic understanding of win-win both for the revenue is an affirmative step in the direction of
and the taxpayers: voluntary tax compliance.”

“The proposal for updated return over a period Basically, this may be treated as the Department’s
longer than that is provided in the existing provisions way of asking the taxpayers to disclose any
of Income-tax Act would on the one hand bring additional income which they might have missed
use of huge data with the IT Department to a logical out rather than waiting for a notice of reassessment
conclusion resulting in additional revenue u/s. 148 which might be on the way considering
realisation and on the other hand, it will facilitate the data mining done by the department.
ease of compliance to the taxpayer in a litigation
free environment.” Time limit for filing of updated return

Updated return can be filed by the taxpayers within
a period of twenty four (24) months from the end
of the relevant assessment year. Filing of the

7 0 Ahmedabad Chartered Accountants Journal May, 2022

Filing of Updated Return - All that Glitters is not Gold

updated return can be undertaken irrespective of requisitioned u/s. 132 or 132A in case of any
the fact as to whether the original or belated return other person belongs the said person.
has been filed by the assessee or not.
4. A person in whose case a notice has been
Form for filing of the updated return issued to the effect that any books of accounts
or documents seized or requisitioned u/s. 132
Vide notification No. 48/2022 dated 29th April, or 132A pertains to or information contained
2022, the CBDT has inserted a new Rule 12AC to therein belongs to or relates to such person.
provide for a new ITR U form in order to file an
updated return of income by the specified class of When the provisions of this section were initially
assessees. introduced by the Finance Bill, 2022, the aforesaid
categories of persons were barred from filing an
Restrictions on filing of updated return updated return for the two assessment years
preceding the assessment year relevant to the year
First Proviso to Section 139(8A) spells out certain of search or survey or requisition. However, when
circumstances under which an updated return cannot the Finance Bill was tabled in the Lok Sabha it was
be filed. Accordingly, an updated return cannot be amended so as to provide that such categories of
filed if: taxpayers will not be allowed to file an updated
return for any of the preceding assessment years.
1. The updated return is a return of loss; or
Lastly, the third Proviso to Section 139(8A)
2. The updated return has the effect of decreasing specifies certain circumstances under which an
the total tax liability of the taxpayer already updated return cannot be filed.
determined in the original or revised or belated
return filed by the assessee; or 1. Where the assessee has already filed an updated
return once, he is not allowed to file an updated
3. The updated return results in refund or increases return again for the same assessment year.
the refund due on the basis of the original or
revised or belated return filed by the assessee. 2. Where any proceeding for assessment or re-
assessment or re-computation or revision is
Simply put, if the updated return is not favourable pending or has been completed for the relevant
to the revenue, the taxpayers will not be allowed to assessment year.
file an updated return.
3. Where the assessing officer has in his
Though the provisions of Section 139(8A) allows possession, information in respect of the
“Any Person” to file an updated return, the same is taxpayer under the Smugglers and Foreign
subject to the second proviso to the said section Exchange Manipulators Act, 1976 of
which disqualifies certain class of taxpayers from Prohibition of the Benami Property
filing an updated return. Accordingly, the following Transactions Act, 1988 or the Prevention of
class of taxpayers are barred from taking a benefit Money Laundering Act, 2002 or the Black
of the provisions of Section 139(8A) Money Act, 2015 and the same has been
communicated to the taxpayer.
1. A person in whose case a search has been
initiated u/s. 132 or books of accounts or other 4. Where information for the relevant assessment
documents or assets are requisitioned u/s. 132A year has been received under an agreement
of the Act. referred to in Section 90 or Section 90A in
respect of the assessee and the same has been
2. A person in whose case a survey has been communicated to him.
conducted u/s. 133A of the Act except for
survey in respect of TDS/TCS. 5. Where prosecution proceedings under Chapter
XXII have been initiated for the relevant
3. A person in whose case a notice has been assessment year
issued to the effect that any money, bullion,
jewellery or valuable article or thing seized or

Ahmedabad Chartered Accountants Journal May, 2022 71

Filing of Updated Return - All that Glitters is not Gold

6. The assessee is a person who belongs to the It has also been clarified that for the purpose of
class of persons as may be notified by the Board computation of “additional income-tax”, surcharge
in this regard. and cess on tax shall also be included.

Payment of additional tax Illustration

Apart from the tax on the income disclosed in the Mr. A is having only salary income on which the
updated return and consequential interest and late tax payable comes to say Rs. 100,000. However,
fees, the taxpayers will be required to pay Mr. A failed to file the original as well as belated
‘additional tax’ before filing the updated return. return. Now, if Mr. A wishes to file an updated
return within 12 months from the end of the relevant
The additional tax will be 25% of the ‘additional Assessment Year, the calculation of additional tax
tax dues’ if the updated return is filed within 12 payable will be as under:
months from the end of relevant assessment year
and 50% of the ‘additional tax dues’ if the updated Particulars Amount (Rs.)
return is filed beyond 12 months but before 24
months from the end of the relevant assessment Tax payable 100,000
year.
Health & Education Cess 4,000

The assessees will be liable to pay additional tax Interest u/s. 234A, 234B 18,320
@ 25% / 50% as the case may be, if additional tax and 234C
is payable at the time of filing of the updated return,
after considering the following: Penalty u/s. 234F 10,000

Tax payable 132,320

Where original Where original return has Additional tax 33,080
return has not been filed (25% of the above)
been filed

Advance tax Self Assessment tax (Credit Total tax payable 165,400
of which has been claimed
in the earlier return) Amendment to Section 139(9)

Tax Deducted at Tax Deducted at Source The provisions of Section 139(9) of the Act have
also been amended to provide that updated return
Source (which has not been claimed filed u/s. 139(8A) shall be treated as defective if
the updated return is not accompanied by proof of
in the earlier return) payment of the additional tax, interest and fees etc.
payable in the manner prescribed under the Act.
Relief of tax u/s. Relief of tax u/s. 90 or 91 or
89 or 90 or 91 90A on such income which Issues in filing of updated return
or 90A has not been included in the
earlier return
1. No tax is payable despite increase in the
Tax credit u/s. Tax Credit u/s. 115JAA or taxable income
115JAA or 115JD which has not been Mr. A is having a total income of Rs. 240,000.
115JD claimed in the earlier return He had filed the original return u/s. 139(1) of
the Act declaring the same. Now Mr. A wishes
Further, in case the original return has already been to disclose an additional income of Rs.
filed by the taxpayer, the interest already paid at 180,000. After considering the additional
the time of filing of the original return will be income of Rs. 180,000 the tax payable will still
allowed to be reduced while computing the be Rs. Nil since the income is less than Rs.
additional tax payable. Further the additional tax 500,000 and the Mr. A will be eligible to claim
payable, computed in the manner prescribed above rebate of tax u/s. 87A. Whether Mr. A can file
shall be increased by refund, if any, already issued an updated return?
to the taxpayer.

7 2 Ahmedabad Chartered Accountants Journal May, 2022

Filing of Updated Return - All that Glitters is not Gold

In these circumstances, a strict interpretation A wishes to file an updated return. Whether
of the provisions of Section 139(8A) would credit of Rs. 100,000 will be available to Mr.
entitle Mr. A to file the updated return since it A while calculating the additional income tax
is payable?

a. Neither a return of loss Interpretation of the provisions of Section 140B
reveals that where return of income was not
b. Nor results in decrease of tax liability filed by the assessee, he is entitled to a credit of
advance tax, TDS and relief under specified
c. Nor results in refund or increase in the sections. However, the amount of Rs. 100,000
refund of tax already claimed paid by Mr. A is not an advance tax since it
was paid after the end of the financial year.
Accordingly, though the intention of the Neither the same is TDS nor a relief under the
legislature is to allow filing of updated returns specified provisions.
only in case of payment of additional income
tax, such a situation has yet not been excluded Accordingly in the Author’s humble view, due
from the category of omissions. to an anomaly in the said provisions, Mr. A
would be disentitled from claiming credit of
2. Penalty u/s. 270A the said payment of Rs. 100,000 while
calculating the additional tax payable.
Though the Income-tax Department is
encouraging the taxpayers to take the benefit 5. Whether receipt of intimation u/s. 143(1) of
of filing an updated return, there is no the Act would tantamount to assessment or
corresponding amendment to the provisions of initiation of assessment and thereby barring
Section 270A dealing with levy of penalty for taxpayers from filing of an updated return?
under reporting or mis reporting of income.
In a plethora of decisions, it has been clearly
3. Filing of updated return if it results in held that intimation received u/s. 143(1), though
increase of MAT Credit appealable, is not an order of assessment.
Accordingly, mere receipt of an intimation u/s.
Clause (b) and (c) of the first proviso to section 143(1) cannot be termed as barring the assessee
139(8A) provides that updated return cannot from claiming the benefit of filing an updated
be filed if it has the effect of decreasing the tax return.
liability on the basis of return already filed.
However, if the updated return results in 6. Can updated return be updated?
increase in the MAT Credit already claimed
there is no omission that is expressly provided. The provisions of Section 139(8A) provides a
For instance, if a company had filed the original one time opportunity to the taxpayers to file an
income tax return upon payment of MAT and updated return. Updated returns once filed
now intends to reduce the normal income and cannot be revised or updated in any manner.
resultantly reduce the normal income tax
payable, it would result in large MAT Credit Conclusion
for the company.
The Finance Minister raised the hopes of taxpayers
4. Whether credit of tax paid by the assessee while introducing the Updated Return in her Budget
is available while computing the additional speech. However, as the old saying goes, ‘all that
tax payable, if return of income was not glitters is not gold’. The taxpayers have to carefully
filed? evaluate the pros and cons of filing an Updated
Return, on a case-to-case basis, to ensure they get
For instance, Mr. A had paid tax of Rs. 100,000 benefit in return.
for the A.Y. 2021-22 on 05th April, 2021.
However, Mr. A failed to file the original as ❉❉❉
well as the belated return of income. Now, Mr.

Ahmedabad Chartered Accountants Journal May, 2022 73

Income vs. Capital Receipt CA. Jay Sharma
under Income Tax Act, 1961 [email protected]

A brief history of taxation in India down under the Act. The Act has made elaborate
provisions for classification of incomes under
“It was only for the good of his subjects that he various heads and deductions permissible under
collected taxes from them, just as the Sun draws each head. Income is chargeable to tax on the basis
moisture from the Earth to give it back a thousand of either receipt or deemed receipt or accrues or
fold” – as Kalidas described in Raghuvansham arises or deemed to accrue or deemed to arise in
acclaiming KING DILIP. India during the previous year relevant to
assessment year. But, what is income has not been
Taxes are defined as ‘compulsory charges levied defined and the Act provides an inclusive definition
by a government for the purpose of financing which has vide connotations.
services performed for the common benefit’.
Taxation is always an integrated part of every Income and its attributes
system of governance in India viz. monarchy,
republic and modern democratic system. Taxation The definition of the term ‘income’ in section 2(24)
is found in ancient India as it described by anusmriti is an inclusive. Therefore, the term ‘income’ not
and Arthasastra. Present Indian tax system is based only includes those things which are included in
on ancient tax system which believed in maximum section 2(24), but also includes such things which
social welfare. There was a very general consensus term signifies according to its general and natural
in ancient India that tax should be in such manner meaning. Therefore, before discussing the definition
as nobody feel to hurt. In this regard, Chanakya, of income given under section 2(24), it is imperative
in very smart way, quoted the example of the honey to understand the meaning of ‘income’as generally.
bee, saying that “the king should gather the tax
from the state in the manner as the bees collects Entry 82 of List 1 of the Seventh Schedule to the
honey without hurting the flower. ”Kautilya’s Constitution empowers Parliament to levy “taxes
concept of taxation also emphasized on two basic on income other than agricultural income”. Entries
cannon of taxation i.e. equity and justice. in the lists in Seventh Schedule to the constitution
should not be read in a narrow or restricted manner.1
Constitution of India has already been provided the It is therefore, follows that in addition to receipts
provision of taxes, which could be levied by mentioned in section 2(24), any other receipt is
authority as article 265 states that no tax shall be taxable under the Act, if it comes within the general
levied or collected except by the authority of law. and natural meaning of the term ‘income’.
Identically, Central Government has the power According to the Shorter Oxford English
to levy tax on income, other than agricultural Dictionary, “income” means “that which comes in
income, as specified by Entry 82 of List 1 of as the periodical product of one’s week, business,
Constitution of India. The Central Government lands or investments and annual or periodical
has enacted the Income Tax Act, 1961 (“the Act”). receipts accruing to a person or a corporation.”
Income Tax is a charge on income of a person, Income connotes a periodical monetary return
earned during the previous year, at the rate(s) ‘coming in’ with some sort of regularity or expected
specified in the relevant Finance Act. Income of an regularity from definite sources. The source is not
assessse has to be computed in the manner laid necessarily one which is expected to be

7 4 Ahmedabad Chartered Accountants Journal May, 2022

Income vs. Capital Receipt under Income Tax Act, 1961

continuously productive, but it must be one whose total income of any previous year of a person who
object is the production of a definite return excluding is resident, includes all income from whatever
anything in the nature of a mere windfall.2 source derived, and shall be taxable. Thus, sections
4 and 5 imposes general liability to tax upon all
The expression “income” includes not merely what income but the Act does not provide that whatever
is received or what comes in by exploiting use of a is received by the person must be regarded as
property but also what once saves by using it by income liable to tax.5 No tax can be levied on the
oneself and also which can be converted into future potentiality of earning any income. Income
income. The word income is of the widest amplitude tax is concerned with real income which accrues
and it must be given its natural and grammatical or arises to a person and not with future possibility
meaning.3 The word ‘income’ used in the Act is of an income from the use of any money available
wide and vague in its scope. It is a word of elastic with the assesseee.
import. All receipts by an assesseee cannot
necessarily be deemed to be the income of the Though there are different concepts of ‘income’ for
assessee for the purpose of the Act and whether the purpose of taxation, income is broadly defined
any particular receipt is income or not completely at the true increase in the amount of wealth which
depends upon the nature of the receipt. The income comes to a person during a stated period of time. It
tax authorities cannot assess all receipts and they is immaterial whether income is received in cash or
could assess only those receipts falls into term kind, if it is in kind, its valuation is to be made
‘income’. according to the rules prescribed in the Income Tax
Rules. If there is no prescribed rule, valuation thereof
One of the characteristics of the term ‘income’ is is made on the basis of market value. Further,
the power or complete control over its disposal. If Income tax law does not make any distinction
restraints were placed over legitimate or legal between income accrued or arisen from a legal
spending of the income, it loses the character of source and income tainted with illegality. However,
income. Income which is not available for instant it is a fundamental rule of law of taxation that, unless
use takes away essential characteristic of income otherwise expressly provide, the same income
and constrain placed over it prevents one to call it cannot be taxed twice. In the Act, there is no concept
as income. Income should have possessed the of deferred income meaning thereby, income on its
characteristic of being available either for revenue coming into existence attracts tax.
expenditure or to acquire a capital asset. It becomes
income only on the year in which and to the extent Revenue Receipt vs. Capital Receipt
to which the restrictions placed were removed and
the permission to spend the amount was granted Having understood general meaning of income, let
and by spending certain income if the assessee us understand kinds of receipts vis-à-vis revenue
acquires a capital assets then it can be legitimately receipts and capital receipts. As the Act does not
called as income in the year in the which such capital contain the terms “capital receipts” and “revenue
asset comes into existence.4 receipts”, one has to depend upon natural meaning
of the concepts as well as facts of the case.
In order to say a particular receipt is an income, it is Accordingly to Shorter Oxford English Dictionary,
essential that it should come within the definition the word “capital” means “accumulated wealth
of ‘income’. Section 4 of the Act imposes income employed reproductively” whereas the word
tax upon a person in respect to his income. It is true “revenue” means “the return, yield or profit of any
that every income is a receipt but in other way round lands, property or other important source of income
every receipt is an income is not true. The term that comes in to one as a return from the property
’income’ has been defined in section 2(24) of the or source”.
Act which includes profit and gains, value of
perquisites or profit in lieu of salary, etc. Section 5, A receipt on account of circulating capital is revenue
defining the scope of total income, says that the receipt, whereas a receipt on account of fixed capital

Ahmedabad Chartered Accountants Journal May, 2022 75

Income vs. Capital Receipt under Income Tax Act, 1961

is capital receipt. Fixed capital is what the owner provision. Where, a receipt is in nature of income,
turns into profit by keeping it in his possession viz. burden of proving that it is not taxable because it
tangible and intangible assets employed. Circulating falls within an exemption provided in the Act, lies
capital is what he makes profit of by parting with it upon the assesseee.
and letting it change matters. It is worthwhile to
mention that the same asset may be fixed capital in The aforesaid principles have been superseded to a
one business and circulating capital in another very large extent by section 17, 28 and 56(2). On
business and, therefore, the nature of a receipt may the combined reading of the aforesaid principles
vary according to the nature of trade in connection and sections, the following positions arise wherein
with which it arises. capital receipts are specifically liable to tax as
income:
It is well-settled that in order to find out whether a
receipt is a capital receipt or revenue receipt, it has · Compensation for termination of
to be seen what it is in the hands of the receiver and management/office/agency :-
not its nature in the hands of the payer. In other
words, the nature of the receipt is determined Any compensation due to or received in
entirely by its character in the hands of the receiver connection with termination of management or
and the source from which the payment is made office or agency or modification of terms and
has no bearing on the question.6 Therefore, it conditions relating thereto by any person who
follows that even if the amount is paid out of capital, managing whole affairs of the company or
it may partake of the character of a revenue receipt agency, is taxable under section 28(ii), even it
in the hands of the recipient. Payment received on is capital receipt.
the redemption of debentures, held as investments,
is a capital receipt in hands of the recipient, even if In the aforesaid provision, compensation is
the company makes payment out of its profits. taxable under section 28, even if recipient is an
Further, the motive of payer is not relevant while employee and his regular income is taxable
deciding whether a particular receipt is revenue or under section 15.
capital in nature.
· Compensation for vesting of business/
A receipt in lieu of source of income is capital property in Government :-
receipt. A receipt in lieu of income is revenue
receipt. For instance, compensation for loss of Any compensation due to or received by any
employment is a capital receipt, as it is in lieu of person in connection with the vesting of the
source of income whereas if trees are cut so that management of any property or business in the
they regenerate in course of time, the amount of Government or a corporation owned or
receipt would be revenue receipt. Further, controlled by Government, is taxable under
periodicity of receipt is immaterial to distinguish section 28(ii). It is immaterial whether
between capital receipt and revenue receipt. compensation is capital receipt or revenue
receipt.
The distinction between the two is vital because
capital receipts are exempt from tax unless they are · Compensation for termination of any
expressly taxable (for instance, capital gains are business contract: -
taxable under section 45, even if they are capital
receipts). On the other hand, revenue receipts are Any compensation due to or received by any
taxable unless they are expressly exempt from tax person at or in connection with termination of
(for instance, incomes exempt under section 10). any contract relating to his business, shall be
In all cases in which a receipt is sought to be taxed chargeable to tax under section 28(ii) under the
as income, the burden lies upon the Income tax head “Profit and gains of business or
Department to prove that it is within the taxing profession”. In such case, it is immaterial
whether compensation is capital receipt or
revenue receipt.

7 6 Ahmedabad Chartered Accountants Journal May, 2022

Income vs. Capital Receipt under Income Tax Act, 1961

· Termination /modification of employment advance money will not be taxable under
contract when compensation is received section 56(2)(ix).
from employer:-
· Assistance in the form of subsidy / grant :-
In a case not covered by section 28(ii), any
compensation due to or received by an Finance Act inserted sub clause (xviii) in
individual from his employer or former section 2(24) w.e.f. assessment year 2016-17.
employer at or in connection with termination Subsidy/grant is taxable as income if conditions
or modification of terms of employment is specified therein get fulfilled.
taxable as profit in lieu of salary under section
17(3)(i) and in such case the principles of Apart of the above, the following few instances of
governing capital and revenue receipts are not capital receipts which are not liable to tax.
relevant.
· Entrance fee:-
· Termination /modification of employment
contract when compensation is received Non refundable entrance fees charged by club
from person other than employer:- as a one-time fee for enrolment is a capital
receipt.
Any compensation or other payment due to or
received by any person in connection with · Forfeiture of share application money :-
termination of his employment or the
modification of the terms and conditions Amount of forfeited share application money
relating thereto shall be chargeable to tax under transferred to separate account is a capital
section 56(2)(xi) under the head “Income from receipt and it cannot be taxed as income of
other source”. In such case the principles of assesseee either under section 28(iv) or under
governing capital and revenue receipts are not section 41(1).
relevant.
· Alimony from husband:-
· Compensation for refraining from
competition:- Amount realized by an assesseee as alimony
from her husband in terms of decree of divorce,
Compensation paid for agreeing to refrain from is to be regarded as capital receipt not liable to
carrying on competitive business in respect of tax.
which an agency was terminated or loss of
goodwill will prima facie be of the nature of Section 2(24) defines the term “income” which
capital receipt. Similarly, compensation for includes revenue receipts as well as capital receipts.
restraint on exercise of profession is a capital Instances of receipts except the mentioned
receipt. However, such compensation is hereinabove are stated as below.
chargeable to tax under section 28(va).
· Profit and gains, dividend income, voluntary
· Forfeiture of advance money received in contributions received by trust and institution
course of negotiation for transfer of a capital created for charitable or religious purposes.
asset :-
· Perquisite, special allowances or benefits in the
Advance money received in the course of hands of employee.
negotiation for transfer of an asset being capital
asset and later on forfeited by the recipient is · Benefit of perquisite to a representative assessee
taxable under section 56(2)(ix) under the head
“Income from other source”. However, if the · Insurance profit and Income of banking of a
asset is not capital asset, then forfeiture of co-operative society.

· Capital gain income and winning from lottery

· Employees’ contribution towards provident
fund or welfare funds

Ahmedabad Chartered Accountants Journal May, 2022 77

Income vs. Capital Receipt under Income Tax Act, 1961

· Amount received under keyman insurance of the courts. There is nothing in the income-tax
policy Act laying down any legal criterion for
distinguishing between capital and revenue
The following few instances of revenue receipts receipts, nor does any definite and clear criterion
which are liable to tax. emerge from English or Indian decisions on the
subject. It depends upon the facts or each case
· Compensation for loss of trading asset :- which must be considered for determining whether
a particular payment should be held to be
Compensation received in respect of loss of a chargeable as income under the Income-tax Act or
trading asset or stock in trade is a revenue not. It is well settled that the words of the statute,
receipt liable to be taxed. when there is doubt about their meaning, are to be
understood in the sense in which they best
· Forfeiture of security deposit: - harmonize with the subject of the enactment and
the object which the legislature has a view. Their
Forfeited security deposits would be revenue meaning is found not so much in a strictly
receipts if they are related to the assesseee’s grammatical or ethnological property of language,
trading activity. nor even in its popular use, as in the occasion on
which they are used, and the object to be attained.
Apart from the concept of real income stated above,
there are certain provisions in the Act which levy (Footnotes)
tax on notional incomes/deemed incomes. Under
the head “income from house property” provision 1 Bhagwan Dass Jain vs. Union of India (1981) 5
of section 23(1) specifies that annual value of any Taxmann 7 (SC)
property shall be deemed to be the same for which
property might reasonably be expected to be let from 2 CIT vs. Shaw Wallas & Co. 6 ITC 178 (PC)
year to year. Under “Profit and Gains of Business
or Profession”, there are many provisions which 3 Toyo Engineering India Ltd. vs. Joint CIT
either consider income by deeming notional (2006) 100 TTJ (Mum) 3773, 379
incomes and also various provisions to disallow
expenditures which are otherwise spent; for 4 Sri Hiranyakeshi Sahakari Sakhare Karkhane
instance: section 36(1)(va), 40(a)(i), 40(a)(ii), 40(b), Niyamit vs. ITO (1986) 15 ITD 343, 358-59
43CA. In the similar manner, under the head (Mad)
“Capital Gain” provisions section 50C / 50CA goes
against the concept of real income. These are 5 Moti Lal Sharma vs. Ass. CIT (1992) 42 ITD
instances wherein there is no actual fund flow. It 653, 659-60 (Del.)
casts unnecessary burden upon the assessee to
prove that no such notional income was earned at 6 CIT vs. Kamal Behari Lal Singha (1971) 82 ITR
all. 460 (SC)

Conclusion .

Whether a particular receipt is capital or income ❉❉❉
from business has frequently engaged the attention

7 8 Ahmedabad Chartered Accountants Journal May, 2022

Section 194R : TDS on CA. Akshat Vithlani
benefits or perquisite [email protected]

As we are aware, the Government is trying to collect Provided further that the provisions of this
more and more data by way of TDS and SFT so that section shall not apply in case of a resident
more tax net can be established. With this vision and where the value or aggregate of value of the
aim, from 01/07/2022, new TDS provision has been benefit or perquisite provided or likely to be
inserted where, 10% TDS is required to be deducted provided to such resident during the financial
in case of any perquisite or benefit provided to year does not exceed twenty thousand rupees:
another person in cash or in kind where the value of
such benefit or perquisite is above 20000/-. Provided Also that the provisions of this section
shall not apply to a person being an individual
History and related Legal Provisions or a Hindu Undivided Family, whose total
sales, Gross Receipts, or in case of profession,
Section 28 (IV) of the Act: during the financial year immediately
preceding the financial year in which such
The value of any benefit or perquisite, whether benefit or perquisite, as the case may be, is
convertible into money or not, arising from business provided by such person.
or the exercise of a profession.
(2) If any difficulty arises in giving effect to the
Section 194R of Income Tax Act: provisions of this section, the Board may, with
the previous approval of the Central
(1) Any person responsible for providing to a Government, issue guidelines for the purpose
resident, any benefit or perquisite, whether of removing the difficulty.
convertible into money or not, arising from
business or the exercise of profession, by such (3) Every guideline issued by the Board under sub
resident, shall, before providing such benefit or section (2) shall, as soon as may be after it is
perquisite, as the case maybe, to such resident, issued, be laid before each House of
ensure that tax has been deducted in respect or Parliament, and shall be binding on the income
such benefit or perquisite at the rate of ten tax authorities and on the person providing any
percent of the value or aggregate value of such such benefit or perquisite.
benefit or perquisite.
Explanation:- For the purposes of this section
Provided that in a case where the benefit or ,the expression “person responsible for
perquisite, as the case may be, is wholly in kind providing” means the person providing such
or partly in cash and partly in kind but such benefit or perquisite, or in case of a company,
part in cash is not sufficient to meet the liability the company itself including the principal
of deduction of tax in the respect of whole of officer thereof.
such benefit or perquisite, the person
responsible for providing such benefit or Noteworthy points
perquisite shall, before releasing the benefit or
perquisite, ensure that tax required to be 1. The benefit or perquisite recipient should be
deducted has been paid in respect of the benefit resident and the payer can be resident may not
or perquisite: be resident. Let us analyse few situations.

Ahmedabad Chartered Accountants Journal May, 2022 79

Section 194R : TDS on benefits or perquisite

Payer Recipient TDS required u/s 194R?
Yes
Resident Resident Any person Yes
Yes
Non resident Resident Any person
No (Proviso 3 of section 194R)
Resident (Individual/HUF having Turnover or Resident Any person
Gross receipt more than 1 Cr) No (Section 195 will be
applicable)
Resident (Individual/HUF having Turnover or Resident Any person
Gross receipt Less than 1Cr)

Resident Non Resident

2. Meaning of Benefit or Perquisite: Meaning of department can take strict view and
benefit or perquisite is not given in Section disallow the thirty percent of value under
194R. Can we borrow the meaning of section 40 (a) (ia) and to safeguard against
perquisite from section 17 (2)? Yes, as per the same if the TDS is done on safer side
interpretation rules, where the meaning is then one more controversy will arise where
given anywhere in act, the same can be the recipient will get the Tax credit only if
borrowed. However one rider is here that it has been included in the income of the
Section 17(2) is for Salary and applicable to recipient. Hence, if the TDS is deducted
salary head only. Whereas the section 194R when no TDS is required, to get the credit
is applicable in case where the benefits or of such TDS, the recipient will need to
perquisites are arising from business or the include the same in Income. However, it
exercise of profession. I.e. it is covered under is questionable whether the recipient will
chapter business and profession. Hence, the get credit of TDS even if it is not included
definition of section 17 (2) will be helpful or in income or the TDS amount will be the
not only time will tell us. There are few cost to the recipient. This will open
examples which can be considered as benefit Pandora box and litigation may be arise in
or perquisites arising from Business or future in this particular issue.
exercise of profession is as under:
c. Turnover discount: Can Turnover discount
a. Foreign trip to the person in case of be considered as benefit or perquisite? In
Achievement of Turnover/Target: We all our opinion No. It is surely arguable that
are aware about the Supreme Court recent the discount will reduce the value of
judgement on freebies to doctors by the supply, and it is not part of benefit. This is
pharma industries. However, if any free trip the same controversy is going on in GST.
is sponsored by the businessman in case And the same issue will come in this section
of specified turnover is achieved, then it also. Cement and Consumer industries will
will surely come under purview of Section be hit by this controversy.
194R of the Income Tax Act and TDS will
be applicable. d. Gifts in Diwali / Festival: Gifts, perks or
benefits provided on some special
b. Winner of prize in case of online Games: occasions like festivals, marriage
In case of online games like Dream 11, if occasions, etc. to supplier, purchaser Will
any winner wins the prizes then can it be it be liable for TDS or not? It is clear that if
covered u/s 194R? One can take a view the benefit/ perquisite is arise out of
that the same is not arise on the basis of business or profession then only the same
business/ profession. However, the will be liable for TDS.

8 0 Ahmedabad Chartered Accountants Journal May, 2022

Let us check the question with different angle. Section 194R : TDS on benefits or perquisite
If the gifts are given to employees in any
occasion and if below 5000 then it is not taxable (ia) thirty per cent of any sum payable to
as per rule 3 of Income Tax Act. Hence, the a resident, on which tax is deductible
value of gift will be considered as nil only if it at source under Chapter XVII-B and
is below 5000/-. Hence, it is taxable and if we such tax has not been deducted or,
refer Section 192 then TDS is also applicable. after deduction has not been paid on
The same ratio is applicable in Section 194R or before the due date specified in
and TDS will be applicable in case of gifts / sub-section (1) of section
perquisites given to supplier and purchaser. 139:……………
However, another view can be taken where the
TDS is deducted against the Sale under section Section 194R provides the TDS is required to
194H under Commission. be deducted on the benefit or perquisites arising
out of business/ profession. I.e. The assessee is
3. Consequences of Non Compliance going to claim the expenses as deductible
expenses in profit and loss account and out of
a. If the required TDS is not deducted or TDS the same thirty present will be disallowed if the
deducted but not paid within time then TDS is not deducted/ not paid according to
interest is payable on applicable rate. If section 40 (a) (ia).
TDS is late deducted then interest @1%
per month or part of the month is to be paid In 3CD report, the auditor is required to disclose
and if the TDS is deducted but not paid whether any sum is disallowable under section
then 1.5% interest per month or part of the 40 (a) (ia) (supra). Hence, based on the
month. We are very much conversant with comment on the auditor in 3CD, the CPC will
this interest provision. process the return and automatically will
disallowed the required portion as per act.
b. Also, if the TDS not deducted or deducted
and not paid till the due date of filing of Conclusion
return, Section 40 (a) (ia)can come into
picture and thirty percent of benefit value Utmost care is required to be taken by Assessee
can be disallowed. The section is and Auditor both, in case of scrutinising the profit
reproduced as below. and loss account and if there is any benefit or
perquisite given in the course of Business/
40. Notwithstanding anything to the Profession, then TDS should be deducted
contrary in sections 30 to 38, the accordingly. Also, it is expected from Government
following amounts shall not be to clarify the meaning of benefits and perquisites to
deducted in computing the income avoid future litigations.
chargeable under the head “Profit
and gains of business and ❉❉❉
profession”,-

………………..will

Ahmedabad Chartered Accountants Journal May, 2022 81

Glimpses of Advocate Samir N. Divatia
Supreme Court [email protected]
Rulings

4 Tax effect for maintainability of appeals iii). Further, it was not open to the ITAT to
entertain such fresh claim for the first time.
When what was assailed by the Revenue was the This submission needs to be stated to be
penalty amounting to Rs. 29,02,743 and not the rejected.
penalty reduced by the Commissioner (Appeals).
Therefore, it cannot be said that the appeal before iv). The observations in the decision in Goetze
the High Court at the instance of the Revenue (India) Ltd. (284 ITR 323) at footnote No.
challenging the order passed by the ITAT was not 10 itself make it amply clear that such
maintainable in view of CBDT Circular, dated 10- limitation would apply to the ‘assessing
12-2015. authority’, but not impinge upon the plenary
powers of the ITAT bestowed under section
(Late Gyan Chand Jain v. CIT [ Civil Appeal No. 254 of the Act.
2704 of 2022 19 April, 2022]
{Wipro Finance Ltd. v. CIT} [Civil Appeal No.
5 Foreign exchange fluctuations-fresh 6677 of 2008 . dt 12 April, 2022]
claim-
6 High Court concurring with order of
i). The assessee not only claimed deduction in ITAT but no reasons stated
respect of loss of Rs. 1,10,53,909 arising on
account of exchange fluctuation, but also set As the impugned order passed by the High Court
up a fresh claim in respect of revenue expenses is a non-speaking and non-reasoned order and even
to the tune of Rs. 2,46,04,418, erroneously the submissions on behalf of the revenue are not
capitalised in the returns. recorded, the impugned order passed by the High
Court dismissing the appeal is unsustainable.
ii). As regards, the transaction of loan between the
appellant and Commonwealth Development 3.2 Under the circumstances, the impugned order
Corporation, the same was in the nature of is hereby quashed and set aside. The matter is
borrowing money by the appellant, which was remanded to the High Court to decide and
necessary for carrying on its business of dispose of the appeal afresh in accordance with
financing. It was certainly not for creation of law and on its own merits. If the High Court is
asset of the appellant as such or acquisition of of the opinion that the proposed questions of
asset from a country outside India for the law are not substantial questions of law and
purpose of its business. In such a scenario, the they are on factual aspects, it will be open for
appellant would be justified in availing the High Court to consider the same in
deduction of entire expenditure or loss suffered accordance with law, however, the High Court
by it in connection with such a transaction in to pass a speaking and reasoned order after
terms of section 37 of the Act. For, the loan is recording the submissions made on behalf of
wholly and exclusively used for the purpose the respective parties.
of business of financing the existing Indian
enterprises. [Pr. CIT v. Bajaj Herbals (P.) Ltd
{Civil Appeal No. 2659 of 2022 dt.7 April, 2022}

8 2 Ahmedabad Chartered Accountants Journal May, 2022

7 Amalgamation and Income Tax- Glimpses of Supreme Court Rulings
assessment-question of fact
5. That all the liabilities and duties of the
this Court notes and holds that whether corporate Transferor Companies be transferred without
death of an entity upon amalgamation per se further act or deed to the Transferee Company
invalidates an assessment order ordinarily cannot and accordingly the same shall pursuant to
be determined on a bare application of Section 481 Section 394 (2) of the Companies Act, 1956
of the Companies Act, 1956 (and its equivalent in be transferred to and beco.
the 2013 Act), but would depend on the terms of
the amalgamation and the facts of each case. 6. When search and seizure of the Mahagun
group took place, no indication was given
The court, undoubtedly noticed Saraswati about the amalgamation.
Syndicate. Further, the judgment in Spice (supra)
and other line of decisions, culminating in this court’s 7. A statement made on 20.03.2007 by Mr. Amit
order, approving those judgments, was also noticed. Jain, MRPLs managing director, during
Yet, the legislative change, by way of introduction statutory survey proceedings under Section
of Section 2 (1A), defining “amalgamation” was 133A, unearthed discrepancies in the books of
not taken into account. Further, the tax treatment in account, in relation to amounts of money in
the various provisions of the Act were not brought MRPLs account.
to the notice of this court, in the previous decisions.
8. The return apart from specifically being
There is no doubt that MRPL amalgamated with furnished in the name of MRPL, also contained
MIPL and ceased to exist thereafter; this is an its PAN number.
established fact and not in contention. The
respondent has relied upon Spice and Maruti Suzuki 9. During the assessment proceedings, there was
(supra) to contend that the notice issued in the name full participation on behalf of all transferor
of the amalgamating company is void and illegal. companies, and MIPL.
The facts of present case, however, can be
distinguished from the facts in Spice and Maruti 10. A special audit was directed (which is possible
Suzuki on the following bases. only after issuing notice under Section 142).
Objections to the special audit were filed in
The facts of the present case are distinctive, as respect of portions relatable to MRPL.
evident from the following sequence:
11. After fully participating in the proceedings
1. The original return of MRPL was filed under which were specifically in respect of the
Section 139(1) on 30.06.2006. business of the erstwhile MRPL for the year
ending 31.03.2006, in the cross-objection
2. The order of amalgamation is dated 11.05.2007 before the ITAT, for the first time (in the appeal
but made effective from 01.04.2006. It contains preferred by the Revenue), an additional
a condition Clause 220 - whereby MRPLs ground was urged that the assessment order
liabilities devolved on MIPL. was a nullity because MRPL was not in
existence.
3. The original return of income was not revised
even though the assessment proceedings were 12. Assessment order was issued undoubtedly in
pending. The last date for filing the revised relation to MRPL (shown as the assessee, but
returns was 31.03.2008, after the amalgamation represented by the transferee company MIPL).
order. 11. Appeals were filed to the CIT (and a cross-
objection, to ITAT) by MRPL represented by
4. A search and seizure proceeding was MIPL.
conducted in respect of the Mahagun group,
including the MRPL and other companies: [Pr. CIT ... vs M/S Mahagun Realtors (P) Ltd dt
5 April, 2022]

❉❉❉

Ahmedabad Chartered Accountants Journal May, 2022 83

From the CA. Jayesh C. Sharedalal
Courts [email protected]

How the power to remand a case is to be Held:

11 exercised by Tribunal. It is settled law that in order to assume jurisdiction
Golden Gate Properties Ltd. V/s. Dy. under section 147 of the Income Tax Act, 1961,
CIT (2021) 435 ITR 258 (Karn) where the assessment has been made under section
143(3), two conditions are required to be satisfied.
Issue: (a) The assessing Officer must have reason to
believe that the income chargeable to tax have
How should the power to remand a case be escaped assessment. (b) Such escapement occurred
exercised by Tribunal? by reason of failure on the part of the assessee either
(a) to make a return of income under section 139
Held: or in response to the notice issued under sub section
(1) of section 142 or section 148 or (b) to disclose
The assessee was a public limited company engaged fully and truly all the material facts necessary for
in the business of real estate projects. The assessee his assessment for that purpose.
filed its return of income for the assessment year
2010-11 declaring loss. The return was selected for Reassessment proceedings under section 147 of the
scrutiny and the details sought for were furnished. Act cannot be resorted to in respect of income which
TheAssessing Officer passed an order under section is the subject matter of an appeal, reference or
143(3) of the Income tax Act, 1961. The Assessing revision.
Officer made an addition of Rs. 14,37,10,403/-
being prior period expenses for the purposes of Reopening of assessment on change of
determining the book profits under the provisions
of section 115JB of the Act. The assessee filed an 13 opinion.
appeal before the Commissioner (Appeals) who by T. Stanes and Company Ltd v/s. Dy.
an order deleted the addition. The Revenue filed CIT (No. 1) (2021) 435 ITR 533 (Mad)
an appeal before the Tribunal. The Tribunal set aside
the order of the Commissioner (Appeals) and Issue:
remitted the matter to Commissioner (Appeals)
Whether reopening of assessment on change of
That it was evident that while passing the order, opinion is valid?
the Tribunal had not adverted to the reasoning
assigned by the Commissioner (Appeals). The order Held:
of remand was not justified.
Invocation of section 148 for the purpose of the
12 Two conditions for reopening u/s 147. proviso to section 147 qua denial of adjustments
Garden Silk Mills Limited v/s Asst. CIT under section 72A(1)(a) by the Deputy
(2021) 435 ITR 351 (Guj) Commissioner was inspired from a change of
opinion as the assessee had disclosed the basis on
Issue: which it had claimed deductions in the returns of
income and it was pursuant thereto that the
Which are the two conditions to be fulfilled for respective assessment orders were passed by the
reopening u/s 147?

8 4 Ahmedabad Chartered Accountants Journal May, 2022

Assessing Officer. Therefore, there was no material From the Courts
suppression of facts on the part of the assessee to
either truly or fully furnish the information that were the officers acting under the Income Tax
required for completing the assessment. Therefore Department were duty bound to extend the
invocation of section 148 for the purpose of the substantive benefits that were legitimately available
proviso to section 147 was without jurisdiction. to an assessee. The rejection of the application for
rectification by the Assessing Officer under section
14 Denial of claim on procedural formality. 154 was unjustified, since the assessee was entitled
Craftsman Automation P. Ltd. v/s. CIT to the substantive benefits under section 10B and
(2021) 435 ITR 558 (Mad) the delay, if any, was attributed on account of the
system.
Issue:
Notice to a non-existing entity.
Whether a claim can be denied on lapse of
procedural formality? 16 Tele performance Global Services v/s.
Asst. CIT
Held: (2021) 435 ITR 725 (Bom)

If an assessee is entitled to a benefit, a technical Issue:
failure on the part of the assessee to claim the benefit
in time, should not come in the way of grant of the Whether a notice to a non existing assessee is valid?
substantial benefit that was otherwise available
under the Income Tax Act, 1961 but for such Held:
technical failure. The legislative intent is not to
whittle down or deny benefit which are legitimately Under an order dated February 11, 2011, a scheme
available to an assessee. The Assessing Officer is of amalgamation of two companies TSPL with 1
duty bound to extend substantive benefits which Ltd, was approved with effect from April 1, 2010,
are available and arrive at just tax to be paid. and since then TSPL ceased to exist. The successor
company submitted returns and those were assessed
The Commissioner ought to have allowed the from time to time in respect of subsequent
revision application filed by the assessee under assessment years. A notice dated March 30, 2019
section 264 and the assessee was entitled to partial under section 148 of the Income Tax Act, 1961,
relief. Accordingly, the order of the Commissioner for the assessment year 2012-13 in the name of
was set aside and the Assistant Commissioner TSPL was issued by the Assessing Officer, without
directed to pass appropriate orders on the merits realizing that the company was a nonexisting entity,
ignoring the delay on the part of the assessee in directing it to file a return of income within thirty
filing the revised return under section 139(5) and days stating there was reason to believe that income
failure to furnish the audit report. chargeable to tax had escaped assessment. The
notice was void.
Officer’s duty when substantial benefits
Order with a pre-set mind.
15 available to assessee.
L. Cube Innovative Solutions P. Ltd. 17 Antony Alphonse Kevin Alphaonse v/s.
v/s. CIT (2021) 435 ITR 566 (Mad) ITO
(2021) 435 ITR 735 (Mad)
Issue:
Issue:
What is the duty of A.O. when substantial benefit
is available to the assessee? What is the effect of an order with a pre-set mind?

Held: Held:

The rejection of the revision application filed by There was manifest violation of the principles of
the assessee under section 264 was not justified as natural justice in passing the order before the time
prescribed for filing the reply by the assessee and
considering such reply. The order had been passed

Ahmedabad Chartered Accountants Journal May, 2022 85

From the Courts family, that the Assessing Officer should make an
enquiry after giving notice of enquiry to all the
with a pre-set mind. The order was quashed and members. Where no such claim was made, the
the matter was remitted to the Income Tax Officer question of making enquiry by an Assessing Officer
for passing a speaking order after considering the did not arise and only in such circumstances, would
assessee’s reply. [Matter remanded]. the definition of “partition” in Explanation to
section 171 be attracted. The definition could not
18 Sec. 147/148 two conditions. be read in isolation. Where a Hindu family was
Garvit Diamonds Pvt. Ltd. v/s. ITO never assessed as a Hindu undivided family, section
(2021) 435 ITR 737 (Guj) 171 would not apply even when there was a division
or partition of property which did not fall within
Issue: the definition. The notice issued under section 148
to the estate of ARP (HUF) co-Parceners and the
Which are the two conditions for invoking consequential order issued in the name of the
jurisdiction u/s 147/148? assessee as the karta were unsustainable.

Held: Recovery of Demand: Direction:

In order to confer jurisdiction under clause (a) of 20 Restraint.
section 147 of the Income Tax Act, 1961 beyond Omkara Assets Reconstruction Pvt. Ltd.
the period of four years, two conditions are required v/s. Asst. CIT (2021) 436 ITR 40 (Mad)
to be fulfilled, viz(i) the Assessing Officer must
have reason to believe that income, profits or gains Issue:
chargeable to tax had been underassessed or
escaped assessment, and (ii) the Assessing Officer How the Department should proceed for recovery
must have reason to believe that such escapement of tax?
or under assessment was occasioned by reason of
the omission or failure on the part of the assessee to Held:
make a return under section 149 of the Act or to
disclose fully and truly all material facts necessary In view of the fact that the main issues for
for the assessment of that year. consideration in the appeal before the Commissioner
(Appeals) under section 246A were limited largely
19 HUF: Applicability of Sec. 171. to the inclusion of unsecured loans and share capital
A.O. Ores v/s. ITO as part of the total income of the assessee, the court
(2021) 436 ITR 3 (Mad) directed the expeditious disposal of the pending
appeal after providing a reasonable opportunity to
Issue: the assessee, including a personal hearing if so
requested. Until such time, the Department was
When can the provisions of Sec. 171 be applied in restrained from recovering the demand pursuant to
the case of a HUF? the assessment order under section 143(3) read with
section 144B.
Held:
❉❉❉
That during the lifetime of ARP, the deceased father
of the assessee, the family was not assessed as a
Hindu undivided family. It was only where there
was a prior assessment as a Hindu undivided family
and during the course of assessment under section
143 or section 144 it was claimed by or on behalf
of a member of such family which was assessed as
a Hindu undivided family that there was a partition
whether total or partial among the members of such

8 6 Ahmedabad Chartered Accountants Journal May, 2022

Tribunal
News

CA. Yogesh G. Shah CA. Aparna Parelkar
[email protected] [email protected]

Randox Laboratories India (P.) Ltd. v. them the analyzer for carrying out the chemical
analysis with the reagents. As per the terms of the
7 ACIT 135 taxmann.com 341 (Bang) agreement, the analyzer is made available to the
Assessment Year:2015-16 customer for a period of five years without any extra
Order dated: 4th January 2022 cost. Further, as per the terms of agreement, the
assessee is required to provide spares for the
Basic Facts analyzer and also provide services including repairs.
The analyzers were kept with the third party
The assessee was a wholly owned Indian subsidiary customers since the assessee was undertaking a
of U.K based company. The assessee was engaged research regarding its products as per Indian norms
in import of reagents and diagnostic equipments for clinical tests and to provide feedback to the Head
(analyzers) from the parent company and sold them Office. Thus, the analyzers were never sold to the
to independent third parties in India. During relevant third-party customers who brought the reagents
assessment year, the assessee started purchasing the from the assessee but were only installed in their
reagent in bulk and packed them in smaller premises for chemical analysis and research work
quantities for sale in India. Also, in order to sale. for a period of five years. After expiry of five-year
The TPO rejected transfer pricing analysis done by period, the WDV of the analyzers get reduced to
the assessee under RPM and proceeded to zero and accounting entries to that effect are passed
determine the arm’s length price by applying in the books. Thus, it was clear, the assessee is
TNMM as the most appropriate method on ground merely purchasing reagents from its AE and
that the assessee was not merely a trader but was reselling them to third party customers in India
also engaged in research activity. Accordingly, the without making any value addition. As per the
TPO made adjustments for international provisions of rule 10B. more particularly sub-rule-
transactions. The DRP upheld the decision of the 1(b) of the aforesaid rule, RPM is applicable to a
TPO. On appeal to the Tribunal: case where the price at which property purchased
or service obtained by an enterprise from the AE is
Issue resold or provided to an unrelated enterprise. The
gross profit margin of such a transaction is thereafter
Whether where assessee resold goods imported compared to the gross profit margin of similar
from AE to third party Indian customers comparable uncontrolled transactions after making
without any value addition, Resale Price necessary adjustment with regard to the expenditure
Method (RPM) would be Most Appropriate incurred, functional and other differences, the arm’s
Method (MAM) to determine ALP of said length price is determined. Thus, in the facts of the
transaction present case, as the assessee has resold the goods
imported from the AE without any value addition,
Held the most appropriate method for determining the
arm’s length price is RPM and TNMM cannot be
For sale of reagents, the assessee enters into specific
agreements with third party customers. As per the
terms of the agreement, the customer in India is
required to purchase reagents from the assessee and
in the event of such purchase, the assessee provides

Ahmedabad Chartered Accountants Journal May, 2022 87

Tribunal News and the commission payable in respect of the said
sales was claimed as deduction in the year under
the most appropriate method in such type of consideration on the basis that the proceeds of the
transaction. It was held that RPM is the MAM for said sale were realized in the year under
determining ALP and the AO was directed to consideration and the said commission actually
compute the ALP after affording assessee became payable only when the proceeds in respect
opportunity of being heard. of the corresponding sales were actually realized.
However, no documentary evidence either in the
Meena Circuits (P.) Ltd. v. ACIT 135 form of written agreement with the concerned
agents or even in the form of any correspondence
8 Taxmann.com 54 (Ahd) to establish that the commission was payable only
Assessment Year: 2015-16 on realization of corresponding sale proceeds was
Order dated: 21st December 2021 produced before the ITAT. The ITAT therefore,
was of the view that the sale promotion and sale
Basic Facts commission expenses pertaining to the earlier were
not allowable in the year under consideration being
The assessee is engaged in the business of prior period expenses and the deduction claimed
manufacturing of printed circuit boards. The return by the assessee for the same is not allowable either
of income for the year under consideration was in law or even in the facts of the case. The ground
declaring total income at Rs. Nil. The said return of appeal of the assessee was thus partly allowed.
was selected for scrutiny through CASS and a
notice under section 143(2) of the Act along with Issue II
notice under section 142(1) of the Act was issued
by the AO to the assessee. Whether CENVAT Credit and service tax credit
written off was allowable as deduction under
Issue I section 36(1)(vii) r.w. section 36(2) of the Act or
in the alternate whether the same was allowable
Whether expenses relating to the earlier year under section 37 of the Act being the business
were allowable in the year under consideration. loss.

Held I Held II

The ITAT noted from the details furnished by the As per the ITAT the amounts in question
assessee, the liability for the relevant expenses on representing the unutilized CENVAT and Service
account of AMC, professional fees and quality Tax credit cannot be considered as trade debts of
check expenses had arisen and crystallized in the the assessee and deduction for the same on being
year under consideration when the bills for the written off cannot be allowed under section
same by the concerned parties were raised on the 36(1)(vii) r.w. section 36(2) of the Act. The ITAT
assessee. The ITAT therefore, found merit in the did not allowable the same under section 37 on the
contention of the assessee that, even though the ground that nothing was brought on record to
said expenses pertained to the earlier year, the establish that the unutilized CENVAT and Service
assessee was entitled to claim deduction for the Tax credit amount in question had become
same in the year under consideration when the irrecoverable during the year under consideration
liability on account of said expenses had arisen so that the same can be allowed as business loss in
and crystallized as a result of the bills/invoices that year. Accordingly order of the learned CIT(A)
raised by the concerned parties. Insofar as the sale confirming the disallowance made by the AO on
promotion expenses and commission expenses this issue was upheld.
were concerned, it was observed that the
corresponding sales in respect of which the said
commission was payable had been made and
accounted for by the assessee in the earlier year

8 8 Ahmedabad Chartered Accountants Journal May, 2022

Palogix Infrastructure (P.) Ltd v. Tribunal News

9 ACIT135 taxmann.com 73(Kol) or contingent, whether part of above claim of
Assessment Year: 2010-11 income tax authorities or not, whether part of tax
Order dated: 27 October 2021 due diligence finding or not, asserted or unasserted,
crystallized or uncrystallized, known or unknown,
Basic Facts secured or unsecured, disputed or undisputed,
present or future, in relation to any period prior
Assessee, engaged in the business of Railway to the acquisition of control by the resolution
Siding Utilization Activity, filed return of income. applicant over the company pursuant to this plan
The AO completed assessment after making various shall be extinguished by virtue of the order of
additions/disallowances. The CIT(A) confirmed the adjudicating authority and the company
substantially various additions/disallowances made should not be liable to pay any amount against
by the AO. Aggrieved by the order, the assessee such demand. Further, all assessments or other
had preferred appeal before the Tribunal. proceedings pending in case of the company, on
Meanwhile, as assessee was in default with banks the date of the order of the adjudicating authority
and taken before NCLT under Insolvency and relating to the period prior to that date, shall
Bankruptcy Code, 2016, resolution plan of the stand terminated and all consequential liabilities, if
resolution applicant was approved by the any, should be deleted and should be considered to
Committee of Creditors and by NCLT. The be not payable by the company by virtue of the
assessee raised additional ground and submitted that order of the adjudicating authority. Furthermore, all
in the light of the order of the NCLT and peculiar notices proposing to initiate any proceedings against
facts of the case, the Tribunal would ascertain that the company in relation to the period prior to
realisable tax liability of assessee for the assessment the date of adjudicating authority order and
year under consideration, i.e., assessment year pending on that date, shall be considered deleted
2010-11 as Nil. and should not be proceeded against. Post the order
of the adjudicating authority, no reassessment/
Issue revision or any other proceedings under the
provisions of the Income-tax Act should be initiated
That in the light of the order of the Hon’ble on the company in relation to period prior to
National Company Law Tribunal and peculiar acquisition of control by the resolution applicant
facts of the case, Hon’ble Income Tax Appellate over the company pursuant to this plan and the
Tribunal shall ascertain that realisable tax assessee-company should not be liable to pay
liability of assessee for the assessment year under against such demand. Since the present appeal
consideration i.e. A.Y. 2010-11 is NIL. involving assessment year 2010-11 related to the
period prior to the acquisition of control by the
Held Resolution Applicant over the assessee-company
pursuant to this plan, all dues under the provisions
The order passed by the National Company Law of the Act including taxes, duty, penalties, interest
Tribunal under section 31 of the Insolvency and fines, cesses, etc. shall stand extinguished by virtue
Bankruptcy Code, 2016 has overriding effect over of the order of the NCLT and all proceedings
anything inconsistent contained in the Income-tax including the appellate proceedings pending on the
Act and it shall be binding on all the respective date of the order of the NCLT including the present
entities including other stakeholders, which include proceedings relating to the prior period to the date
Central Government, State Government, and other of order shall stand extinguished and all
Local Bodies. As per the said order delivered in consequential liabilities, if any, should be deleted
the case of the assessee affirming the Resolution and should be considered to be not payable by the
Plan, all dues under the provisions of the Income- company. In the light of the order of the NCLT
tax Act including taxes, duty, penalties, interest,
fines, cesses, unpaid tax deducted at source/tax
collected at source, whether admitted or not, due

Ahmedabad Chartered Accountants Journal May, 2022 89

Tribunal News Held

dated 12-2-2018 passed in assessee’s case, the ITAT In view of the dispute in ownership of the property
restore the case for the assessment year under and for declaration of title, the buyer, filed a suit .
consideration to AO for taking necessary action in The suit was decided by the High Court vide in
accordance with law. In the result, the appeal of accordance with the consent terms. As per the order
the assessee is treated as allowed. of the High Court and the consent terms forming
part of the order reveals that the settlement of dispute
Mahesh Pratapsingh Asher v. ACIT135 was on the terms that ‘plaintiff Nos. 2 to 11 (the
assessee and other co-owners) would pay plaintiff
10 taxmann.com 74 (Mum) No.1, ‘C’ a sum of Rs.4 crores. Assessee’s share in
Assessment Year: 2013-14, the property being to the extent of 20 per cent, he
Order dated: 16th December 2021 contributed a sum of Rs.80 lakhs. Thus, it is a fact
on record that as per the consent terms approved
Basic Facts by the High Court, assessee paid a sum of Rs.80
lakhs to the buyer ‘C’. Therefore, as per the ITAT,
The assessee a resident individual filed his return the payment made by the assessee is established on
of income. Subsequently, the assessee also filed a record. As per the ITAT, a reading of section 48(i)
revised return of income. In course of assessment makes it clear that expenditure incurred wholly and
proceedings, the AO noticed that in the revised exclusively in connection with transfer of the capital
return of income the assessee had reduced the asset is allowable as deduction. Thereafter the ITAT
amount of long term capital gain When called upon referred to the decision in case of CIT v. Shakuntala
to explain the reason for doing so, the assessee Kantilal [1991] 190 ITR 56 (Bom), wherein the
submitted that subsequent to sale of property another High Court had held, the expression ‘in connection
party claimed ownership of the property sold. with such transfer’ appearing in section 48(i) is
Therefore, the buyer filed a suit for declaration of much wider than the expression ‘for the transfer’.
title. Ultimately, the dispute was settled by virtue The Court had held, any amount of payment which
of consent terms approved by the High Court and is absolutely necessary to effect the transfer will be
as per the terms of the consent decree, the assessee, an expenditure covered by section 48(i). Thus, as
being a co-owner having 20 per cent share in the per the ratio laid down in the aforesaid decision,
property, contributed an amount of Rs.80 lakhs out any amount paid for removing encumbrance without
of the total amount paid to the buyer. Thus, it was which the sale or transfer could not be effected, is
submitted by the assessee, since the amount was allowable as deduction under section 48(i). As per
paid in connection with the transfer of the capital ITAT similar view has been expressed by the
asset, it was allowable under section 48(i). The AO, Madras High Court in case of V Lakshmi Reddy v.
however, was not convinced with the submissions ITO [2010] 8 taxmann.com 147/[2011] 196
of the assessee. He observed that the consideration Taxman 78/333 ITR 359. Further the jurisdictional
received by the assessee had already been High Court in case of CIT v. Abrar Alvi [2001]
mentioned in the deed of conveyance dated 18-12- 117 Taxman 95/247 ITR 312 (Bom.) Accordingly,
2012 and there was no specific direction of the Court as per ITAT in the facts of the instant case, the
to pay further compensation to the buyer. Therefore, payment made by the assessee to ‘C’ is certainly
he disallowed the deduction claimed of Rs.80 lakhs for removing encumbrance and perfecting the title
and computed long term capital gain accordingly. over the property sold. Otherwise, the transaction
On appeal, the CIT(A) also sustained the would have failed. Thus, in the light of the ratio
disallowance so made. On appeal to the Tribunal: laid down in the decisions cited, the ITAT held that
the amount paid by the assessee to ‘C’ is an
Issue expenditure in connection with transfer of a capital

Whether amount paid as per consent terms
approved by the High Court were allowable as
expenditure u/s 48 while computing long term
capital gains.

9 0 Ahmedabad Chartered Accountants Journal May, 2022

asset as per section 48(i); hence allowable. Tribunal News
Accordingly, the addition was deleted. In the result,
appeal was allowed. tax and ‘computation of total income’. The effect
of section 14 of theAct (relating to heads of income)
MRS Sikha Sanjaya Sharma V Deputy was that only those incomes which form part of
Total Income, can only be classified and computed
11 Commissioner of Income 137 under various heads. In other words, the incomes
taxmann.com 214 (Ahm) which do not form of total income (covered under
Assessment Year: 2016-17 Chapter-III, practically called “exempted
Order dated: 13th April 2022 incomes”), are out of consideration of section 14
as well as the computational scheme of various
Basic Facts heads prescribed in section 15 to 59 of the Act.
Thereafter the scheme of set-off and carry forward
The assessee, a resident individual, had filed her of losses prescribed in section 70 to 80 of the Act
return of income declaring, amongst others Long- triggered only for those losses or incomes which
term capital gains (LTCG) earned on sale of equity had been computed under various heads as
shares [Securities Transaction Tax (STT) paid] and prescribed. From the scheme as prescribed in the
exempt under section 10(38) of the Act and Act, it was clear that the exempted incomes falling
claiming carry forward of long-term capital loss under Chapter-III of the Act did not enter into the
(LTCL) [non-STT paid] and short-term capital loss computation of total income itself and hence, such
(STCL). During the course of the assessment incomes were not available for set-off of any loss
proceedings, the AO set off the LTCL (non-STT under section 70 to 80 of the Act. In view of the
paid) and STCL against the LTCG (STT paid) above, the ITAT allowed the assessee’s appeal and
exempt under section 10(38) of the Act and thus, held that the assessee had rightly claimed the carry
reduced the quantum of carried forward losses. forward of LTCL and STCL without setting off
Aggrieved, the assessee filed an appeal with the against the exempted LTCG (STT paid).
CIT(A), who rejected the assessee’s appeal and
upheld the AO’s order on the basis that Section 70 B.T. Global Communications India Pvt
of the Act nowhere mentioned that STCL and
LTCL could not be set off against the exempted 12 Ltd v. DCIT TS-209-ITAT-2022 (Del)
LTCG. Aggrieved, the taxpayer filed an appeal Assessment year: 2015-16,
before the ITAT. Order Dated: 23rd March 2022

Issue Basic Facts

Whether the short term capital loss arising on The assessee is engaged in providing network
sale of shares not subjected to STT can be set connectivity services and has obtained International
off against long term capital gains subjected to Long Distance, National Long Distance and
STT which is exempt from tax under section Internet Service Provider license from the
10(38) of the Act Department of Telecommunication. During AY
2015-16, it paid network connectivity charges to a
Held company based in United Kingdom (B Co.) and
claimed the same as infrastructure cost. The assessee
The interpretation of the provisions as per ITAT had not deducted tax at source (TDS) from the
are that the tax is payable on total income. The total payment for network connectivity services to B
income has to be computed in the manner laid down Co., as B Co. did not have a permanent
in the Act. Chapter-III of the Act prescribes incomes establishment (PE) in India and the payment was
which are not to be included in total income which neither in the nature of royalty nor fees for technical
includes section 10(38) of the Act. Chapter–IV of services (FTS). In the course of assessment
the Act mandates classification of incomes under proceedings, the AO treated the payment made to
various heads for the purposes of charge of income-

Ahmedabad Chartered Accountants Journal May, 2022 91

Tribunal News whether the assessee had any right to use equipment
for it to be encompassed under the definition of
B Co. as royalty within the meaning of clause (iii) royalty under Article 13 of the India-UK tax treaty.
of Explanation 2 to section 9(1)(vi) of the Act on There was a difference between an agreement that
the basis that the assessee had entered into an gave “Right to use equipment” and an agreement
agreement, amongst others, with B Co. for provision which involved provision of services through use
of telecommunication services. As per AO’s of equipment by service provider. As per the
opinion, the assessee er was providing agreement, equipment in India were owned by the
telecommunication services in India by using the assessee only and B Co. did not own any equipment
telecommunication/ networking skill of B Co. The in India. The arrangement between the assessee and
provisions of Telegraph Laws (Amendment Act, B Co. was in the nature of service contract pursuant
1961), wherein telegraph is defined in section 3(1) to which B Co. was responsible for provision for
of the said Act, was applicable and the contention transmission of telecommunication services outside
of the assessee that it has not been using any India. The network of B Co. including the related
apparatus provided by B Co. was not acceptable. equipment was used by B Co. Thus, for provision
As per the explanation to section 195 of the Act, of network connectivity services of the assessee in
TDS was to be done irrespective of the fact whether relation to its subscribers, no access/control
the non-resident has any business connection or whatsoever in relation to such network, any
presence in India or not. Accordingly, the AO equipment was provided to the assessee. Thus, the
disallowed the payment made to B Co. under assessee did not obtain or receive any right to use
section 40(a)(ia) of the Act for not deducting TDS the networking of B Co. The payment was to
under section 195 of the ITA. receive international leg of connectivity service and
not right to use any equipment of B Co. The Delhi
Issue HC in an earlier decision, Asia Satellite
Telecommunications Co. Ltd. v. DIT [2011] 9
Whether network connecting charges are in the taxmann.com 168 (Delhi HC) had held that where
nature of royalty or Fees for technical services the customer did not use equipment or process of
under the provisions of the Act & DTAA equipment itself, payment could not be termed as
between India & UK royalty for use of a process or equipment. In view
of the above, the ITAT concluded that the payment
Held made for connectivity services was not royalty in
terms of Article 13 of India-UK tax treaty and the
The ITAT noted that as per the Agreement between addition made by the AO was to be deleted.
B Co. and the assessee, the assessee had installed
its own equipment in India for providing necessary ❉❉❉
band width services to its Indian customer. The
telecom services of the non-resident service provider
were procured only to achieve the foreign leg of
the connectivity. The assessee was required to
develop, operate and maintain all
telecommunication network within India. There
was no equipment of non-resident service provider
in India. As per the Tribunal it has to be seen

9 2 Ahmedabad Chartered Accountants Journal May, 2022

Unreported
Judgements

In this issue, we are giving gist of Ahmedabad CA. Sanjay R. Shah
Tribunal decision in the case of Rameshbhai [email protected]
Arvindbhai Patel, Vadodara in the matter of
modality as to how the distance of an agricultural GIST Only
land from municipality limits is to be measured for
the purpose of deciding whether it is a capital asset Facts of the Case:
liable to capital gain tax or not. In the practical
situations, many a times, we are faced with the issue 1. These two appeals were filed by the assessee
as to whether whose certificate about the distance against the order of the Commissioner of
of a particular land from the limits of the local Income Tax, (Appeals), Vadodara in which the
municipality should be considered as valid for main issue was about taxability on transfer of
determining whether such agricultural land falls agricultural land for Assessment Years 2012-
within the definition of ‘capital asset’. Though the 13 and 2013-14. There were other issues also
decision does not conclusively decide as to whose but for the present discussion, we confine
certificate should be considered for determining the ourselves to the facts about the main issue about
above issue, the decision refers to quite a number taxability of capital gain arising on transfer of
of cases which throw light on the above issue. agricultural land.

We hope the readers would find the same useful. 2. For Asst. Year 2012-13, the assessee sold
agricultural lands situated at village Kotambi,
Annexure Bhaniyara and Bhavpura for total consideration
of Rs.10,30,200/-. The gain on sale of such
In the Income Tax Appellate Tribunal agricultural lands amounting to Rs.6,60,504/-
Ahmedabad “SMC” Bench was considered exempt by the assessee on the
ground that these said agricultural lands at the
Before Shri Waseem Ahmed, time of their sale were situated beyond 8 km
Accountant Member from the local limits of Vadodara Municipal
And Corporation (VMC). The Learned Assessing
Officer, however, considered the capital gain
Shri Siddhartha Nautiyal, Judicial Member on sale of land at Bhavpura and Baniyara
village as taxable on the ground that these lands
ITA Nos.458 & 459/Ahd/2019 were situated within the limit of 8 km from
Assessment Year: 2012-13 & 2013-14 VMC, and hence, are capital assets. For this
purpose, theAssessing Officer on the certificate
Rameshbhai Arvindbhai Patel Vs. The ITO, from Town Planner, Vododara Urban
Development Authorities’letter, specifying the
Vadodara. Vadodara. area and distance held that the same falls within
the limit of 8 km from the local limits of VMC,
PAN: AVZPP5102A and hence, they are capital assets, and hence,
the provisions of section 50C can be invoked
(Applicant) (Respondent) in respect of such sale.

Assessee by : Shri P.B. Parmar, A.R.
Revenue by : Shri Umesh Agarwal, Sr. DR

Date of hearing : 05-05-2022

Date of pronouncement : 17-05-2022

Ahmedabad Chartered Accountants Journal May, 2022 93

Unreported Judgments

3. Before C.I.T. (Appeals), the assessee succeeded authority to decide or adjudicate upon the issue
partly in respect of Short Term Capital with of distance of agricultural land and the
respect to land sold in Bhavpura village, where municipality. They, thereafter, referred to the
C.I.T. (Appeals), on the basis of Google Maps, following decisions:
considered that said land falls beyond 8 km from
the local limit of VMC. However, he confirmed (i) Rita Rajkumar Kochhar v. ITO [2017] 81
the other additions made for Long Term Capital taxmann.com 47 (Mumbai), where the
Gain in respect of Bhaniyara village. In the Tribunal held that certificate of Divisional
remand report called for by C.I.T. (Appeals), Engineer, PWD, Panvel certifying the
the Assessing Officer has given a report of the distance of land is valid.
Executive Engineer of Vadodara city, wherein
he had mentioned that both Bhaniyara and (ii) Commissioner of Income Tax, Faridabad
Bhavpura village are within VUDA limit, and v. Lal Singh [2010] 8 taxmann.com 114
hence, they are capital assets. The C.I.T. (Punjab & Haryana) where the Court
(Appeals), therefore, directed the A.R. of the accepted the contention that the village
assessee to verify the distance of respective Tehsildar working under the State
places by taking help from Google Map. The Government, is competent to measure the
assessee found out from the Google Map that distance of the land from the municipal
village Bhavpura is beyond limit, and hence, limits.
C.I.T. (Appeals) granted relief in respect of
Short Term Capital Gain for Bhavpura land. (iii) CIT v. Smt. Sakunthala Rangarajan [2016]
The assessee carried the matter to the Tribunal 74 taxmann.com 94 (Madras) where the
in respect of Long Term Capital Gain in respect High Court held that the certificates of the
of the sale of agricultural land at village revenue authorities were competent to
Bhaniyara. measure the land and distance, and whose
reports are accepted by the Government
4. Before the Tribunal, the assessee produced for demarcation of the limits of an area and
distance certificate as well as population the certificate of the Public Transport
certificate issued by Talati cum Mantri in respect Corporation Ltd., should be given
of the land at Bhavpura village and also weightage.
attached the Google Map showing that the said
land falls beyond 8 km from the local limits of (iv) ACIT v. Alkesh Kantilal Patel /I.T.A.
the municipality. The A.R. contended that the No.4270/Mum/2015 where it was held that
Learned C.I.T. (Appeals) has only given certificate from Executive Engineer,
weightage to the certificate issued by Executive Ahmedabad and certificate of Sarpanch of
Engineer, Vadodara; whereas, it is the “Talati the Village, cannot be relied upon since
cum Mantri” which was the authority on they are not competent authority as
certifying the distance, and therefore, their prescribed under law and it is the village
certificate should have been considered by Tehsildar who is the competent authority
C.I.T. (Appeals). to issue certificate.

Held: 6. The Tribunal, thus, found that there is no
specific authority who has been designated as
5. The Tribunal, after considering the rival being the “competent authority” to measure
contentions, observed that whether the land sold distance between the land sold and the
in village Bhaniayara is beyond the prescribed municipal limits, and thereafter, held that since
limit of 8 km is a question of fact, to be decided there is no prescribed authority, they are unable
by the competent authority. The Income Tax to accept the assessee’s argument that the report
Act does not specify as to who is the competent
Continued to page 112

9 4 Ahmedabad Chartered Accountants Journal May, 2022

Controversies

CA. Kaushik D. Shah
[email protected].

Issues assessment u/s 143(3) of the Act. Post completion
of the assessment, the Assessing Officer (A.O.) also
Whether any expense claimed as deduction which initiated a penalty of INR 3,68,00,000 u/s 271(1)(c)
is not accepted or acceptable by the Revenue but of the said Act with respect of the following
there is no concealment of income or incorrect additions:
particulars have been filed by assessee or any bona
fide mistake on the part of the assessee can attract 1. Dis-allowance u/s 80IA restricted to gross total
penalty under Section 271(1)(c) of the Income-tax income——INR 35,05,981
Act, 1961?
2. Rejection of assessee’s claim that sales tax
Extract of the Relevant Provision incentive is in nature of capital receipt and
therefore not taxable —— INR 7,28,71,527
As per the provisions contained in the Section
271(1)(c) of the Income-tax Act, 1961, if the 3. Addition to the total income on account of items
Assessing Officer or the Commissioner (Appeals) not considered to be eligible for 100%
or the Principal Commissioner or Commissioner in depreciation—— INR 2,37,05,481
the course of any proceedings under this Act, is
satisfied that any person has concealed the Being aggrieved with the proceedings executed by
particulars of his income or furnished inaccurate the A.O., the assessee filed an appeal with
particulars of such income, he may direct that such Commissioner of Income Tax (Appeals)-I [CIT
person shall pay by way of penalty, in addition to (A)], Pune.
tax, if any, payable by him, a sum which shall not
be less than, but which shall not exceed three times, View against the Proposition
the amount of tax sought to be evaded by reason of
the concealment of particulars of his income. In the present case, Assessing Officer is of the view
that the assessee has furnished incorrect particulars
Proposition with an aim of concealing income and evading tax.
Thus he has initiated penalty u/s 271(1)(c) on the
Where Revenue has not accepted the claim of basis of certain expenses claims which he considers
deduction of an assessee, but there is no proof of unacceptable.
concealment of income or furnishing of incorrect
particulars on the part of assessee, then the penalty View in favor of the Proposition
under Section 271(1)(c) of the Act shall not be
attracted. Honorable Supreme Court in the case of CIT,
Ahmedabad v/s Reliance Petro Products Pvt.
Facts of the case Ltd, held that for imposing penalty u/s 271(1)(c)
of the said act, it is mandatory that certain
The assessee (Dhariwal Industries Ltd.) engaged conditions like concealment of particulars of
in manufacturing of Pan Masala, rawa, atta, maida income or furnishing incorrect information of the
and salt, sale of mineral water and power generation income, exist. Mere existence of an expense for
by wind mills. Revenue filed an appeal against the which the deduction claim is not acceptable by the
assessee for the AY 2003-04 and initiated the Revenue shall not be enough to impose a penalty
u/s 271(1)(c).

Ahmedabad Chartered Accountants Journal May, 2022 95

Summation Controversies
subsidy by way of sales tax exemption and its
CIT (A), Pune deleted penalty imposed by the A.O. treatment. Thus the conditions required to
relating to the Points 1 and 2 (reproduced above) impose penalty u/s 271(1)(c) were not fulfilled.
but upheld the penalty relating to the point 3. Both 3. As far as Point 3 is concerned, CIT(A) held
parties, being aggrieved with the decisions taken the penalty imposed by A.O. but ITAT deleted
by CIT (A), further filed an appeal before Income the penalty imposed by A.O., the reason being,
Tax Appellate Tribunal (ITAT). in the previous AssessmentYear no penalty was
imposed on a similar disallowance. In the
ITAT gave an affirmation to the decision taken by present Assessment Year, the facts being
CIT (A) relating to Points 1 and 2 and deleted the identical, penalty could not be levied for the
penalty relating to the Point 3. similar disallowance. The Tribunal further gave
reference to the case of C.P. Mohan v/s DCIT
The basis of the decisions taken by CIT (A) and to support the decision. The assessee admitted
ITAT are as follows: that a mistake was made by him in applying
the rate of depreciation at the rate 100% instead
1. As per the Point 1 reproduced above the of the applicable 80%. This being a bona fide
assessee was disallowed deduction u/s 80-IA mistake the Tribunal accepted the explanation
by the A.O. having a view that Gutkha and recorded it.
manufactured by the assessee was covered In my humble opinion, after studying the above
under the item 2 of the 11th Schedule of the case, no penalty u/s 271(1)(c) should be imposed
said Act. The assessee appealed against the when complete and accurate particulars have been
view with reference to the judgment given by filed by the assessee. If any expense is unacceptable
the Ahmedabad Bench of ITAT in the case of by the Department, it shall be disallowed but no
Kothari Products Ltd. v/s ACIT which was penalty can be imposed unless there is any attempt
in force and inter alia held that Pan masala to conceal income or any inaccurate particulars are
containing Tobacco cannot be regarded as furnished in the returns.
tobacco preparation (covered under item 2 of
the 11th schedule). All the relevant details were ❉❉❉
disclosed by the assessee in the return of
income thus no concealment of income or
incorrect furnishing of particulars took place.

2. As per Point 2 reproduced above the assessee
claimed that the sales incentives were of capital
nature thus not taxable and this claim was made
with reference to a decision given by a Special
bench of ITAT, Mumbai in case of DCIT v/s
Reliance Industries Ltd. As per facts of the
case, assessee in computation of income
accompanying a revised return filed had
disclosed the details relating to the receipt of

9 6 Ahmedabad Chartered Accountants Journal May, 2022

Judicial Advocate Tushar Hemani
Analysis [email protected]

S. 54 exemption is available even when section (4) of section 139 of the Income-tax
contribution to Capital Gains Accounts Scheme Act, 1961.
is not made in time.
7. The Apex Court in State of Maharashtra v.
4 CIT v. Rajesh Kumar Jalan [2006] 157 Santosh Shankar Acharya [2000] 7 SCC 463
Taxman 398 (Gauhati) held that it is too well-known a principle of
construction of statutes that the Legislature
6. From a plain reading of sub-section (2) of engrafted every part of the statute for a purpose.
section 54 of the Income-tax Act, 1961, it is The legislative intention is that every part of
clear that only section 139 of the Income-tax the statute should be given effect. The
Act, 1961, is mentioned in section 54(2) in the Legislature is deemed not to waste its words or
context that the unutilised portion of the capital to say anything in vain and a construction
gain on the sale of property used for residence which attributes redundancy to the Legislature
should be deposited before the date of will not be accepted except for compelling
furnishing the return of the Income-tax under reasons.
section 139 of the Income-tax Act. Section 139
of the Income-tax Act, 1961, cannot be meant 8. The Apex Court in Bhavnagar University v.
only section 139(1) but it means all sub-sections Palitana Sugar Mill (P.) Ltd. [2003] 2 SCC 111,
of section 139 of the Income-tax Act, 1961. held that it is the basic principle of construction
Under sub-section (4) of section 139 of the of statute that statutory enactment must
Income-tax Act, any person who has not ordinarily be construed according to their plain
furnished a return within the time allowed to meaning and no words should be added,
him under sub-section (1) of section 142 may altered or modified unless it is plainly necessary
furnish the return for any previous year at any to do so to prevent a provision from being
time before the expiry of one year from the end unintelligible, absurd, unreasonable,
of the relevant assessment year or before the unworkable or totally irreconcilable with the
completion of the assessment year whichever rest of the statute. Paras 24 and 25 of the
is earlier. Such being the situation, it is the case Bhavnagar University’s case (supra) read as
of the respondent/assessee that the respondent/ follows :
assessee could fulfil the requirement under
section 54 of the Income-tax Act for exemption “24. True meaning of a provision of law has
of the capital gain from being charged to to be determined on the basis of what it
income-tax on the sale of property used for provides by its clear language, with due
residence up to 30-3-1998, inasmuch as the regard to the scheme of law.
return of income-tax for the assessment year
1997-98 could be furnished before the expiry 25. Scope of the legislation on the intention
of one year from the end of the relevant of the Legislature cannot be enlarged
assessment year or before the completion of when the language of the provision is
the assessment whichever is earlier under sub- plain and unambiguous. In other words,
statutory enactments must ordinarily be

Ahmedabad Chartered Accountants Journal May, 2022 97

construed according to its plain meaning Judicial Analysis
and no words shall be added, altered or
modified unless it is plainly necessary to ‘8. We have heard the submission made by
do so to prevent a provision from being representatives of rival sides and have
unintelligible, absurd, unreasonable, perused the orders of authorities below. The
unworkable or totally irreconcilable with ground no. 1 raised in the appeal by
the rest of the statute.” (p. 121) assessee is against rejecting assessee’s
claim of exemption Rs. 71,56,000/- u/s.
5 Mrs. Kamal Murlidhar Mokashi v. ITO 54B of the Act on the ground that
[2019] 110 taxmann.com 120 (Pune - investment has been made after due date
Trib.) for filing return of income u/s. 139(1) of
theAct. It is an undisputed fact that assessee
14. As far as the issue of not depositing the has invested Rs. 71,56,000/- in three
unutilized portion of amount subject to capital properties in August, 2012 i.e. after due
gains in capital gain account scheme is date for furnishing return of income u/s.
concerned, it is fact that assessee had not filed 139 (1) of the Act had elapsed. The
the return u/s. 139(1) of the Act but had filed Assessing Officer rejected assessee’s claim
the return of income within the time limit of exemption in respect of aforesaid
prescribed u/s. 139(4) of the Act which was investment for the reason that as per the
upto 31.03.2013. It is assessee’s case that prior provision of section 54B(2), the assessee
to filing of income tax return, assessee had should have invested/deposited the amount
utilized the entire sale proceeds in acquisition before the due date for fur the due date for
of the new residential house. The aforesaid furnishing return of in nishing return of
contention of the assessee has not been income under s come under sub-section
controverted by Revenue. We find that section (1) of Section 139 of the Act.
Hon’ble Punjab and Haryana High Court in
the case of Ms. Jagriti Aggarwal (supra) has 9. The Hon’ble Gauhati High Court in the
held that benefit of Sec.54 of the Act is case of CIT v. Rajesh Kumar Jalan (supra)
allowable when the assessee has acquired the while considering assessee’s claim of
new asset before filing of return of income. We exemption u/s. 54 where the assessee had
further find that the Co-ordinate Bench of the deposited unutilized portion of capital gain
Tribunal in the case of Ramarao Dhondiba in the specified scheme after the stipulated
Pimple (supra) after considering the decisions time for furnishing return of income u/s.
of Hon’ble Gauhati High Court in case of 139(1) of the Act has expired held:
Rajesh Kumar Jalan (supra) and Ms. Jagriti
Aggarwal (supra) and the decision of Hon’ble “6. From a plain reading of sub-s (2) of s.
Bombay High Court in the case of Humayun 54 of the IT Act, 1961, it is clear that
Suleman Merchant (supra) has held that only s. 139 of the IT Act, 1961, is
assessee is eligible to claim exemption in respect mentioned in s. 54(2) in the context
of investments made before filing of return of that the unutilized portion of the capital
income. We further find that the Tribunal has gain on the sale of property used for
noted that in the case of Humayun Sulemn residence should be deposited before
Merchant (supra), the Hon’ble Bombay High the date of furnishing the return of the
Court has not disapproved the ratio laid down income-tax under s. 139 of the IT Act.
in the case of Rajesh Kumar Jalan (supra) but Sec. 139 of the IT Act, 1961, cannot
the claim was rejected on the peculiar facts of be meant only as s. 139(1) but it means
the case and the relevant findings of the Co- all sub-sections of s. 139 of the IT Act,
ordinate Bench of the Tribunal are as under : 1961. Under sub-s.(4) of s. 139 of the
IT Act any person who has not
furnished a return within the time

9 8 Ahmedabad Chartered Accountants Journal May, 2022

Judicial Analysis 11. A reading of the aforesaid sub-section
would show that if a person has not
allowed to him under sub-s. (1) of s. furnished the return of the previous year
142 may furnish the return for any within the time allowed under sub-so (1)
previous year at any time before the i.e., before 31st day of July of the
expiry of one year from the end of the assessment year, the assessee can file return
relevant assessment year or before the before the expiry of one year from the end
completion of the assessment of the relevant assessment year.
whichever is earlier. Such being the
situation, it is the case of the 12. The sale of the asset having taken place
respondent/assessee that the on 13th Jan., 2006, falling in the previous
respondent/assessee could fulfil the (sic-assessment) year 2006-07, the return
requirement under s. 54 of the IT Act could be filed before the end of relevant
for exemption of the capital gain from asst. yr. 2007-08 (sic-2006-07) i.e. 31st
being charged to income-tax on the March, 2007. Thus, sub-so (4) of s. 139
sale of property used for residence provides extended period of limitation as
upto 30th March, 1998, inasmuch as an exception to sub-so (1) of s. 139 of the
the return of income-tax for the asst. Act. Sub-so (4) is in relation to the time
yr. 1997-98 could be furnished before allowed to an assessee under sub-so (1) to
the expiry of one year from the end of file return. Therefore, such provision is not
the relevant assessment year or before an independent provision, but relates to
the completion of the assessment time contemplated under sub-so (1) of s.
whichever is earlier under sub-s. (4) 139. Therefore, such sub-so (4) has to be
of s. 139 of the IT Act, 1961.” read along with sub-so (1). Similar is the
view taken by the Division Bench of
10. The Hon’ble Punjab & Haryana High Karnataka and Gauhati High Courts in
Court in the case of CIT v. Ms. Jagriti Fatima Bai and Rajesh Kumar Jalan cases
Aggarwal (supra) while considering the (supra) respectively.”
issue, whether the assessee is eligible for
claiming benefit of exemption u/s. 54, if 11. The Hon’ble Punjab & Haryana High
capital gain amount is deposited/invested Court in another case CIT v. Jagtar Singh
after due date of furnishing return of Chawla reported as 33 taxmann.com 38
income u/s. 139(1) but before the due date following the ratio laid down in the case
of furnishing return of income u/s. 139(4) of Rajesh Kumar Jalan (supra.) allowed
held : assessee’s claim of exemption u/s. 54F
where the assessee paid substantial amount
“10. Having heard learned counsel for the of sale consideration for residential house
parties, we are of the opinion that sub- within extended period of filing return of
s. (4) of s. 139 of the Act is, in fact, a income u/s. 139(4) of the Act.
proviso to sub-s.(1) of s. 139 of the
Act. Sec, 139 of the Act fixes the 12. In the case of Humayun Suleman
different dates for filing the returns for Merchant v. CCIT (supra), we find that the
different assessees. In the case of Hon’ble Bombay High Court has not
assessee as the respondent, it is 31st disapproved the ratio laid down in Rajesh
day of July of the assessment year in Kumar Jalan case. However, the assessee’s
terms of cl. (c) of the Expln. 2 to sub- claim of exemption u/s. 54F was rejected
s. (1) of s. 139 of the Act, whereas sub- therein as the ratio laid down in Rajesh
s. (4) of s. 139 provides for extension Kumar Jalan’s case was not applicable on
in period of due date in certain
circumstances. It reads as under :

Ahmedabad Chartered Accountants Journal May, 2022 99

the facts and circumstances of that Judicial Analysis
particular case. Relevant extract of the
findings and observation of Hon’ble the amounts subject to capital gain on
Jurisdictional High Court reads as under: sale of the capital asset for purpose of
exemption, has to be utilized before the
“(v) Lastly and in the alternative, it is date of filing of return of income. In
submitted by Mr. Chatterji, that as the this case 4th November, 1996 is the
entire amount has been paid to the date of filing the return of Income. It
developer/builder before the last date is not disputed that on 4th November,
to file the return of Income under 1996 when the return of income was
Section 139 of the Act, the exemption filed, the entire amount which was
is available to the appellant under subject to capital gain tax had not been
section 54F(4) of the Act. In support, utilized for the purpose of construction
the decision of Gauhati High Court in of new house nor were the unutilized
Rajesh Kumar Jalan’s case (supra.) is amounts deposited in the notified Bank
relied upon. The Gauhati High Court Accounts in terms of Section 54F (4)
in the above case was concerned with of the Act before filing the return of
the interpretation of Section 54 of the income. It is also to be noted that in
Act. It construed the provision of sub- line with the interpretation of Gauhati
Section (2) of Section 54 of the Act High Court on Section 54F(4) of the
which is identically worded to sub- Act, the Assessing Officer had taken
section (4) of Section 54F of the Act into account all amounts utilized for
The Court in the aforesaid decision construction of a house before filing
held that the requirement of depositing the return of income on 4th November,
before the date of furnishing of return 1996 for extending the benefit of
of Income under Section 139 of the exemption under Section 54F of the
Act has not to be restricted only to the Act. Therefore, in the present facts, the
date specified in Section 139(1) of the decision of the Gauhati High Court in
Act but would include all sub-section Rajesh Kumar Jalan’s case (supra)
of 139 including sub-section (4) of the would not apply so as to hold that the
Act. On the above basis it concluded appellant had complied with the
that if the amount is utilized before the Section 54F(4) of the Act.”
last date of filing of the return under
section 139 of the Act then the 13. In the present case, the assessee has
provision of Section 54(2) of the Act claimed exemption u/s. 54B of the Act. We
would not hit the assessee before it. It observe that the provision of sub section
is not very clear in the above case (2) of Section 54, provision of sub section
whether the amounts were utilized (2) of section 54B and provisions of sub
before the assessee filed its return or section (4) of Section 54F are perimeteria.
not. The judgments on which the ld. AR has
placed reliance are rendered with reference
(w) However, the factual situation arising to claim of exemption u/s. 54/54F. Since
in the present case is different. The provisions of sub section (2) of section 54
return of income is admittedly filed on and 54B and (4) of section 54F are
4th November, 1996. In terms of identical, therefore, ratio laid down by the
Section 54F(4) of the Act as various Hon’ble High Courts would apply
interpreted by the Gauhati High Court to provisions of section 54B (2) as well.
in Rajesh Kumar Jalan’s case (supra) Thus, in the light of facts of the case and
various decisions as discussed above, we

100 Ahmedabad Chartered Accountants Journal May, 2022

Judicial Analysis (Gauhati), (Paras 6 and 11), held that only
Section 139 of the Income-tax Act, 1961, is
find merit in ground No. 1 raised by the mentioned in Section 54(2) in the context that
assessee in appeal and the same is accepted. the unutilised portion of the capital gain on the
The assessee is eligible to claim exemption sale of property used for residence should be
u/s. 54B in respect of investment made deposited before the date of furnishing the return
towards purchase of agriculture land within of the Income-tax under Section 139 of the
the time limit for filing return of income Income-tax Act. Section 139 of the Income-
specified under section 139(4).’ tax Act, 1961, cannot be meant only Section
139(1) but it means all sub-sections of Section
Before us, Revenue has not pointed to any 139 of the Income-tax Act, 1961.
contrary binding decision in its support. In
view of the aforesaid facts and relying on 15. We have also considered all the other
the aforesaid decisions, we are of the view judgments cited by the parties as well as
that assessee is eligible for deduction u/s. mentioned in the order of Ld. CIT(A) and we
54F of the Act. We therefore direct the AO are also of the view that according to the
to grant deduction. Thus, the grounds of provisions of section 54 of the Act, an assessee
the assessee are allowed. has an option to claim deduction against long
term capital gain on transfer of a residential flat,
6 ITO v. Nilima Abhijit Tannu [2019] 106 provided he/she invests within a period of one
taxmann.com 256 (Mumbai - Trib.) year before or two years after the date on which
the transfer takes place to purchase or within a
14. We are of the view that section 54F of the Act period of three years after that date to construct,
only talks about deposit within the prescribed one residential house in India. As per the facts,
time period. Even on the plain reading of Sub- the assessee has duly acquired a new house
section (2) of Section 54 of the Income-tax Act, property within 2 years from the date of the
1961, it is clear that only Section 139 of the original transfer of flat and has accordingly
Income-tax Act, 1961, is mentioned in Section rightly claimed deduction us/ 54 of theAct. The
54(2) in the context that the unutilised portion entitlement of exemption under Section 54
of the capital gain on the sale of property used relates to the cost of acquisition of a new estate
for residence should be deposited before the in the nature of a house property for the purpose
date of furnishing the return of the Income-tax of his own residence within the specified
under Section 139 of the Income-tax Act. In period. If the assessee fulfils the condition for
our view, section 139 of the Income-tax Act, exemption u/s.54 within the extended time of
1961, cannot be meant only Section 139(1), filing of return u/s. 139(4) of the Act, the
but it means all sub-sections of Section 139 of assessee is entitled to exemption u/s.54 of the
the Income-tax Act, 1961. The provisions of Act. Accordingly, the assessee is entitled
section 54 are beneficial provisions and are to deduction u/s 54 of the Act for utilization of
be construed liberally as has been held by the sale consideration for investment in new
Coordinate Bench of ITAT, Chennai in the case residential property within due date as
of ACIT v. Smt. Umayal Annamalai, I.T.A. stipulated u/s. 139 of the Act. As already held
No.415/Mds/2015 &. C.O.No.43/Mds/2015 that Section 139 of the Act cannot be meant
ITA No.415/Mds/2015. The Hon’ble High only section 139(1), but it means all sub-
Court of Punjab and Haryana in the case of the sections of section 139 of the Act. Thus, under
CIT v. Shri Jagtar Singh Chawla [2013] 33 su-section (4) of section 139 of the Income-tax
taxmann.com 38/215 Taxman 154 held that Act any person who has not furnished a return
‘Sec 54F -Deposit in capital gains account within the time allowed to him under sub-
scheme by sec 139(4) is the correct due date’.
Further, in the case of CIT v. Rajesh Kumar
Jalan [2006] 157 Taxman 398/286 ITR 274

Ahmedabad Chartered Accountants Journal May, 2022 101

section (1) of section 142 may furnish the return Judicial Analysis
for any previous year at any time before the
expiry of one year from the end of the relevant finding of Hon’ble Punjab and Haryana
assessment year or before the completion of High Court in the case of Jagriti Aggarwal
the assessment year whichever is earlier. Since (supra) has held that “sub-section (4) of
the assessee has fulfilled the requirement under section 139 is in fact, a proviso to sub-section
section 54 of the Income-tax Act for exemption (1) and provides for extension of period of
of the capital gain, therefore the assessee is due date for filing the return in certain
entitled for the same. circumstances and, therefore, exemption
under section 54 was allowable where the
7 Smt. Harminder Kaur v. ITO [2021] 126 assessee had purchased new property before
taxmann.com 160 (Delhi - Trib.) the extended due date of filing of return as
per section 139(4) and filed return within
11.2.1 For the purpose of above section, the due such extended time.” The relevant finding
date for deposit under the capital gain has of the Hon’ble High Court is reproduced as
been held as due date of filing of return under:
under section 139(4) Act in the case of
Shankar Lal Saini (supra). The relevant “5. It maybe noticed that the assessee sold
finding of the Hon’ble High Court of her residential house on 13th Jan., 2006
Rajasthan is reproduced as under: for a sum of Rs. 45 lakhs and purchased
another property jointly with Mr. D.P.
“19. The contention of Mr. Singhi that under Azad, her father-in-law on 2nd Jan.,
section 139, investment is to be made 2007 for a consideration of Rs. 95
before the return is filed otherwise it lakhs. The due date of filing of return
will render the provision nugatory is as per section 139(1) of the Act was
to be considered in the light that while 31st July, 2006, but the assessee filed
considering the case, Karnataka High her return on 28th March, 2007 and that
Court in para nos. 6 & 7 (supra) has extended due date of filing of return as
considered the provisions and per section 139(4) is 31st March, 2007.
interpreted the same. Even the same is
accepted by the Punjab and Haryana 6. Sec. 54 of the Act contemplates that
High Court and Gauhati High Court the capital gain arises from the transfer
which has taken the view contrary to of a long-term capital asset, but if the
Kerala High Court decision. assessee within a period of one year
before or two years after the date on
20. In that view of the matter, three High which the transfer took place purchases
Courts have taken the view and the residential house, then instead of the
Tribunal has followed the Karnataka capital gain, the income would be
High Court which has followed the charged in terms of provisions of sub-
earlier Gauhati judgment which has section (1) of section 54. As per sub-
been independently supported by the section (2), if the amount of capital
Punjab of Harayana High Court.” gains is not appropriated by the
assessee towards the purchase of new
11.2.2 In the above decision, Hon’ble High Court asset within one year before the date
of Rajasthan has relied on the decision of on which the transfer of the original
the Hon’ble Karnataka High Court in the asset took place, or which is not utilized
case of Fatima Bai (supra), Hon’ble Punjab by him for the purchase or construction
and Haryana High Court in the case of of the new asset before the date of
Jagtar Singh Chawla (supra) and Jagriti furnishing the return of income under
Aggarwal’s case (supra). The relevant section 139, the amount shall be

102 Ahmedabad Chartered Accountants Journal May, 2022

Judicial Analysis filing the returns for different assessees.
In the case of assessee as the
deposited by him before furnishing respondent, it is 31st day of July of the
such return not later than due date assessment year in terms of cl. (c) of
applicable in the case of assessee for the Expln. 2 to sub-section (1) of
furnishing the return of income under section 139 of the Act, whereas sub-
sub-section (1) of section 139 in an section (4) of section 139 provides for
account in any such bank or institution extension in period of due date in
as maybe specified. Relevant sub- certain circumstances. It reads as
section (2) of section 54 of the Act under:
reads as under :
xxx…
xxx…
13. In view of the above, we find that due
7. The question which arises is; whether date for furnishing the return of income
the return filed by the assessee before as per s. 139(1) of the Act is subject to
the expiry of the year ending with the the extended period provided under
assessment year is valid under section sub-section (4) of section 139 of the
139(4) of the Act ? Act.”

8. Learned counsel for the Revenue has xxx…
argued that the assessee was required
to file return under sub-section (1) of 12. In the result, the appeal of the assessee is
s. 139 of the Act in terms of sub-section allowed.
(2) of section 54 of the Act. It is
contended that sub-section (4) is not 8 ITO v. Smt. Rekha Shetty [2020] 118
applicable in respect of the assessee so taxmann.com 10 (Chennai - Trib.)
as to avoid payment of long-term
capital gain. 5. We heard the rival submissions and perused
the materials available on record. The facts
9. On the other hand, learned counsel for narrated in para-2 of this order, supra, are not
the respondent relies upon a Division disputed. Therefore, the issue in this case is
Bench judgment of Karnataka High whether the assessee is entitled for the benefit
Court in Fathima Bai v. ITO [2009] of deduction under section 54 in respect of the
32 DTR (Kar.) 243 where in somewhat disputed sum, when she has utilized such sum
similar circumstances, it has been held towards purchase of the new house on 26-8-
that time-limit for deposit under scheme 2016 and thus complied with the provisions of
or utilisation can be made before the section 54(1), even though the said sum was
due date for filing of return under not deposited in the capital gains account
section 139(4) of the Act. Learned scheme as required under section 54(2). The
counsel for the respondent also relies same issue arose before the Hon’ble
upon a Division Bench judgment of jurisdictional High Court in the case of Venkata
Gauhati High Court in CIT v. Rajesh Dilip Kumar v. CIT [2019] 419 ITR 298
Kumar Jalan [2006] 206 CTR (Gau.) (Mad.), the relevant portion of the decision is
361 : [2006] 286 ITR 274 (Gau.) extracted as under :

10. Having heard learned counsel for the “14. While the compliance of requirement
parties, we are of the opinion that sub- under section 54(1) is mandatory and if
section (4) of Section 139 of the Act complied, has to be construed as
is, in fact, a proviso to sub section (1) substantial compliance to grant the benefit
of section 139 of the Act. sec. 139 of of deduction, the compliance of
the Act fixes the different dates for

Ahmedabad Chartered Accountants Journal May, 2022 103

Judicial Analysis

requirement under section 54(2) could be [2018] SCC Online SC 747 in support of
treated only as directory in nature. If the her contention that exemption notification
assessee with the material details and should be interpreted strictly and the
particulars satisfies that the amount for burden of proof of its applicability would
which deduction is sought for under be on the assessee. I have already pointed
section 54 is utilised either for purchasing out that the assessee, in this case, has
or constructing the residential house in claimed that it has utilised the disputed
India within the time prescribed under sum towards the cost of the additional
section 54(1), the deduction is bound to construction within the period of three
be granted without reference to section years from the date of the transfer and
54(2), which compliance in my therefore, if such contention is factually
considered view, would come into correct, it is to be held that the assessee
operation only in the event of failure on has satisfied the mandatory requirement
the part of the assessee to comply with under section 54(1) to get deduction.
the requirement under section 54(1). Mere Therefore, I find that the above decision
non-compliance of a procedural relied on by the Revenue is not helping
requirement under section 54(2) itself the case of the respondents under the facts
cannot stand in the way of the assessee in and circumstances of the present case.
getting the benefit under section 54, if he
is, otherwise, in a position to satisfy that 17. The claim of the assessee for deduction of
the mandatory requirement under section the disputed sum towards the additional
54(1) is fully complied with within the construction cost was rejected only on the
time limit prescribed therein. ground that the said sum was not
deposited in the capital gains account. In
15. At this juncture, the Division Bench view of my findings rendered supra, the
decision of the Karnataka High Court Revenue is not justified in making such
made in I. T. A. No. 47 of 2014 in the objection. On the other hand, it has to
case of CIT v. K. Ramachandra Rao is verify as to whether the said sum was
relevant to be quoted, wherein while utilised by the petitioner within the time
considering the scope of section 54F(1) stipulated under section 54(1) for the
to 54F(4) of the Income-tax Act, it has purpose of construction. If it is found that
been observed as fo lows : such utilisation was made within such
time, the Revenue is bound to grant
“If the intention is not to retain cash but deduction.”
to invest in construction or any purchase
of the property and if such investment is From the above, it is clear that for seeking
made within the period stipulated therein, benefit of deduction under section 54 of the
then section 54F(4) is not at all attracted Act, the assessee should have substantially
and therefore, the contention that the complied with section 54(1). In this case, the
assessee has not deposited the amount in assessee should have purchased the residential
the bank account as stipulated and house within two years from 19-10-2015, ie
therefore, he is not entitled to the benefit the date of transfer. She has utilized such sum
even though he has invested the money towards purchase of the new house on 26-8-
in construction is also not correct.” 2016 itself. Further, she had explained the
reasons for not-depositing the amount in
16. Learned counsel for the Revenue relied Capital Gains Accounts Scheme which is also
on the decision of the Supreme Court in not disputed. Since the assessee has
Commissioner of Customs v. Dilip Kumar substantially complied with section 54(1),
and Co. [2018] 6 GSTR-OL 46 (SC)/

104 Ahmedabad Chartered Accountants Journal May, 2022

Judicial Analysis of Rs. 9,00,000/- to the seller of the property
on 31-7-2012. These facts are also corroborated
therefore, a mere non-compliance of a by the sale deed wherein out of the total
procedural requirement under section 54(2) consideration of Rs. 1,13,00,000, an amount
itself cannot stand in the way of the assessee in of Rs. 27,00,000/- has been paid through
getting the benefit under section 54. Therefore, cheques drawn on the Canara Bank out of
we do not find any reason to interfere with the maturity proceeds of FDRs maintained under
order of the learned CIT (A). The Grounds the capital gains account scheme. We, therefore,
raised in the appeal of the Revenue stand find that the whole of the sale consideration
dismissed. has been deposited in the capital gains account
scheme and has been utilized in purchase of
9 Renu Jain v. ITO [2020] 121 another property and has not been used for any
taxmann.com 222 (Jaipur - Trib.) other purposes. In terms of time frame of
depositing in capital gains account scheme, as
10. We have considered the rival submissions and we have noted above, the deposits were made
perused the material available on record. From on 3-12-2011 and thereafter, the assessee has
perusal of the reasons recorded by the filed her return of income on 14-12-2011 within
Assessing Officer before issuance of notice U/ time limit prescribed under section 139(4) of
s. 148 of the Act, the undisputed facts which the Act wherein she has made the claim u/s.
are emerging that the assessee sold a plot of 54F of the Act and therefore, the question arises
land on 10-1-2011 for a consideration of Rs. as to whether the same is in compliance with
22,50,000/- and the said amount was deposited the provisions of section 54F(4) of the Act. We
in FDRs maintained with ICICI Bank on 21- find that the said issue has arisen for
1-2011. The FDRs were encashed and the consideration before the Hon’ble Jurisdictional
maturity proceeds of Rs. 23,66,223/- so High Court in case of Shankar Lal Saini (supra)
received were deposited in Canara Bank on 3- wherein the substantial question of law framed
12-2011. On the same day, out of the maturity for consideration was as under:
proceeds of FDRs, the assessee has made fresh
deposits of FDRs of Rs. 22,50,000/- and this xxx…
time, these FDRs were maintained with Canara
Bank under the capital gain account scheme. In the instant case, where the amount was deposited
These facts are also corroborated by the bank in capital gain accounts scheme before filing of
statement of the assessee appearing at APB return U/s. 139(4) of the Act, respectfully following
page 66 and certificate issued by the Canara the decision of Hon’ble Rajasthan High (supra),
Bank dated 27-10-2015 available at APB page the same be eligible for deduction U/s. 54F of the
89. Thereafter on 21-5-2012, three FDRs Act. In the result, the matter is decided in favour of
matured/encashed and amount credited in the assessee and against the Revenue and the sole
assessee’s bank with maturity value Rs. ground of appeal is allowed.
15,32,232/-and on the very next date i.e, 22-5-
2012, the said maturity proceeds were utilized ❉❉❉
for making payment of Rs. 18,00,000 to Shir
Arvind Kumar Khurana, the person from
whom the assessee has purchased a property.
Thereafter the remaining FDRs matured on 25-
7-2012 with matured value of Rs. 8,95,788/-
which was utilized for making further payment

Ahmedabad Chartered Accountants Journal May, 2022 105

Update on Recent Case
Laws – International
Taxation

CA. Dhinal A. Shah CA. Karan Sukhramani

[email protected] [email protected]

GRI Renewable Industries SL vs. ACIT (ITA perusal of opening part of the protocol, it is clear
No: 202/Pun/2021) (Pune ITAT) that protocol has been treated as ‘integral part of
the convention’ and accordingly, once the
Facts DTAA between India and Spain was notified
on 21-04-1995, the Protocol, which is an integral
· Assessee is a foreign company incorporated in part of the Agreement also got automatically
Spain. During the relevant year, Assessee notified along with the Agreement.
received certain amounts from an Indian
company towards providing technical support, · CBDT Circular No.3/2022 dated 03-02-2022
financial support and advice, legal support, mandates issuing separate notification for
commercial support, SAP software and importing of benefits of a treaty with second State
implementation of process model etc. into the treaty with the first State by relying on
section 90(1) of the Income Tax Act, 1961
· Assessee declared the receipts as fees for (‘Act’). This condition of Circular is contrary to
technical services and royalty in terms of Article section 90(1) of the Act read with DTAA, which
13 of the India-Spain double tax avoidance treats protocol as an integral part of the DTAA.
agreement (DTAA / tax treaty).
· Circular issued by CBDT is binding on AO and
· Further, relying upon most favoured nation not on the assessee. Circular prescribing
(‘MFN’) clause in India-Spain tax treaty read additional stipulation that creates disability
with Article 12 of India-Portugal tax treaty, cannot operate retrospectively to transactions
assessee claimed taxation of aforesaid receipts taking place in any period anterior to its issuance.
at 10% as against 20% provided in India-Spain
ta treaty. · Once the DTAA is notified, all its integral parts
get automatically notified. Accordingly, there is
· Assessing Officer rejected the assessee’s claim no need to separately notify the individual limbs
on the ground that the import of MFN clause of the DTAA again to make them operational
from the India-Portuguese DTAA was not one by one.
notified by Central Board of Direct Taxes
(‘CBDT’) in terms of CBDT Circular No.3/ · Accordingly, the authorities are not justified in
2022 dated 03-02-2022 and hence the protocol denying the benefit of the straight rate of tax @
under the DTAA between India and Spain 10% as per the DTAA between India-Spain read
would have no application. with Portuguese DTAA.

Ruling MOL Corporation vs. DCIT – (IT Appeal No.
1554 of 2016) (Delhi ITAT)
· India entered DTAA with Portuguese (a member
of OECD Country) vide notification dated 16- Facts
06-2000. Article 12 of India-Portuguese DTAA
provides a tax rate of 10% for FTS and royalty. · Assessee is US based entity and a part of the
Microsoft group. During the relevant year,
· India-Spain DTAA was signed on 08-02-1993 assessee received consideration of INR
and same was notified on 21-04- 1995. On

106 Ahmedabad Chartered Accountants Journal May, 2022

Update on Recent Case Laws – International Taxation

3,373,74,00,209/- as revenue from licensing of providing any copy of the said software to the
MS Software products and revenue of INR customer. The assessee’s cloud base services are
11,35,98,751/- as revenue from online services though based on patents / copyright but the
termed as “Cloud Services”. subscriber does not get any right of reproduction.
The services are provided online via data centre
· The Assessing Officer (AO) considered the located outside India.
nature of income arising to the assessee on
account of the licensing of software and · The Cloud services merely facilitate the flow of
distinguished the judgment of Hon’ble Delhi user data from the front end users through
High Court in Infrasoft Ltd (2014) 220 Taxman internet to the provider’s system and back. The
273. ld. AO has fallen in error in interpreting it as
licensing of the right to use the above Cloud
· Further, AO had considered the receipts from Computing Infrastructure and Software.
Cloud Services as user based on royalty
observing that the Microsoft online subscription · Reliance is placed upon decision of Hon’ble
agreement mentions that the software underlying Delhi ITAT in case of M/s. Salesforce.com
the service in each kind of model i.e. PAAS / Singapore Pte. v. Dy. D.I.T. Circle-2(2) ITA No.
SAAS / IAAS is license to the customer and 4915/DEL/2016, Mumbai ITAT in case of
not sold. DDIT v. Savvis Communication Corporation
[2016] 69 taxmann.com 106, Chennai ITAT in
· The software is protected by patent, copyright the case of ACIT v. Vishwak Solutions Pvt. Ltd
and trade mark protections, therefore the AO ITA No. 1935 & 1936/MDS/2010, Mumbai
held the payments made by the users as the ITAT in case of Rackspace, Us IncI.T. A
consideration for the use or the right to use of Nos.6195 & 4920/Mum/2018
such patents, Software and Cloud Infrastructure
covering them in the definition of royalty both · As regards sale of software products, Hon’ble
by clause 9 (1)(vi) Explanation 2 sub-clause (iii) ITAT held that it does not give rise to royalty
and (v) of the Income Tax Act, 1961 (‘Act’) and income in the hands of assess seem in view of
also Article 12 (3) of the India USDTAA. decision of Hon’ble Delhi High Court in
Infrasoft Ltd., (supra) which has now further
Ruling been affirmed by the Hon’ble Supreme Court
of India in the case of Engineering Analysis
· The subscription fee for cloud services is not Centre of Excellence P. Ltd. (2021) 125
royalty but merely a consideration for online taxmann.com 42.
access of the cloud computing services for
process and storage of data to run the ❉❉❉
applications.

· Cloud base services do not involve any transfer
of rights to the customers in any process. The
grant of right to install and use the software
included with the subscription does not include

Ahmedabad Chartered Accountants Journal May, 2022 107

FEMA CA. Savan Godiawala
Updates [email protected]

3 Processing and settlement of small value payment for goods purchased on e- commerce
Export and Import related payments platform shall be in terms of extant guidelines under
facilitated by Online Export-Import FEMA, 1999.
Facilitators (OEIF) (erstwhile OPGSP)
Online Export-Import Facilitators (OEIF) earlier
The Reserve Bank of India (RBI) placed on its referred to as Online Payment Gateway Service
website draft guidelines on ‘Processing and Providers (OPGSPs) are Payment Aggregator (PA)
Settlement of small value Export and Import related or Payment Gateway (PG) that facilitate on-line
payments’ facilitated by Online Export-Import remittances for small value export and import of
Facilitators (OEIF) (erstwhile OPGSP). goods and digital products through e-commerce
taking place in compliance with instructions given
With development in the ecosystem for e-commerce in this circular. OEIFs may act as Payment
and the feedback received from banks and other Aggregator (PA) or Payment Gateway, or both, as
stakeholders, on a comprehensive review, the extant the case may be, in their contract with AD bank.
guidelines were modified to further simplify and
rationalise the process for settlement of payment Payment Aggregator (PA) or Payment Gateway
for export and import through e-commerce. (PG) are entities as defined in Department of
Payment and Settlement System (DPSS) circulars
The facility of processing and settlement of import dated March 17, 2020 and March 31, 2021 on
and export related remittances by entering standing “Guidelines on Regulation of Payment Aggregators
contract with Online Payment Gateway Service and Payment Gateways” issued under Payment and
Providers (OPGSPs) in respect of export of goods Settlement Systems Act, 2007 (Act 51 of 2007). In
and services as well as import of goods and software case of export transactions, the OEIF shall be acting
is presently governed by the provisions contained as Payment Gateways and for import transactions
in A.P. (DIR) Series Circular No. 17 dated it shall be acting as Payment Aggregators in terms
November 16, 2010, A.P. (DIR) Series Circular No. of the extant guidelines issued by DPSS. Import
109 dated June 11, 2013 read with A.P. (DIR) Series Collection Account is an account opened by an
Circular No.16 dated September 24, 2015. OEIF with an AD bank in India, for collection of
payments for imports as an internal account of the
4 Excerpts of highlights from the revised AD bank. Export Collection Account is an account
guidelines: opened by an OEIF with an AD bank in India, for
receipt of payments for exports as an internal
E-commerce means buying and selling of goods account of the AD bank.
and services, including digital products, conducted
over digital and electronic network. For the The facility shall be available for online import of
purposes of Merchandise Exports from India goods and digital products (as permitted in the
Scheme (MEIS) e – commerce shall mean the extant Foreign Trade Policy) of value not exceeding
export of goods hosted on a website accessible USD 3,000 (US Dollar Three Thousand) only.
through the internet to a purchaser. While the Collection of payment from importer in India shall
dispatch of goods shall be made through courier or only be through online payment mode using credit
postal mode, as specified under the MEIS, the

108 Ahmedabad Chartered Accountants Journal May, 2022

card, debit card, UPI, net banking or any other FEMA Updates
online payment methods as specified in Foreign
Exchange Management (Manner of Receipt and Exchange Department, Central Office, RBI,
Payment) Regulations, 2016 issued vide FEMA Mumbai, the details of each contract entered into
14(R)/2016-RB dated May 02, 2016 as amended with OEIF as and when entered into, in the manner
from time to time. Payment from importer in India as may be prescribed from time to time.
shall be received in the nodal account of OEIF. It shall be incumbent upon the OEIF to obtain
From the Nodal account of the OEIF, the funds authorization from DPSS, RBI, if it is functioning
shall flow into Import Collection Account of the as Payment Aggregator; have a well-documented
OEIF with AD bank in India on near real time basis policy/agreement disclosing the duties/
through a Straight Through Processing (STP) responsibilities and rights of various stakeholders
mechanism and must be completed on End-of-Day involved in the contract; a copy may be shared
basis. through the AD bank with RBI, have a policy in
place for resolution of payment related disputes and
The facility shall only be available for export of complaints with specified timelines.
goods and digital products (as permitted in the AD Category-I banks may bring the contents of
prevalent Foreign Trade Policy) of value not this circular to the notice of their constituents and
exceeding USD 15,000 (US Dollar Fifteen customers concerned. The directions contained in
thousand) only. AD banks providing such facilities this circular have been issued under Section 10(4)
shall open a Nostro Account or use their existing and Section 11(1) of the Foreign Exchange
Nostro account for receipt of the export related Management Act (FEMA), 1999 (42 of 1999) and
payments through such contract. The time taken to are without prejudice to permission/approvals, if
credit the payment in the Nostro account of the AD any, required under any other law.
bank once it is received from the overseas buyer Source:Press Release: 2022-2023/32, dated April
shall be as per the agreement between the exporter 7, 2022
in India and OEIF. For full text refer:https://rbi.org.in/scripts/
FS_PressRelease.aspx?prid=53530&fn=5
The AD bank of OEIF shall, inter alia, carry out
the due diligence on each OEIF and ensure that ❉❉❉
KYC/AML/CFT norms are adhered to and provide
any information/documentary evidence in this
regard as and when called for any regulatory
compliance, and maintain separate Export and
Import Collection accounts in India for each OEIF,
in case the OEIF is facilitating both export and
import transactions. Report to the Foreign

Ahmedabad Chartered Accountants Journal May, 2022 109

GST and VAT CA. Bihari B. Shah CA. Vishrut R. Shah
Judgments [email protected] [email protected]
and Updates
bogus billing. Therefore, cancelling the
[I] Important Case Laws: (High Court) registration on the ground of vague SCN was
not sustainable and such cancellation order was
[1] Issue: liable to ne set aside.

SCN of cancellation of registration for bogus [2] Issue:
billing without any information is not
sustainable: HC: HC directed Competent Authority to
deposit amount of refund directly in bank
Case Laws: account of assessee.

Vageesh Umesh Jaiswal v. State of Gujarat Case Laws:
[2022] 136 taxmann.com 392 (Guj)
Hardik Textiles v. State of Gujarat [2022]
Facts: 136 taxmann.com 397 (Guj)

The Petitioner was engaged in the business of Facts:
trading of Aluminium round bars, steel tubes,
pipes etc. The show cause notice (SCN) was The Petitioner was engaged in the business of
issued on the petitioner seeking reason as to manufacturing. It appointed a GST Consultant
why registration should not be cancelled on Chartered Accountant who filed the GST
account of bogus billing. In the reply to the refund application in Form GST RFD-01. The
SCN, the petitioner brought to the notice of the Competent Authority issued the payment order
Commercial Tax Officer that the show cause in RFD-05 but amount was not credited in the
notice was as vague as anything as no details petitioner’s account. This was when brought
of the name of the supplier etc. had been to the notice of the consultant, he had checked
furnished. The order was issued for cancellation the details from the online portal and realized
of registration along with demand. It filed writ that mistakenly he had given the bank account
petition against the same. details of another client. Thereafter, the request
made for finding out the solution and providing
Held: the guidance had not been responded to and it
field petition before the High Court.
The Hon’ble High Court observed that SCNs
have great significance in adjudication Held:
proceedings as they ensure compliance of
principles of natural justice. A SCN should not The Hon’ble High Court observed that due to
be issued on assumptions and presumptions and the mistake of the consultant engaged by the
allegations and findings in SCN must be petitioner, the amount had been deposited in
supported by some documentary evidences. In the wrong account. However, the amount which
the instant case, when there were allegations had gone to the wrong account had been
of bogus billing, it was expected of the authority refunded by way of DRC-03 under section
to at least furnish some information about such

110 Ahmedabad Chartered Accountants Journal May, 2022

73(5) by way of voluntary payment. Since, it GST and VAT - Judgements and Updates
was not a fault of petitioner, it should not be
deprived of amount of refund and the refund [4] Issue:
amount should be credited in bank account of
petitioner. Thus, the Competent Authority was Mere undervaluation of goods is not
directed to deposit amount of refund directly sufficient ground to detain goods or vehicle:
in bank account of petitioner. HC :

[3] Issue: Case Laws:

Stock of goods, demat and current accounts Karnataka Traders v. State of Gujarat
necessary for running of business can’t [2022] 137 taxmann.com 18 (Guj.).
provisionally attached: HC :
Facts:
Case Laws:
The Petitioner was a registered dealer under
Arya Metacast (P) Ltd. v. State if Gujarat the GST. It sent a consignment of goods which
[2022] 137 taxmann.com 173 (Guj.) was intercepted by the department while it was
travelling to different direction than direction
Facts: of destination. The department issued Form
GST MOV-02 to conduct physical verification/
The search was conducted by the department Inspection of the conveyance, goods and
in the premises of petitioner. The order of documents. No discrepancy was noted by the
provisional attachment of various properties, proper officer with regard to the description of
demat accounts, current account, stock of goods the goods as per invoice and conveyance nor
etc. was passed after conducting search on the any anomaly found with regard to quantity as
ground that petitioner was engaged in bogus per invoice and physical verification undertaken
billing by entering into purchase transactions by the concerned officer. The only discrepancy
with 15 fictitious firms. It filed writ petition found was that there was undervaluation of
challenging the order of the provisional goods and goods were confiscated. It filed
attachment. petition against the same.

Held: Held:

The Hon’ble High Court observed that the The Hon’ble High Court observed that mere
action of provisional attachment should not change of route without anything more would
hamper normal business activities. However, not necessary be sufficient to draw an inference
in the instant case, the departmental authority that the intention was to evade tax. It was also
not only attached stock of goods but also demat noted that mere undervaluation of goods also
and current accounts which would be valuable by itself was not sufficient to detain goods and
assets necessary for running of the business. vehicle as it is a settled legal position that
Therefore, the impugned order of provisional undervaluation cannot be a ground for seizure
attachment qua stock of goods, two demat of goods in transit by the inspecting authority.
accounts as well as current account was liable Therefore, it was held that confiscation
to be quashed and set aside. Also the mobile proceedings were liable to be quashed.
phone and laptop were directed to be released
subject to undertaking that they would be [II] Important Case Laws: (AAR):
retained in original form.
[1] Issue:

Services supplied to State Government
under ‘Noon Meal Scheme’ are exempt
under GST : AAR:

Ahmedabad Chartered Accountants Journal May, 2022 111

GST and VAT - Judgements and Updates Held:

Case Laws: The Authority for Advance Ruling observed
that the services provided under gamut of
Handloom Weavers Co-operative Society handling by the applicant in respect of free
Ltd. In re [2022] 136 taxmann.com 395 distribution of sarees and dhotis and the school
(AAR - Tamilnadu) uniform to the students of Class 1 to 8 under
‘Noon Meal Scheme’ are activities in relation
Facts: to the functions entrusted to Panchayats/
Municipality in the article 243G/243W. Since
The appellant was appointed and acting as the applicant would supply these services to
nodal agency to inspect, procure, store and the State Government, the exemption at Sl. No.
transport cost free distribution of dhotis, sarees 3 of Notification No. 12/2017-C.T. (Rate)
and school uniforms under various welfare dated 28.6.2017 would be available and thus
schemes for State Government. It filed an no GST would be levied.
application for advance ruling to determine
whether services provided to State Government ❉❉❉
under ‘Noon Meal Scheme’ run by State
Government would be eligible for exemption.

Continued from page 94 Unreported Judgments

of Executive Engineer cannot be relied upon between the municipal limit and the agricultural
for determining the distance. However, they land is to be measured having regard to the
have also held that the Learned C.I.T. (Appeals) shortest road distance. The Tribunal further held
should have given opportunity to the assessee that since the present appeal relates to earlier
to rebut the evidence being used against him assessment years, the entire issue is restored to
and he should have also considered the evidence the file of the C.I.T. (Appeals) to decide afresh
placed by the assessee on record i.e. report of with the above directions, and thus, the
“Talati cum Mantri” regarding certificate of assessee’s appeal was allowed for statistical
distance. purpose.
8. The remaining issues are not discussed here.
7. The Tribunal also took notice of the C.B.D.T.
Circular No.17/2015 dated 06.10.2015, ❉❉❉
wherein for the Asst. Years 2014-15 and
subsequent years, the C.B.D.T. accepted the
position laid down by Nagpur Bench of the
Hon. Bombay High Court that the distance

112 Ahmedabad Chartered Accountants Journal May, 2022